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Wednesday, December 31, 2008

2009 Survival

SEARCH BLOG: ECONOMY

"The Crash Of 2008" may not be the phrase used in history books, but 79 years after the "big one" hit this might be seen as a significant aftershock. We won't dwell on it now; enough has been said and written on that subject.

We are at New Year's Eve and, traditionally, that is the time to celebrate a new beginning. So, where do we begin?
I talked with Bill the other day about just that. Bill lives down South and has a curiosity about politics and the economy ... and just enough connections to get interesting perspectives. His big question was whether or not the rest of the country was going to become like Michigan? I told him that Michigan and several other states in the northeast were suffering through years-long economic malaise because they depended so much on actually producing things and the U.S. has turned its back on being a maker of things.
Whereas many countries assist their producers in research, employee benefits, taxes, and regulations; the U.S. treats its manufacturers like booty to be looted.
Yes, Bill, there is a possibility that given all that has hit the fan already, the U.S. could become... or is becoming... Greater Michigan: declining economy, fewer jobs, loss of property values, greater dependency on government, and continued antagonism toward business in tax policy.

Bill wanted to know what the way out was. I told him that I have opinions just as millions of others have opinions, but that and $5 gets you an over-priced cup of coffee at Starbucks. Rather than directly answer, I asked a question in return: did he know which country already figured out the road to prosperity [hint: not China]? Try a perennial back-water of Europe. Yes, Ireland.

Bill understood. We can choose to have a 10-year correction like Japan in the 1990s. That's where we wait to hit bottom so we can begin the long climb up while basically changing nothing. Or we can face what really stands in our way: us.
In the past, we looked to the consumer or manufacturing to trigger recovery. Don't look there. Maybe a big run-up in Wall Street... do you really think so? How about Obama's WPA? Somehow fixing roads may fall short. Let's print more money so we can import more stuff from China. Eh, who is going to do the buying?
We have to face the truth: our prosperity has been a series of Ponzi schemes over the past decade... a lot more Madoffs than we choose to recognize. Dot-coms... housing... energy... all "creating value" from vapor... and all crashing down leaving personal and public finances in shambles.

So, I offered this to Bill: we have to revise our business taxes and our trade policies to reflect how the world really works... not how some politician-philosopher wants it to work.
  • Eliminate most business taxes and focus on achieving the economic prosperity that results from ultra-competitive business and high employment. Here in Michigan, businesses get charged the full amount of property taxes for idle facilities while the businesses that own them are losing money or going bankrupt... how does that help the state's economy?
  • Make all trade policies... and practices... reciprocal. If a country charges 15% value added tax for our products... do the same for theirs. If a country manipulates their currency to benefit their industries, address that in terms that discourage such behavior. Trade should be mutually beneficial, not skewed to strengthen the businesses in one country while undermining those in another.
That simple? Well, I also mentioned that the U.S. parochial-provincial regulation system costs billions of dollars a year and hurts everyone. For example, the European Union and the U.S. have different product safety and environmental standards. Fix that now!

Bill and I concluded that 2008 was leaving us with a very murky picture for 2009 and that more government programs and regulations and taxes didn't seem to be a great survival strategy.

What do you think?
Here's hoping your New Year is a good year.
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Tuesday, December 30, 2008

Mythical Myths Or Mythical Time Bombs?

SEARCH BLOG: ECONOMY

In 1997: 10 Myths About Financial Derivatives

The tremendous growth of the financial derivatives market and reports of major losses associated with derivative products have resulted in a great deal of confusion about those complex instruments. Are derivatives a cancerous growth that is slowly but surely destroying global financial markets? Are people who use derivative products irresponsible because they use financial derivatives as part of their overall risk-management strategy? Are financial derivatives the source of the next U.S. financial fiasco--a bubble on the verge of exploding?

Those who oppose financial derivatives fear a financial disaster of tremendous proportions--a disaster that could paralyze the world's financial markets and force governments to intervene to restore stability and prevent massive economic collapse, all at taxpayers' expense. Critics believe that derivatives create risks that are uncontrollable and not well understood. [1] Some critics liken derivatives to gene splicing: potentially useful, but certainly very dangerous, especially if used by a neophyte or a madman without proper safeguards.

In this paper 10 myths, or common misconceptions, about financial derivatives are explored. Financial derivatives have changed the face of finance by creating new ways to understand, measure, and manage financial risks. Ultimately, derivatives offer organizations the opportunity to break financial risks into smaller components and then to buy and sell those components to best meet specific risk-management objectives. Moreover, under a market-oriented philosophy, derivatives allow for the free trading of individual risk components, thereby improving market efficiency. Using financial derivatives should be considered a part of any business's risk-management strategy to ensure that value-enhancing investment opportunities can be pursued.

In 2008: Gambling on Derivatives
"We view them as time bombs both for the parties that deal in them and the economic system ... In our view ... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Warren Buffett

The world's greatest stock market investor, known as "the Sage of Omaha", in his Chairman's Letter in the Berkshire Hathaway 2002 Annual Report.

Gee, I guess time will only tell.

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Bidding War?

SEARCH BLOG: AUTOMOBILES

Do I hear 7?


HT: Kathy

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Monday, December 29, 2008

Hamas Too Stupid To Understand That Violence Leads To Death

SEARCH BLOG: ISRAEL

Germany’s Merkel blames Hamas for Gaza violence

BERLIN - German Chancellor Angela Merkel blames Hamas for the escalation of violence in Gaza because of the firing of rockets into Israel and the abandonment of its ceasefire, her spokesman said Monday.

In a telephone call on Sunday evening, Merkel and Israeli Prime Minister Ehud Olmert "agreed that the responsibility for the development of the situation in the region clearly and exclusively lies with Hamas," spokesman Thomas Steg told a regular government news conference.

"Hamas unilaterally broke the agreement for a ceasefire, there has been a continuous firing of . . . rockets at Israeli settlements and Israeli territory, and without question - and this was stressed by the chancellor - Israel has the legitimate right to defend its own people and territory," Steg said.

"As a result it is completely clear that in this situation Hamas is called upon to permanently stop the firing of rockets so that Israeli military operations can be ended quickly."

Merkel however told Olmert that "everything possible" must be done to avoid civilians being hurt by Israel’s operations, Steg said. She believed long-term peace could only be arrived at through a political solution, he added.

The comments came as Israeli jets bombed Hamas targets in Gaza for a third day on Monday, killing several children, while the Islamists fired deadly rockets to retaliate for the blitz that according to medics has left more than 310 dead and more than 1,400 injured.

An Israeli Arab was killed and eight other people wounded when one of the projectiles slammed into a construction site in the southern city of Ashkelon some 13 kilometres north of the Gaza border.

Amazing in two respects:
  1. Hamas has such stupid leadership that it thought it could fire rockets into Israel without recrimination and retaliation
  2. A nation other than the U.S. said Israel's actions were justified
... and that nation was Germany.

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Zeroing In On Futility

SEARCH BLOG: DETROIT

Detroit just can't win... whether it is a mayor, crime, schools, or its football team. Apparently, God has to take a dump someplace.

