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April 29, 2008


Dave McLane

Before I moved to Congress Arizona from Japan, I collected CB trucker data on I-40 and I-10 to use for an in-fated video. I gave up on the video -- had to sell the equipment to finance the move to the States -- but have repurposed myself as a citizen journalist and riding with truckers and gathering stills and voice recordings would make for a great story. If anybody knows how to contact them, please let me know.

Angelia Sparrow

I'm a company driver, pulling a 28' pup on a 300 mile/day delivery route.

Without me, eastern Arkansas (at least the portion that drives GM vehicles) doesn't go to work.

Since I can't actually be at any protests, how I show solidarity on this issue?


that's a lovely post. well drawn characters, sense of place and definite sense of issues driving them. "but he works for us" will ring through my head for a while.


Great blogging start. I hope you write a book about these times as they are here now and people won't really get that till much later, and we will need some real time history to really understand what we are going through. We are in the shute now and to me it shows a big divergence between real time and cyber time events. The democrats answer now to the media and cyber space pushes and shoves, and not to the people. Susan Collns is one of the good people, she still relates with "the people". She may retire and I hope not. You hit the main theme right off which is the Government is no longer a little d governement and doesn't represent the will of the people at all. I go further and say, the federal governent is an off the shelve entity doing its own-thing government, the best government corportate interests can by(others words), and it answers to no-one but the man who occupies that house on Capital Hill. Congrats America, you have made your prime minister your king. And this in modern times. But you could write a story that better shows the people side of the times. I think no one is doing that, probably not since the Beat's and rail road singing poets made a few telling observations. I think we as a culture need to get away from the media type narrative op-ed analytic in tow of various advertisers to real first person stories. I say this after a younger, probably totally mad women nearly ran me off the road today in her toyota in such a rush to get from her job to her apartment. The last thing I recall about her was her yelling at me through her rear side window with her frizzy hair flying about after she nearly killed my life passing me on the right and almost zipping through me. That is what America has become. That is what it is.

Barbara E

Angelia and Dave: Probably best to contact the truckers through theamericandriver.com. If that doesn't work, let me know.


Elected officials haven't been 'civil servants' for 20 years or more. They are our LEADERS. Civil servants are the bureaucrats whose primary job is to serve the elected LEADERS.

J. X. Rodríguez

"There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas."

-- from story in New York Sun


'... This is a wide-ranging cry from the strangled middle class –- or working class or whatever you want to call it —- and all I can think is: Where are the Democrats? ...'

The Democrats are lying low because there is nothing substantial they can do about the situation. They can and almost certainly will vote for a gas tax holiday, but all that will do is add to the money floating around without adding to the things the money buys, that is, it will cause faster inflation, just as the rebate and the FRB's new, new, ever cheaper money will do. I expect inflation to become a serious political issue this summer, and a serious financial problem for the Federal government as well.

It's pretty ironical that so many people are complaining that the government has become monarchical, while abjectly beseeching it to override the laws of logic, arithmetic, physics, and economics. They'd probably do as well to follow the example of Mr. Rodriguez's minister.


The current difficulties and the wishfulness of some of those who are caught up in the changing landscape reminded me of the 1980s when farmers were feeling some pain. Sam Shepard and Jessica Lange starred in Country, a movie that attempted to capture the angst and anger of one farm family.


Released in the mid-1980s, this farm drama stars Jessica Lange and Sam Shepard as Jewell and Gil Ivy, who run a small farm in Iowa that has been in Jewell's family for several generations; her father Otis (Wilford Brimley) lives with them, along with their three children. While the work is hard and the earnings are slim, the Ivys have been able to get by, like most of their neighbors, until a one-two punch threatens to devastate the Iowa farming community.

First, a tornado devastates the area, then the Farmers Home Administration calls in the loans on most of the farmers in the area, which they are in no position to repay. With thirty days to "voluntarily liquidate" their property, the Ivys, like most of their friends and neighbors, are desperate to find a way to hold on to their property, and when the stress causes Gil to buckle, Jewell must step in to keep the clan going.


The widespread foreclosure of small family farms during the early '80s forms the backdrop for William D. Wittliff's often affecting, if essentially predictable melodrama, featuring exceptional work by Jessica Lange.

With Ronald Reagan's appointment of former agribusiness executive William Brock as Secretary of Agriculture, the days of the small farmer were numbered. For Lange, who also served as executive producer, the plight of the farmers is clearly close to her heart, and the film's portrayal of a staunch matriarch desperately trying to hold her disintegrating family together occasionally evokes The Grapes of Wrath.

If the scope of its social observation and depth of characterization can hardly stand comparison with the earlier film, there are moments, such as the scene of the farm's auction, and in particular a long shot at the end of a hallway of Lange and husband Gil (Sam Shepard) embracing in silhouette that John Ford himself might have appreciated. Despite having to work with characters condemned to a certain passivity, the cast does an excellent job, and Lange is at her best in a memorable, mutely expressive performance.

Thanks to the fine work of the government that led to the creation of tax credits for ethanol production and a tariff on imported ethanol, food prices are going through the roofs of the big new homes of the formerly suffering farmers.

