Monday, May 30, 2011

I'm shocked, shocked I say, to see a bailout announced on a US holiday weekend.

So, the news all weekend was beyond bleak but since China's mini-bailout last week only seemed to calm the markets for a day, it was clear that Europe was going to have to take further steps to calm the global markets. Well, I expected the German's to really draw a line in the sand this time, but alas, I wrong and it seems like we've entered a new era of can kicking.

"Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, according to people familiar with the matter. Berlin's concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece's funding needs before the indebted country runs out of cash in mid-July."

There are still almost 12 hours until the US markets are open but the early reaction in the futures market is predictable as global markets have jumped on this news.

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I guess I have to follow German politics a little closer to understand their google search trends. If you remember last week, I wondered aloud why the top 5 cities searching for news on the Fukushima nuclear reactors were all in Germany. Well, today's headlines that German will end all nuclear power generation by 2022 is clearly the reason behind the google searches.

"Germany's coalition government agreed early Monday to shut down all the country's nuclear power plants by 2022, the environment minister said, making it the first major industrialized power to go nuclear-free since the Japanese disaster.

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Well, if Linkedin IPO didn't convince you that the social media bubble is nearing it's peak perhaps the fact that AirBNB is about to raise $100 million at a $1 billion valuation might convince you. To gain some perspective on this insanity - AirBNB is basically a 10 year old idea in a fancy new website. They let you rent houses or apartments online for vacation. Huh? That was a really hot idea in 1995. Oh, I forgot the key driver to their valuation is the fact that that Rhodes Scholar Ashton Kutcher (yeah, the trucker hat wearing new Charlie for 2 1/2 Men) put some money in. Yikes! Good luck pitching that story.


Friday, May 27, 2011

State revenues on the upswing?

There's a great chart over at Infectious Greed covering the change in state tax revenues in 2011 vs 2010. Clearly, the boom in corporate profits has helped offset any weakness in personal state income tax collections. It's unclear how long this trend will last or if it will ease the budget process for states next year but so far, so good, as most state tax collections are up (particularly oil rich states like Alaska and North Dakota which are up over 215% and 39% respectively).

The question is: will the governors and legislatures act responsibly with this new windfall or will they rush to spend it as fast as possible? With major elections coming 2012 I think we all know the answer to that one.

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For anyone that has ever had the extreme displeasure of dealing with Time Warner Cable, I offer up the funniest letter you'll read today. This guy took out a full page ad in two local newspapers to run this letter. It is very, very funny stuff, but don't click thru if you have sensitive eyes or an aversion to HBO-style language :)

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Finally, I guess we can be thankfully that at least we don't live on Long Island. LIPA (the Long Island Power Authority) is making lots of friends this Memorial Day weekend by charging a local American Legion post $5 per pole to hang American flags in honor of a fallen soldier from Shelter Island.

Cheers!

Thursday, May 26, 2011

Weird news of the day

I never know where to put stories like these so they normally end up in my bookmarks until I decide to lump them together in a single post. Some of this might be old news by the time you read it but I found all of the stories interesting.

Holy Fukushima Batman! As I've lamented many times before the world seems to have moved beyond the Fukushima story because in our twitterfied world stories that take more than 14 seconds to develop are deemed unimportant (see the google trends info here on Fukushima searches which proves my point).

Tepco finally admitted a couple of weeks ago that there has, in fact, been a meltdown at Fukushima. However, yesterday it was released that Int'l Atomic Energy Association's simulations determined that a meltdown likely occurred just hours after the cooling systems failed. However, it took two months before this information made its way to the public.

"A meltdown occurred at one of the reactors at the Fukushima No. 1 Nuclear Power Plant three and a half hours after its cooling system started malfunctioning, according to the result of a simulation using "severe accident" analyzing software developed by the Idaho National Laboratory.

Chris Allison [a former manager and technical leader at Idaho National Laboratory], who had actually developed the analysis and simulation software, reported the result to the International Atomic Energy Agency (IAEA) in late March."


