US recession?

[d_rawk]

Seriously, shorting cocoa?

[Biggest Fan]

schwa. welcome it seems to often that d_j and I are often putting everyone else to sleep (which we might). Funny thing is I have no money but I love 'talking' about it.

[Biggest Fan]

I know this is not a completet 'truth' but it seems when oil goes up the markets go down. To add to the problem the failure of Detroit to have 'fuel economy' models in the pipe line. Who is in charge over there???

[d_rawk]

I know this is not a completet 'truth' but it seems when oil goes up the markets go down

Yeah, the response seems to be almost Pavlovian, in the US markets at least. In Canada we're so heavily weighted towards energy that the indexes have been hitting new all time highs this year on the high oil and gas costs, and a lot of US money has been seeking refuge here, from what I understand.

To add to the problem the failure of Detroit to have 'fuel economy' models in the pipe line. Who is in charge over there

They sure did get caught with their pants down!

[d_rawk]

Greens & Mining

Can mining make a greener world?

DAVID ZGODZINSKI, Freelance

Published: Thursday, June 19

Clashes between environmental lobby groups and international mining companies especially over global warming could soon be history. The attraction is not apparent to many of them yet, but miners and tree-huggers will likely find each other increasingly good looking if the party heats up.

Most environmentalists agree that the overriding environmental imperative, trumping other concerns, is to reduce greenhouse gas emissions. But converting from a hydrocarbon burning society to one that runs on cleanly generated electricity will not be simple or painless. And the switch will demand metals - lots of metals. Those metals have to be mined.

According to a study by British merchant bankers, the Fortis Group, over 1,000 tonnes of silver will be used in 2008 to manufacture solar panels. That's twice the amount of silver that was used in 2002 by the solar industry.

Silver is the most conductive of metals and that quality makes it a necessary element in solar equipment. More and more silver will be mined for the solar energy ramp up in coming years.

Robert Friedland, the executive chairman of Ivanhoe Mines likes to point out that hybrid cars require twice the amount of copper as regular gas guzzlers. Friedland's company is sitting on a mountain of copper at Oyu Tolgoi in Mongolia, and the significance of this increasing use of copper in vehicles isn't lost on him. Open pits will be blasted to provide copper for greener cars.

Current hybrid models also use an estimated 14 to 20 kilograms of nickel per vehicle in nickel-hydride batteries and electronic systems. While two-thirds of the world's nickel production is now used in stainless steel, the popularity of hybrid cars has helped to boost the overall demand for nickel and the also the bottom line for companies like CVRD and Xstrata.

Non-hybrid vehicles also use metals to help keep the air clean. The principal demand for platinum is not in fancy jewelry, but in pollution control. One third of platinum mined every year goes into the catalytic converters that control emissions from cars and trucks.

Wind turbines and smart electricity grids need metals. Electric vehicles, advanced batteries, and solar arrays need metals. Metals are integral to the effort to reduce greenhouse gases.

Eventually, environmentalists will be forced to reconcile the need for metals with the concerns they have about mining. The realization that metals are cool when it comes to cutting carbon could eventually win over their hearts.

Patrick Moore was a co-founder of Greenpeace and the group's leader for a number of years. In 2006, he turned around his attitude about nuclear power 180 degrees. Moore became a spokesman for nuclear energy, sponsored by a lobby group called the Nuclear Energy Institute. He now sees uranium as part of the solution to global warming. The conversion of Moore from anti-nuclear demonstrator to pro-nuclear advocate may be a harbinger of things to come.

Not every environmentalist will have the kind of epiphany Moore must have had. But environmentalists may soften their attitude toward mining companies. Could a new accommodative attitude be reciprocated by the miners?

The mining industry has been too busy fighting environmentalists to embrace them. Mining companies have been engaged in political and public relations combat over issues like chemicals seeping into groundwater, and the destruction of habitats of endangered species.

But mining is an energy intensive business. And lately, problems obtaining a steady supply of electricity have hurt mining in different parts of the globe. In South Africa, Eskom, the power utility, has had to ration electricity to gold and platinum mines. That's a major reason that South African gold production dropped 16.8 per cent in the first quarter of 2008 compared with last year.

Merrill Lynch has upped its forecast price for platinum prices in 2009 to $2,500 U.S.an ounce, largely because of supply constraints due to a reduction in electricity to the South African mines.

On June 3, an explosion at an offshore natural gas installation off Western Australia cut supplies to the region by a third. This translated into electricity outages at several mines. These kinds of disruptions have sent miners hunting for alternatives. In some cases they have started to look at renewable energy - wind and solar power.

The Atacama Desert of northern Chile is home to the biggest copper mines in the world. About one-fifth of the world's copper is mined in this arid, sunny place. In 2004, Argentina reduced gas exports to its neighbour, and Chile has faced a power problem ever since. The Chilean government is now considering the installation of large solar power operations in the Atacama to assure a supply of electricity for the mines.

In July 2007, Barrick Gold submitted a proposal to the Chilean government to build a $40-million wind farm. Located in the Punta Colorado area, the wind farm will have a capacity of 20 megawatts, making it the biggest wind energy project to date in Chile.

Barrick operates a copper mine in Chile and has been fighting environmental lobbyists over a huge project called Pasqua Lama on the Chile-Argentina border, where they hope to move a glacier to mine gold and silver.

Building a wind farm is a way for Barrick to help alleviate electricity problems in Chile, and counter the negative press on Pasqua Lama.