The Detroit Lions' perverse "accomplishment" may be the reason that two highly rated college quarterbacks, Colt McCoy and Tim Tebow, have indicated that they will stay one more year in college. Why spoil success with Detroit?

Yesterday's football game was a metaphor for all that is wrong with this city: lack of talent, lack of leadership, lack of planning, lack of execution, and an abundance of stupidity.

The last item for the football team were two penalties that ensured failure for the day and a complete failure for the season... both penalties occurring after the plays were over.
And as you all know... stupidity has its own rewards.

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Sunday, December 28, 2008

Strongest Airport Security

SEARCH BLOG: TRAVEL

In the traditional American way of celebrating Christmas, my youngest sister decided to fly to Florida with her one of her daughters to visit our mother. They had an evening flight from Milwaukee on the 26th.

It was typical of December weather for the midwest. 0°F followed by snow, rain, fog, high winds, 50°F, and sleet. When they arrived at the airport after driving about 50 miles over the course of a few hours, the plane was not yet boarding. But there was a slight problem. The Transportation Security Administration people had closed shop... no one could get by the security stations. That way, nobody could pose a threat to holiday travel. Good thinking, TSA!

My sister checked. No. Not one single mention of abbreviated security hours anywhere in the airport or on the airport website. The TSA can do what the TSA wants... screw the airline passengers!

Remember, I said that planes were still not being boarded. So, there they were, with their luggage, 1-1/2 hours to go before the plane took off, and no way to get to the gate... the day after Christmas at 7:00 pm. I knew Milwaukee was a provincial town, but I didn't think the Federal government closed shop at sunset just because it was Milwaukee!
They heard the boarding call and watched the monitors as the status eventually changed to departed. Then they sat down and cried. Their airline, AirTran, wasn't too helpful. They put my sister and niece on standby. The next morning, one slot came available so my sister put my niece on the flight thinking that another slot might become available during the day.
The 27th went by without another opening and apparently AirTran did not attempt to find another flight on another airline to let her begin her trip. So the second night arrived.
Finally, one of the AirTran employees finally had some compassion and arranged for my sister to fly out on the morning of the 28th. Of course, the flight was not directly to Florida. This one took her to Baltimore for a delightful 4-hour tour of the airport there. As I write this, she is waiting for her afternoon flight... and hoping that her luggage will somehow find the same location as her plane.

I suggested that the next trip to anywhere, she drive to the Detroit area and have a choice of other airlines and 24-hours security gates... and generally cheaper flights than coming out of Milwaukee. If not Detroit, then Chicago [although O'Hare is my least favorite place].

Happy Holidays... TSA style.

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Friday, December 26, 2008

OPEC Moscow Style

SEARCH BLOG: ENERGY

"Energy ministers from 12 of the world’s leading exporters of natural gas met in Moscow on Tuesday to create a producers’ group that consumers fear could develop into an Opec-style cartel.

Vladimir Putin, the Russian prime minister, who chaired the meeting, warned that the era of “cheap gas” was coming to an end, and said members of the group would co-operate to make the gas market “predictable”."

Read more....

... and from earlier this year....

Thursday, August 21, 2008
The Real Russian Threat To Europe

"That is the real nature of the Russian threat. They can control oil out of Georgia and they can simply wait until November and announce that they have no interest in honoring their oil and natural gas commitments to Europe unless certain "understandings" are made. And that understanding is simple: the Russian bear is to be treated like the Alpha Dog... and you give the Alpha Dog what it wants."
and from much earlier....
"What Mr. Peterson has done is outline the impact of the anti-energy political elements in the U.S. and the economic danger in which those elements have placed the U.S. He is proposing action that, if taken today, may lessen that danger in 10 years... not today since that opportunity passed 10 years ago.

While wind farms may sound wonderful, the reality is that with the U.S. population growing by millions each year [joining the millions who sneak into the country], we cannot afford to place our future in the hands of "if-come" technology... not when proven technology and proven resources are awaiting our use."
The present over-correction of oil and natural gas prices doesn't change the long-term issues. Imagine a harsh winter like this and fuel prices like this summer. Not nice to image, but it's in the cards without a rational approach to energy.

Ten years from now, people may well be asking, "What the hell were we thinking ten years ago?"

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Thursday, December 25, 2008

Merry Christmas

SEARCH BLOG: CHRISTMAS


Merry Christmas to Bill, Jason, Nick, Jack, Martin, Dennis, Al [and Alice] and all of you who have contributed your ideas and comments or just come back here to read what this curmudgeon writes.

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Wednesday, December 24, 2008

I'm Dreaming Of A White Christmas

SEARCH BLOG: WEATHER

All of Canada set for white Christmas

By Dan Karpenchuk

Posted Tue Dec 23, 2008 8:27am AEDT

While most Australians can only dream of a white Christmas this week, Canadians are set to experience their whitest in almost 40 years.

The entire country is covered in snow for the first time since 1971.

Alberta is the only province that has no weather warning current and as many as 100,000 people in Atlantic Canada are without power as snow and freezing temperatures wreak havoc.

The prairie provinces are in a deep freeze, with temperatures dipping to under minus 30 degrees Celsius, and even British Columbia is suffering with unusually cold weather.

Eastern Canada is still digging out from back-to-back weekend snowstorms that dumped 50 centimetres of snow and disrupted air travel during the busiest time of the year.

Forecasters say there is more snow coming on Christmas Eve.

Meanwhile... there are still a few skeptics about global cooling. But we wish them a white Christmas, too.

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Tuesday, December 23, 2008

What You Gonna Do When The Well Runs Dry?

SEARCH BLOG: ECONOMICS

Like Fats Domino's song, the well has run dry and the money has run away:

"Everyone is tanking together. A fall of 27 percent is really striking and portends substantially greater weakness," said Easwar Presad, a senior professor of trade policy at Cornell University. "The bottom line is that many of these countries that relied on export-led growth will have to rely on domestic demand to get out of this thing."

China had reported that its November exports took their biggest dive in seven years -- a drop that has reverberated across Asia because China has become the largest export market for many of its neighbors. Japanese shipments to China fell 25 percent, the steepest decline in 13 years, the Japanese Finance Ministry said.

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Monday, December 22, 2008

Heat Wave Hits Russia

SEARCH BLOG: WEATHER

It's almost 30°F warmer than it was last week....

Soon they'll be swimming in that wide-open Arctic Ocean. Al Gore was right, again.

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Urban Heat Island

SEARCH BLOG: WEATHER

There's a lot of talk about it, but this is the first significant instance of one in our area.

Symbols show the recorded temperatures.

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Cold Cash

SEARCH BLOG: WEATHER

Last night, about 11:00 pm, my oldest son called to say he was about 6 miles from home and was resting comfortably in a ditch. "Bad joke," was my first reaction. But, unfortunately, it was no joke.

With the temperature below 0°F and winds howling, he had hit a patch of "black ice" and driven 90-degrees over an embankment, over a highway ramp, and down another embankment into 2 feet of snow.

