Me on Marc Fleury on Mark Shuttleworth on the economy (and fed rate cuts)

I enjoyed reading Marc’s comments on Mark Shuttleworth’s blog post about the fed cuts.

It’s exciting to see such economic sense from successful open source celebrities. It’s as if actors making political proclamations could comment intelligently on the Federalist Papers and their relevance today. But of course, the difference is that Marc and Mark are real life millionaire entrepreneurs and Martin Sheen only plays the president on TV. I won’t comment on real politicians, because most of them, like most millionaires, got there the really hard way (for most of us.)

Of course, I couldn’t help myself and added my comments under marcf’s blog. My prediction, in brief: stagnant housing, stagnant dollar, low liquidity, long recession, high inflation, worse news almost everywhere outside the US. I wouldn’t be surprised to see dollar/euro near parity in the next two years, but a worse economy in the US than western Europe for the average joe, who will be paying off a mortgage he can’t afford that his European counterpart won’t have.

Eventually once debts are repaid, in part thanks to inflation, slow equity buildup will make the US economy stronger. Especially US financial institutions will benefit once people can start reinvesting in stocks and real estate (which has practically become a stock, with all the realty investment companies) thanks to the bailout, the inflation writeoff, and the lack of government management that European and Asian banks have.

I’m not sure how England will fare, considering they’re (as usual) split between the US- and Euro- centric spheres. The pound will probably tank, but that might actually help investment there. Alternately, the pound stays strong and third world investments shift to London, as they’ve been doing recently. But I think British banks are on shakier ground. RBS after the acquisitions is strapped, HSBC has way more exposure than Citi to subprimes, and Northern Rock is a scary foreshadow of many others, the surface of which, no one wants to scratch too deeply.

Like the “corporate corruption” scandals of a few years ago, where Tyco was the last political scapegoat taken down, and then Democrats realized that their big corporate donors were just as vulnerable to “accounting irregularities” as Republicans.

I think banks are treading on eggshells, and no one wants to start the domino chain. That applies both to the US and England, but I think moreso in England. Especially thanks to it being a small island and having more investment overseas, particularly in emerging markets. Maybe the diversification will help it though.

Okay here’s my (slightly edited) Marc’s blog. Blogs could really use some improvement. And I hate pingbacks, trackbacks, besides not knowing how to do them. Cut and paste is my thing:

Inflation has been the endgame strategy since LTCM. Inflation was to finance the war on terror, (if you didn’t see it that’s because you didn’t look at housing or oil prices — or other “volatiles” like food that were dropped from the CPI long ago) and inflation will bail out the lenders and the housing speculators.

And there were a lot of secretaries and soccer moms speculating. I happen to know a physician’s assistant who quit her job, dropped out of nursing school, and lived the high life off of the gift of one rental from her parents, became a realtor, increased her holdings to three rentals and a place in a good school district for her and her newlywed husband. I feel sorry for her now.

It’s people like her that the government are going to bail out, because they want her vote.

And it’s people like me who didn’t get into the housing market in 2004 because it looked risky, watched it inflate beyond our ability to enter by 2006, enduring told-you-sos while we watched the purchasing power of our savings reduce by half, relished our “you were rights” in 2007, and now feel an ominous sinking knowing that the masses of people who bought at 25% above value and expected another 25% return, won’t be disappointed, and it’ll be the lunch money, retirement money, and savings of the rest of us that will have to pay for it.

The price of housing won’t go down, and the value of the dollar won’t go up.

Of course, this is all just guessing by some kid in his metaphorical parents’ garage, and I don’t pretend to understand the “dismal science” better than anyone else, but I think Mark is closer to the truth than Marc. That’s all I’m trying to say.

If I’m right on all accounts, as I expect to be –doesn’t everyone– I still doubt anyone will pay attention. Which is as it should be. I’d probably be wrong the next time.

John Edwards’ Essay on Foreign Affairs

“This century’s first test of our leadership arrived with terrible force on September 11, 2001. When the United States was attacked, the entire world stood with us. We could have pursued a broad policy of reengagement with the world, yet instead we squandered this broad support through a series of policies that drove away our friends and allies.”

I still don’t know what re-engagement means, but which policies “drove away our friends and allies”?