With so much bad blood between these groups in the past, it's hard to envisage a truly smooth relationship developing between miners and environmentalists. But circumstances may force them to co-operate. The more serious a problem becomes, the more pragmatic people get.

David Zgodzinski is a Montreal freelance writer.

Link

[d_rawk]

Saudi to Raise Oil Output 2% in July, Al-Naimi Says (Update1)

By Ayesha Daya and Maher Chmaytelli

June 21 (Bloomberg) -- Saudi Arabia, which convenes a meeting of government and business leaders tomorrow to discuss world energy markets, will raise its oil output by 2 percent in July, the country's oil minister said.

The kingdom will add 200,000 barrels of oil to its daily production next month, taking its total to 9.7 million barrels a day, Ali al-Naimi told reporters in Jeddah, Saudi Arabia today. State-owned Saudi Aramco will soon add 500,000 barrels, or 4.6 percent, to the kingdom's total production capacity with its Khursaniyah field.

The International Energy Agency estimates that world oil use this year will climb 800,000 barrels a day, or 1 percent, as demand increases in emerging markets. Stagnating production from Russia and the North Sea are also contributing to higher prices, which have touched off strikes, riots and accelerating inflation in nations around the world.

Oil doubled in the past year, touching a record $139.89 a barrel on June 16, as investors bought commodities to hedge against a weakening U.S. dollar and concern mounted that demand is growing faster than supply. At least 24 airlines failed this year because of rising costs, while $4 gasoline in the U.S. sparked concern the economy may slip into recession.

Saudi Proposal

A Saudi proposal, to be discussed at the meeting in Jeddah tomorrow, will seek measures against market speculators, Prince Abdulaziz Bin Salman, the kingdom's deputy oil minister, said in an interview published today in the Saudi newspaper Asharq al-Awsat.

``The governments have a role to play in regulating and restructuring the markets so that the speculators are forbidden from actions that caused oil prices to reach the current level,'' bin Salman said.

``We want stable prices on the long term, not high and not low, so that oil demand can grow, Saudi Arabia can increase its production and preserves its revenue on the long run,'' the Saudi deputy oil minister said.

Saudi Arabia will present at the meeting a work document that outlines the reasons for the surge in oil prices, prepared in cooperation with the Organization of Petroleum Exporting Countries and the International Energy Agency, the Saudi official said. ``It will be the only document that will be discussed.''

[d_jango wonders rhetorically just how far 200,000 barrels will go once hurricane season is upon us or tensions with Iran escalate]

[edit: oof! And wouldn't you know it, just as quickly, Shell and Chevron had to leave Nigeria with their tails between their legs due to militant attacks and exploding pipelines. -120,000 barrels (Chevron) -225,000 barrels (Shell) +200,000 barrels (Saudis) = -145,000 barrels difference from last week. So much for the reprieve!]

Edited June 21, 2008 by Guest

[d_rawk]

And one more, 'cause I'm bored and hungover and all sorts of interesting stuff keeps hitting the wire this morning

U.S. Energy Secretary Samuel Bodman said oil prices are hitting record highs because production has not kept pace with increasing demands.

While some have blamed speculators for driving up oil prices, Bodman said he did not believe they are the cause.

Since 2003, he said, global demand for oil has increased because of industry in China, India and the Middle East. But from 2005 to 2007, there was very little increase in supply.

Nations need an additional supply of energy to market, whether that energy is nuclear, coal, fossil fuels, solar or wind power, Bodman said.

But, "we spent 30 years digging ourselves into this hole," he said. "It won't be solved soon."

He said so far he has not seen a "magic bullet" to solve the problem of high oil prices. But Bodman said what he'd like to see is an increase in the oil inventory, saying more inventory and capacity is needed.

Bodman said President Bush is concerned about the price of oil, saying he brings up the subject with the Department of Energy nearly every day. He said he meets several times a week with Bush, and the two discuss the issue as well.

Spare production capacity is a comforting fantasy. There's no shortage of oil, but you'd need to be looking at near $200 a barrel to make it feasible to get it out of the ground. Heck, the US is walking on top of more oil than it could probably ever burn up, but no one is going to be able to touch it at these prices. Welcome to an interesting new world, there are finger sandwiches in the corner.

Fun chart time:

And keep in mind, that is even as technology increases and increases (new frac'ing techniques, horizontal drilling, offshore exploration, shale plays made feasible only by rising costs) and tons more money poured in every year. Discoveries down down down, costs per discovery up up up. And still people think that they are being 'manipulated' or 'taken advantage of' at the pump .. sheesh.

Given 85 million barrels a day current production = 31 billion barrels annually = 310 billion barrels needed each decade in new discoveries - which also need to be affordable/profitable at present prices - just to stay where we are. We are falling seriously short of that amount of discoveries, and demand is growing fast. I'm no mathematician, but ...

( BTW - doesn't that chart look sorta like it is giving us the finger? )

[d_rawk]

10 reasons why the price of crude didn't decline today ...

... even though so many commentators hoped that they would. Obviously, the Congressional pitchforks used by the graduates of the Joseph McCarthy Congressional Witch-Hunting School need to be sharpened.

1. The Saudis telegraphed that they would increase production, before the meeting, so the market discounted it (for the little that it was worth).

2. The Saudi's have always refused to provide hard verifiable data on reserves and production

3. The Sauds's past export performance has not been especially robust compared to their stated production capabilities

4. The Saudi's prior promises about increasing capacity and exports have not lived up to their public pronouncements, so they are not especially credible anyway

5. The amount that the Saudis SAY they will increase production is LESS than the reduction in Nigerian production/exports in the past week (aka it is irrelevant).

