ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

Problems with the New Math

Gold is closing in on $1,000, oil has risen 50% from its February lows and the dollar has lost 10% of its value since March. It is down 1.42% today alone. Meanwhile, the stock markets see happy daze are here again, kicking off a rally based on the green shoots all the salesmen are endlessly talking about. The shoots, of course, are thousand dollar bills pushing up from the deep, dark netherworld of the Federal Reserve and USG. It is a government engineered rally in the face of a deeply troubled financial system and economy.

Slathering on more money to the banks and other vested interests is what got us here, and will not restore the economy to health. Quite the opposite as witness the real world money markets.

The US Treasury has $2 trillion worth of bonds it has to sell by the end of the year (FY ending 9/30/09). The more they flood the market with new bonds, the less all bonds become worth. Even the all-powerful USG has trouble repealing the law of supply and demand, even when they employ Soviet tactics. The less the bonds are worth, the higher interest rates will climb. Uncle Ben has lost control of interest rates, just as his detractors claimed he would. That means mortgage rates are rising and will send the housing market into a second tailspin.. This also makes the mountains of toxic debt held by the mega banks worth even less, assuming they were worth anything beforehand. Kiss the banksters goodbye too. A second bailout isn’t in the cards.

The combination of rising interest rates and  oil, and the falling dollar means that there is no chance of a recovery. As I have asserted all along, the second leg of this crash will now commence. Bernanke now finds himself married to the price of  oil, for every action he takes henceforth will affect its price. As the dollar goes, so goes oil. Until such time as the world becomes sick unto death of anything and everything priced in dollars and finally shouts ENOUGH! No more dollars!

For all those seeking a bottom, like it or not that is the bottom we will get. That is the bottom “we the people voted for,” The bottom of the barrel, be it the oil barrel or otherwise.

May 29, 2009 Posted by | Economics | Leave a comment

GM Bust and Boating

Every gas powered  inboard boat built in the US and most in the world  are powered by GM V6 and V8 engines. Has anyone in the boating industry given any thought to what happens when GM stops making these engines? That day is coming very, very soon.

And of course the only option is to replace them with diesel engines at costs 100 to 150% higher, as well as requiring major design changes. Taller in line diesel engines will often not fit in spaces where the V6 and V8 will.

No one will buy GMs production facility and turn out these engines independently. Not enough market.

Just one more nail in the boating coffin.

May 28, 2009 Posted by | Boating Future, Uncategorized | 2 Comments

Oil Rises 46% Since February

Today oil hit $63 a barrel, a six month high and 46% above its February low of $43. No one is really surprised by this since over the last six months oil has been selling below the average cost of production generally estimated in the $60-70 range. And while its hard to be specific about the cost due to constantly changing conditions, the fact is that for hard to get oil, such as deep offshore and high tech extraction methods such as horizontal drilling and gas injection wells, the cost is much higher.

Because of this, large numbers of costly new development projects have been cancelled. This puts us in the position of drawing down existing fields without replacing ANY of them with new discoveries. The world — and that includes the markets — continue to behave as if we have an oil tank that never empties, no matter how much is drawn from it. They seem to think that just because inventories are high now, this will continue indefinitely.

It will not, of course, since as I’ve claimed all along, oil supply is falling faster than demand fell, a demand decline that seems now to have reversed itself and is rising again. But note this and note it well: oil futures are in very steep contango, rising to $117 in 4/10 and then $129 in 6/10. So  you see it is with no great prescience that I predict the oil price doubling by next year; it is already a foregone conclusion. But while I’m not ready to predict it yet, I see numerous factors that could send the price even higher and we could well get another spike heading up to $200/bl.

But I do not see that lasting for very long for it will hit the economy like a baseball bat to the side of the head. Since I don’t believe in a recovery anyway, this will meld in with my second leg down prediction ( we have multiple reasons why this will happen) and result in an even larger demand decline than the last go-round. Naturally, that will be followed by  even larger production declines, thereby producing a continuing cycle of supply/demand spikes and declines.

Should the price of oil rise above $150 and stay there, the reason will not be a supply issue but an inflation issue. When oil hits these levels it will be because of the dollar’s increasing worthlessness.  And that is already a good part of the reason why the price is now rising.