Black ice also known as "glare ice" or "clear ice," typically refers to a thin coating of glazed ice on a surface, often a roadway. While not truly black, it is transparent, allowing the usually-black asphalt/macadam roadway to be seen through it, hence the term. It is unusually slick compared to other forms of roadway ice.

Because it contains relatively little entrapped air in the form of bubbles, black ice is transparent and thus very difficult to see (as compared to snow, frozen slush). In addition, it often is interleaved with wet road, which is identical in appearance. For this reason it is especially hazardous when driving or walking because it is both hard to see and unexpectedly slick.[1]

Bridges and overpasses can be especially dangerous. Black ice forms first on bridges and overpasses because air can circulate both above and below the surface of the elevated roadway, causing the pavement temperature to drop more rapidly. This is often indicated with "Bridge May Be Icy" warning signs.

Black ice may form even when the ambient temperature is several degrees above the NTP freezing point of water 32°F (0°C) if the air warms suddenly after a prolonged cold spell that leaves the surface of the roadway well below the freezing point temperature.

My wife called the tow truck while I drove there. A state police car was already there with flares to warn other drivers. Another vehicle was off the road on the other side about a block away... it had hit the same ice and veered off 180° into the opposite embankment. Further up the road there were emergency lights.

In about an hour, the tow truck came and pull our vehicle out. There is no apparent damage to either my son or my vehicle because the deep snow acted as a large net to slow them down and come to a gentle stop.
The only damage was to his wallet for the towing charges on a Sunday night... ouch.
Meanwhile, the polar ice cap has melted and New York City is flooding. We must fear the warming.
Excuse the sarcasm.
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Sunday, December 21, 2008

Happy Hanukkah To Our Jewish Friends

SEARCH BLOG: HOLIDAYS

Beginning at sundown today, our Jewish friends and neighbors begin celebrating the 8 days of Hanukkah. This from About.com:

The festival of Hanukkah (also spelled Chanukah) was established to commemorate the Jewish Maccabees' military victory over the Greek-Syrians and the rededication of the Second Temple, which had been desecrated by the Greek-Syrians, to the worship of God. Thus, Hanukkah is a celebration of Jewish national survival and religious freedom.

National Survival

The story of the Maccabees' military feats has been preserved in The First Book of Maccabees. In short, in response to religious persecution and oppression, Judah Maccabee and his four brothers organized a group of resistance fighters known as the Maccabees. The Maccabees, using guerilla warfare, miraculously succeeded to drive the far larger Greek-Syrian army out of Judea. The Hanukkah story proclaims the message of the prophet Zachariah: "Not by might, not by power, but by My spirit."

Religious Freedom

The purification of the Temple began on the 25th day of the Hebrew month of Kislev in the year 165 BCE. According to the Talmud, the single-days-worth of pure oil found in the Temple miraculously burnt for eight days until more pure oil could be brought.

Celebrating Hanukkah

In commemoration of these miracles, a Hanukkah Menorah (also called a Hanukkiah) is lit during each of the eight nights of Hanukkah. Lighting the Hanukkah Menorah is the central observance of the festival. One candle is lit the first night, and an additional candle is lit each successive night. Thus, on the last night of Hanukkah, all eight candles of the Hanukkiah are lit. The candles should be lit by a window or door in order to fulfill the commandment to "publicize the miracle." While lighting the candles, blessings are recited and the ancient chant Hanerot Hallalu is traditionally sung. After lighting the candles, it is a tradition to sing Maoz Tzur.

Hanukkah is a fun festival, especially for children. After lighting the Hanukkah candles together, families (and often invited guests) will eat and play games. Traditional Hanukkah food is oil-rich in commemoration of the miracle of the oil that burned for eight days. Potato pancakes (Latkas in Yiddish, Livivot in Hebrew) are a Hanukkah favorite. Israelis eat Hanukkah doughnuts called soofganiot. Dreidel (sivovon in Hebrew) is a traditional Hanukkah game, with game rules so simple that the whole family, from toddlers to grandparents can play together. The custom of giving Hanukkah gelt (money) to children has evolved into a gift-giving tradition in many Jewish families today.

Happy Hanukkah!
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The Holidays Are For Eating

SEARCH BLOG: HOLIDAYS

WARNING: THIS RECIPE IS MORE ADDICTIVE THAN CRACK COCAINE!

Cold-weather holidays are especially enjoyable around the Hall family because we keep alive an old recipe from my Armenian grandmother. Unfortunately, my German side is only represented by a strong appetite for veal bratwurst and German-style potato salad... maybe some sauerbraten... but that's not too bad in the summer.

But, back to the recipe.... It is quite simple:
  • very thin dough
  • lots of butter
  • chopped walnuts
  • honey
Putting it together is the hard part.

I used to roll out the dough the traditional way... on a broom handle. That consisted of a small lump of very rich dough [eggs, butter] rolled out paper thin. I've gotten lazy as I've gotten older and the family has gotten larger ... and the amount of pastry I have to make has gotten proportionally larger.

Now I use Greek Phyllo dough.... After chopping the walnuts and melting the butter, I lay out four sheets of dough and spread the butter with a small brush.


Then sprinkle the chopped walnuts over the buttered dough.

and "accordion" the dough as shown below.

Arrange several sheets as shown below...

and cut carefully. A very sharp knife can be simply pressed downward to make the cuts.

Place the cut strips into a baking pan. I use some old, heavy-gauge, stainless-steel pans that heat evenly and don't warp from the heat.  Four sheets of dough will fill one row of the pan.

Note the presence of a large spatula which is needed a little later.


Pour the melted butter over the pastries so that the dough is wet, but not swimming in the butter. Usually, this is about 1 to 1-1/2 cups for the 12" x 18" tray.

Bake the pastries about 14 [13-15] minutes at 330°F. This is about right for our electric oven, but gas ovens may get hotter and cook quicker at that setting. You'll have to adjust for your own oven. Ideally, the dough should be lightly browned... just starting to crisp up, but still flexible. [NOTE THAT COOKING TIMES MAY BE LONGER FOR THE INITIAL PHASE IF YOU PACK THE PIECES TOO TIGHTLY].

Then carefully tilt the pan and hold the pastries in place while you drain the excess butter from the pan. About 1/2 minute of draining should be sufficient.

Then put back in the oven for 4 [3-5] minutes until the pastries are golden brown and repeat the draining of the butter until most of the excess is drained. That may take a minute. It should look like this.


Let the pastries cool down and then drizzle honey over the strips in the pan.


Serve and enjoy. It won't matter if you are Armenian, German, Irish, African or whatever. You will love this.

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Winter Welcome

SEARCH BLOG: WEATHER



97.3% of Michigan residents are skeptical about the polar ice cap melting and global warming being a danger to them. The other 2.7% have moved to Florida.

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Saturday, December 20, 2008

Automobile Manufacturers' Loan Retrospective

SEARCH BLOG: AUTOMOBILES

As reported yesterday, the U.S. automobile manufacturers will be getting a federal loan. More accurately, General Motors and Chrysler will be getting a loan of $13-17 billion from the Federal government. Ford Motor Company has politely demurred... for the present.