6. The Saudis and the rest of OPEC have been saying for many months that the Market was well supplied and more crude is not needed, but now in Q2 when there tends to be reduced demand over Q1, ONLY the Saudis say that their customers are asking for more crude, so they will produce more crude. Their credibility would be reduced by this if it wasn't already so low.

7. If the Saudis wanted lower prices and had spare capacity, they could have offered their oil at a discount to all comers. This would have reduced upwards price pressure since they export more than twice the amount of any other OPEC member, but they probably don't REALLY want to get less money for their oil. On the other hand, like the pandering lynch-mob that have been elected to Congress, the Saudis don't want to be blamed for high prices.

8. The price increases we have seen during Q2 were with overall world demand at a LOWER level than in Q1 and a lower level than is expected in Q3, which starts in about a week. The increase in demand from Q2 to Q3 will be much larger than the 200k bpd production increase by the Saudis.

9. Non-OPEC and OPEC producers alike have no significant ability to sustain yet higher production during the high-demand summer months, so available supply will be rationed by price. Because whether the rabble want to understand it or not, supply and demand is what determined price and when there is a shortage, price rises to ration supply.

10. Because US Energy Secretary Bodman was probably the most truthful person at the Jeddah meeting and he admitted that we have a long-term supply problem that is not going to be solved by witch-hunts, reducing taxes on energy, or a couple of hundred thousand barrels of more production announced in what was a transparent publicity stunt.

[d_rawk]

Washington - As energy prices soar, Congress is under the gun to find a way out for American consumers – or, failing that, someone to blame: Big Oil, speculators, or the other political party.

Oil companies dodged a bullet in the Senate this week, as Republicans blocked an energy bill that would have imposed a windfall profits tax on them and ended billions in tax breaks. But Democrats, who control both the House and Senate, plan to bring the issue up again, even as bipartisan scrutiny shifts to the role of speculators in contributing to sticker shock at the pump.

The Senate bill, which fell nine votes short on a procedural vote, proposed a 25 percent windfall profits tax for companies that made more than 10 percent above a past average. It also would have created an Energy Independence and Security Trust Fund – and used the $17 billion in discontinued Big Oil tax breaks to fund it.

Senate GOP leaders dubbed the legislation a "no energy" bill because it produced no new domestic sources of energy. The White House threatened a veto on grounds that it would reduce oil supply and increase energy costs. It's "exactly the opposite of what the Congress should be doing at a time when consumers are already burdened with record high energy prices," President Bush said in a statement.

Democrats countered that Republicans had obstructed all measures to ease prices for US consumers. Soaring oil industry profits – and CEO salaries – are sparking so much resentment among voters that Republicans may be forced to change their votes as the issue comes up again closer to the November election, they added.

"This idea that we [Democrats] don't want any production is patently incorrect," said Sen. Charles Schumer (D) of New York, flanked by a poster claiming that Republicans are blocking lower energy prices, in a floor speech on Thursday. "We're willing to increase production, but we do not believe that we can drill our way out of this problem.

"The minority [party] is filibustering themselves right out of their seats when three-quarters of Americans demand dramatic change and the minority says no change. That is not a formula of political success," he added.

On the House side, similar partisan fireworks broke out Wednesday in a hearing on oil supply and demand in the Select Energy Independence and Global Warming Committee. Chairman Edward Markey (D) of Massachusetts blasted the "oil president and the Republican Congress" for the rise in oil prices. Republicans blamed Democrats for blocking exploration in the Arctic National Wildlife Refuge in Alaska and the Outer Continental Shelf.

"By consistently opposing more environmentally responsible production of American-made energy – whether it is oil exploration, oil shale, coal to liquids, nuclear, or refinery capacity – ... congressional Democrats have made clear they are just fine with higher gas prices, and they are blocking Republican efforts to lower them," said House Republican leader John Boehner in a statement on Thursday.

But with approval ratings for Congress at near-record lows, pressure is mounting on both sides of the aisle to break partisan gridlock and produce legislation that could help. Dealmakers in the two parties are aiming to break off elements of the failed Senate bill that could muster a majority, especially moves to rein in speculation in the oil market.

"It's absolutely imperative that we demonstrate to the American people that we understand the enormous anxiety, not to mention despair, that they are experiencing given the exorbitant increases in energy prices, both on the oil front and gasoline and diesel," says Sen. Olympia Snowe ® of Maine.

Even before the Senate bill fell to defeat, some Democratic and Republican lawmakers were lining up behind provisions to curb speculation by raising margin requirements for those investing in futures trades and banning traders from using offshore futures markets to evade regulation.

Sen. Richard Durbin, the No. 2 Democratic leader, says he will introduce a bill to strengthen oversight of energy futures trading. The Commodity Futures Trading Commission (CFTC) has announced new initiatives to increase transparency of the energy futures markets.

"The recent dramatic increases in the price of crude oil traded on futures exchanges make these efforts paramount," said the CFTC in a May 29 statement. Democrats plan hearings next week to examine whether the CFTC has the resources to carry out this oversight role.

Recent polls signal that American consumers are also beginning to focus on the role of speculators in higher gasoline prices. "The public is becoming more sophisticated in understanding the complexities of the oil market – it's not just [blame] the greedy oil companies anymore," says Frank Newport, editor in chief of the Gallup Poll in Princeton, N.J.