A simulation is not the same as having actual data and I can see the IAEA sitting on this info to prevent a panic but if there was a possibility of a meltdown I think that information should have been shared with the Japanese people. Separately, there have been some very extreme spikes in radiation levels coming from Fukushima lately that are either caused by malfunctioning readers or a dramatic worsening of the situation. It's something to monitor.

*** Interesting side note to the Google trends data. You would think that most of the Fukushima searches would be coming from Japan or other Asian countries but it appears that Germany, Austria and France are much more interested in the story as German cities occupy the top 5 searches in the world.

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Note to self: If I'm ever nominated to become the transportation secretary for the US and I'm going to a press conference highlighting new fuel economy stickers -- DON'T TAKE A GIANT CHEVY SUBURBAN TO THE PRESS CONFERENCE!!

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The hidden cost of World of Warcraft:

This is officially the craziest story I've ever heard - Chinese prison guards use prisoners as "gold farmers" in online games to earn points that were sold for real cash!

"As a prisoner at the Jixi labour camp, Liu Dali would slog through tough days breaking rocks and digging trenches in the open cast coalmines of north-east China. By night, he would slay demons, battle goblins and cast spells.

Liu says he was one of scores of prisoners forced to play online games to build up credits that prison guards would then trade for real money.

"Prison bosses made more money forcing inmates to play games than they do forcing people to do manual labour," Liu told the Guardian. "There were 300 prisoners forced to play games. We worked 12-hour shifts in the camp. I heard them say they could earn 5,000-6,000rmb [£470-570] a day. We didn't see any of the money. The computers were never turned off."

Hmm, I wonder if Gov. Cuomo has heard about this idea? Sarcasm off.

Cheers!

Tuesday, May 24, 2011

China, Housing and College, Oh My!

China has decided to take a little preemptive action on the whole global debt discussion. While the West is obsessing with Greece, Italy, and Spain, the Chinese version of S&P or Moody's downgraded the UK debt to A+ with a negative outlook. The Chinese are further asserting themselves in the global economic discussion (they are also quietly making a push for an expanded role for Asia at the IMF). It should be interesting.

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The new homes data today was dismal but you wouldn't know that from listening to the news. The headlines today screamed "NEW HOME SALES UP 7% in APRIL!!!" Well, that's technically true but new home sales always go up in April when compared to March because it's spring. The better observation would be that April's new home sales (323k annual run rate) are the lowest April sales data on record and down 23% from April last year. Yikes!

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This is clearly the most troubling set of stats for recent college grads you'll see today....

"What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.

Of course, these are the lucky ones — the graduates who found a job. Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted.

An analysis by The New York Times of Labor Department data about college graduates aged 25 to 34 found that the number of these workers employed in food service, restaurants and bars had risen 17 percent in 2009 from 2008..

There were similar or bigger employment increases at gas stations and fuel dealers, food and alcohol stores, and taxi and limousine services. And when college majors are busy waiting tables, being baristas, or selling liquor and gas - it has a cascading effect. "

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Finally, it appears that our cup runneth over with green energy (literally):

"High runoff in the Columbia and Snake Rivers have filled the Bonneville Power Authority dams to bursting. The BPA is prohibited by EPA regulations from opening the dams’ spillways because that increases nitrogen levels in the water that will kill the river’s fish. So the hydro-turbines have to run more, generating more electricity which fills the region’s grid capacity. Because the grid is maxed out with hydro-generated power, the BPA has no choice but to stop accepting wind-generated power."

Lack of access to the grid isn’t the only problem that wind generation faces. The low cost of natural gas in the US also affects the willingness of developers to build new wind farms. The US added 10,000 megawatts of wind generation capacity in 2009, and that could drop to as little as 5,000 megawatts of new capacity by 2012.

The blame is laid at the feet of shale gas, which is keeping the cost of natural gas low. However, uncertainty over tax credits and lower demand for electricity as a result of a slow US economy more than make up for the positives.

The expansion of wind generation in the US has reached the point where continued development is just as likely to depend on grid capacity as on demand for electricity."

Cheers!

