Regular readers may remember that every year at this time I do some basic arithmetic regarding contango.
As a refresher, contango is the discount you can get on a non-perishable commodity by virtue of your willingness to accept delivery at once, or (stated inversely) the extra payment you make if you want the seller to hold it for you for some interim.
One would naturally expect this discount to be closely related to the costs of storage space. After all, if I buy crude today and tell you to deliver it six months from now, you have to keep it somewhere during the interval, and pay the maintenance on the storage facilities. If I take delivery now but I don't use it over the six months, then the cost of storage falls on me.
So: a year ago I simply measured the per-barrel price for March (2011) delivery (which was $89.58) against that for August delivery ($94.49) and extrapolated that into an annual rate. The five month delay in delivery cost the buyer $4.91 at that time, which extrapolated into an annual figure would have been $11.82, which is roughly 12.5% the price of a barrel.
Checking the figures a year later ... the price of a barrel was $98.33 for March 2012 delivery last time last weekend. Never mind the question of why that has gone up. I'm focusing on just one piece of the puzzle now. The price for August delivery was $99.62. That's a difference of only $1.29 for storage for five months. This annualizes to $3.10, which is roughly 3.25 % the price of a barrel.
So contango has taken a sharp fall over the last year. Why is contango on the increase? Don't know. Three theories come to mind initially. First, this could be a reflection of a stronger dollar. Crude oil is priced in dollars, the dollar has picked up value against other currencies as the 'cleanest shirt left in a pile of dirty laundry' of late. A year ago, for example, a dollar could buy you .625 GBP. These days, it can buy you .642 GBP. Perhaps, then, there's a deflationary effect built into contango.
Second, this could be the response to an increase in storage capacity. After all, back when contango was 12.5% of the price of a barrel, there was a great incentive to bring on line new facilities to hold the stuff.
Third, this could be a reaction by speculators to a presumed coming decline in the value of oil -- the long-feared second dip in a double-dip recession.
Showing posts with label petroleum industry. Show all posts
Showing posts with label petroleum industry. Show all posts
28 January 2012
20 October 2011
Worst Reasoning ... Ever
The following has been circulating at Facebook.
"In the 1950s and 1960s when the top tax rate was 70 - 90%, we laid the interstate system, built the internet, put a man on the moon, defeated Communism, our education system was the envy of the world, our middle class was thriving, our economy unparalleled.
"You want that back?
"Raise taxes on the rich."
------------
That might just be the most lame argument I've ever encountered.
Begin at the beginning: were the rich actually paying 70% or more during that period, or were they availing themselves of various loopholes and paying a good deal less? My guess (subject to correction) would be that they probably weren't actually paying much more than they are now.
This matters because the general 'point' is that good things happened at time X, and Y was true through the time X, so Y must be the cause of the good things in X. That is either valid for EVERY pertinent Y, given the EXACT Y involved, or it is not valid at all.
Thus, as to taxes, every loophole that existed for the avoidance of taxes by the wealthy during the period in question must be scrupulously preserved or restored in order for us to get back to the wonderful postulated good old days. For the loopholes are all part of the Y, right?
And there are other candidate Ys that had nothing to do with the tax system. Those were the years of the Bretton Woods accords, after all, which lasted from 1944 until 1971. These accords created a gold standard with regard to international financing. So maybe it was the gold that was behind all those good things! (Indeed, personally I take this quite seriously, although I acknowledge that just daydreaming about good old days would not make up an argument for it.)
The 1950s and 1960s were also a period when neither the US nor the UN recognized the People's Republic of China. In both contexts, only the government in Taipai was China. So ... withdraw recognition from Beijing! and go back to spelling it Peking! You want those good things "back," right?
But ... look at the list of "good things" again. The US "defeated Communism" in the 1950s and 1960s? Assuming that the word "Communism" in that sentence refers to the bloc of nations led by the old Soviet Union: didn't its "defeat" come after the reduction of the highest marginal taxes? In the late '80s and early '90s?
What the US did in the 1950s and 1960s was "contain" Communism. By, for example, making a point of committing to the defense of Quemoy and Matsu, the forward posts of the regime in Taipai that we continued to recognize as the only legitimate China. So why should this lead us to the conclusion that we should replicate the tax system of the period without also replicating its diplomacy? Rescind the recognition of Beijing! (Or, recognize reality and don't do that -- but drop silly arguments.)
The US created the interstate system during the period. Yes: but should we pay no attention now to the possibility that that is one of the causes of subsequent troubles? After all, it made the rapid consumption of gasoline a lot more easy and a lot more tempting. That in time became a geostrategic imperative: we have to keep importing the crude oil that makes that possible in ever-increasing quantaties. In the good old days, the best way to get to California was to take route 66. It made for a nice TV show but unwieldy travel. You want those good old days back? Tear up the interstates!
Does that sound silly? Well, consider again where I got the idea for such an absurd conclusion!
"In the 1950s and 1960s when the top tax rate was 70 - 90%, we laid the interstate system, built the internet, put a man on the moon, defeated Communism, our education system was the envy of the world, our middle class was thriving, our economy unparalleled.
"You want that back?
"Raise taxes on the rich."
------------
That might just be the most lame argument I've ever encountered.
Begin at the beginning: were the rich actually paying 70% or more during that period, or were they availing themselves of various loopholes and paying a good deal less? My guess (subject to correction) would be that they probably weren't actually paying much more than they are now.
This matters because the general 'point' is that good things happened at time X, and Y was true through the time X, so Y must be the cause of the good things in X. That is either valid for EVERY pertinent Y, given the EXACT Y involved, or it is not valid at all.
Thus, as to taxes, every loophole that existed for the avoidance of taxes by the wealthy during the period in question must be scrupulously preserved or restored in order for us to get back to the wonderful postulated good old days. For the loopholes are all part of the Y, right?
And there are other candidate Ys that had nothing to do with the tax system. Those were the years of the Bretton Woods accords, after all, which lasted from 1944 until 1971. These accords created a gold standard with regard to international financing. So maybe it was the gold that was behind all those good things! (Indeed, personally I take this quite seriously, although I acknowledge that just daydreaming about good old days would not make up an argument for it.)
The 1950s and 1960s were also a period when neither the US nor the UN recognized the People's Republic of China. In both contexts, only the government in Taipai was China. So ... withdraw recognition from Beijing! and go back to spelling it Peking! You want those good things "back," right?
But ... look at the list of "good things" again. The US "defeated Communism" in the 1950s and 1960s? Assuming that the word "Communism" in that sentence refers to the bloc of nations led by the old Soviet Union: didn't its "defeat" come after the reduction of the highest marginal taxes? In the late '80s and early '90s?
What the US did in the 1950s and 1960s was "contain" Communism. By, for example, making a point of committing to the defense of Quemoy and Matsu, the forward posts of the regime in Taipai that we continued to recognize as the only legitimate China. So why should this lead us to the conclusion that we should replicate the tax system of the period without also replicating its diplomacy? Rescind the recognition of Beijing! (Or, recognize reality and don't do that -- but drop silly arguments.)