"Nobody mentioned speculators last year. Now, more sophisticated reasons are sinking into the public's consciousness. That's good news for oil companies, because it diverts attention from them," he adds.

----

I am no longer sure whether I want to yawn or puke. Is the US really this fucking backwards?

WE ARE USING TOO MUCH FUCKING OIL -- call off the witch hunt and address the problem!

Iran can't even sell its oil at deep discounts because there are so few refineries set up for heavy sour crude. We've been eating top sirloin burgers with caviar fixings, when ground chuck and relish would have been fine - and complaining about the price all the way.

Good Lord.

[d_rawk]

Courtesy of Kunstler / Clusterfuck Nation

The telling moment last week was Robert Hirsch's appearance on the CNBC morning "Squawkbox" financial show in which he proposed the probability of $500-a-barrel oil within "a three-to-five-year time-frame." Squawkhead Becky Quick was clearly nonplussed by the stolid Mr. Hirsch, author of a (then)-startling 2005 US Dept of Energy report (since referred to as the Hirsch Report and buried by the Secretary of Energy) that warned of dire effects on the American way of life as the Peak Oil predicament gained traction.

Perhaps more reality-challenged was the uber-idiot Larry Kudlow on CNBC's night-time money show, who kept repeating the mantra "drill, drill drill" when presented with signs that something other than "oil speculators" was driving up the price and creating global scarcity. These idiots always return to the shibboleth that "there's plenty of oil out there." What they don't get is that even while the world is enjoying the all time peak of production (somewhere around 85-million barrels-a-day), that same world is demanding at least 86-million barrels -- so even though there's more oil than ever, there's not enough. And the gap is only bound to get bigger.

The difference between what's available and what's demanded is being felt by poor countries and poor people in richer countries. Third world nations lacking their own oil are simply dropping out of the bidding, and the lower classes in the US are having to choose between buying gasoline and velveeta. The floods in the corn belt will surely aggravate the problem here in the USA. Lunch breaks may soon be a thing of the past for WalMart Associates. Maybe they'll just play video games on their cell phones in the parking lot to allay their hunger.

Meanwhile the notion that drilling drilling drilling offshore the US and up in Alaska will solve this problem shows how incredibly misinformed the news media itself is. The probability is next to zero that anything found off California or Florida would even fractionally offset ongoing depletion in the handful of old, established super-giant fields that the world gets most of it oil from. By the way, I support the idea of drilling in Alaska's ANWAR reserve because I think it can be done in a sanitary way and, more importantly, it would get the idiot cornucopian right-wing assholes to finally shut up about it -- before they discover that it contains less than half a year's oil supply for the US at current rates of use.

Also on the "meanwhile" front, the OPEC meeting Sunday at Jeddah, Saudi Arabia, was simply a desperate dodge, a mummery, a kabuki theater of powerlessness. Once again, the Saudis are pretending that they can increase their production -- in essence, pretending that they actually have some power in the game. As Jeffrey Brown has pointed out on theoildrum.com, the Kingdom will still show a steady three-year decline over their 2005 production rates even if they're able to goose current output as much as they say they will in 2008.

All this reality content is beginning to penetrate the collective consciousness in the US, but the result is mostly panic or paralyzed disbelief rather than any set of intelligent responses. For example, I got a call from one of Katie Couric's producers at CBS news on Friday. Somehow, they had noticed that oil prices were becoming a problem in America. They called me for a comment. The scary part was they were clearly treating the issue as a "lifestyle" story. Did I think more suburbanites would move downtown? And would that be a good thing...? They have no fucking clue how broadly and deeply these dynamics will affect the life of this nation, or even our ability to remain a nation. Also, by the way, this demonstrates how the nightly network news has become the equivalent of the old "women's pages" of the daily newspapers.

The parallel universe of the financial world is showing the strain of all this oil anxiety -- since, after all, oil is the primary resource for running industrial economies. It has been some time since the banker boyz embarked on their fateful venture to alchemize a new mutant strain of investment instruments to replace the tired old stocks and bonds which represented the hope for production of surplus wealth from industrial activity -- now mooted by the oil story. The idea of the mutant investments was to produce wealth with no real wealth-producing activity. This old trick, formerly known as Ponzi finance or a "pyramid scheme," was naturally self-limiting, and in a way that would prove ultimately very destructive to society as a whole. In fact, it has fatally undermined the legitimacy of the entire financial system, and a state of comprehensive nausea has set in as we all witness the dissolving foundation of the US economy under a tsunami of debt that will never be repaid.

The markets seem to know this, the more vocal playerz are squawking more about it, some banks are issuing frightening "duck-and-cover" warnings, using horror movie phrases such as "...worse than the Great Depression of the 1930s..." and the general public is sinking into the quicksand of bankruptcy, repossession, and ruin. I haven't been to any lawn parties in the Hamptons this year, but I imagine that eczematous anxiety rashes are competing with suntans and Versace separates out there this year. Really, we're right back where we were last year about this time, only worse. Oil has doubled, food is outasight, the levees have broken, the people who run things are shitting their pants, and everybody is waiting for a whole lotta other shoes to drop.

[Schwa.]

Seriously, shorting cocoa?

Dozed off there for awhile. I must admit i'm pretty new to the investing thing, but my buddy from work is just waiting for this to correct but it just keeps going up and up and he just keeps on holding on.

Has quite a bit invested too, should make a killing when/if he does it.

[d_rawk]

Ballsy! I hope he does very well!

I'd be far too nervous to go against rising food costs in this environment, especially after just taking a look and seeing that a cocoa deficit is projected at least through 2009. What's his angle?