I can think of a few, specifically:

1. Demanding foreign institutions allow us to track the funds used to commit the terrorist attacks. This was particularly irksome to the owners of the fabled “Swiss Banks” who pride themselves on the selling point of untraceability that so many of their clients dearly love. A great bulk of our initial intelligence on Al Qaeda came directly from transactional data bullied from international financiers (who are allegedly all Zionist pigs, anyway, by the way.)

2. Exposing the Oil for Food scandal and its perpetrators in the UN and supposed allies such as France and Russia. This is what made us bitter enemies leading up to the Iraq invasion, and the duplicity of supposed friends including Kofi Annan and Jacques Chirac, who lied and murdered to protect their filthy lucre. The United States showed incredible diplomatic grace by not immediately evicting the United Nations from our soil and declaring war on the government of France, who it was exposed was actively working with Saddam Hussein in opposition to weapons inspections and the embargo. France was materially at War with the United States from at least the mid 1990s until 2003 by proxy support of the Iraqi dictator in violation of the 1991 cease-fire. And from 2001 to 2003 and continuing after the invasion of Iraq openly incited every country whom it had influence with towards hostility to the U.S. Russia was hardly less complicit, but was hardly considered our ally, and by agreeing to US military forces (only a few hundred) to pass through it’s former (now independent) satellites including Uzbekistan and Tajikistan, gained a considerable amount of good will, which has definitely been squandered in more recent years through it’s open antagonism and increasing alliance with Communist China.

3. The invasion of Iraq itself. The deposing of Saddam Hussein, one would think, is hardly a thing to be lamented, but as mentioned above, his corrupt regime had bought the support of many individuals, including the Secretary General of the UN, many leaders in France and other countries. So the “friends of Saddam” were angered by his ouster, and the policy which had been at least nominally in place since 1998 when declared by then president Bill Clinton when brought into action forced many friends to choose sides between America and the Iraqi dictator. Sadly, many of them chose the latter, spurred by a reckless Chirac whose chauvinism and ignorance lead him to believe that America would lose the contest. Also, many Arabs, for different reasons, including those espoused by Al Qaeda’s leadership concerning “infidels on Muslim soil” (sounding curiously like a medieval crusade) and many states who were already directly hostile to the United States including Syria and Iran, who did not welcome increased American military presence in the area, but also other countries who feared that the ouster of one dictator could lead to the illegitimacy of the claims of others to lead, and this led particularly to animosity from otherwise neutral parties from Africa to Venezuela, spurred likely by the rhetoric of Russian, French, and Chinese diplomats who knew that by their own standing did not need to fear retaliation by a mostly peace loving USA but for their several reasons wished to see support weaken.

4. China in particular, whose pride was hurt by earlier accidents including the bombing of their embassy in Belgrade, a mid-air collision with a US survellance plane, increasing US support of Taiwan, especially the gift of Patriot missiles, and confrontation with their puppet satellite, North Korea. China, due to nearly infinite investment and credit backed by western bankers, has rapidly expanded and sees the US as a military competitor with old grievances from the Korean and Vietnam wars which fought against it. Those wars were to the Chinese the equivalent of the US invading Poland and the Ukraine would have been to the U.S.S.R. China has greatly expanded its influence in Africa, particularly in Zimbabwe and the Sudan. It’s influence is even felt in Latin America thanks to Fidel Castro’s communist ties and his “Bolivaran” allies Hugo Chavez and ilk. Also China’s lease of the Panama Canal Zone was a coup de grace and they see the Cocaine fields of Columbia and other South American countries as retribution for an imagined Opium War for which they blame the U.S., when it was in fact British, Dutch, and Portuguese merchants primarily who supplied the demand for the drug, which was a Chinese vice long before Commodore Perry steamed into Nagasaki bay and initiated the U.S. stake in the Orient.  Perceiving American weakness they seek to exploit it and undermine our support internationally, principally through bribery (using our own funds loaned to them for development), but also intimidation.

Only 24%?!!!

Here’s a quote from a Rasmussen poll about the boring Global Warming concerts covered (somewhat less than breathlessly by some poor former actress or model hosting it like a Macy’s Thanksgiving day parade, who’s over-made-up face was as slouchy as her body, looking vaguely like a wax statue of a Roman Senator reclining to dinner and melting in a heat wave from Africa) all day Saturday on TV:

“just 24% of Americans consider Al Gore an expert on Global Warming.”