Sunday, May 22, 2011

Did anyone else see that strange yellow ball in the sky on Sat?

After a week of rain I'd almost forgotten what the sun looked like. However, thankfully we'll get back to a pattern of daily rain for the rest of the week.

The European credit crisis is back in the news (this is not a repeat of May 2010). Greece appears to be really up against a wall at this point and I'm not sure they have any chips left to play. Italy's outlook was downgraded on Friday and Spain is still cracking down on protesters. Look for Europe to be the main driver of news flow this week.

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I've read some fairly coherent research recently that makes a good argument that the Fed is painting themselves into a corner. On the one hand they want to spur investment and growth through policies that pump money into the economy. However, these same policies are having an inflationary impact on items that you and I need every day like food and gasoline. If the Fed tries to fight the increase in oil prices, they'll probably curtail any job growth, but higher oil prices might stall job growth anyway. Ah, this is why I went into finance and left economics to others.

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Stat of the Day

* With one-in-five men age 25-54 unemployed, the U.S. has the smallest share of prime-age working men of any country in the G-7.

Bonus stat of the day: “The biggest growth in private-sector job creation in the past year occurred in positions in the low-wage retail, administrative, and food service sectors of the economy. 49% of new jobs added in the sluggish ‘recovery’ are in low-wage industries.

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Congratulations to all of the new college graduates that have entered the next stage of their careers. While every college is proud to discuss the number of graduates that cross their stage every year, a more important question for parents and students is: What percentage of your graduates are employed in a field related to their degree 6 months after graduation?

That is a number that every college should post right next to their graduation numbers. Unfortunately, I bet the percentages for most schools would be shockingly small.

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One final economic data point - The early May new car sales seem to be off to a "dismal start" according to one industry expert. Blaming higher gas prices and supply disruptions due to the Japanese earthquake JD Power says summer sales are off to a very weak start and may pressure the 2011 outlook.

Just something to watch.

Cheers!

Thursday, May 19, 2011

Risk on!

The correlation among all asset classes remains very high. Last week stocks slid as the world began to fear that oil, gold and silver were all in bubblicious territory. Now, oil is back over $100, LinkedIn is public (more on that below) and the "risk on" trade is back in play.

The jobless claims numbers were a little better than expected but remains elevated north of 400,000.

On a related subject it's a tough time to be a college grad.

" Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree.

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday.

Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007."

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LinkedIn will be the talk of the markets today and call me an old stick in the mud for not understanding why this business is valuable. A bunch of unemployed people emailing each other begging to get an interview with the one person in their circle of connections that still has a job? Why, yes, of course that's worth $4 billion.

Someone pointed out that to grow into a PE of 70x, LinkedIn will need to grow their best ever earnings by 380%!! I know many in the tech world are arguing that this isn't a sign of a bubble in tech but frankly they sound like a bunch of ostriches with their heads in the sand.

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Quote of the day:

"Tokyo Electric in recent days has acknowledged that damage at the plant was worse than previously thought, with fuel rods most likely melting completely at Reactors 1, 2 and 3 in the early hours of the crisis, raising the danger of more catastrophic releases of radioactive materials."

Nice to know this two months after the event.

Monday, May 16, 2011

The debt ceiling debate

Here's a little bit of information that you might find interesting in the midst of all of the breathless debate about raising the US debt ceiling -

The US raised its debt ceiling in 2002, 2003, 2004, 2006, 2007, TWICE in 2008, TWICE in 2009 and 2010.

Wait, what? We do this every year - sometimes twice a year - and it's suddenly a great debate?

Well, let's think this through. What's changed since the last increase in the debt ceiling in Jan 2010? Hmmm, something that happened in November 2010, maybe? Yes, for the first time in President Obama's term he's facing a split Congress and that's the cause of the great uproar.

There should be very little debate over actually raising the debt limit. I don't like it anymore than the next guy, but US Treasury Bills and Bonds play a critical role in the global financial system. If you alter their role in the market by spooking investors with talk of default it could lead to higher interest rates on our $14.3 trillion of debt which would lead to ....... you guessed it - more debt.