[d_rawk]

Heard a couple stories recently about people pawning hard assets in order to cover fuel costs because we are in an energy bubble, dontchaknow, and costs will come down in time to reclaim. In the short term, who knows where prices land - wouldn't be surprised to see a correction, wouldn't be surprised to not - but I'd doubt any correction would last long enough for people to work back up the excess capital to repurchase those assets.

The way the media is handling the energy story ought to be criminal, and the popular idea - and false (IMO) comfort that it invites - that we can just sue OPEC or drive speculators out of the market or whatever to get costs back down below $100/barrel is starting to have a real human cost.

For the predatory and opportunistic, there is probably a brisk business to be made buying up gold jewelry from the local pawnbroker.

[Biggest Fan]

'... and now something completely different' oil.

I do not know the logic in this one but 'insiders' in the oil refinery business have been buying up their stock. Leading some to believe that the cost will be coming down. Apparently the refineries (insiders) do not make as much money when the price is this high. I'll have some more numbers in the near future aka found a good link that I'll post later.

Like many politicians I am back tracking on my ideas on drilling. No matter how much the thought bothers me I feel we need to look into it. Not because I want to see the price go down but for the fact that we need to do something with the 60% we import. I believe our foreign policy would be a whole lot different- we and the rest of the world would be a whole lot safer if we did. Alternative energy sources are the way of the future but for the short term the 'internal combustion engine will remain a 'thorn in our sides'.

[d_rawk]

Amen brother. (I don't agree that the US can drill its way out of this problem, if you are going in that direction, but totally agree that increased drilling is warranted and with everything else that you say)

[d_rawk]

Humiliation for Mr. Dollar: Ben Bernanke, faces a general investigation by the International Monetary Fund.http://www.spiegel.de/international/world/0,1518,562291,00.html

The Shrinking Influence of the US Federal Reserve

By Gabor Steingart in Washington

Humiliation

for Mr. Dollar: Ben Bernanke, the chairman of the United States Federal

Reserve Bank, faces a general investigation by the International

Monetary Fund. Just one more example of the Fed losing its power.

The United States Federal Reserve Bank, or Fed, seems as much a part

of America as Coca-Cola or Pizza Hut. But at least one difference has

become apparent in recent days. While the pizza chain and soft-drink

maker are likely to expand their scope of influence in the age of

globalization, the US central bank is finding that its power is

shrinking.

AFP

The US Federal Reserve.

No Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing.

This is partly down to circumstances. Inflation is going up and up,

and this year's average will likely top 4 percent. But this time Mr.

Dollar is also Mr. Powerless. He can raise interest rates in the fall,

or he can pray, which would probably be the better choice. At least

prayer would not prevent the US economy from growing, a highly likely

outcome if interest rates go up.

After years of growth, the United States is now on the brink of a

recession, one that is more likely to be deepened than softened by a

tight money policy. Investments will automatically become more

expensive, consumer spending will be curbed and economic growth will

slow down, immediately affecting unemployment figures and wages.

The textbook conclusion is that this will stabilize the value of money,

because no one will dare demand higher wages or higher prices. But the

macroeconomics textbooks are no longer worth much in the age of

globalization. Modern inflation is driven by the global scarcity of

resources. Nowadays purchasing power exceeds purchasing opportunity.

Most of all, there is not enough oil, and too few raw materials and

food products. These increasingly scarce resources are becoming the

focus of disputes among many people and billions of dollars are at

stake.

This is why the price of a barrel of crude oil (159 liters) has

increased from $25 (€16) in 2002 to $135 (€87) in 2008. And it is also

why the price of corn has tripled in the same time period, while that

of copper has almost quintupled.

If the inflation introduced in the United States is excluded, a

small miracle is revealed, namely something approaching price

stability. Adjusted for inflation, prices are in fact rising by only

2.3 percent. If this were the extent of it, the Fed chief could simply

blink like an old watchdog and go back to sleep. Instead, he is barking

loudly, which is his job. But he has lost his bite, because the Fed's

interest rate policy can do nothing about the scarcity of goods.

AFP

US Federal Reserve chairman Ben Bernanke. The entire US financial system is to come under the scrutiny of the IMF

Embarrassing Investigation

Some of Bernanke's personal adversaries are also contributing

significantly to his current humiliation. In the past, the chairman of

the Federal Reserve was a pope among the priests of the financial

elite. But unlike his predecessor Alan Greenspan, Bernanke is finding

that his policies are not universally accepted, even within the Fed.

The last seven decisions reached by the Federal Open Market

Committee, which sets monetary policy, were accompanied by a growing

number of dissenting votes. Bernanke's critics say that with his policy

of cheap money -- in other words, recurring rate reductions -- he in

fact helped fuel the inflation problem he is now trying to combat.

Another problem for Mr. Dollar is that it will be several months

before his actions take effect. Officials with the International

Monetary Fund (IMF) have informed Bernanke about a plan that would have

been unheard-of in the past: a general examination of the US financial

system. The IMF's board of directors has ruled that a so-called

Financial Sector Assessment Program (FSAP) is to be carried out in the

United States. It is nothing less than an X-ray of the entire US

financial system.

As part of the assessment, the Fed, the Securities and Exchange

Commission (SEC), the major investment banks, mortgage banks and hedge

funds will be asked to hand over confidential documents to the IMF

team. They will be required to answer the questions they are asked

during interviews. Their databases will be subjected to so-called

stress tests -- worst-case scenarios designed to simulate the broader

effects of failures of other major financial institutions or a

continuing decline of the dollar.