“Just” is a surprising choice of terms.  I would have thought anything greater than 1% would be shocking, worthy of a moniker such as “as many as”, even for a cynic such as myself, even if you believed in Global Warming and loved Al Gore.

Don’t ever let them tell you they don’t really believe he invented the internet.

The death of Physics–open-letter-aqa.html

I read this article today about a Physics teacher in England who is lamenting the state of education in their state (or is it a province?) While this stuff us usually a bit skewed to conservative cultural alarmism, a la Theodore Dalrymple, a kind of academic “uphill both ways in the snow” snobbery that has been going on in perpetuem, one note, comes out about the author that perhaps illustrates his point even better than his arguement:

It is first evidenced in the second paragraph:


I am a physics teacher. Or, at least I used to be. My subject is still calledUK Department for Education and the AQA board changed the subject. They took the physics out of physics and replaced it with… something else, something nebulous and ill defined. I worry about this change. I worry about my pupils, I worry about the state of science education in this country, and I worry about the future physics teachers — if there will be any. physics. My pupils will sit an exam and earn a GCSE in physics, but that exam doesn’t cover anything I recognize as physics. Over the past year the


I graduated from a prestigious university with a degree in physics and pursued a lucrative career in economics which I eventually abandoned to teach. Economics and business, though vastly easier than my subject, and more financially rewarding, bored me. I went into teaching to return to the world of science and to, in what extent I could, convey to pupils why one would love a subject so difficult.

Here he pretends phyics is more difficult than economics and business and claims to understand both, but probably neither, and by which, gives evidence that he might not understand other fields over which he claims mastery, e.g., physics.

My point of which is to demonstrate the lack of education among educators in general, by focussing on that of this particular pedant who is admittedly above his peers in identifying his field’s own weaknesses.

Thusly, that if there is a lack of phyics teaching, and that is what he truly loves, that unless the accumulation of sufficent lucre to sustain his hobby so utterly bores him to prevent him for obtaining sustenance therewith, that he should start a business teaching physics, thereby enabling him to accomplish his goal of sharing his joy with students (in a currently still socially acceptable way) and maintaining his integrity, whilst (notice the Britishist slang — it makes me whinge) lining his pockets with lucre that if somnism doesn’t overcome him first, could be spent however he chooses, even in expanding science, or charging his students less.

Electoral Issues

Here’s a starter list of likely Electoral issues:

  1. Immigration (illegal aliens, amnesty, guest workers, H1-B visas, border security, etc.)
  2. War on terror (Iraq, Afghanistan, Somalia, Iran, Syria, Pakistan, Philippines, Indonesia, etc.)
  3. Economy (Oil prices / housing bubble / inflation, etc.)
  4. Health care (free medical services or government funded insurance)
  5. Abortion/judicial appointments
  6. voting fraud (probably only after the election)
  7. global warming

Some of them won’t come up, some won’t be mentioned, and some will only become important after the election.

Global warming will only really be an issue if Al Gore jumps in. Everyone else (especially democrats) will tiptoe around it because they don’t want to draw him in.

Likewise, Hillary won’t mention Health Care, at least not after the primaries.

Expect Democrats to frame every issue through “protectionist” lenses.  Immigration will be about H1-Bs (see Boxer vs. Kennedy on the senate floor today about guest worker visas for Mexicans.)  The war wil be about withdrawing to our pre-1941 borders.  The economy will talk about H1-B visas more and mention an embargo on Taiwan.  Underhanded, they will attempt to turn anti-Arab attitudes to anti-Indian.  (Pakistani Muslims and Indian Hindus look alike.  And Sikhs just look scary.)

Republicans will frame everything from a security standpoint.  They’ll avoid immigration problems (knowing they’re against the electorate) and stress a border wall, which won’t stop anyone, but it will drive up the price of smuggling.  Health care will be an anti-immigration issue — illegal aliens receive free health care already and make it more expensive and make taxes higher for the rest of us.

The primary lodestone for Democrats will be anti-war, and for republicans, anti-abortion.