While not subscribing to conspiracy theories, I find the unfolding of this particular diorama very peculiarly Orwellian. The stage was set with the House parading the CEOs of the three automobile manufacturers before the public in a display of mea culpa "brother can you spare a dime?" After much soul searching, the House said that maybe it was a good thing to lend the money. Onward to the Senate where the champions of free market, Sens. Shelby and Corker, pilloried the CEOs and, ultimately, turned down the loan request.

So goes the story.... Democrats struggle valiantly for the "workers" by trying to force the evil empire to change its ways in return for salvation. Republicans struggle to prevent a giveaway of hard-earned taxpayers' money.

Strangely, the Senate would have passed the measure to lend the money except some renegade Democrats voted against it. Please! Iron-handed Harry and Whip 'Em Into Shape Nancy couldn't line up the votes?

Here's how I see the conspiracy working:

  • The Democratic Party puts on a show of support for the "workers" and their unfortunate companies, but simply can't generate the needed votes. It's a good attempt that wins the undying gratitude of their blue-collar constituents, but doesn't make the Democratic Party responsible if the loan isn't sufficient to keep GM and Chrysler afloat [the CEOs had requested about twice the amount being considered].

  • The Republican Party stands up for the principles of the free-market in order to save the country from socialism and pushes the automobile manufacturers to "restructure"... although they have been doing that aggressively... and the unions to make concessions... although they have been doing that aggressively. Sens. Shelby and Corker remain the stalwarts of the free market and only incidentally find favor with their constituents who have forked over millions of taxpayer dollars to incentivize foreign automobile manufacturers in their states.

  • Both parties know that the necessary action is to approve the loan, but neither party wants to take responsibility for it. Besides both parties know that President Bush will do the sensible thing and provide the needed funds from TARP which is already available... because the President is leaving office, can take the blame if the loan doesn't work out, and the political figurines get to claim a win despite not actually doing anything to fix the problem. A real bi-partisan effort.
As I said, I don't subscribe to conspiracy theories, but... wasn't the same cast of characters involved in the $100 billion CAFE mandate?

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Friday, December 19, 2008

Ho, Ho, No!

SEARCH BLOG: WEATHER


When I opened the front door, I was greeted by a wall of fluffy snow bearing the imprint of the lower door panels. An hour or so of snow-blowing later, and the walk and driveway were cleared... temporarily. It's still coming down.

My daughter-in-law is flying in from California today, so we hope the airport has kept up with the plowing. The Christmas concert for tonight has been cancelled. And the worst part is I keep losing my golf balls out back.


Those "bunny boots" have seen over 40 winters and are still working just fine.

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Federal Loans Approved To U.S. Automobile Manufacturers

SEARCH BLOG: AUTOMOBILES

From The New York Times:

Bush Approves $17.4 Billion Auto Bailout

By DAVID M. HERSZENHORN and DAVID E. SANGER
Published: December 19, 2008

WASHINGTON — President Bush on Friday announced $13.4 billion in emergency loans to prevent the collapse of General Motors and Chrysler, and another $4 billion available for the hobbled automakers in February with the entire bailout conditioned on the companies undertaking sweeping reorganizations to show that they can return to profitability.

The loans, as G.M. and Chrysler teeter on the brink of insolvency, essentially throws the companies a lifeline from the taxpayers that will keep them afloat until March 31. At that point, the Obama administration will determine if the automakers are meeting the conditions of the loans and will continue to receive government aid or must repay the loans and face bankruptcy proceedings.

Mr. Bush made his announcement a week after Senate Republicans blocked legislation to aid the automakers that had been negotiated by the White House and Congressional Democrats, and the loan package announced by the president includes roughly the identical requirements in that bill, which had been approved by the House.

Mr. Bush, in a televised speech before the opening of the markets, said that under other circumstances he would have let the companies fail, as punishment for bad business decisions. But given the economic downturn, he said the government had no choice but to step in.

“These are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action” Mr. Bush said.

He said that bankruptcy was not a workable alternative. “Chapter 11 is unlikely to work for the American automakers at this time,” Mr. Bush said, noting that consumers would be unlikely to purchase cars from a bankrupt manufacturer.

The loan deal also requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers working in the United States.

The debt reduction and the cuts in wages were central components of proposal by Senator Bob Corker, Republican of Tennessee, who tried to salvage the bailout legislation.

Those talks had deadlocked on a demand by Republicans that the wage cuts take effect by a set date in 2009, while the union had pressed for a deadline in 2011 after its current contract expires.

The plan announced on Friday by Mr. Bush offered a compromise between those positions, by making the requirements non-binding, allowing the automakers to reach different arrangements with the union, provided that they explain how those alternative plans will keep them on a path toward financial viability.

To gain access to the emergency loans, G.M. and Chrysler must agree to a range of concessions, including limits on executive pay and the elimination of their private corporate jets.

Under the plan, Mr. Bush essentially handed off to President-elect Barack Obama what will become one of the first, most difficult calls of his presidency: a political and economic judgment about whether G.M. and Chrysler are financially viable. Ford is not seeking immediate government help.

If, by March 30, the two companies cannot meet that standard — and clearly they could not meet it today — the $13.5 billion in Treasury loans would be “called” for immediate repayment, with the government placed in priority, ahead of all other creditors.

To avoid that fate, the companies will need to complete negotiations with the unions, the creditors, the suppliers and the dealers by March 30. Any judgment on the accords they reach with those groups will inevitably be both economic and political.

Mr. Obama and his economic team will have to make a convincing, public case that the wage cuts, plant closings and creditor agreements so change the landscape of the industry that the carmakers can turn profitable in short order.

But Mr. Obama will be under tremendous political pressure as well, because if his new team concludes that the automakers have not struck the right deals, it would mean a move to bankruptcy court, and likely widespread layoffs that would ripple far beyond the companies themselves.

Mr. Obama was elected partly with the enthusiastic support of the unions, who liked his talk of protecting jobs by renegotiating trade agreements. Now, in his first months, he will be asking them to give back gains they have negotiated over decades.

Because the bailout legislation failed in Congress, senior administration officials said that the loan package would essentially take the form of a contract between the government and the automakers. Officials said they expected those contract agreements would be signed by the end of the day.

In recent days, G.M. and Chrysler have found themselves in an increasingly precarious financial position, with some industry experts predicting that they could not survive through the month without government aid.

Both companies had enlisted teams of bankruptcy lawyers to prepare for a collapse. And they have announced drastic cutbacks, including an extension of the normal holiday-season idling of factories, with some operations to be suspended for a month or more.

Other automakers, including Honda and Ford, have announced cutbacks in production as the entire industry deals with the economic downturn and a plunging demand for cars among consumers.

Ford, which is in better financial condition that G.M. and Chrysler, has said that it does not intend to tap the emergency government aid.

Ford, in a statement, applauded the move by the White House.