The US created the interstate system during the period. Yes: but should we pay no attention now to the possibility that that is one of the causes of subsequent troubles? After all, it made the rapid consumption of gasoline a lot more easy and a lot more tempting. That in time became a geostrategic imperative: we have to keep importing the crude oil that makes that possible in ever-increasing quantaties. In the good old days, the best way to get to California was to take route 66. It made for a nice TV show but unwieldy travel. You want those good old days back? Tear up the interstates!
Does that sound silly? Well, consider again where I got the idea for such an absurd conclusion!
15 November 2008
What is Gaddafi up to?
In March of this year, the head of state in Libya, Colonel Muammer Gaddafi, announced that he planned to dismantle most of the ministries of his government, leaving oly interior, defense, and foreign affairs.
With the savings from this radical cost cutting he would distribute money to the common folk. [Gaddafi's history notwithstanding: the proposal would sound good to me were I Libyan -- though I would prefer such enlightened government-reducing measures come about from the grassroots rather than by dictatorial decree.]
A story in The Financial Times yesterday suggests that Gaddafi (I use the FT's spelling of his name) is ready to back away from this proposal, though he is backing away in a typically theatrical manner.
The story says that Gaddafi appeared on television this week to debate the merits of his plan with two of his own government officials: the governor of Libya's central bank, and the prime minister.
The bank governor warned that such a plan would cause inflation and create a balance-of-payments deficit.
The prime minister said that if Libyans are to receive such a payment, they should get it not in cash but in the form of stock in the country's banks, telecomm, and manufacturing companies, through portfolios to be managed on their behalf by its financial institutions.
Gaddafi sounded unpersuaded. Still: why did he feel it necessary to hold such an event? That is what the FT's Heba Saleh tries to figure out.
Her view -- expressed in typical reportotial fashion through quoting and paraphrasing the views of others -- seems to be that there is no enough of a technocracy in Libya that even a Gaddafi can't push through a Grand Plan in defiance thereof. He is preparing to back away frm his plan and, in so doing, he wants his constituents to know that he is doing so with regret.
In the words of Dirk Vandewalle, a Libya specialist who teaches at Dartmouth and whom Saleh quotes: "He is trying to portray a potential setback as a democratic move."
You don't have to be a weatherman to know ....
With the savings from this radical cost cutting he would distribute money to the common folk. [Gaddafi's history notwithstanding: the proposal would sound good to me were I Libyan -- though I would prefer such enlightened government-reducing measures come about from the grassroots rather than by dictatorial decree.]
A story in The Financial Times yesterday suggests that Gaddafi (I use the FT's spelling of his name) is ready to back away from this proposal, though he is backing away in a typically theatrical manner.
The story says that Gaddafi appeared on television this week to debate the merits of his plan with two of his own government officials: the governor of Libya's central bank, and the prime minister.
The bank governor warned that such a plan would cause inflation and create a balance-of-payments deficit.
The prime minister said that if Libyans are to receive such a payment, they should get it not in cash but in the form of stock in the country's banks, telecomm, and manufacturing companies, through portfolios to be managed on their behalf by its financial institutions.
Gaddafi sounded unpersuaded. Still: why did he feel it necessary to hold such an event? That is what the FT's Heba Saleh tries to figure out.
Her view -- expressed in typical reportotial fashion through quoting and paraphrasing the views of others -- seems to be that there is no enough of a technocracy in Libya that even a Gaddafi can't push through a Grand Plan in defiance thereof. He is preparing to back away frm his plan and, in so doing, he wants his constituents to know that he is doing so with regret.
In the words of Dirk Vandewalle, a Libya specialist who teaches at Dartmouth and whom Saleh quotes: "He is trying to portray a potential setback as a democratic move."
You don't have to be a weatherman to know ....
09 August 2008
Be Sure You Guess Right
At a message board where I regulartly go to vent, one of the other venters asked us all the question: "Do you wish you were an oil speculator right now?"
I do. Oil's gone from the mid-high 140's to 115. Someone's getting really rich off of this.
The big swings is always where the biggest money is made.
I think this thread has the potential to be a lot of fun. How many of you reading this thread right now didn't know that commodities speculators make money when the price goes down?
This shows a wonderful naivete that thinks of itself as sophistication. Speculators make money when the price goes down? Wow, man, you're blowing my head.
I had to reply. And I enjoyed my reply so much that, in lieu of other inspiration, I'll reproduce it here.
Oil speculators make money when the price goes down only if they knew in advance that it would, or just guessed well.
Personally, I don't believe that the average oil speculator right now knew anything in advance. It seems to have been a paradigm 'random walk' of late, both up and down. So the successful ones have been guessing right.
No ... I wouldn't want to be a speculator right now for the same reason that I don't spend a lot of time in casinos.
People who DO spend time in casinos are performing a socially useful function (somebody else will probably make better use of their money than they know how to do). Likewise, people who speculate on commodity prices are performing a socially useful function. They create a market in which other parties, commercial entities, can hedge against risks.
But I wouldn't want to be the one performing that function, no. When oil was above $140, the general guess was that it would keep going up, maybe to $200, before heading down in a big way. What [do you] believe has happened to any speculator who acted on that bit of wisdom?
I do. Oil's gone from the mid-high 140's to 115. Someone's getting really rich off of this.
The big swings is always where the biggest money is made.
I think this thread has the potential to be a lot of fun. How many of you reading this thread right now didn't know that commodities speculators make money when the price goes down?
This shows a wonderful naivete that thinks of itself as sophistication. Speculators make money when the price goes down? Wow, man, you're blowing my head.
I had to reply. And I enjoyed my reply so much that, in lieu of other inspiration, I'll reproduce it here.
Oil speculators make money when the price goes down only if they knew in advance that it would, or just guessed well.
Personally, I don't believe that the average oil speculator right now knew anything in advance. It seems to have been a paradigm 'random walk' of late, both up and down. So the successful ones have been guessing right.
No ... I wouldn't want to be a speculator right now for the same reason that I don't spend a lot of time in casinos.
People who DO spend time in casinos are performing a socially useful function (somebody else will probably make better use of their money than they know how to do). Likewise, people who speculate on commodity prices are performing a socially useful function. They create a market in which other parties, commercial entities, can hedge against risks.
But I wouldn't want to be the one performing that function, no. When oil was above $140, the general guess was that it would keep going up, maybe to $200, before heading down in a big way. What [do you] believe has happened to any speculator who acted on that bit of wisdom?
31 May 2008
Indonesia leaving OPEC
According to a story that ran in the WSJ on Wednesday, Indonesia now is only a marginal net oil exporter, and its energy minister has announced it will leave the Organization of Petroleum Exporting Countries (OPEC) at the end of 2008.
One odd aspect to the story, in the second paragraph, reporter Tom Wright refers to Indonesia as "Asia's only OPEC member." Presumably he meant "East Asia" there. Obviously, Saudi Arabia, the United Arab Emirates, etc. are in Asia. I wonder how that got past the editors.
Jeff Matthews, on his blog, employs this announcement as an object lesson in "peak oil," the theory that the world has passed the peak in oil production, it's all downhill from here.
Indonesia's oil fields were once quite a big deal in the over-all global industry. They were the foundation of Royal Dutch/Shell. Indonesia's production peak came in 1977 in 1977, when it was extracting 1.7 million barrels a day of the best stuff: more formally known as "light sweet crude."