To lower the price of anything, the solution always involves a strategy to increase the supply. The price of an important commodity will never drop if there is less of it.

Thus, the easy and obvious solution is for Congress to permit oil drilling on all US territory. There are 80 BILLION barrels of proven oil reserves on US territory now off-limits to oil drillers.

When it comes to oil, the US behaving as though it is a nation of starving people who worship cows that walk freely among us because we believe they are holy and cannot be eaten.


chris: '... Thus, the easy and obvious solution is for Congress to permit oil drilling on all US territory. There are 80 BILLION barrels of proven oil reserves on US territory now off-limits to oil drillers. ...'

I've been discussing the price of oil with some right-wingers and others in recent weeks in another venue, and the above is a taste of what y'all progressives are going to get if you complain about such things. I believe puffing up nuclear power will also be offered. If war hadn't already been tried and failed that would be on the menu too. Believe me, the corps and the oilmen are ready to increase your supply, and their profits -- or at least go through the motions. Just don't be so prissy about the environment, global warming, war, big business and all that.

Of course, chris's view is a bit limited. Another way of lowering the price is to decrease the demand. But since Americans believe they have a natural right to have and burn torrents of cheap oil, that idea is not going to go over politically at all.


Unfortunately, America is build in such a way that a car is a necessesity. You have workplaces in industrial parks, non-existent public transportation in most areas and poorly maintained or non-existent sidewalks which is making walking or bike riding hazardous. Redesigning cities to make them more people-friendly would be a step in the right direction.


Redesigning and rebuilding the cities will probably happen eventually -- it is a reasonable thing to do. But remember that human beings generally try reason only after every other option has been tried and failed. We have many options yet to go. Right now we're in the phase of looking for scapegoats, conspirators and malefactors. No doubt plenty will be found.


anarcissie, if the discussion about oil and energy were purely theoretical, then a discussion of reducing demand for oil would have a place.

But to believe that humans will simply move on to other energy sources, especially when they are many times more expensive, is simply crazy.

Compared with other energy sources, oil is cheap, even at $120 a barrel. Furthermore, you seem rather cavalier about the arrival of cheap alternatives, as though somebody's got them in the backroom somewhere.

I suggest you look into First Solar (stock symbol FSLR) to learn a little about solar energy and why, despite First Solar's full-speed-ahead progress, we're decades from converting sunlight into meaningful quantities of electricity for less than the current price of oil.

The desires of people who think we can simply move away from oil are only achievable if a global tyranny keeps humans from oil. That's it.

Furthermore, you seem to believe that US consumption is the only consumption that matters. The US accounts for 25 million barrels of daily oil use. But global demand is 85 million barrels.

How can the US reduce energy consumption? Whether the primary source is oil, coal, solar, wind, nuclear or geothermal, how can the US reduce energy consumption?

The population of the US is now a little over 300 million. Based on historical growth rates, the US population will reach 450 million by the middle of this century. A 50% increase. How can 50% more people -- 450 million people -- use less total energy than the US population -- 300 million -- uses today?

In the future I envision more cars, planes, trains, buses, trucks, boats, ships, heaters, air conditioners, household appliances, entertainment electronics, lights, heavy construction equipment, light construction equipment, and more.

India is feeling a labor shortage of infra-structure workers -- the guys who can build roads, bridges and all the other venues for the surging motor vehicle traffic in India, a country with more than a billion citizens. India alone expects its leading car company to put a HUNDRED MILLION of its new cheap cars on the road in the coming decade.

Nothing that happens in the US will keep global oil consumption from rising to 110 million barrels a day from today's daily consumption of 85 million barrels.

Why kid yourself about a NET reduction in oil consumption. It is laughable. Preposterous.

The questions you have to answer follow:

What are the alternatives to oil?

How will you induce energy users to adopt new sources?

How long will it take for this global transition to occur?

Which countries, people and/or regions will feel the most pain from a transition mandated by government?

What's wrong with the idea of using oil until it's gone?


How quickly the blowhards start bloviating.

The subject is the truckers' action, and how regular Americans feel their only recourse is to take to the streets.

This IS our country and we need to take it back.

Yuri Rennenkampf

"We own the government, we pay for it, and now it better do something for us"
Great idea Barbara! Let's have some price controls. They did great in the 1970s and even better in Mugabe's Zimbabwe. Why, I'd far rather queue for hours for fuel than pay higher prices!


chris: '... What's wrong with the idea of using oil until it's gone?'

Well, it's like a fellow who has a certain amount of money and doesn't know where the next batch is coming from. He can spend it all immediately, or spend it slowly. Depends what kind of drama you like, I guess.


Buena: '... This IS our country and we need to take it back.'

My problem with a statement like that is that I don't know what it means. We, the people, choose our political leaders by voting for them, and we choose our captains of industry by trading with them and working for them. We choose certain styles of behavior, entertainment, living arrangements, art, and so on. No one is putting a gun to our heads. We could have made other choices. We have always had that power. There is nothing to take back.