“We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government,” Ford’s chief executive, Alan Mulally said.

“But all of us at Ford appreciate the prudent step the administration has taken.” Mr. Mulally added: The U.S. auto industry is highly interdependent and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy.”

While the legislation that failed in Congress would have provided $14 billion in federally subsidized loans using money that had already been appropriated to help the automakers retool to make advanced fuel efficient vehicles, the loans announced by Mr. Bush will be financed by the Treasury’s $700 billion financial system stabilization program.

The additional $4 billion in loans available for the auto industry in February will be contingent on Congress releasing to the Treasury the second half of that bailout fund.

And while the legislation would have created a new position within the executive branch to oversee the automakers, a so-called “car czar” Mr. Bush said on Friday that while he remains in office, the emergency loan program will be supervised by the Treasury secretary, Henry M. Paulson Jr.

In a statement, G.M. reacted with a mixture of gratitude and relief.

“We appreciate the president extending a financial bridge at this most critical time for the U.S. auto industry and our nation’s economy,” Greg Martin, a company spokesman, said. “This action helps to preserve many jobs, and supports the continued operation of G.M. and the many suppliers, dealers and small businesses across the country that depend on us.”

In his statement, Mr. Martin said that the emergency loans would allow G.M. “to accelerate the completion of our aggressive restructuring plan for long-term sustainable success.” He added: “It will lead to a leaner, stronger General Motors.”

In a statement to employees, Robert Nardelli, the chief executive of Chrysler, said the company would hold up its end of the bargain.

“As outlined in our submission to Congress, we intend to be accountable for this loan, including meeting the specific requirements set forth by the government, and will continue to implement our plan for long-term viability,” Mr. Nardelli said. “The receipt of this loan means Chrysler can continue to pursue its vision to build the fuel-efficient, high-quality cars and trucks people want to buy, will enjoy driving and will want to buy again.”

Both G.M. and Chrysler stock rose sharply after the opening and Mr. Bush’s announcement helped send the broader markets higher as well.

But some critics of a taxpayer-financed rescue of the auto industry have warned that the money will just be wasted on companies who are suffering not because of the recent economic downturn but because of decades of failed business decisions.

A number of Republican Senators who had opposed the auto rescue legislation wrote to Mr. Bush in recent days urging him not to tap the Treasury’s financial stabilization program to help G.M. and Chrysler.

Mr. Bush chided the Congress for failing to approve the auto rescue legislation, but he did not note that it was his fellow Republicans in the Senate who were responsible for scuttling the bill in what amounted to a sharp rebuke to the White House in the waning days of his administration.

The decision to use the Treasury’s $700 billion financial system stabilization fund was also a major turnabout for Mr. Bush, who for weeks had insisted that the Treasury program should not be used to help the automakers.

In the end, it was clear, however, that Mr. Bush did not want G.M. or Chrysler, both American icons, to go down on his watch.

Overcorrection?

SEARCH BLOG: OIL


In normal times, this might be seen as an "over-correction"... but what's normal about now?

Okay, but what was "real" in the last decade?
  • Tech bubble
  • Housing bubble
  • Energy bubble
  • Stocks bubble
  • China's bubble
Let me suggest that maybe the last one was less of a "bubble" and more of a transfer of wealth from the U.S. and Europe to China. It was a transfer based on moving value-added functions to China in exchange for IOUs. Ironically, the result of all of this is that the dollar is devalued and China is stuck with phony money... well highly discounted money.

Still given where the various world's economies stand now... and the propensity of the U.S. government to focus on getting the financial manipulation system back in high gear... when the world's economies do get back in gear... any gear besides reverse... China stands to move forward while the U.S. stands to stand still.
After all, if our government is going to focus on CO2 cap and scam, as well as a new New Deal, we can be assured that future energy production and manufacturing will stay in reverse.
So, for now, $34 per barrel oil is not an over-correction as much as economic "payback"... along with a lot of other paybacks.

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Thursday, December 18, 2008

Next Step Away From Prosperity

SEARCH BLOG: ECONOMY

Earlier in the month, I asked "Are We There Yet?"

Let's just say we are getting closer:

NEW YORK (CNNMoney.com) -- The U.S. dollar fell to a 13-year low against the yen and weakened against the euro Wednesday, a day after the Federal Reserve cut its key short-term interest rates to historic lows.

The Japanese currency reached a 13-year high against the dollar Wednesday, falling to ¥87.78 from ¥88.95 late Tuesday. The last time the yen was this strong was July 1995. Since mid-September, the yen has gained nearly 15% against the dollar.



For those with short memories, Japan experienced an economic "revolution" like this a decade ago. Their central bank went to 0% funds rates for years... and the economy did nothing in response. Here's the point: you don't manipulate your way out of a situation caused by long-term financial manipulations and disintegration of manufacturing. You get to bite the bullet.

Until federal, state, and local governments become unabashedly pro-business and anti-taxes the downward spiral from prosperity is just going to happen. Until our great politicians and economists realize that more programs and service jobs at McDonalds are not the recipe for prosperity, we are going down the road to being Great Britain, Jr.

This is not to argue for unethical business practices. Fraud is fraud. The Madoff's of the world need to be castrated and sent to prison (oh, I know that is too harsh).
But government can't hamstring business with onerous taxes, mandates, and incomprehensible regulations and red-tape... and then ask why a tax break here or there didn't work. Government can't try to micro-manage the economy the way the Federal Reserve does and wonder why the distortions appear in the economy.

Thursday, June 08, 2006
Recession

Okay, others are thinking it. I'm saying it. Michigan is in a recession. Housing markets elsewhere are tanking. Just talked with my wife's brother-in-law in Virginia. The spigot just got turned off there.

Ben Bernanke et al at the Federal Reserve has just cost the U.S. taxpayers billions of dollars and he feels good about it. [The Federal Reserve had just increased the funds rate to 5.25%]

That's what happens when the government tries to run the economy.
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Wednesday, December 17, 2008

OPEC and Russia Attempt To Raise Oil Prices

SEARCH BLOG: OIL

When the world perceived that the economy was growing, it was an easy task to get oil prices to increase on a daily basis. OPEC and Russia are pining for those days and hope to have them return by cutting oil production... you know reduce supply to increase demand... or something like that.

That's the corollary to the Democratic Party's policy on energy: prices go up because there is a dwindling supply; prices can't go down when there is an increased supply... so increasing supply is a waste of time.
Of course, the whole pricing based on the supply and demand relationship depends on a reasonably "normal" situation. In a severely damaged economy, the impact of decreasing oil supply is going to be similar to cutting interest rates from 1% to 0.25%... similar to pushing a rope. Growth pulls prices; contraction allows pricing freefall.