Either way you look at it, the future doesn’t look very bright, and the reason is that these problems are all of our own making. Stupidity, greed and sloth produced it all. As always.

Our economy now reminds me of the Rodney King video with Rodney King as the economy with a dozen cops with billy clubs wailing on him. The cops, of course, are the government and its cheerleaders. Rodney doesn’t have much of a chance.

May 27, 2009 Posted by | Oil Updates | Leave a comment

Bubbling Along

Everything seems to be bubbling along very nicely in the financial markets, does it not? Bit of tongue-in-cheek there on the bubbling bit since the powers that be are slashing all restraints in an effort to reinflate the credit bubble that just collapsed. The stock markets act as if there is no tomorrow (so what’s new?) while the precious metals act as if there is, and its not one gold and silver buyers are looking forward to.

Over the weekend President Change had a revelation and announced “We’re out of money now!” says Number One. And he blames not having national health care as the cause. Brilliant. By that logic, we should make entitlements of every human need and then we’d be in great shape. I’m not digressing here, just providing the proof that things are going to get much, much worse. This is a government that has no intention of reigning in deficit spending. It simply creates new excuses for doing so, then eagerly adds to the pile of debt.

Unfortunately for this President, there is the law of cause and effect, the consequences of which one can push aside and ignore for just so long until the hand that feeds you whips around and bites your head off. This is about to happen, and this is the week that the process may begin. You see, this week Obama’s fall guy Timmy Geithner has to sell $101 billion of debt at auction this week. And with another $1.8 trillion in debt to sell by September 30th, every week until then will host a huge auction.

Due to all the new money and credit creation, the US bond market has been looking weaker and weaker every week. As well it should since the law of supply and demand can only be manipulated so far by Bernanke. Yields on the long bonds are rising, meaning that prices are falling. Bernanke is about to loose control over the interest rates since the rates will have to rise to be able to sell those bonds. Only an idiot would flood the market with new issues and expect that prices would remain high and interest rates low.

The truth is that the Fed has been manipulating ridiculously low rates for nearly two decades, which is the main factor that wrecked the economy. But this cannot continue. Whether he floods the market with new issuance, or he chooses to buy up the debt himself with printing press money, the end result is the same. Printing money causes inflation, and inflation drops bond prices and raises interest rates. Conversely, trying to dump $1.8 trillion in new bonds floods the market and derives the very same result. Either of these options will result in the USG being unable to continue financing its spending sprees at best, and at worst, collapse the economy and the government.

The third option was the one that I stated at the very outset of this fiasco, as being the one with least ugly consequences. And that is: Stop manipulating interest rates, allow rates to rise and suffer the consequences of the depression that will follow. With this option, the nation, the economy and the USG will survive; in the above two options, none of these are likely to survive as that is the “banana republic” prescription and will lead to the very same consequence as obtained by every government that has tried it — economies collapse and governments collapse.

Interest rates are not the only thing being manipulated. The so-called “news” as proffered by big corporate media has reached Orwellian conditions, driving the stock markets up with its endless propaganda. Yet even when digging deep, well past the page one drivel, one can find nothing but bad economic news on every front. The economy is worsening at an accelerating rate, while a new credit bubble is developing in the parasitical financial markets. Yet overall, credit expansion continues to decline despite the massive bailouts to mega banks.

I’m still sticking with my prediction of a year ago that there will be a second leg down to this disaster. The first phase was the financial collapse, but this is to be followed by economic collapse as the government/media efforts to paper over a disaster with bull shit eventually becomes exposed for the criminal travesty that it really is. The king has no clothes, and both he and his subjects are broke.

Only the conspiracy of the universal belief in the doctored check book presently keeps things afloat. Meanwhile, the bounced checks, late fees and interest rates are increasing: the magical mystery tour that is Wall Street refines lead into gold.

Why shouldn’t stocks be doing well when CEOs manipulate their accounting to drive up the price of their own stock hoards? How do these companies keep reporting good earnings when every aspect of the economy is down? Why do P/E ratios remain absurdly high? Duh, I dunno.

(RTTNews) – JPMorgan Chase & Co. stands to reap a $29 billion windfall due to an accounting rule that lets JPMorgan transform bad loans it purchased from Washington Mutual Inc. into income, the Bloomberg reported Tuesday.