Indonesia's remaining production is 0.2 million barrels a day. Simle arithmetic gives us a difference of 1.5 million barrels -- or the loss of as much oil as we get from Prudhoe Bay, Alaska.
The planet Earth isn't a donut with a huge jelly-like center of light sweet crude. Get used to it, people!
One odd aspect to the story, in the second paragraph, reporter Tom Wright refers to Indonesia as "Asia's only OPEC member." Presumably he meant "East Asia" there. Obviously, Saudi Arabia, the United Arab Emirates, etc. are in Asia. I wonder how that got past the editors.
Jeff Matthews, on his blog, employs this announcement as an object lesson in "peak oil," the theory that the world has passed the peak in oil production, it's all downhill from here.
Indonesia's oil fields were once quite a big deal in the over-all global industry. They were the foundation of Royal Dutch/Shell. Indonesia's production peak came in 1977 in 1977, when it was extracting 1.7 million barrels a day of the best stuff: more formally known as "light sweet crude."
Indonesia's remaining production is 0.2 million barrels a day. Simle arithmetic gives us a difference of 1.5 million barrels -- or the loss of as much oil as we get from Prudhoe Bay, Alaska.
The planet Earth isn't a donut with a huge jelly-like center of light sweet crude. Get used to it, people!
09 February 2008
The words of a parrot
I believe it was Alfred Marshall who said, "a parrot can be taught to be a competent economist." The point is, one need only teach the parrot two words: "supply" and "demand."
I submit that in order to make ourselves at least as smart as Marshall's parrot, we have to leave behind some of the regnant myths as to gasoline prices.
What makes gasoline prices go up? The parrot will tell you. Or, to fill out the avian wisdom a bit, imagine that on Tuesday, Exxon is charging me $3.00 per gallon. On Wednesday, Congress enacts a new law increasing their taxes. So by Thursday, in order to pass this along to me they'll have to charge me, we'll say, $3.50 per gallon.
Why weren't they charging me $3.50 already on Tuesday, though? Because they were being nice to me? Or because the market wouldn't bear that extra cost -- it might force me to start car pooling or move closer to where I work or something?
If there's any good reason why Exxon wasn't charging me the whole $3.50 on Tuesday, that reason still exists on Thursday, doesn't it?
From a manufacturer's point of view, an increase in the price of the raw material and an increase in taxes work out the same. They are each an increase in the cost of doing business. Neither translates into higher market demand. Does an increase in crude oil prices cause the companies to pass along that increase to consumers, thereby pushing up the price? No. Unless it can be explained through one or the other of the two factors enumerated by the parrot, this is simply irrelevant.
But haven't we seen the increase in crude oil prices causing an increase in petroleum prices, through direct pass-alongs, thereby refuting the parrot. I submit that we have not.
We've seen gasoline prices as denominated in dollars rise as a result of the loss of value of those dollars. Suppose I'm making more money this year than I was last year --- because inflation works on the wage/salary side of the economy as well as on the prices of the goods those wages are used to purchase. If I'm making more money, then I have more to spend, and I will presumably be willing to spend some of that "more" on the higher gas prices, especially if they two sides of the inflationary coin are keeping pace with one another.
The gasoline price increases that have held up after discounting for inflation are modest and have either demand or supply-oriented causes. For an example on the supply side, refinery fires and other problems putting them out of commission have limited the supply of gasoline, (not of crude oil) which of course has driven up the market price.
A toast, then, to the wisdom of Mr. Marshall's parrot.
I submit that in order to make ourselves at least as smart as Marshall's parrot, we have to leave behind some of the regnant myths as to gasoline prices.
What makes gasoline prices go up? The parrot will tell you. Or, to fill out the avian wisdom a bit, imagine that on Tuesday, Exxon is charging me $3.00 per gallon. On Wednesday, Congress enacts a new law increasing their taxes. So by Thursday, in order to pass this along to me they'll have to charge me, we'll say, $3.50 per gallon.
Why weren't they charging me $3.50 already on Tuesday, though? Because they were being nice to me? Or because the market wouldn't bear that extra cost -- it might force me to start car pooling or move closer to where I work or something?
If there's any good reason why Exxon wasn't charging me the whole $3.50 on Tuesday, that reason still exists on Thursday, doesn't it?
From a manufacturer's point of view, an increase in the price of the raw material and an increase in taxes work out the same. They are each an increase in the cost of doing business. Neither translates into higher market demand. Does an increase in crude oil prices cause the companies to pass along that increase to consumers, thereby pushing up the price? No. Unless it can be explained through one or the other of the two factors enumerated by the parrot, this is simply irrelevant.
But haven't we seen the increase in crude oil prices causing an increase in petroleum prices, through direct pass-alongs, thereby refuting the parrot. I submit that we have not.
We've seen gasoline prices as denominated in dollars rise as a result of the loss of value of those dollars. Suppose I'm making more money this year than I was last year --- because inflation works on the wage/salary side of the economy as well as on the prices of the goods those wages are used to purchase. If I'm making more money, then I have more to spend, and I will presumably be willing to spend some of that "more" on the higher gas prices, especially if they two sides of the inflationary coin are keeping pace with one another.
The gasoline price increases that have held up after discounting for inflation are modest and have either demand or supply-oriented causes. For an example on the supply side, refinery fires and other problems putting them out of commission have limited the supply of gasoline, (not of crude oil) which of course has driven up the market price.
A toast, then, to the wisdom of Mr. Marshall's parrot.
01 February 2008
Three brief items
First, Dan Rather.
His lawsuit against CBS for wrongful termination will likely go forward -- it has survived a motion to dismiss. I can't help but be happy about this, as I think the proceedings may help unearth testimony and documents that will in turn prove useful for the historians of the future as they struggle with this period in the history of the United States.
Rather, you will remember, narrated a report on the CBS evening news that said that George W. Bush shirked his duties while in the National Guard.
The authenticity of the documents came under attack, and CBS apologized for the report, expelling Rather from the anchor chair.
Rather maintains that the report was, in essence though not in every particular, accurate. He also says that he was made a scapegoat because the parent corporation of CBS, Viacom, was seeking regulatory favors from the Bush administration and had to hide the whole AWOL issue under the nearest rug.
CBS' lawyers made a motion to dismiss. No definitive decision has yet issued from the bench on that motion, but the judge has indicated he is inclined to let the matter proceed to discovery, that there is "enough in the complaint" to do so. Good for him.
Second, Crude Oil Prices.
How low will they go? And is their recent decline a good sign or a bad one? Just wondering.
You'll likely all remember that when crude prices were bumping up against $100 a barrel in the final days of 2007 that fact was covered extensively in all news media. This is natural enough: my attention tends to focus on my car's odometer as the zeros line up!
With odometers, the numbers only move in one direction. With prices, the general tendency is toward an inflation of the currency (given the fiat nature of money since the demise of the gold standard) and thus toward higher prices, but there's some non-odometer like downward movement too.