Also, consider that all of those pensions that we love so much in the US are heavily invested in treasury debt. Spook the market, rates will rise, the value of those bonds will fall and your pension will become more underfunded. To make up that gap your school districts and local governments will have to divert more of their operating budget to the pension plan resulting in positions being eliminated.

This is a little overly dramatic, but hopefully you see my point that there are many interlocking pieces to this puzzle and taking a stand like "don't spend what you don't have" is a simple minded approach to a very complex debt issue.

Consider the following analogy:
Let's assume a famous basketball player moves to Miami and takes out a $20 million loan for a new place on Palm Island. Player ABC easily earns in excess of $20 mil but he still decides to take out a mortgage on the property. Instead of taking out a traditional mortgage he takes out a 5 year loan for $15 mil and a 90 day loan for $5 million. Every 90 days he just rolls the smaller loan over into a new loan and his total interest payments are lower than they might be with a traditional loan.

After an unfortunate twitter incident player ABC is suspended for 6 months without pay.

No problem - he signed a $140 million contract, right?

Well, after 90 days he goes to roll over the $5 mil loan and the bank says “Not so fast - you’re over your debt ceiling given your lower earning potential.”

Okay, so player ABC is still a AAA rated NBA superstar, but now he has a serious cash flow issue.

This is one of the many serious implications of not raising our debt ceiling - our cash flows won’t match our payment requirements and that could in theory trigger a default which is an unacceptable scenario.

At the end of the day this is posturing among the various political parties (note that President Obama voted against raising the debt limit in 2008 as a Senator) and any member of Congress with more than a few votes under his or her belt will have flipped and flopped on this issue more than Joe Girardi trying to set his line-up card.

Cheers!

Mixed NYS manufacturing survey results

As I've said before, I don't like following the Empire manufacturing index because I don't believe it is a good representation of all industries in the US, but the market is watching the data so we should at least look at the numbers.

The general business conditions index fell ten points to 11.9 and the new orders index fell five points to 17.2.

The more disconcerting number has to be the prices paid index which rose to 69.9, its highest level since mid-2008. This is the second highest level ever fore prices paid and the run up of prices looks eerily similar to the increases we saw in 2008 right before the Lehman collapse.

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You'll probably see lots of headlines on the US breaching it's debt limit today (I'll cover that in a separate post sometime this week), but another misleading headline seems to be making it's way around the intertubes - SOCIAL SECURITY LOST A TRILLION LAST YEAR!


Hmmm, not exactly.


What the trust fund said was that the level of unfunded liabilities grew by about $1.1 trillion last year (from $5.4 trillion to $6.5 trillion). This is a STAGGERING sum, but it is not that the fund LOST a trillion, but rather some of the inputs into their formulas have changed for a projection over the next 75 YEARS. Remember the government economists that projected budget surpluses for 2000-2020 back in 1998? How did that work out? The point is that any forecast is difficult but a 75 year forecast is little more than a dart thrown at a dartboard.

Social Security is well funded as it exists today but increasing disability claims, longer life expectancy due to medical advances and lower contribution rates due to the great recession are all going to impact the long-term viability of Social Security in the year 2085.

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I'll keep posting stories on Fukushima and maybe someone will remember that this is probably the story of the year, if not the decade. However, in our twitterfied culture we can't be bothered to focus on a story that takes more than 8 minutes to review.

Tokyo Electric Power Co. said fuel in other reactors at its damaged nuclear plant may have melted, after confirming rods in the No. 1 unit had fallen from their assembly, potentially delaying plans to resolve the crisis.


“The findings at the No. 1 reactor indicate the likelihood that the water level readings in the other reactors aren’t accurate,” Junichi Matsumoto, a general manager at the utility known as Tepco, said today. “It could be that a meltdown similar to that in the No. 1 reactor has occurred.”


I can guarantee you that more people in the US were concerned about the Sony PS3 network outage than the Fukushima reactor this weekend. :(


Cheers!