So, while reducing interests rates may have a temporary, nominal, positive effect on the economy, reducing oil supply will only countervail that impact and extend the economic malaise.
OPEC and Russia would be wise to wait this troubled period out rather than helping to extend it... unless, of course, that is their intention.
The Federal Reserve missed the opportunity to ameliorate the recession when it raised interest rates on the unfounded fear of inflation... large and rapid price increases were a function of oil costs which were self-limiting and self-defeating. The political process missed the opportunity to work with oil companies during the time of high prices to move toward greater U.S. supplies which has left the door open for more of this OPEC-Russia b.s.
Now we have a screwed up economy with the possibility of deflation and no additional control of our energy supplies... but we do have change blowing in the wind as we begin the journey to stop global warming which isn't occurring.
The political process is so good. It's all the fault of the automobile CEOs.

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Tuesday, December 16, 2008

Free Money

SEARCH BLOG: FEDERAL RESERVE

WASHINGTONThe Federal Reserve entered a new era on Tuesday, setting its benchmark interest rate so low that it will have to reach for new and untested tools in fighting both the recession and downward pressure on consumer prices.

Going further than analysts anticipated, the central bank cut its target for the overnight federal funds rate to a range of 0 to 0.25 percent, a record low, virtually bringing the United States to the zero-rate policies that Japan used for six years in its own fight against deflation. The rate had previously been 1 percent, and a cut of a half-point had been widely expected.

Previous posts on this topic:
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Caroline Wojoboski-Al-Suliman Seeks N.Y. Senate Seat

SEARCH BLOG: POLITICS

Seeking to leverage her famous name, Caroline, Ms. Wojoboski-Al-Suliman has been plunged into a media debate about her qualifications for the New York senatorial position.

"If Ms. Wojoboski-Al-Suliman had not been given her famous and popular name, Caroline, she would not even be considered for this role," stated the soon-to-be former senator Clinton who, ironically, also won her Senate seat on the power of her name recognition... Hillary."
Meanwhile, in Illinois, bidding for that Senate seat has now reached $3.7 million as a result of an anonymous, online bidder from California with a peculiar Austrian accent. He listed the Kennedys as a reference.

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How Cold Does Warming Get?

SEARCH BLOG: WEATHER



We're expecting some "warming" into the low 30s later this week, but temperatures continue to be well below normal. There is this strange strong correlation between the sun's inactivity and our cold weather. Possibly just coincidence, but certainly stronger than with the increasing CO2 the Europeans are beginning to discount.



Meanwhile, as Al Gore predicted, the North Pole is melting and all of that cold air is going away.

Northeast Siberia braces for extreme cold of -60C
15/12/2008 12:45 YAKUTSK, December 15 (RIA Novosti) - Temperatures in the northeast Siberian republic of Yakutia could fall to minus 60 degrees Celsius (minus 76 degrees Fahrenheit) in the next few days, the local meteorological service said Monday.

With average low temperatures in Yakutia dropping below minus 40 degrees Celsius (minus 40 degrees Fahrenheit) overnight, weather in the town of Verkhoyansk dropped overnight to minus 53 degrees Celsius (minus 63.4 degrees Fahrenheit), while in Oymyakon it reached minus 57 degrees Celsius (minus 70.6 degrees Fahrenheit).

“However, this is not the limit - in the next few days weather in the town of Krestyakh could drop below minus 58 degrees Celsius (minus 72.4 degrees Fahrenheit),” the meteorological service spokesman said.

The spokesman added that the current spell of extremely cold weather was due to an influx of cold polar air masses. [I guess that's where the cold went when it left the north pole].

Gee, I hope Santa doesn't drown.

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Monday, December 15, 2008

Northeast Gasoline Prices

SEARCH BLOG: GASOLINE

While gasoline prices continue to decline around the country, in the northeast they have stalled or risen slightly.

In the summer, gasoline is usually higher than many states because we need a "boutique blend" to meet EPA regulations... and it is the tourist travel season, so the prices go up with the demand... at least that's the official line, along with hurricanes and refinery outages.

I suppose the official line now is that because there are so few tourists and local demand is so low and there are no hurricanes and refineries are on line, the prices have to go up to offset the lower volume and lack of EPA smog controls. Maybe it's just that the pipelines are frozen.

Or maybe it's just that the map needs some red to go with the green because it's Christmas!

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Busy Getting Ready For Christmas

SEARCH BLOG: CHRISTMAS

I'm busy now making Christmas pastries for gifts to the family. Will write more about this.


It's a lot like Baklava.

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Sunday, December 14, 2008

Just Another Wall Street Firm Having A Bad Year

SEARCH BLOG: ECONOMY

After AIG and Citicorp and many other financial institutions having "bad years," here is one more... courtesy of Financial Times:

Investors around the world were rushing on Friday to assess potential losses from what could be Wall Street’s biggest fraud – a multi-billion-dollar scheme allegedly perpetrated by investment manager Bernard Madoff.

The case threatens to stoke fears among investors and encourage withdrawals from hedge funds struggling to raise cash to meet redemptions. At least one civil lawsuit had been filed on Friday on behalf of Madoff investors seeking to recover money.

“These people went to sleep Wednesday night thinking they had a comfortable retirement and now they are thrown into a spiral of horror,” said Stephen Weiss, a lawyer representing people who had invested a combined $1bn with Mr Madoff. “Some of these people don’t know how they are going to pay their mortgage.”

Mr Madoff, former chairman of the Nasdaq stock market, was released on a $10m bond on Thursday after prosecutors said he told senior employees, including his sons, that his operations were “all just one big lie” and “basically, a giant Ponzi scheme [similar to a pyramid scheme]”. Prosecutors said Mr Madoff put his losses at about $50bn but that estimate has not been independently confirmed.

Mr Madoff apparently came to grief over redemptions. He told a senior employee this month he was struggling to meet $7bn in redemption requests from clients, the criminal complaint said.

Mr Madoff’s investors ranged from his friends in New York financial and charitable circles to globally known fund managers. Funds that invested with Madoff – including Tremont, a US fund of hedge funds that had put more than $1bn in his hands – were particularly active in recent weeks in soliciting new money for his vehicles, say people who received the requests.

The biggest exposure appears to be Fairfield Greenwich, a US group with a $7.28bn fund managed by Madoff. Sterling Equities, flagship company of Fred Wilpon, owner of the New York Mets baseball team, was another investor.

In Europe, two funds from Pioneer Investments, an arm of Italy’s UniCredit, had “substantially all” their $835m of assets invested with Madoff. Other investors include Switzerland’s Union Bancaire PrivĂ©e, London’s Man Group, Spanish bank Santander’s Optimal division and UK fund manager Nicola Horlick’s Bramdean Alternatives.

The Securities and Exchange Commission obtained an order to freeze assets of the firm. Experts questioned whether regulators could have acted earlier. “You have to wonder why the SEC did not know anything about this . . . if this has been going on for years,” said Bradley Simon, a former federal prosecutor.

Dan Horwitz, Mr Madoff’s lawyer, did not return calls for comment. He said on Thursday that Mr Madoff “is a long- standing leader in the financial services industry. We will fight to get through this unfortunate set of events”.
No conspiracy or fraud here, folks. Please move along. Just another long-standing leader in the financial services industry having a bad year. We need these wealth-creation leaders working along with our Federal officials preserving the arsenic of democracy.
Meanwhile, have we gotten the pillories ready for the automotive CEOs?
Click here for more on how all of this works.