Under its bylaws, the IMF is charged with the supervision of the

international monetary system. Roughly two-thirds of IMF members -- but

never the United States -- have already endured this painful procedure.

For seven years, US President George W. Bush refused to allow the

IMF to conduct its assessment. Even now, he has only given the IMF

board his consent under one important condition. The review can begin

in Bush's last year in office, but it may not be completed until he has

left the White House. This is bad news for the Fed chairman.

When the final report on the risks of the US financial system is

released in 2010 -- and it is likely to cause a stir internationally --

only one of the people in positions of responsiblity today will still

be in office: Ben Bernanke.

Translated from the German by Christopher Sultan

[d_rawk]

Easy Target, but Not the Right One

By JOE NOCERA

Published: June 28, 2008

So now we know: it’s all the fault of those damnable speculators. They’re the ones to blame as the price of oil tops $140 a barrel.

It’s not our government’s fault for failing to come up with a credible energy policy — that can’t be it. Nor is the problem the weak dollar, or the voracious energy appetite of the Chinese, or those pesky rebels in Nigeria who are trying to blow up their country’s oil pipelines. And it’s certainly not the fault of you and me for driving gas-guzzling S.U.V.’s. It has to be those speculators. They are the only villains in sight.

This was “first let’s kill all the speculators†week on Capitol Hill, and it was not a pretty sight. On Monday, the House Oversight and Investigations Subcommittee held an eight-hour hearing (!), the sole purpose of which was to decry “excessive speculation.†“Have speculators hijacked trading on the futures exchange?†asked the Michigan Democrat Bart Stupak. His answer throughout the day — as he “grilled†an array of sympathetic academics and futures market critics — was a resounding yes.

On Tuesday, the action moved to the Senate, where the Homeland Security and Governmental Affairs Committee held its hearing. “Speculation in the food and fuel markets is not illegal,†Senator Joe Lieberman of Connecticut conceded, “but that does not mean it is not very hurtful.†He continued: “They are artificially inflating the price of food and oil and causing real suffering for millions and millions of people and businesses.â€

There were yet more hearings on Wednesday, and by Thursday evening, the House had passed, by a wide margin, a bill calling on the Commodity Futures Trading Commission to curtail “excessive speculation.†Indeed, the C.F.T.C spent the week being raked over the coals for allowing all this rampant speculation to take place. On Monday afternoon, for instance, Representative John Dingell of Michigan took unseemly glee in going after Walter L. Lukken, the agency’s chairman.

Jabbing his pencil at Mr. Lukken, Mr. Dingell described the founding of the agency as an effort to prevent farmers and consumers from being “screwed†by “those folks in the futures markets.â€

“Now,†he said, “we find that those good-hearted folks in the futures market have figured out how not just to screw the farmers and the consumers in the city, but they figured out how to screw the farmers and the consumers in the city on a whole new product — oil.†As Mr. Dingell sneered triumphantly, Mr. Lukken seemed to shrivel in his seat.

Yes, it was wonderful theater, and great blood sport. And it had absolutely nothing to do with the price of oil.

•

It’s not just congressmen who are railing about speculators, of course. As oil prices have doubled in the last year, I’ve gotten e-mail messages from readers decrying speculators, who, many believe, are manipulating the futures market. More than once this week, legislators used that same word their constituents were using: “manipulation.â€

So let’s take a closer look at what the speculators’ critics are saying. First, despite the loose use of the word “manipulation,†that is really not what is being alleged here, at least not in the classic sense. Remember how the Hunts tried to corner the silver market? They bought up silver and took it off the market, thereby creating an artificial shortage. I suppose OPEC could do something like that — one could even argue that OPEC does that already — but no mere speculator could.

I can already hear your rejoinder: what about Enron and its famous manipulation of energy prices in California? But remember, Enron was manipulating electricity prices, not oil, which was possible mainly because electricity can’t be stored. By getting power plants to shut down for hours at a time, Enron was able to create artificial shortages and jack up the price.

Instead, the critics’ thesis is that speculators are creating an energy bubble the same way investors created the Internet bubble. As speculative bets on energy have grown drastically in recent years, the sheer amount of money being thrown at energy futures is making those bets a self-fulfilling prophecy. All that money, in other words, pushes prices higher than they would go if the market simply consisted of the actual buyers and sellers of oil.

In addition, because of something called the “London loophole†and the “Enron loophole,†which allow speculators to use unregulated exchanges, they can evade the limits of the New York Mercantile Exchange, as well as C.F.T.C. scrutiny.

The leading proponent of this theory is a portfolio manager based in the Virgin Islands named Michael W. Masters. When I caught up with him on Thursday afternoon, after his week of testimony, he said that the problem was that institutional investors had stopped seeing energy as a commodity the world relies on and instead saw it as an “asset class†for their portfolios. “I am opposed to thinking about commodities as an asset class,†he said.

Several years ago, he continued, he began to notice that increasing cash flows were moving into commodities index funds. This was, he said, “long-only money†— meaning that it was a pure bet that prices would go up. By now, he told me, there is $240 billion in commodity index funds, up from $13 billon five years ago. As he also noted in his testimony before Congress, “the prices of the 25 commodities that compose these indices have risen by an average of 183 percent in those five years!†He claims that energy prices will fall by 50 percent if the speculators can only be driven out of the futures market.