Sunday, May 15, 2011

Random thoughts

So the Middle East seems to be escalating again, it's unclear if the nuclear reactors at Fukushima have been covered by any water since earthquake and just when everyone is predicting the pending collapse of the US dollar, the greenback has actually been staging a little rally.

When everyone thinks the market will zig, it usually zags...

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Oil should be $60-$70/barrel?

Under questioning from Senators the CEO of ExxonMobil said that based on current supply/demand dynamics, the price of a barrel of oil should be about $60-$70. This fits with my estimates that market demand is little changed over the past few years. The spread between this price and the current market price is probably explained by companies locking in prices via futures, uncertainty in the Middle East, and speculation.

This doesn't make it any less painful at pump but at least this adds some real facts to the conversation.

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Is the Chinese experiment over?

I think the Chinese economy has many years of strong growth ahead of it, but there are cracks starting to show around the foundation of the Chinese economic miracle. Companies often overestimate the cost savings by outsourcing and underestimate the additional cost of moving operations overseas. Many smaller businesses seem to be realizing this earlier than their larger competitors (perhaps because the larger companies have more invested overseas and aren't as nimble).

"For US firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and US manufacturing is no longer as expensive. As the labor equation has balanced out, companies—particularly the small to medium-size businesses that make up the innovative guts of America’s technology industry—are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet."

If the dollar strengthens, it could put the brakes on this trend, but further weakens in the dollar would speed it up.

Cheers!

There is no recession for some waiters in Vegas



Unless this alcohol was served in solid gold glasses that you were allowed to take home with you, I can't imagine justifying a $147,906 bar bill in Vegas to my boss.

Note that the tip on this bill was $29,581!!!

Others have pointed out that there was a hedge fund industry conference in Vegas on the date of this bill, but I'm sure that was a pure coincidence.

Cheers!

Monday, May 09, 2011

Want to make a billion dollars in a week?

The best way to accomplish this seemingly impossible goal appears to be to name your child JPMorgan.

"JPMorgan’s market risk-related revenue averaged $112 million a day in the quarter and was higher than $160 million on seven of the period’s 64 days."

The commodity complex remains extremely volatile - oil rebounded sharply today and right now there is a strong correlation between equities and oil prices (as counter-intuitive as that seems).

Cheers!

************************ Update:

Goldman ruined the perfect streak for the banks by admitting that, yes there was one day in the first quarter when they didn't make money trading.

So for those of you keeping score at home: Goldman, Bank of America and JP Morgan COMBINED had one losing day in the first quarter. Oh, and Goldman had trading profits over $100 million on 32 of the 64 trading days. The Ferrari dealership in Greenwich is going to be busy this year.

This is definitely not a sign of a bubble in British Columbia

Here in NNY we are benefiting greatly by the resurgence of the loonie. The Canadians are spending like Congressmen shopping from the Lockheed Martin Skymall catalog. This is boosting local sales tax receipts and clearly helping our local governments weather another potential downturn in the US economy.

Many argue that the commodity bubble that is driving this recent spate of good fortune in Canada is about to burst but I don't see that happening just yet. Anyway, in Canada the most bubblicious province has to be British Columbia. There are stories of wealthy Chinese visitors walking around neighborhoods knocking on doors and making cash offers for houses. I think people in BC would admit they were in a bubble if they weren't so busy skiing, mountain biking and generally enjoying life in the most beautiful part of North America.

However, this story might just cause people in BC to question their use of taxpayer funds and perhaps their position in the economic growth cycle.

Victoria's $60k open air urinal

Canada’s battle against public urination has a monument, and it stands in Victoria, B.C.


Prominently located just across the street from one of the city’s premier theatre venues stands the first of many artisanal urinals designed to rid Victoria’s alleys and alcoves of the unwanted stench of urine.

The $60,000 facility isn’t so much a bathroom appliance as a piece of public art. An automatic-flush stainless steel receptacle surrounded by a swirl of light-green tubes, it’s “an attraction in itself,” says Bruce Carter, CEO of the Greater Victoria Chamber of Commerce. Designers proudly note that it is the first municipally sanctioned open-air urinal in North America.