And that's what we've had. On Nymex, the spot price of a barrel of oil is now barely above $90. Is this good news or bad? Good if it amounts to a lifting of a drag upon the economy. Bad if it is symptom a symptom of a slowing-down already underway. After all, if there's going to be a lot less industrial activity in coming months, there's going to be a reduction in the demand for energy in all its forms, and the decline may simply reflect that.
Third, Springfield, Mass.
Springfield appears to have gotten away with something. For the background, go here.
Springfield has apparently persuaded Merrill Lynch that it has a case that somebody at Merrill tricked somebody in Springfield's city government into signing on to some highly speculative investments. Accordingly, Merrill has agreed to by the securities at issue back from the city at the same price at which it sold them.
This is quite a bath Merrill is taking. Those securities have lost 90% of their value since the sale, last spring, now being revoked.
Merrill has also agreed to pay outside legal fees incurred by the Springfield Finance Control Board.
This stinks. Has anybody associated with any institution ever heard the phrase "moral hazard"?
So of my three items for today, I find the first cheery, the second ambiguous, and the third depressing. A balanced portfolio of news items!
His lawsuit against CBS for wrongful termination will likely go forward -- it has survived a motion to dismiss. I can't help but be happy about this, as I think the proceedings may help unearth testimony and documents that will in turn prove useful for the historians of the future as they struggle with this period in the history of the United States.
Rather, you will remember, narrated a report on the CBS evening news that said that George W. Bush shirked his duties while in the National Guard.
The authenticity of the documents came under attack, and CBS apologized for the report, expelling Rather from the anchor chair.
Rather maintains that the report was, in essence though not in every particular, accurate. He also says that he was made a scapegoat because the parent corporation of CBS, Viacom, was seeking regulatory favors from the Bush administration and had to hide the whole AWOL issue under the nearest rug.
CBS' lawyers made a motion to dismiss. No definitive decision has yet issued from the bench on that motion, but the judge has indicated he is inclined to let the matter proceed to discovery, that there is "enough in the complaint" to do so. Good for him.
Second, Crude Oil Prices.
How low will they go? And is their recent decline a good sign or a bad one? Just wondering.
You'll likely all remember that when crude prices were bumping up against $100 a barrel in the final days of 2007 that fact was covered extensively in all news media. This is natural enough: my attention tends to focus on my car's odometer as the zeros line up!
With odometers, the numbers only move in one direction. With prices, the general tendency is toward an inflation of the currency (given the fiat nature of money since the demise of the gold standard) and thus toward higher prices, but there's some non-odometer like downward movement too.
And that's what we've had. On Nymex, the spot price of a barrel of oil is now barely above $90. Is this good news or bad? Good if it amounts to a lifting of a drag upon the economy. Bad if it is symptom a symptom of a slowing-down already underway. After all, if there's going to be a lot less industrial activity in coming months, there's going to be a reduction in the demand for energy in all its forms, and the decline may simply reflect that.
Third, Springfield, Mass.
Springfield appears to have gotten away with something. For the background, go here.
Springfield has apparently persuaded Merrill Lynch that it has a case that somebody at Merrill tricked somebody in Springfield's city government into signing on to some highly speculative investments. Accordingly, Merrill has agreed to by the securities at issue back from the city at the same price at which it sold them.
This is quite a bath Merrill is taking. Those securities have lost 90% of their value since the sale, last spring, now being revoked.
Merrill has also agreed to pay outside legal fees incurred by the Springfield Finance Control Board.
This stinks. Has anybody associated with any institution ever heard the phrase "moral hazard"?
So of my three items for today, I find the first cheery, the second ambiguous, and the third depressing. A balanced portfolio of news items!
24 January 2008
There Will Be Blood
I saw the movie There Will Be Blood last weekend.
The plot is straightforward, and kin to that of The Aviator or Citizen Kane. The protagonist in each of these three cases is an entrepreneur, and we see him overcoming various obstacles in order to build a thriving business and get himself a large mansion.
But in movies of this sort we're also supposed to get a sense of vast human costs intertwined with that success. We end up with Hearst/Kane dying alone in that mansion with the name of a childhood toy on his lips. Or, in The Aviator, with Howard Hughes so imprisoned by his various obsessions that he can't enjoy his victories in the marketplace. There is an analogous ending here, which I won't give away.
The point I have to give away, though, is that we feel the loneliness of the big mansion Daniel Plainview comes to own, a mansion that may have been inspired by one he saw as a kid back in Wisconsin, but one surely on a far grander scale, with enough room for its own bowling alley. We were allowed along the way to enjoy the sheer force of will, the human energy, that force that laid the pipeline to the sea, the pipeline that the Standard Oil honchos thought the protagonist would never be able to build. He built it, by gum. But we feel the hollowness at its end.
This movie makes abundant reference to the biblical resonance of brotherly struggle. Esau the ruddy hunter, and Jacob, his (barely) younger brother, the studious fellow who "dwelled in tents."
There are two distinct brotherly rivalries at the heart of this movie. On the one hand, there are two brothers (played by the same actor) in the Sunday family, which owns land that the Oilman needs for his derrick.
On the other hand, there are (or might be) two Plainview brothers in the movie, and their relationship is foreground just when that of the two Sundays is background.
In short, I loved this movie.
The plot is straightforward, and kin to that of The Aviator or Citizen Kane. The protagonist in each of these three cases is an entrepreneur, and we see him overcoming various obstacles in order to build a thriving business and get himself a large mansion.
But in movies of this sort we're also supposed to get a sense of vast human costs intertwined with that success. We end up with Hearst/Kane dying alone in that mansion with the name of a childhood toy on his lips. Or, in The Aviator, with Howard Hughes so imprisoned by his various obsessions that he can't enjoy his victories in the marketplace. There is an analogous ending here, which I won't give away.
The point I have to give away, though, is that we feel the loneliness of the big mansion Daniel Plainview comes to own, a mansion that may have been inspired by one he saw as a kid back in Wisconsin, but one surely on a far grander scale, with enough room for its own bowling alley. We were allowed along the way to enjoy the sheer force of will, the human energy, that force that laid the pipeline to the sea, the pipeline that the Standard Oil honchos thought the protagonist would never be able to build. He built it, by gum. But we feel the hollowness at its end.
This movie makes abundant reference to the biblical resonance of brotherly struggle. Esau the ruddy hunter, and Jacob, his (barely) younger brother, the studious fellow who "dwelled in tents."
There are two distinct brotherly rivalries at the heart of this movie. On the one hand, there are two brothers (played by the same actor) in the Sunday family, which owns land that the Oilman needs for his derrick.
On the other hand, there are (or might be) two Plainview brothers in the movie, and their relationship is foreground just when that of the two Sundays is background.
In short, I loved this movie.
08 December 2007
Mezrich's latest
Rigged, the latest book by Ben Mezrich, describes the world of oil-futures trading.
It may not sound like the most natural subject for book by a general-interest publisher like William Morrow -- given the bald statement of the setting above, one might have expected Wiley & Sons to publish this.
But Mezrich became famous with a book about card counting in casinos. For him, the oil futures exchange, especially the New York Mercantile Exchange, or NYMEX, where much of this book is set, is as exciting as any casino in Vegas, and his goal is to make us feel the same.