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Saturday, December 13, 2008

Shocking, No... Politics, Yes

SEARCH BLOG: POLITICS and AUTOMOBILES

In Lansing, Gov. Jennifer Granholm said the senators who opposed the automaker rescue were biased.

"The favoritism that was shown to those foreign companies at the expense of American industries was, frankly, shocking," she said.

Also...
Gov. Jennifer M. Granholm has issued the following statement on the U.S. Senate's failure to approve a bridge loan for the U.S. auto companies:

"Republican senators have just delivered a fierce slap at three million workers across America. Their no vote is an astounding blow: They have chosen to ignore the livelihood of three million Americans, three million families, and in the process have have chosen to drive the American manufacturing industry - and perhaps the American economy - into the ground. They are choosing foreign competitors over American industry and American workers. A nation without a strong manufacturing sector is a nation without a viable defense sector. This is a shameful day, a day we will not forget. I implore President Bush not to let the American economy slide from recession into depression as he leaves office. Direct the Treasury Secretary or the Chairman of the Federal Reserve to use their authority to save the American auto industry, three million American jobs, and our nation's economy. The moment could not be more urgent. Mr. President, American workers are depending on you. Save these jobs."
As I wrote yesterday:
Of course, Sens. Corker and Shelby have their own states and those foreign assembly plants to protect... factories owned by companies that receive a lot of support and subsidies from foreign governments, too.
Sure there is a lot of local and regional maneuvering for advantage. Everyone understands that. And even if it is a "cutting off one's nose to spite one's face" sort of thing, the memories of Sens. Shelby and Corker will be long.

U.S. automakers will survive somehow. And there will be payback someday... of a political sort. Those senators just don't know Gov. Granholm, but they will. Mark my words.

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Friday, December 12, 2008

Economic Lynchpins

SEARCH BLOG: ECONOMICS


There are some economists and a lot of Republican senators who will argue that allowing a whole industry to fail is okay. It will be replaced by something else... or somewhere else.

From Cafe Hayek:
Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders.

But what if refusal to bail out these firms results in their complete failure? Even then -- especially then -- the case for a bailout crashes. Really big firms such as GM, Ford and Chrysler are really big users of productive inputs, like rubber and steel. Almost all of these inputs have alternative uses and could be used by other firms or in other industries. [comment: in what countries and after how long?]

A government bailout of the Big Three keeps huge amounts of productive inputs in firms that can't use them efficiently. Forcing taxpayers to subsidize the continued employment of gargantuan quantities of raw materials, labor and capital goods in unproductive pursuits is a recipe for economic stagnation. The popular and politically convenient myth has matters backwards: The bigger the unprofitable firm, the more vital it is that it be allowed to fail.
Industries that are failing in one country can be replaced by those same industries in other countries or replaced by something else in the same country... that's the theory.
  • Steel here replaced by steel there;
  • textiles here replaced by textiles there;
  • electronics here replaced by electronics there;
  • automobiles here replaced by automobiles there;
  • wealth here replaced by wealth there....
Our economists don't see a connection between government-industry cooperation in other countries and government-industry antagonism here. Those foreign industries are just better run... yah, sure.

As with any system, the parts can be replaced. If you have an inefficient heart, get it replaced. If you have an inefficient kidney, get it replaced. If you have an inefficient brain, get an unemployment check.
In economic theory, there are no lynchpins to any system or economy. What fails gets replaced... and the greater good is served.
Okay, but what happens when the "body" is okay, but there is no food because the agricultural system collapsed worldwide? Go into caloric bankruptcy? That's pretty much what is happening to the automobile industry. Normal credit channels have dried up because of the financial problems worldwide.
Other governments have recognized the need for emergency "food" for their industrial "bodies." Our theorists here insist that the body should starve... maybe the organs can be sold off later.
Maybe there are no "critical" or "lynchpin" business endeavors ... industries... in our economy... or any economy.
If, for example, poppy production fails in Afghanistan, it will be replaced by poppies imported from someplace else... and the Afghanistan economy hummmmmmms along. What do you mean that the other grower might just take over the processed poppy market and leave the Afghans out in the cold?
Likewise, we can simply ask for foreign credit on everything we use. Or perhaps like the wagon wheel and horsewhips, we can replace the auto industry with a new form of transportation... yet to be invented... progress, you know. After awhile, we can replace U.S. money with something else, too.
I'm sure there will soon be more efficient currencies than one backed by trillions of dollars of debt.
I wonder if our economists can tell us how far into the future we can spend and manipulate without actually having to earn anything? I wonder if they can predict who will own America's debt... and tell us, like our wise Republican senators, how our nation must restructure?

Meanwhile, isn't it great that Wall Street and the banks got all of those billions without any sideshow before Congress... no justification or explanation needed... and didn't have to share it with anyone? They get to screw up the economy and industry has to explain why it didn't plan for the screw up!
The Republican Sens. Corker and Shelby would like to see laborers at the automobile firms and suppliers to the automobile firms bear the brunt of the financial institution screw-ups so that banks won't have to use some of that $700 billion to get the economy going again. Of course, Sens. Corker and Shelby have their own states and those foreign assembly plants to protect... factories owned by companies that receive a lot of support and subsidies from foreign governments, too.

Besides, lending to U.S. business is risky, you know?
Maybe the domestic automotive industry isn't a lynchpin. Perhaps that is why it is getting a lynching in Congress.
Do you suppose the French and Chinese and Japanese and Germans are laughing at us now? Why not? It is laughable.
Oh, just one other thought. You know the $25 billion that was revised to $34 billion and somehow reduced to $15 billion? Well, according to Nancy Pelosi, that amounts to 3, 4, and 2 months of U.S. spending in Iraq, respectively.
Hey, Republican senators, why is donating money so good in Iraq and lending money so bad in the U.S.?
Sorry senators, but I say "America first" whether that is a parochial view or not... just like the French and Chinese and Japanese and Germans are saying about their countries and industries... so why aren't you?

ADDENDUM

The US Treasury signalled it was ready to step in with funds intended to prop up the financial system to prevent the biggest industrial failure in US history.

“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” the Treasury said.

[source]

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Thursday, December 11, 2008

Just Another December Day In Thunder Bay

SEARCH BLOG: WEATHER


Except it is southeastern Michigan.




Oofdah, you betcha.

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Republicans Have A Better Auto Industry Idea

SEARCH BLOG: AUTOMOBILES


I get emails frequently from Rep. John Boehner's office [along with thousands of his other favorite correspondents].

Yesterday, I got one linking to the Republicans' better idea about the automotive industry, to wit [click on images for larger view... the document was made so the text could not be copied and pasted... probably ashamed of the whole thing]:




I just had to respond:
I receive emails on your distribution list and read the GOP alternative plan for the automotive industry. Neither the Democratic Party nor the GOP address the fundamental issue impacting the automotive industry: lack of liquidity in the credit market despite billions of dollars going to that market from the Fed.