Friday, May 06, 2011

Jobs report follow-up

So the stock market clearly likes the report as the indexes have all rebounded over 1% on the news. The question I have is, does the market like the report because it signals a rebound in the US economy or do they read the report as relatively weak and thus an indication that the Fed will keep priming the pump this summer? Either answer equals higher stock prices today but it's going to be something to watch.



Just to put a bow on the jobs report, I'd characterize this as another okay report, with some disturbing negatives.



* There was some confusion from the fact that the economy added jobs but the unemployment rate grew. These two items actually come from different surveys. The establishment survey tells us that we added 244,000 jobs (that's the number you'll hear repeated all day long), while the household survey actually reported a loss of 190,000 jobs (this is the number you'll never hear about). This difference is usually due to timing issues and the data should merge over time, but it's a pretty wide spread.


* As I said before the jobs added were in low value added industries (like retail, food service, and healthcare) which tend be lower in pay. I still argue that all jobs are not created equal but my voice is in the minority here.


* The all encompassing U-6 ticked back up 15.9% and remains stubbornly high.


* The average workweek was unchanged and average hourly earnings increased slightly.


Here's the chart of the day:


Full-time employment vs. Part-time employment in the US. We're all temps now :)






Jobs report: Like a 2010 rental buyback

I always feel bad for the people that walk into a used car dealership and look at the shiny, one year old cars with 24,000 rental miles on them. Having driven more than my fair share of rentals over the years, I know that these cars are beaten to death before they go to auction. Most of them get spruced up enough to get off the dealer's lot but they are destined to have a short life because of the neglect they suffered at the hands of Hertz or Avis.

Well, that's a bit like today's jobs report. Expectations were for 180k jobs to be added. The number blew that away adding 244k jobs. The cynic in me says the BLS probably did the following math:

BLS statistician #1: We want to beat the number so let's make it 182k, okay?

BLS Intern: Sure. Oh did we add the 62k part-timers McDonald's hired last month?

BLS statistician #1: Good catch. 182K + 62k = 244k jobs. Yippee. Let's hit the McDonald's drive thru !!!

Here's the real breakdown....

Very few changes but the strength continues to be in 3 areas - retail (general merchandise, ie, Walmart, was strong again), leisure and hospitality (food and drinking businesses led the way) and healthcare (someone has to take care of us after eating all of the Walmart/Olive Garden food).

The skeptics will point to the birth/death number which is getting out of hand again. This assumes that 175k "jobs" were created at new small businesses that just aren't measured yet. If my kid registers Sally's Lemonade stand, she's counted as creating jobs. It's silliness, but because we are not told how these numbers make their way into the final jobs report it's hard to discount them.

I'll put up some more info later...

Thursday, May 05, 2011

Wait, Exxon only makes $0.02/gallon of gas?

Poor little Exxon, how can they survive on just $0.02/gallon? If you're mad about gas prices blame those evil state and Federal tax collectors taking your hard earned money for pork projects like fixing roads.

Well that's not my opinion, but this is the spin that's made it's way around the web over the last week as Exxon has tried to defend it's $10.65 billion first quarter profit. I don't begrudge Exxon making a profit, even a $10 billion profit. They have product that is priced by the markets and they suffer when oil is $20/barrel and they thrive when it's $110/barrel, but the spin they put on their earnings was a little hard to swallow.

Here are their contentions (you can see all of their pretty charts on their blog):

Exxon only makes $0.03/gallon - this is bit of the old game of telephone in the digital era. What Exxon actually said was "3% of our earnings come from US gasoline sales". So in this case that would mean they earned a relatively modest $319 million on US gasoline sales. What they did say was that for every gallon of finished product they sell in the US they only make $0.02/gallon.

Fair enough, but let's consider some other facts in their own words: Exxon only owns 5% of the gas stations in the US labeled ExxonMobil. The balance are owned by small business owners. So, little old Exxon is only making $0.02/gallon on the 5% of stations they own and that still equates to a pretty healthy profit of $319 million in the first quarter, but it's makes you wonder how did they earn the other $10.33 billion, right?