I've written about Ben Mezrich in this blog before, in particular about his book about American arbitrageurs in east Asia, The Ugly Americans. As I said at the time, the claims of the book to be non-fiction are a bit unsettling. Mezrich changes more than merely the names of his characters, and at some point "protecting one's sources" and such becomes, simply, fictionalization.
I have the same difficulty with this one. Consider the subtitle of Rigged. It's "The True Story of an Ivy League Kid who Changed the World of Oil, from Wall Street to Dubai." The insistence upon the "true story" part is my hang-up here.
Consider, now, the following passage, the opening paragraph of chapter 3.
"There was something uniquely soothing about the whir of helicopter blades. The rhythmic, circular disruption of air, each and every turn apply calculable lift, allowing a thing that should not fly instead to float, like a magic carpet in a child's coloring book -- a carpet made of steel and Plaxiglas and in this case solid gold. Even as the rhythm slowed and the floating, five-ton, bug-eyed carpet came to a gentle rest on the jutting ivory-white helipad, the whirring blades continued their soulful cadence, the long steel appendages cutting slower and slower arcs until all that was left was the beat of the thing itself, the soothing rhythm of a thing that should not be -- but, indeed, was."
Clearly, the author is taking us inside the mind of one of his characters here. The character in question isn't the "ivy league kid" the book is written about. Rather, its another young man, a Cambridge University schooled heir to Arabic nobility, Khaled Abdul-Aziz. Khaled's desire to do something grand for the future of Dubai makes him in time an important ally to the central character's desire to modernize and expand NYMEX. And it's Khaled who is supposedly thinking these thoughts about helicopters and their soothing blades.
As a piece of descriptive prose in a novel, I'd consider the above over-wrought. And the "carpet made of steel" bit makes the helicopter sound like a train they call the City of New Orleans. Still, since we're reading a work of non-fiction, we can infer that at some point Khaled confided in Mezrich about his feelings regarding helicopters, right?
Wrong. At this point, we have to flip back to the author's note, where we find the following lovely disclaimer. "Characters such as Gallo and Khaled are composites and are not meant to portray particular people."
I'll ignore Gallo for this post. Khaled is a composite? Non-fiction is, I think, consistent with the use of composites to simplify an overly complex narrative when the author is (as here) upfront about that. But ... composites in that sense don't have a "stream of consciousness." If we portray a composite as thinking of the "slower and slower arcs" of a helicopter on the landing pad as "soothing" then we've crossed the line and created a fictional character.
The South Park character "Towlie" did this sort of "non-fiction" writing once. He had an excuse. He was smoking pot at the time.
It may not sound like the most natural subject for book by a general-interest publisher like William Morrow -- given the bald statement of the setting above, one might have expected Wiley & Sons to publish this.
But Mezrich became famous with a book about card counting in casinos. For him, the oil futures exchange, especially the New York Mercantile Exchange, or NYMEX, where much of this book is set, is as exciting as any casino in Vegas, and his goal is to make us feel the same.
I've written about Ben Mezrich in this blog before, in particular about his book about American arbitrageurs in east Asia, The Ugly Americans. As I said at the time, the claims of the book to be non-fiction are a bit unsettling. Mezrich changes more than merely the names of his characters, and at some point "protecting one's sources" and such becomes, simply, fictionalization.
I have the same difficulty with this one. Consider the subtitle of Rigged. It's "The True Story of an Ivy League Kid who Changed the World of Oil, from Wall Street to Dubai." The insistence upon the "true story" part is my hang-up here.
Consider, now, the following passage, the opening paragraph of chapter 3.
"There was something uniquely soothing about the whir of helicopter blades. The rhythmic, circular disruption of air, each and every turn apply calculable lift, allowing a thing that should not fly instead to float, like a magic carpet in a child's coloring book -- a carpet made of steel and Plaxiglas and in this case solid gold. Even as the rhythm slowed and the floating, five-ton, bug-eyed carpet came to a gentle rest on the jutting ivory-white helipad, the whirring blades continued their soulful cadence, the long steel appendages cutting slower and slower arcs until all that was left was the beat of the thing itself, the soothing rhythm of a thing that should not be -- but, indeed, was."
Clearly, the author is taking us inside the mind of one of his characters here. The character in question isn't the "ivy league kid" the book is written about. Rather, its another young man, a Cambridge University schooled heir to Arabic nobility, Khaled Abdul-Aziz. Khaled's desire to do something grand for the future of Dubai makes him in time an important ally to the central character's desire to modernize and expand NYMEX. And it's Khaled who is supposedly thinking these thoughts about helicopters and their soothing blades.
As a piece of descriptive prose in a novel, I'd consider the above over-wrought. And the "carpet made of steel" bit makes the helicopter sound like a train they call the City of New Orleans. Still, since we're reading a work of non-fiction, we can infer that at some point Khaled confided in Mezrich about his feelings regarding helicopters, right?
Wrong. At this point, we have to flip back to the author's note, where we find the following lovely disclaimer. "Characters such as Gallo and Khaled are composites and are not meant to portray particular people."
I'll ignore Gallo for this post. Khaled is a composite? Non-fiction is, I think, consistent with the use of composites to simplify an overly complex narrative when the author is (as here) upfront about that. But ... composites in that sense don't have a "stream of consciousness." If we portray a composite as thinking of the "slower and slower arcs" of a helicopter on the landing pad as "soothing" then we've crossed the line and created a fictional character.
The South Park character "Towlie" did this sort of "non-fiction" writing once. He had an excuse. He was smoking pot at the time.
08 November 2007
New York Times goof
The New York Times did a puff piece on "Money Honey" Maria Bartiromo on Monday. She came under intense criticism in January for conflicts of interests, under circumstances that suggested hanky-panky on a corporate jet. That's all settled down, though, and as the NYT story suggests at length, she's had a good year since.
Why do I care? I don't. But this is what I care about. The reporters transcribing her interview evidently didn't know enough about contemporary finance to know what a "sovereign fund" is.
“I love this thing now called sovereign funds,” she said, meaning the large pools of capital amassed by governments in Asia and the Middle East, and managed by groups like Cutter Associates, an international investment firm. “I had the head of Cutter on and he said: ‘Look, we have $60 billion we want to put to work.’ I find that kind of stuff so exciting. I find it so sexy.”
(That's how the final graf of the story read when it first ran. It's been changed since, so that's not exactly what you'll see if you look for the online version. I'm getting to that.)
A "sovereign fund" is by definition an investment fund operated by, and in pursuance of the policy goals of, the government of a sovereign nation. Usually a nation that's got way more revenues that it can spend on ordinary government operations, and it needs to figure out what to do with the surplus. Oil exporting nations are often in that situation.
It seems pretty obvious, if you know that much, that she wasn't talking about Cutter Associates. That's a research/consultancy. http://www.cutterassociates.com/cutter_research/index.html
I doubt Cutter has $60 billion lying around. And even if it did, it wouldn't be a "sovereign fund."
No, the Money Honey was talking about the Qatar Investment Authority. Qatar is pronounced much like Cutter, at least by those of us unaccustomed to the phonetics of the Arabic tongue. I can only hypothesize that the interviewer heard "Cutter something something," wrote it down, and did a google search later. What do you know? google doesn't recognize "Cutter" as being "Qatar," but it would refer the inquiry to Cutter Associates, which "must be what she meant." So that's how it got into the story.