The above is not an odd occurrence, rather it is the norm, the way things are done in a society where morality is viewed as quaint and irrelevant to post historical modernism. All the books are cooked and it is a phantasmagorical world in which we now live.

The yield on the 10 year note rose 9 bp to 3.54 and the 30 year bond 9 bp tp 4.48. Indications are that private investors are fleeing the treasury market as foreign central banks accounted for well over half the issues. Are these the storm clouds massing on the horizon? Time will tell.

May 26, 2009 Posted by | Daily Brief | Leave a comment

Dollar/T-Bond Death Dance

Things are not looking good for the USG and its citizens. This past weeks events seems to have established  the slo-mo collapse of the US Treasury bubble, and the initiation of the long-awaited descent of the dollar. Here are the key factors.

  • March 18 – the Fed announces intention to buy $300 billion of long bonds.
  • To date, it has purchased only $100 billion.
  • The amount of debt the USG has to finance for 2009 is between $2.5 & $3.0 trillion. So far, the treasury has sold only about $1 trillion.
  • April 27 – The Fed bought $7 billion of bonds. The bid to cover ratio was 3:3. May 20, the Fed bought $7.4 billion on $45.7 billion offered, a 6:1 cover ratio. Essentially, the number of bonds offered for sale doubled.
  • Gold and silver are reflecting increasing fear of USD denominated assets.
  • May 18 – China and Brasil have made a deal to dump the dollar as exchange currency between those two nations. If we ever had any doubts about China’s intentions, now we know.

As for all the hoopla about S&P threatening to cut the UK’s credit rating, and translating that to the US, I don’t buy it. No US rating agency is going to slap Uncle Sam down, not a chance in hell.

Next week is likely going to be a moment of truth for both the Fed and Treasury as the later intends to offer up $101 billion in what is probably the largest weekly auction ever. If the auction doesn’t go well – and many doubt that it will – it is highly probable that the Fed will step in as buyer as last resort. Either way, the bloom will be off the rose and the future of the dollar all but assured. It will only be a question of how fast the USD tanks. Note that despite the horrible state of the UK, the GBP has not crashed, nor gone into a nose dive, so I wouldn’t take any bets on the USD doing the same.

The greater risk is that of the USG being cut off on its credit spree. Now, that’s a bet worth taking.

May 23, 2009 Posted by | Investing | , , , | Leave a comment

Capitalism Dies

The government is going to provide General Motors with billions dollars to fund Chrysler and GM, which are now mostly owned by the UAW. This will make it impossible for Ford to survive. How could Ford possibly survive against government subsidized competitors? The same way all the US automakers could not survive against Japanese government subsidized Toyota, Honda, et. al. and the Korean makers. For what its worth, Japan is going broke even faster than we are with its economy crashing 15.2% in just the first quarter.

Boeing is up against the same problem with Airbus, now more heavily funded by the European Onion than ever. Watch Boeing become the incredible shrinking giant as Airbus sells its product at cost just to maintain employment.

Theirs was a government run export economy that thought it wise to put all its eggs into the export basket. Now exports are down nearly 50% and its economy nearly dead. The once famed Japanese employment model of jobs for life is now become no jobs for life. This is what happens when governments attempt to direct economies. They all end up like the Soviet Union. They become so politically rigid and make so many bad decisions that they cannot adapt to changing circumstances, and in the end they simply collapse.

We are now imitating Japan exactly in nearly every respect except manufacturing and export, and will reap the same result: a bankrupt thugocracy.  Welcome to the Washington Yakuza.

May 21, 2009 Posted by | Economics | Leave a comment

Next Oil Crisis Brewing

I generally try to avoid writing articles like this owing to the fact that so few people care to look beyond the present quarter – if that far. But what is going on in the energy arena of late is just plain stupifyingly stupid. It hardly need be stated that the Obama government hates hydrocarbons and is setting about doing everything it can to ensure that we have as little of it as possible. Meanwhile, he professes to initiate a great effort to replace it with “alternatives” that is all talk and no action.

Cap and Trade is an euphemism for oil tax, to the tune of an estimated $400 billion annually. If you can be sure of anything, it is that those taxes will be passed on to the consumer as higher prices. And as if that isn’t enough, the Man wants to put coal fired power plants out of business. Never mind that accounts for 50% of US power generation. In the past we had energy crises as a result of negligence; now we’re about to have one by design.