As you can see from their own chart - in March 68% of the cost of a gallon of gas was due to the price of crude oil. In order to simplify the math let's call it 70% which is probably close to accurate as crude has surged to $110/barrel. At $4/gallon that means $2.80 of the cost of gallon of gas is due to the cost of crude oil. Hmmm, I wonder where all of that crude oil comes from......

Again, it's true that Exxon doesn't set the price of crude oil, but they do sell their oil for the market price. So, all oil companies that sell in the US are deriving huge profits from the spread between their cost of production and the price the market will pay for their product. Again, this capitalism at it's best and I don't have a problem with that. However, for an oil company to spin it that they're only making $0.02/gallon is at best some wicked spin and at worst a bald faced lie.
So, $2.80 of every gallon you pump doesn't go directly to Exxon, but that's money they've already collected when they sold their crude to the refiners. A better representation would be to say "It costs Exxon about $0.56 to get our crude out of the ground and you pay $2.80 for that gallon of crude. We earn about $2.24/gallon of PROFIT off each gallon sold from our crude oil. Oh, yeah and we make $0.02 on each gallon sold at our retail stations."

The analogy I would make would be this: Let's say Walmart wants to control the cost of their t-shirts so let's assume they buy every cotton farm in the US. When cotton spikes like it did this year, Walmart would sell all of that cotton to the cotton mills in China for twice what the price was last year. Now when the $5 t-shirt comes back to the US this year, Walmart charges $10.

The public is outraged over this inflation. However, what if Walmart put out a press release and said "but, we're still only making $0.02 per t-shirt. The higher costs comes from higher cotton prices." Yes, but Walmart owns the cotton!! In this analogy, Walmart would have reaped huge profits when the cotton was picked and sold.

This is exactly what Exxon did with this press release. They used smoke and mirrors to confuse angry consumers.

Like a good friend always says "everyone lies these days."

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Fact of the day: 7% of GM's sales last quarter went to subprime borrowers. Wash, rinse, repeat....

Monday, May 02, 2011

Good news.

Osama Bin Laden can now be filed away as defeated criminal (though his history is a bit difficult to explain to a 10 year old when she asks "Wait, we gave him money and guns before we spent 10 years chasing him?") and his demise probably explains much of the crazy trading that occurred in overseas markets last night.


I can remember way back in 2001-02 that we would always want to have a small position on just in case we caught OBL because we expected it to cause a 10-15% jump in stocks instantly (today's market reaction has been decidedly muted in the US). Crude oil dipped initially on the news but has since resumed it's march forward - apparently OBL did not have a hidden reserve of 400 billion barrels of oil in that Pakistani compound so more fighting in Libya means $4 gas is here to stay for awhile.


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A couple of interesting tax tables for those of us in NY.




Cheers!























Sunday, May 01, 2011

Silver crash?!?!?

Silver is just one of many commodities that has been on an epic tear over the past 6 months. The commodity looked like it was headed to $50 on Friday but there has been a serious shakeout overnight in the Asian commodity markets. Silver was down 20% in a matter of minutes (rumors of massive sell orders seemed to be the primary driver) but it's recovered a bit now.

Coupled with a late Sunday night Presidential statement - 10:30pm on a Sunday?? Is that the only non-Idol, non-Dancing with the Stars time slot available? - should make for an interesting day tomorrow.

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Wow, this is an entire piece of the "social media revolution" that I was unaware even existed. Companies like bfsocial.com will provide "facebook friends", "facebook likes", youtube views/likes, twitter followers, etc for a fee. If you want 1,000 new twitter followers you can do it the old fashioned way or just buy them for $34.95. This seems to imply that thousands and perhaps millions of the registered USERS on twitter and facebook exist only in some data farm in Bangladesh. After looking around the web a bit it appears that there are hundreds of companies offering services like this.

If I were an investor in Facebook or Twitter I'd want some clarity on this issue ASAP.