I'm not a reliable reader of the New York Times. I read something when I have a reason to. In this case, a couple of blogs I check out regularly jumped on it, and I followed the link from one of them.
Surely, you might think, this would be easily fixed, right? It would come to the attention of some editor who knows what a sovereign fund is, and "Cutter Associates" would be changed into "Qatar Investment Authority." Heck, Maria might give them a call and say "that's not what I said or meant" if she had a moment.
Well, I don't know whether Maria called. But somebody at the NYT recognized the problem. And there was a change. But not really the right one. If you surf over to the on-line version of the story now (unless they change it again between the time I'm writing this and the time you read it) it'll say "Qatar Associates." You'll also find a "For the Record" correction pointing this change out.
There is no Qatar Associates. At least when they printed "Cutter Associates" they were referring to a real institution, even if it's the wrong one. On the third try, they might actually check out a link like this: http://www.zawya.com/cm/profile.cfm/cid1003480
and learn something about the Qatar Investment Authority.
I think Felix Salmon draws the right lesson from all this, so I won't make any puns about his feline/fishy name. Here's his take.
http://www.portfolio.com/views/blogs/market-movers/2007/11/06/nyt-bartiromo-the-comedy-of-errors-continues
Why do I care? I don't. But this is what I care about. The reporters transcribing her interview evidently didn't know enough about contemporary finance to know what a "sovereign fund" is.
“I love this thing now called sovereign funds,” she said, meaning the large pools of capital amassed by governments in Asia and the Middle East, and managed by groups like Cutter Associates, an international investment firm. “I had the head of Cutter on and he said: ‘Look, we have $60 billion we want to put to work.’ I find that kind of stuff so exciting. I find it so sexy.”
(That's how the final graf of the story read when it first ran. It's been changed since, so that's not exactly what you'll see if you look for the online version. I'm getting to that.)
A "sovereign fund" is by definition an investment fund operated by, and in pursuance of the policy goals of, the government of a sovereign nation. Usually a nation that's got way more revenues that it can spend on ordinary government operations, and it needs to figure out what to do with the surplus. Oil exporting nations are often in that situation.
It seems pretty obvious, if you know that much, that she wasn't talking about Cutter Associates. That's a research/consultancy. http://www.cutterassociates.com/cutter_research/index.html
I doubt Cutter has $60 billion lying around. And even if it did, it wouldn't be a "sovereign fund."
No, the Money Honey was talking about the Qatar Investment Authority. Qatar is pronounced much like Cutter, at least by those of us unaccustomed to the phonetics of the Arabic tongue. I can only hypothesize that the interviewer heard "Cutter something something," wrote it down, and did a google search later. What do you know? google doesn't recognize "Cutter" as being "Qatar," but it would refer the inquiry to Cutter Associates, which "must be what she meant." So that's how it got into the story.
I'm not a reliable reader of the New York Times. I read something when I have a reason to. In this case, a couple of blogs I check out regularly jumped on it, and I followed the link from one of them.
Surely, you might think, this would be easily fixed, right? It would come to the attention of some editor who knows what a sovereign fund is, and "Cutter Associates" would be changed into "Qatar Investment Authority." Heck, Maria might give them a call and say "that's not what I said or meant" if she had a moment.
Well, I don't know whether Maria called. But somebody at the NYT recognized the problem. And there was a change. But not really the right one. If you surf over to the on-line version of the story now (unless they change it again between the time I'm writing this and the time you read it) it'll say "Qatar Associates." You'll also find a "For the Record" correction pointing this change out.
There is no Qatar Associates. At least when they printed "Cutter Associates" they were referring to a real institution, even if it's the wrong one. On the third try, they might actually check out a link like this: http://www.zawya.com/cm/profile.cfm/cid1003480
and learn something about the Qatar Investment Authority.
I think Felix Salmon draws the right lesson from all this, so I won't make any puns about his feline/fishy name. Here's his take.
http://www.portfolio.com/views/blogs/market-movers/2007/11/06/nyt-bartiromo-the-comedy-of-errors-continues
27 July 2007
Fossil Fuels
I'm going to give you the benefit of three stories hot off the wires without much of a common thread to them, except that (a) if you get your news from television, or just from the front page of your local paper, you probably won't hear of any of these, and (b) they all involve the world's fossil-fuel energy industries.
1) Moody's upgrades Qatar. Moody's Investor Service said that it now regards Qatar Petroleum's senior unsecured bonds as an Aa2 investment, an upgrade from an Aa3. Qatar Petroleum is a government-related business, but its bonds aren't sovereign bonds. Still, Moody's says the reason it is more confident in Qatar Petroleum now is that it is more confident in Qatar. More confident than ... when? Well ... more confident than it was in February, which was the heighth of a Qatar-related terrorism scare.
2) China to go homegrown. An agency headquartered in Beijing, the National Development and Reform Commission, has put out a draft report on how to encourage the homegrown petroleum and petrochemical equipment industries. It isn't obvious how much clout within the government as a whole this commission has, or what effects this development will have upon the huge energy market that the PRC is, and the even more huge market it promises to become. Still, it is evidence that "energy independence" as a policy goal isn't a distinctively American idea.
3) Civil actions against Amaranth, some of its traders. Meanwhile, in the US, both the Federal Energy Regulatory Commission (Ferc) and the Commodity Futures Trading Commission (CFTC) have this week brought actions against the corporate shell of Amaranth, and against its infamous 6-billion-dollars-losing trader, Brian Hunter. Hunter's disastrous trades were in natural gas futures. FERC has jurisdiction over the markets for the gas itself, the CFTC has jurisdiction over the market for commodity futures contracts. Mr. Hunter seems to have been trying to play them off against one another to avoid such an action, but to no avail. He seems only to have persuaded them to team up.
To what does all this add? Damned if I know. I put them together because they illustrate the difference between the speculation around an industry and the fundamentals, between the wagging tail and the standing dog. My instinct is that the speculators (like Mr. Hunter) don't really drive the fundamentals. Whether or not Qatar's energy-related facilities are well-protected from terrorist strikes: that's a fundamental. That's the dog that wags the tail of speculation.
The news from China is somewhere in the middle of the spectrum: whatever plans they have for stiffening up their home industry are too tentative to be fundamentals yet, but the issue that commission addressed does seem to be more real than the personal fate of Mr. Hunter. So I guess the lesson from my three random tidbits is simply the difficulty, in the crush of industry news, is distinguishing which is which. What's the dog, and what's the tail?
1) Moody's upgrades Qatar. Moody's Investor Service said that it now regards Qatar Petroleum's senior unsecured bonds as an Aa2 investment, an upgrade from an Aa3. Qatar Petroleum is a government-related business, but its bonds aren't sovereign bonds. Still, Moody's says the reason it is more confident in Qatar Petroleum now is that it is more confident in Qatar. More confident than ... when? Well ... more confident than it was in February, which was the heighth of a Qatar-related terrorism scare.