Voting fraud will be a big issue after. Predict more Gore/Rossi-like recountdowns. Republicans stood up in 2000 but have blinked and will back down to any challenges.  They’ll consider “saving the union” a priority over “winning the election.”  Though I’ll disagree with the Anti-Hamilton Hamiltonians that the union is more important than the constitution.

More fuel comments

Of course, the reason the oil companies are posting such huge profits is because they aren’t paying NYMEX prices for crude.  I don’t know the exact number, but I’m sure Exxon has deals with the Saudi government (and BP has deals with the USA) that allows them to buy crude on long term contracts that are probably in the $25-30/barrel range.  That’s why no one would buy Hugo Chavez’s tar sands at $50/barrel (especially when you only get about 2/5 gas from it and it costs more to refine.)

The NYMEX price is the “Spot Price” on petroleum.  That’s the excess that none of the oil companies wanted.  Of course, as supply goes up, the excess demand goes down.  Think of the California Energy Crisis of a few years ago.  Normally, you buy electricity at $0.05-$0.10/KWH, but if you don’t have the contract, you have to buy the excess, which at that time was $0.35/KWH.  California governor Grey Davis decided to lock in the state of California at that rate.  He blinked, and Edison with media support watched Enron crumble and the spot market on electricity dwindle.

No one wants locked into oil at $60/bbl, so they’re waiting it out.  Depending on the length of the contracts, NYMEX oil prices will have to go down, or else the unbought suppy will flood the commodities market.  I imagine the oil corporations have been slowly buying up discount contracts to keep them ahead of the curve, and may be paying as much as $40/bbl for recent contracts, but just like stocks, you don’t play to beat averages, you play to keep up with them.  They’d rather pay $50 for a contract than have you compete on the open market with them.  Thanks to their war chests getting larger, the oligopoly can afford to use monopoly pricing to keep competition out until it breaks.

Only the OPEC states are a third player, and they are in a game of chicken with the oil companies over who will blink first, because they know they will need to buy eventually or face competition.

Fuel Price Formula

I saw a presentation that gave me a breakdown on prices per gallon of gasoline.

The numbers aren’t the thing, but here’s the formula:

#getting price per gallon of gasoline

brent.price(per_barrel) = $62
gallons_per_barrel = 42
cracking = 3/5 *

base_price_per_gallon = brent.price(per_barrel) / gallons_per_barrel * cracking
= $2.36/gallon

#nominally fixed costs per gallon**:
distribution_marketing = $0.18
refining = $0.33

total_fixed_costs_per_gallon = distribution_marketing + refining
= $0.51

# taxes
federal_tax = $ 0.18
state_tax(washington) = $0.34 ***

total_tax_per_gallon = federal_tax + state_tax
= $0.52

# formula
base_price_per_gallon + fixed_costs + tax = price_before_profit
= $3.39

* Light Sweet Crude refines about 60% into gasoline. We’ll assume that the remaining 40 percent is wasted. It’s actually turned into heating oil, chemical products, etc. The profit for the remainder could be considered a (generous) balance for pollution.

** These fixed costs were taken from the presentation. The specific numbers could be different. Transportation cost is not included, considered part of the price per barrel. Feel free to change them to what you think is more accurate.

*** Washington state tax on gasoline will be raise to $0.36 / gallon on July 1, 2007 and to $0.38 / gallon on July 1, 2008 unless there is a change (increase) before then.

**** There may also be some incidental costs that are not included such as ethanol and detergent mixing.

Refining costs have gone up quite a bit in the last few years because hurricanes (esp. Katrina, Rita in 2005) and inefficiencies due to aging refining capacity.
Taxes on gasoline (at least in Washington) have also skyrocketed, raising $0.02 per gallon every year from 2005-2008 and 7 cents per gallon in 2003.

So if I wanted to compete with Exxon-Mobile-Texaco-Shell-Chevron, BP-Amoco-Unocal-Union76, Phillips-Conoco (insert your conglomerate here, they’re all intermixed the same way as media (e.g. a cable channel being jointly owned by ABC-Disney, NBC-GE, CBS-MTV, Comcast, Cox, etc.), I could buy gas at $3.39, remarkably close to the price at the pump — if I owned my own refinery and gas station, but the government would never let me because of “environmental” reasons.