There are so many holes in this argument I scarcely know where to start. The C.F.T.C. says that some $5 trillion worth of futures and options transaction trades take place every day; can an influx of $240 billion, spread over five years, really propel prices upward to the extent that he and others claim? Then there’s the fact that the commodities markets don’t work like equity markets, where a small amount of trading can lift every share of a company’s stock. In commodities trading, every contract has a buyer and a seller, meaning that for every bet that prices are going up, somebody else is betting they are going down. Why doesn’t that short interest depress prices?

And what about all those commodities, like coal or barley or sulfur, that don’t trade on any futures market but have risen as fast as or faster than oil? Or how about the recent decline in cash flows into many commodity funds — why have prices kept going up if the money has stopped pouring into those funds? My speculator friends tell me that in the last two weeks, trading volumes have been cut in half. Indeed, what I hear is that much of the speculative money that remains in the market is betting against higher oil prices.

As for the London and Enron loopholes, I can pretty much guarantee they will be closed soon. There are some eight bills aimed at curbing speculation, and virtually every one of them calls for an end to the loopholes. That is probably a good thing — but I’d lay odds the price will not drop as a result. The loopholes are not the reason prices are going up.

In fact, I’d be willing to go a step further. Even if you eliminated speculation entirely, the price of oil wouldn’t fall. Thankfully, no one is proposing to go that far (though Senator Lieberman was toying with the idea), because even members of Congress understand that futures markets serve a crucial purpose. They help companies hedge their oil prices, and they help energy companies manage their risk, for starters.

The energy speculators I spoke to say that Congress has it exactly backward: the futures market is actually taking its cues from the physical market, where the buyers and sellers of oil do their business. Last week, the Saudis promised to produce an extra 200,000 barrels a day. But it is pricing that oil so high that oil companies are balking at paying for it. The Saudis didn’t arrive at their price by looking to the futures market — but if they get that price, it will certainly affect the futures market.

Both speculators and oilmen say that supply and demand is the real culprit. “Our supply is pathetic,†said Gary Ross, the chief executive of the PIRA Energy Group, and a well-known energy consultant. “Look at the data,†he continued. “The world economy is growing by 3.9 percent a year. World oil demand should grow by 2.3 percent just to keep pace. That’s an extra two million barrels a day. We don’t have it! It’s obvious.â€

I also think there is something else at play. After years of ignoring the rather obvious fact that oil is a finite resource, the world has suddenly become acutely aware of that reality. Everyone in the oil markets is attuned to every little twitch that has the potential to damp supply or increase demand. That’s why, for instance, when Libya announced on Thursday that it might cut oil production, oil jumped more than $5. Meanwhile, when Brazil discovers a huge new oil field, the market shrugs. That is not speculation at work — it’s market psychology. There’s a big difference. If there is indeed a bubble, that’s what is causing it.

“Speculators have always been an easy target,†said Leo Melamed, the man who founded the futures markets. As Ron Chernow, the great business historian put it, “At times in history when you have vast and impersonal forces wreaking havoc in markets, there is always a temptation to villainize someone.†Centuries ago, it was Shylock; now it’s the speculator and the short-seller.

In his book “The House of Morgan,†Mr. Chernow has a description of Herbert Hoover, “moody and isolated,†convinced that short-sellers were behind the market’s horrendous downturn in 1929. “He came to believe in a Democratic conspiracy to drive down stocks by selling them short,†Mr. Chernow writes, adding that Hoover “began to compile lists of people in the bear cabal and even claimed to know they met every Sunday afternoon to plot the week’s destruction!â€

I wonder whether Mr. Dingell has heard about them.

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[Biggest Fan]

I enjoyed reading the first of your posts. I have not gotten to the 2nd. Thanks

[d_rawk]

Thanks BF, glad you enjoyed the article as I'm mostly putting stuff here that I found interesting with you in mind in the hopes that you will enjoy it too. Not sure many others are as interested in the subject as you and I

I've had a couple Canada Day celebratory drinks, but with that caveat out of the way, I've realized that if I were hired to distill my thoughts on the 'energy crisis' (there's one for CNN ..) into a succinct sound bite, I'd probably want to make it a five point plan (with apologies to Clinton and his fondness for five-point-everythings):

1) education

2) conservation

3) innovation

4) legislation

5) exploration

All would need to implemented in parallel, to minimize the pain - so it is not a chronological order - but is rather in order of emphasis and what I consider to be urgency of expenditure in effort and resources.

5 depends on 4, and 4 depends 1 [5: Needs legislative permission to explore for conventional resources in currently off limit areas. 4: Needs to execute the political will to allow such. 1: Create the political will through education). 2 is essential to bridge the gap between here and there, and will still be essential going forward, but can not happen, realistically, without 1 having set the groundwork. I'm thinking well conceived and deeply informative PSA ads.

3 (Innovation), is, of course, what will ultimately ease the reliance on dirty conventional energy, and the American spirit is such that given room and finances to pursue this fully, is bound to usher in a new robust economy in the energy sectore. But 3, is, again ultimately reliant on 1 and 4, with 2 and 5 buying the time.

Both those details are the policy-wonkish complexities that always happens out of sight of the mainstream. The salient point is having a soundbite to sell.

Thus concludes a slightly tipsy edition of 'this day in energy'.

[Biggest Fan]

When I was reading the 2nd article I started to get a little worried about you in that I had started to think that you had fallen in with the 'manipulation' crowd. I should hve known better.

d_j I have figured something out... There are only a select few who 'tie one on' and end up getting caught up in world of economics and what have you. Pretty Funny.