2) China to go homegrown. An agency headquartered in Beijing, the National Development and Reform Commission, has put out a draft report on how to encourage the homegrown petroleum and petrochemical equipment industries. It isn't obvious how much clout within the government as a whole this commission has, or what effects this development will have upon the huge energy market that the PRC is, and the even more huge market it promises to become. Still, it is evidence that "energy independence" as a policy goal isn't a distinctively American idea.
3) Civil actions against Amaranth, some of its traders. Meanwhile, in the US, both the Federal Energy Regulatory Commission (Ferc) and the Commodity Futures Trading Commission (CFTC) have this week brought actions against the corporate shell of Amaranth, and against its infamous 6-billion-dollars-losing trader, Brian Hunter. Hunter's disastrous trades were in natural gas futures. FERC has jurisdiction over the markets for the gas itself, the CFTC has jurisdiction over the market for commodity futures contracts. Mr. Hunter seems to have been trying to play them off against one another to avoid such an action, but to no avail. He seems only to have persuaded them to team up.
To what does all this add? Damned if I know. I put them together because they illustrate the difference between the speculation around an industry and the fundamentals, between the wagging tail and the standing dog. My instinct is that the speculators (like Mr. Hunter) don't really drive the fundamentals. Whether or not Qatar's energy-related facilities are well-protected from terrorist strikes: that's a fundamental. That's the dog that wags the tail of speculation.
The news from China is somewhere in the middle of the spectrum: whatever plans they have for stiffening up their home industry are too tentative to be fundamentals yet, but the issue that commission addressed does seem to be more real than the personal fate of Mr. Hunter. So I guess the lesson from my three random tidbits is simply the difficulty, in the crush of industry news, is distinguishing which is which. What's the dog, and what's the tail?
02 July 2007
Iran and Petroleum
There have been riots in Iran in recent days over the rationing of gasoline.
Accounts have differed wildly. Perhaps 20 gasoline stations were attacked by rioters. Perhaps as many as 50.
Perhaps there have been no deaths. Perhaps there have been three.
But that there has been unrest is clear through the haze, and it makes the point that gasoline isn't a raw material -- it is the product of industry, of a refining. The critical variable isn't the per-barrel price of crude we hear about so often (or isn't always that, anyway) but refinery capacity.
One is reminded of the Shah's pre-revolutionary regime, which likewise sought to plan its way into status as a front-rank industrial power. Central planning doesn't work, and when the central planners are overthrown by a revolution, and the revolutionaries try a somewhat different style of central planning ... it still doesn't work.
Accounts have differed wildly. Perhaps 20 gasoline stations were attacked by rioters. Perhaps as many as 50.
Perhaps there have been no deaths. Perhaps there have been three.
But that there has been unrest is clear through the haze, and it makes the point that gasoline isn't a raw material -- it is the product of industry, of a refining. The critical variable isn't the per-barrel price of crude we hear about so often (or isn't always that, anyway) but refinery capacity.
One is reminded of the Shah's pre-revolutionary regime, which likewise sought to plan its way into status as a front-rank industrial power. Central planning doesn't work, and when the central planners are overthrown by a revolution, and the revolutionaries try a somewhat different style of central planning ... it still doesn't work.
08 June 2007
Beyond the Cynical Answer
My brother asked me yesterday how the US antitrust authorities could ever have allowed Exxon and Mobil to merge. Don't we still even have antitrust laws?
There was a time (the late 1970s and early 1980s, to be precise) when I was very well versed on those laws and on then-current trends in their application. I wrote a casenote for my school's law review on an antitrust enforcement action involving physicians' fees. In my final year at law school I interviewed with a Justice Department official about a job at in their antitrust division. So it wasn't too odd for my brother to think I'd have an informed opinion on the subject.
But my life and the directions of my thinking have gone in very different directions, and I had no idea how to answer the question.
I do know that according to standard operating procedure, any significant merger involving two firms in the same industry will be reviewed by either the relevant division of the Justice Department (the ones who didn't give me the job, not that I'm bitter, grrrrr) or by the Federal Trade Commission. I assumed, during our brief diner conversation on this subject yesterday, that some such review took place in one of those institutions or the other in 1999, when the Exxon/Mobil merger was in the offing.
Mind the date: 1999. You can't blame the Bush administration for this one. The only answer that came to mind was the cynical one. Perhaps Exxon and Mobil are just too powerful for any White House, and its attendant Justice Department or FTC, to cross.
I didn't give that answer, though. I hemmed and hawed about how complicated it was.
Politically, the question really is more complicated than the cynical answer will allow. In the midst of the Lewinsky impeachment trial, Clinton really had little to lose by picking a fight with Exxon and Mobil. It would have cheered his political base immensely, and they surely could have used the cheering. It wouldn't have angered anyone who wasn't already furiously against him.
Institutionally, too, the question is tangled. The career civil servants who would have had to pass on the subject in one of the afore-mentioned agencies would have been, I'm confident, unlikely to act in any crudely corrupt manner. They didn't go around with Exxon's thousand-dollar-bills sticking out of their pockets while working on their assessments. I'm pretty sure we would have heard about it if they had.
So what DID happen? The Exxon/Mobil merger put together again roughly the Standard Oil trust that Teddy Roosevelt had shattered in the heroic early days of antitrust law. This makes it a puzzle on a psychological level: didn't that matter to anyone?
So when I had a chance I went to a computer and did some research. It was the FTC, not the Justice Dept., that drew the short straw on this one. And these are the reasons they gave for allowing the merger:
http://www.ftc.gov/opa/1999/11/exxonmobil.shtm
There was a time (the late 1970s and early 1980s, to be precise) when I was very well versed on those laws and on then-current trends in their application. I wrote a casenote for my school's law review on an antitrust enforcement action involving physicians' fees. In my final year at law school I interviewed with a Justice Department official about a job at in their antitrust division. So it wasn't too odd for my brother to think I'd have an informed opinion on the subject.
But my life and the directions of my thinking have gone in very different directions, and I had no idea how to answer the question.
I do know that according to standard operating procedure, any significant merger involving two firms in the same industry will be reviewed by either the relevant division of the Justice Department (the ones who didn't give me the job, not that I'm bitter, grrrrr) or by the Federal Trade Commission. I assumed, during our brief diner conversation on this subject yesterday, that some such review took place in one of those institutions or the other in 1999, when the Exxon/Mobil merger was in the offing.
Mind the date: 1999. You can't blame the Bush administration for this one. The only answer that came to mind was the cynical one. Perhaps Exxon and Mobil are just too powerful for any White House, and its attendant Justice Department or FTC, to cross.
I didn't give that answer, though. I hemmed and hawed about how complicated it was.
Politically, the question really is more complicated than the cynical answer will allow. In the midst of the Lewinsky impeachment trial, Clinton really had little to lose by picking a fight with Exxon and Mobil. It would have cheered his political base immensely, and they surely could have used the cheering. It wouldn't have angered anyone who wasn't already furiously against him.
Institutionally, too, the question is tangled. The career civil servants who would have had to pass on the subject in one of the afore-mentioned agencies would have been, I'm confident, unlikely to act in any crudely corrupt manner. They didn't go around with Exxon's thousand-dollar-bills sticking out of their pockets while working on their assessments. I'm pretty sure we would have heard about it if they had.