If the government is not going to force the financial institutions into freeing up credit for both businesses and consumers despite a lack of oversight in the billions of dollars made available, then the government ought to put a hold on those funds and allow industries to borrow directly through the Fed.

Obviously, that won't happen.

Well, then, how about rescinding the $100 billion CAFE mandates? $15 billion in short-term loans for operations because of financial institution lock-up is, let's see, 15% of the mandate costs! Now that's something the Republican Party can address.

No? Well, how about a reduction of corporate tax burdens? Oh, wait, the corporations have been drained of their profits already. That must have gone to the financial institutions. You should talk to Sens. Dodd and Shelby about that.

Okay, I guess you are correct. There is nothing to do but blame the automobile manufacturers and tell them that they should fix the problem that they created.
I do like the deadline of March 31, 2009 for a "framework" [whatever that might be in legal terms] for debt to be reduced by 1/3 by no particular date.  That must be a Washington, D.C. approach to reducing the national debt, too.
We've got to have a plan to have a plan... or at least a plan to think about having a plan.
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Wednesday, December 10, 2008

House Passes Automobile Industry Loan

SEARCH BLOG: AUTOMOBILES

From the office of Rep. Thaddeus McCotter.


Now the real test in the Senate.

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Oil... Going Once... Going Twice

SEARCH BLOG: OIL

Global oil demand will collapse next year and commodities will not return to the highs they reached this summer in the foreseeable future, two authoritative reports said on Tuesday as they forecast a long and painful worldwide recession.

The stark conclusions came as the World Bank’s chief economist predicted that the world faced “the worst recession since the Great Depression”.

The US energy department said global oil demand will fall this year and next, marking the first two consecutive years’ decline in 30 years.

“The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices,” it said, forecasting that demand would drop 50,000 barrels a day this year and a hefty 450,000 b/d in 2009. US oil demand will drop next year to the lowest level in 11 years.

Meanwhile, the World Bank’s Global Economic Prospects report said the commodities boom of the past five years – which drove up prices 130 per cent – had “come to an end”.

Exactly one year ago I wrote this.... One doesn't have to be an economist to see the effect of these macro disruptions and the inevitable outcome. Actually, an historian might have an advantage in that arena since economists always seem to be analyzing last year's data.

The irony is that this creates a terrible dilemma for the alternative energy folks... the same ones who were screaming about the automobile companies not recognizing that everyone wanted small cars when the market... with the exception of less than a year... had demanded just the opposite.
With gasoline headed toward $1.50 per gallon and lower, there are a lot of people who will soon forget about the "energy crisis" and move on to the next issue... survival. How will the AE people convince the rest of us to shell out thousands of dollars more when oil is cheap again. They'll have to convince us it was the Saudis and Wall Street manipulators who are trying to "hook" us again.
Still, those who hate big oil and big cars have an opportunity to force the issue. GM and Chrysler have been brought to their corporate knees before the Council of Congress. Now, despite what might happen in the marketplace, those companies will be forced to do what the Council proclaims as the "correct path of the marketplace"... a path determined by the $100 billion CAFE and Carbon Credits Contingent from California. After all, the Council will "own" them.

Well, sooner or later the Council will be proven right... when there is not enough energy development for a global economy that can't be fully revive without enough energy. But we can exchange Carbon Trading Cards and drive golf carts to the next 2-hour plug-in 100 miles down the road. Maybe we can just live a "virtual" life on Xbox.
Besides, the rest of the world will start using that oil even if we decide that we are going to have an "alternative economy."
I think Poland had one of those after WWII

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Tuesday, December 09, 2008

Sacrificial Lambs

SEARCH BLOG: AUTOMOBILES

NEW YORK (Associated Press) - Shares of U.S. automakers surged sharply in premarket trading Monday as Congress appears to be leaning closer to throwing the companies a financial lifeline, but attached to a potential aid package are growing calls _ including from a key senator _ for the chief executives to step down.

General Motors rose nearly 22 percent, while Ford gained nearly 18 percent.

Sen. Chris Dodd, D- Conn., chairman of the Banking Committee said Monday on ABC's "Good Morning America" that overhauling the top management of Ford, Chrysler LLC and GM is necessary as a gesture of good faith with the American public.

Several analysts are speculating that GM, and Chrysler and Ford will receive the funding, but with additional strings attached. Key Banc analyst Brett D. Hoselton said in a research note Monday that there's a 50 percent chance the federal government will grant aid, providing Senate Republicans get onboard.

That's a bit open ended... especially the part that goes "overhauling the top management of Ford, Chrysler LLC and GM is necessary...."
It seems pretty obvious that GM and Chrysler need to dip into the trough, but I'd like to see Ford Motor Company and their CEO, Alan Mulally who has done an exceptional job in a tough situation, be able to thumb their noses at the penance plan by not using any of the Federal money. Of course, that will depend a lot on whether the $700 billion largesse to the financial institutions begins to loosen up the credit and the economy in the next six month.
Congress has been making the domestic auto industry the economic goat for the government's misguided and disastrous meddling into the housing credit market and mandating excessive automobile regulations. Now it wants to make the auto manufactures' CEOs sacrificial lambs.
I'd also like to see Toyota and Honda do a little arm twisting in Alabama when the massive financial incentive period there runs out by hinting at the need to move to another state that wants to give them billions of dollars in new incentives. That would be poetic justice for the ultimate hypocrite, Sen. Shelby.
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Monday, December 08, 2008

The Latest Economic Goat

SEARCH BLOG: AUTOMOBILES

Yeah, stupid goat....

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Natural Gas Prices

SEARCH BLOG: ENERGY

Not long ago, predictions were that natural gas prices would go up for consumers by 20%. Now this:

The December contract for natural gas delivery at the Henry Hub expired in trading on November 24 at $6.89 per MMBtu, gaining nearly 46 cents per MMBtu during its tenure as the near-month contract. At $6.89 per MMBtu, the December 2008 contract expired 32 cents or 4 percent below the expiry of the December 2007 contract. This marks the lowest level for the expiry of a December contract since the December 2003 contract expired at $4.86 per MMBtu.


Wellhead Prices
So the question is: will these lower wellhead prices result in lower consumer bills... or will prices be jacked up anyway?

ADDENDUM

The answer appears to be yes:

Consumers Energy Heating Costs Climb 7%

While gas prices drastically dip down, heating costs keep climbing.

"Now we're estimating they'll increase about 7 percent this winter," said Dan Bishop of Consumers Energy.

Bishop says in December 2007 they were charging $7.78 per thousand cubic feet and this December that number jumps to $8.17.

"Last winter our typical customer paid about $150 per month during the winter, we're estimating that, that same customer may pay about $160 a month this winter, that's do to the fact that natural gas prices were a little bit higher than they were," Bishop said.

But Bishop says the percentage increase was initially expected to reach double digits, but he says simple supply and demand softened the blow.

"Natural gas suppliers have increased supplies to the overall market and there has been a slight reduction in terms of demand," Bishop said.

Not a real surprise.

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CO2 Cap and Trade

There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)