To summarize the latest developments in oil production, to put it succinctly oil supply is falling faster than demand. In fact, demand has apparently bottomed and is starting to rise once again. Investment in oil exploration and production is down 18% from a level that was already grossly inadequate. Peak oil is getting ready to attack with a vengence.

World oil production peaked in July 2008 at 74.82 million barrels/day (mbd) and now has fallen to about 71 mbd. It is expected that oil production will decline slowly to about December 2010 as OPEC production increases while non-OPEC production decreases. After 2010 the resulting annual production decline rate increases to 3.4% as OPEC production is unable to offset cumulative non-OPEC declines.

The future sources of liquids production is highly unlikely that the 2008 peak will be exceeded because there are not enough countries with increasing oil production able to offset those countries with decreasing oil production. IEA oil supply warnings have been made in late 2008 when chief economist Birol said that the world needs the equivalent of four new Saudi Arabias just to maintain existing production to 2030. In April 2009, IEA’s executive director Tanaka said that the world may face a crude oil shortage by 2013.

price20090515

Care to place any bets on whether four Saudi Arbia’s worth of new oil will be found when no others as large have been found since 1926? Not one in 83 years of searching diligently.

Structural under-supply has been estimated by private analysts derived from IEA data, and accounting for any gains in alternatives, to result in an annual net decline in annual supply of over 2.5 million barrels/day, or about the total of Japan’s consumption.

But, as we witnessed last year, an actual shortage is not needed to send prices through the roof, just the hint that a shortage is possible, combined with shrinking above ground inventories. Even worse is the fact that US refinery capacity took a big hit and has seriously declined as many went bankrupt or simply closed down due to accumulated losses. So, overall we are in a much worse situation today than we were in fall of ’07. Note that the sales of SUV’s only briefly took a hit, but have since resumed and consumption is on the way back up, as are prices. You may recall that gasoline prices greatly lagged the huge oil price increases. You may have also noted that is no longer the case; when oil price rises, liquid fuels will follow immediately.

But there is yet another factor to consider, and that is the massive amounts of money pumped into the world economy by central banks, thereby creating an over-supply of money. Little explanation is needed to describe what happens when too much money collides with too little oil. Therefore, it is inevitable that yet another oil crisis will occur within the next two years, and probably sooner rather than later. My best guess is that oil will close out 2009 at above $80 and rise to $120 by April 2010. that means we will be looking at gasoline prices of $2.80 to $3.50 in those time frames.

Be advised that I could be wrong: things could get even worse than that. Easily.

May 20, 2009 Posted by | Oil Updates | , , | Leave a comment

The Financial Economy

Those who don’t understand the fundamental nature of banks, particularly the three dozen multinational mega banks, probably wonder why I waste my time flailing the banksters. Well, its because those three dirty dozen basically control the world’s finances, and therefore the governments themselves. We have no reach the point where the realization of this fact has moved beyond the crazy conspiracy theorists to an increasing numbers of establishment renegades who are blowing the whistle. I’m talking about the likes of former executives of the Fed, World Bank, and Monetary Fund, among others.

Simon Johnson, former chief economist of the WMF recently wrote that the banks literally own the US government as the result of being made utterly dependent on the banksters. As Thomas Jefferson pointed out, our survival is utterly dependent upon understanding that banks are ultimately powerful parasites capable of destroying nations. Unfortunately, the banks have already destroyed virtually all of the economies of the western world by means of the transference of capital from industry to financial speculation. The collapse we are currently undergoing – and have been for at least the last 35 years – is a direct result of this.

It is not a question of banks not understanding that they are killing the proverbial goose, but a matter of the nature of a corporation whose only loyalty is to the making of profits. The huge banking trusts brought the US down in 1929 (as well as many prior occasions) and they have done it again. But, unlike the 1930’s era, there is now not only no effort to reign in these criminal organizations, but a major effort to maintain the status quo.

Numerous analysts have made the case that the US has been consuming its capital since the end of WWWII, but that our military and financial ascendency has disguised this fact. Yet by 1971 When Nixon did away with the remnants of the gold standard, our industrial decline was becoming plainly apparent. And by 1990, it was evident that real incomes had fallen dramatically when it then took two workers to support a household instead of the previous one. When we subtract the average debt load we find that real incomes have actually fallen by over 25% since 1972. Thus, as is often stated, our apparent prosperity is the result of mortgaging the future, at the very same time this nation has earnestly set about destroying its industrial base and replacing it with a financial Ponzi scheme, both private and public.