So what DID happen? The Exxon/Mobil merger put together again roughly the Standard Oil trust that Teddy Roosevelt had shattered in the heroic early days of antitrust law. This makes it a puzzle on a psychological level: didn't that matter to anyone?
So when I had a chance I went to a computer and did some research. It was the FTC, not the Justice Dept., that drew the short straw on this one. And these are the reasons they gave for allowing the merger:
http://www.ftc.gov/opa/1999/11/exxonmobil.shtm
25 May 2007
Not what I expected
I admit, recent developments in the auto industry have taken me by surprise.
As my faithful readers may remember, my working theory has been that the US domestic auto industry will integrate with -- in effect, in will become an arm of -- the petroleum industry.
The profit margin is with the blades, not with the razor that holds them. The economic significance of the razor is to lock you in to buying the blades that fit it. The economic significance of an automobile, likewise, is to lock you in to buying an endless stream of petroleum. So: why are the two industries not one already?
The reasoning still seems sound, but ... the restructuring of the domestic auto industry has been well underway all spring, and has gone in a very different direction. There's been an auction for Chrysler of late, and none of the oil companies even stepped forward as a bidder.
Why not? The puzzle, for me, is compounded somewhat when I look at their stock buybacks. They've been very aggressive in buying themselves of late. ExxonMobil has spent close to $48 billion over the last two years in buying its own stock. There are lots of reasons why companies do this. They might want to avoid dilution, they may want to discourage a proxy fight or a takeover.
But another reason a company buys its own stock is ... to have it to offer again as part of the price of an acquisition, which may be preferable to a cash-only deal.
BusinessWeek recently quoted an Oppenheimer analyst who said: "ExxonMobil could go tomorrow and buy a company for $100 billion using its own stock."
So, why not Chrysler? It may well be hoping that the big prize yet falls into its lap -- that it can offer those shares in return for control of General Motors, the (domestic) Razor king.
Or my theory about the synergy to be found in such a combination might just be wrong. That's a possibility, too.
As my faithful readers may remember, my working theory has been that the US domestic auto industry will integrate with -- in effect, in will become an arm of -- the petroleum industry.
The profit margin is with the blades, not with the razor that holds them. The economic significance of the razor is to lock you in to buying the blades that fit it. The economic significance of an automobile, likewise, is to lock you in to buying an endless stream of petroleum. So: why are the two industries not one already?
The reasoning still seems sound, but ... the restructuring of the domestic auto industry has been well underway all spring, and has gone in a very different direction. There's been an auction for Chrysler of late, and none of the oil companies even stepped forward as a bidder.
Why not? The puzzle, for me, is compounded somewhat when I look at their stock buybacks. They've been very aggressive in buying themselves of late. ExxonMobil has spent close to $48 billion over the last two years in buying its own stock. There are lots of reasons why companies do this. They might want to avoid dilution, they may want to discourage a proxy fight or a takeover.
But another reason a company buys its own stock is ... to have it to offer again as part of the price of an acquisition, which may be preferable to a cash-only deal.
BusinessWeek recently quoted an Oppenheimer analyst who said: "ExxonMobil could go tomorrow and buy a company for $100 billion using its own stock."
So, why not Chrysler? It may well be hoping that the big prize yet falls into its lap -- that it can offer those shares in return for control of General Motors, the (domestic) Razor king.
Or my theory about the synergy to be found in such a combination might just be wrong. That's a possibility, too.
04 May 2007
BP: The Wrong Scandal
The chief executive of BP (the company that used to be known as "British Petroleum" -- although nowadays they insist that BP is the whole name, not a set of initials for anything) resigned this week. On Mayday, in fact.
The chief executive, John Browne, a/k/a Lord Browne, a/k/a Baron Browne of Madingley, resigned after he lost a court fight to keep certain secrets with regard to his relationship with a young man, named Jeff Chevalier. The two broke up last year, and it seemed to dawn upon Mr. Chevalier (what a great name!) that if you break up with your sugar Daddy, you can't keep up the lifestyle that he had been buying for you.
So Jeff decided to tattle about their relationship for pay, and Lord Browne sought to enjoin Fleet Street's finest from reporting on their dalliance. In the course of this litigation, the Lord seems now to have perjured himself, on such issues as how the two met. They met on a website designed for such meetings, but they had apparently invented the cover story (when they were quite opening moving about in society circles as a couple) that they met while jogging in Battersea Park. The Lord seems to have tried to sell that cover story to the courts, too, but the scorned Chevalier wouldn't let him get away with it.
Do I care? Of course not. Gossip is a rather low form of amusement. But what saddens me here is that Lord Browne had a lot of GOOD reasons over the last couple of years why he should have resigned, yet no one on the board of directors seems to have been at all interested in rebuking him (indeed, they only recently -- April 12 -- sweetened his pension deal) until gay-sex scandal entered the picture.
Consider the good reasons for getting rid of Lord Browne. Related to his actual ... well, you know ... business.
BP was indicted by the U.S. Chemical Safety and Hazard Investigation Board for its role in the Texas City Refinery disaster in 2005. Fifteen people dies in large part because BP scrimped on safety measures.
Other US agencies are investigating BP on charges of market manipulation.
There's a continuing investigation of the pollution related to its pipeline at Prudhoe Bay, Alaska -- oil on the tundra after years of poor maintenance.
Well ... if it took a sex scandal to get him out of the corner office, thank goodness for the salacious instincts of the London press.
The chief executive, John Browne, a/k/a Lord Browne, a/k/a Baron Browne of Madingley, resigned after he lost a court fight to keep certain secrets with regard to his relationship with a young man, named Jeff Chevalier. The two broke up last year, and it seemed to dawn upon Mr. Chevalier (what a great name!) that if you break up with your sugar Daddy, you can't keep up the lifestyle that he had been buying for you.
So Jeff decided to tattle about their relationship for pay, and Lord Browne sought to enjoin Fleet Street's finest from reporting on their dalliance. In the course of this litigation, the Lord seems now to have perjured himself, on such issues as how the two met. They met on a website designed for such meetings, but they had apparently invented the cover story (when they were quite opening moving about in society circles as a couple) that they met while jogging in Battersea Park. The Lord seems to have tried to sell that cover story to the courts, too, but the scorned Chevalier wouldn't let him get away with it.
Do I care? Of course not. Gossip is a rather low form of amusement. But what saddens me here is that Lord Browne had a lot of GOOD reasons over the last couple of years why he should have resigned, yet no one on the board of directors seems to have been at all interested in rebuking him (indeed, they only recently -- April 12 -- sweetened his pension deal) until gay-sex scandal entered the picture.
Consider the good reasons for getting rid of Lord Browne. Related to his actual ... well, you know ... business.
BP was indicted by the U.S. Chemical Safety and Hazard Investigation Board for its role in the Texas City Refinery disaster in 2005. Fifteen people dies in large part because BP scrimped on safety measures.
Other US agencies are investigating BP on charges of market manipulation.
There's a continuing investigation of the pollution related to its pipeline at Prudhoe Bay, Alaska -- oil on the tundra after years of poor maintenance.
Well ... if it took a sex scandal to get him out of the corner office, thank goodness for the salacious instincts of the London press.
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