I wonder if yoou have heard how there is expiramentation with emissions from coal plants getting run through, algae filters. The end pruduct making a very good bio-fuel (two gains).

Edited July 3, 2008 by Guest

[d_rawk]

If you are in Zimbabwe today, 40 billion dollars will buy you one single American dollar.

Gold looks all sexy like again. A slutty-ruin-your-marriage kind of sexy. I'm looking for $1400 - $1600 an ounce, this time. Minimum. Burn, baby, burn. Disco inferno.

BF - I hadn't heard about the algae filters for clean coal at all .. any good sources for me to read up on it? Very curious indeed.

[Schwa.]

d_j cocoa dropped by a ton back below 3000. 400pts in 2 days. if my buddy had the balls to go short on that with what he wanted he'd be up by 100,000$ he figured....he took a day off from work he was so pissed at himself.

[Blane]

Couple of recent news items I thought i'd throw in here, the first funny, the second startling...

Airlines To Passengers: Blame Oil Speculators

Airlines are trying to divert Their frequent flyers' fury to a new villain: oil speculators.

On Wednesday, AirTran sent out an e-mail encouraging their passengers to urge Congress to crack down on commodities investors – labeled by opponents as “speculators.â€

“Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now,†says the email, which went out to members of AirTran’s A+ Rewards Program. “Normal market forces are being dangerously amplified by poorly regulated market speculation.â€

The letter was sent out in coordination with the Coalition to Stop Oil Speculation, a lobbying group of 12 major airlines formed with support from the Air Transport Association of America.

Investors are a convenient scapegoat for the airlines, who’ve angered passengers with new fees, poor customer service, fewer flights, and higher prices.

The group has run ads in major papers, sent letters to Congress and is now enlisting the help of their customers to “stop the oil price bubble.â€

The group acknowledges that the country must invest in alternative energy sources, conservation, and exploration. But, they argue, America also needs, “fair markets, curbing excessive speculation with tough, fair rules that protect consumers and lower prices.â€

and the 2nd...

The 10-year return? Squat

One of the more surprising factoids to emerge from the first half of 2008 was that the buy-and-hold strategy hasn't been such a great way to make money after all, at least in the United States.

According to Richard Bernstein, chief investment strategist at Merrill Lynch, the rolling 10-year return for the S&P 500 dipped into negative territory as of June 30, after adjusting for inflation – the first time it has done this since the early 1980s, when stocks were recovering from the doldrums of the previous decade.

In other words, if you had bought the index at the end of the first half of 1998, your investment would be worth slightly more today, but not after factoring in the effects of inflation. Indeed, a bank account would probably have served you better.

“It is clear that the era of loose money that began in 1998 with the bailout of LTCM and produced the much-discussed ‘Greenspan Put' has led to money illusion (positive nominal returns that get headlines but fall short of inflation) rather than real returns,†Mr. Bernstein said. “Whatever happened to ‘stocks for the long-term'?â€

Some observers will no doubt answer this question by saying that active money managers, who might have the talent to outperform the index, are the way to go. Others will no doubt suggest that taking a nimble approach to investing is far superior to a buy-and-hold approach. Chances are, though, that most of this crowd are nursing even worse 10-year returns than the benchmark index.

What's freaky about this article is that 10 year is pretty much exactly the length of time I've had money in investments (particularly mutual funds), generally using a "buy-and-hold" approach. Considering funds' records for underperforming indexes that means I've basically done all of that investing for a decade only to lose money.

Makes me seriously question whether there's something better to do for the future than to buy into "the machine".

[d_rawk]

Schwa -

Ouch! That's gotta hurt. Kudos to him for being right though. Commodities as a whole got taken to the woodshed the last couple weeks.

Thanks for the articles Blane! The second one is thought provoking for sure. The first one made me want to punch someone in the nose.

[d_rawk]

Whoa. Found this on Reuters this morning. Additionally, there are rumours starting to float around that Wamu is toast. Sticking to that gold call, and convinced that last week's flight from commodoties into the financials was premature. The ugliness continues.

U.S. regulators seize two more banks, engineer sale

WASHINGTON (Reuters) - U.S. regulators took over two banks on Friday and sold them to Mutual of Omaha Bank, the sixth and seventh bank failures this year as financial institutions struggle with a housing bust and credit crunch.

Two weeks after the Federal Deposit Insurance Corp seized IndyMac Bancorp Inc, the Office of the Comptroller of the Currency said it closed First National Bank of Nevada and First Heritage Bank NA of California.

First National, characterized as undercapitalized, had total assets of $3.4 billion and $3 billion in deposits. First Heritage, described as critically undercapitalized, had assets of $254 million and $233 million in deposits, regulators said.

The FDIC said the cost of the transactions to its insurance fund is estimated to be $862 million, adding that the two failed banks represent just 0.3 percent of $13.4 trillion in total industry assets at about 8,500 FDIC-insured institutions.

The FDIC said the 28 offices of the two banks will reopen on Monday as Mutual of Omaha Bank. Over the weekend, customers can access their money by writing checks, using automatic teller machines or debit cards.

Mutual of Omaha Bank currently has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado with commercial lending offices in Dallas and Des Moines, Iowa, the FDIC said.

It is a subsidiary of Mutual of Omaha, a 99-year-old insurance and financial services company with more than $19 billion in total assets.

Top banking regulators have warned of additional insolvencies this year and next, but for now do not expect failures the size of IndyMac, which had $32 billion in assets and $19 billion in total deposits at the end of March.