Politicians, being what they are, have no intention of correcting the problems – the errors and the crimes – that got us where we are. They hell bent to restore the status quo, which is about as possible as swimming naked without getting wet. Our nation suffers from a kleptocracy (government run by and for the elites) that wants us to believe that money has value because they say it does. We will gladly believe that until it doesn’t. The politicians love this idea because they think it gives them license to print money at will, and they will take that route even if they know better; they are creatures that conspire on so far as to the next election, and to hell with what follows. The proof of that is our collapsing economy and currency.

The time is very soon to come when the rest of the world realizes that the US finances its consumption based on nothing more than printed pieces of paper that are backed up by nothing but mirages and cleverly crafted illusions. That that time is accelerating is readily apparent (to anyone who cares to see it) in the form of the increasing repudiation of US debt instruments. For the forth month in a row, foreign purchases of US debt has fallen. Even worse, the Fed deemed it necessary to buy up $750 billion in mortgage bonds (Fannie & Freddie) as the Chinese started to dump their holdings of these toxic assets.

The biggest banks are bankrupt and being funded by the taxpayer as well as elaborate financial market manipulation scams, leading to the final demise of the serpent consuming its own tail. That is the banks preying on the formerly free markets by manipulating them for their own profit, a practice that will ultimately destroy the very markets they depend upon. The proof of the pudding is that the top 9 US banks in any given week have accounted for 20% of the total NYSE trading. And they did this with TARP money and the blessing of their bond servants, the politicians. But that is only the tip of the iceberg – the ongoing criminal financial activity is massive and in collusion with Washington.

My final point is that the financial mafia is now in the process of consuming the very system they created for their own profit, in the very same way they expropriated and consumed our industrial capacity and replaced it with a workforce of store clerks and burger flippers. Having borrowed 80% of the world’s savings to spend on consumption, we are now selling off our remaining assets to pay the piper. What’s left when there are no more assets? The worst is yet to come, and if you don’t understand this then you’re going to end up one of the legions of penniless victims who wonder how they were so easily duped.

May 18, 2009 Posted by | Economics | Leave a comment

Boat Prices Down by Half

Well, it looks like my prediction for boat prices was right on target. Last December I wrote that I expected they’d be down by half from the former highs by May-June ’09. Surveying the “asking” prices at National liquidators, I see that most are easily down by half, which also accounts for the total number in weekly “auctions” down from over 500 to around 425, so the inventory is beginning to shrink.

But I also note that the average size is increasing; more 40 footers and fewer 16 footers.

Now I recognize that some will say that those prices are not representative of the general market. I agree, they’re probably not, but the fact remains that there is now a total disconnect between asking prices and actual selling prices, so there is no real way to gauge the general market. Therefore, it is the rate of price decline in the auction market that is representative and can be fairly applied to the general market as well.

Another interesting point is that the rate of bankruptcies of boat builders seems to have fallen off, all for reasons I can’t fathom. Brunswick continues to survive on a line of credit, but that won’t take them far. The boating market isn’t going to recover any more than the economy will. At the very least, we are in for a period of very long term decline reflecting the destruction of our industrial capacity and the attempt to survive on a financial Ponzi scheme. MarineMax is closing down stores and marinas at a steady rate, reflecting this decline. And with GM & Chrysler going down the tubes all at once, the writing is on the wall.

May 15, 2009 Posted by | Boating Future | 1 Comment

Been Down So Long . . .

. . . . It looks l ike up to me” So go the words to the famous Doors tune. Anyway, more computer troubles have kept me from posting. I am having big time virus problems that blow through firewalls and Norton like a storm surge through New Orleans.

Now that its getting hot with the infamous Gulf coast humidity, I’m not going to be spending as much time outdoors. Here in Florida everything is reversed: summer is winter but like living in an oven. Spring and fall are summer while winter is, well, winter without the snow yet windy and cold, but still good for a little labor work. Not now so I’ll be posting this weekend.

May 15, 2009 Posted by | Uncategorized | Leave a comment