There is a century of oil remaining at the very least. Uncapped consumption will not deplete reserves in a decade. Uncapped consumption probably won't deplete reserves in a century either. But due to the increasing difficulty of pulling oil from the ground, I'm sure we'd see prices like those in Sierra Leone today -- $18.42 a gallon.

Anyway, your idea of reducing demand by forcing new-car buyers in the US to purchase high-mpg cars won't make a dent in global energy use while the number of cars and drivers in India and China skyrockets.

One day all the former communist countries -- like Russia -- will put cheap cars on the road and a few hundred million more people will begin driving.

Anyway, there is no substiture for oil when it comes to jet fuel. But airlines can go bankrupt. High fuel prices can do it. EOS, A recent start-up airline went Chapter 11 a few days ago due to high fuel prices. Management failed financially. They did not hedge against higher fuel prices as airlines normally do. Thus, every flight was losing more and more money. The pain became too much last week and they pulled th plug.

We've got a century to develop alternative energy sources. That's more than enough time.

Thus, you should try to answer the question I asked.


chris -- you have me mixed up with someone else. I've just pointed out that when you use up the cheap stuff you have to start paying for the expensive stuff. Sometimes it's expensive in more ways than one.

There are a lot of people running around pretending otherwise, but it just ain't so.


anarcissie, you wrote:

"Well, it's like a fellow who has a certain amount of money and doesn't know where the next batch is coming from. He can spend it all immediately, or spend it slowly. Depends what kind of drama you like, I guess."

The century-worth of oil in the ground will rise in price over time, but the price will always reflect the price of alternatives.

Thus, if the solar energy industry expands and solar energy becomes less expensive, oil prices will move with solar when they reach parity.

That's probably two decades away, at the earliest.

I'd let oil users use all the oil there is, confident that entrepreneurs would provide the alternative in the face of dwindling supplies.

By the way, gold prices went from $35 an ounce in 1974 to $800 an ounce in 1980 down to about $300 an ounce for 20 years, finally surpassing $800 in the last year or two. Gold and oil are not a fair comparison, but there are points in common.

On the other hand, oil was $3 a barrel until the early 1970s. It went to about $40 a barrel (over $100 in 2008 dollars) in 1983, then down through the rest of the 1980s, reaching a bottom of $10 in the early 1990s, then up and then back down in the later 1990s. And here we are at $115.

In other words, when supplies run ahead of demand, oil prices fall. Hence, the best plan is to drill everywhere oil is detected.


chris: '... I'd let oil users use all the oil there is, confident that entrepreneurs would provide the alternative in the face of dwindling supplies. ...'

In that case we don't need to release any of that locked-up oil you've been talking about. Just put those magical entrepreneurs to work now. The solution is as wonderful as the one where the government passes a law making gas plentiful and cheap.

Amazing how obvious it all is. As someone said, "For every human problem, there is an answer that is simple, inexpensive, easy to understand, and wrong."


anarcissie, you wrote:

"In that case we don't need to release any of that locked-up oil you've been talking about."

The "locked-up oil I've been talking about" is ALL the oil on Planet Earth, which will last at least another century. We should tap every known reserve while looking for more and tapping those too.

Then you said:

"Just put those magical entrepreneurs to work now."

Those magical entrepreneurs are self-motivated. It's their nature to solve problems like this big energy problem. They see a need and they do something about it. The US has many of them.

Other countries where science and engineering are studied have them too. But there are none in Africa or muslim nations.


no_slappz: '... The "locked-up oil I've been talking about" is ALL the oil on Planet Earth ...'

So we're just swimming in oil, and there's no problem. The people who trade futures in crude, heating oil and gas say you're wrong, but what do they know?

In any case, I thought you were taking the widespread right-wing line that we do have a shortage of oil, and that this is because of unwarranted government regulation and interference on behalf of conservation, the environment (including the prevention of global warming and pollution), and all that other wet liberal stuff. Just get rid of these laws, and drill everything, and all will be well. What I was pointing out to the lefties and semi-lefties here was that this proposal follows logically from their excitement about the truckers and gas and diesel prices. Fighting wars to seize foreign oil is another logical development of their concern and unqualified demand that the government Do Something Now.

But you don't see a problem, so I guess I'm talking to the wrong guy.


Anarcissie, it seems you are confused by the difference between the total quantity of oil in the ground on Planet Earth and the rate at which we extract it.

If a big storm destroyed many off-shore oil platforms, we'd have a true shortage of oil on our hands. But a storm on the surface of the Earth has no effect on the amount of oil in the ground.

This is Earth. There is a finite amount of oil in the ground. But we control the pace at which it is extracted and refined for practical use.

If we increase the rate of drilling more wells, we will increase the flow, which will reduce the price.

Since the population of the world is growing and prosperity is increasing too, the world is demanding more oil. We are now using 85 million barrels a day. That number is expected to reach 110 million barrels a day in a decade or two.

The whole world is demanding more oil, not just the US. But due to the economics of the oil industry and political idiocy, the world exploits its oil resources in a way that is far from optimal.

Oil traders trade the oil that is flowing out of the ground -- not the oil sitting in resevers below ground. They trade based on the rate of flow versus the rate of consumption.

Consumption is running high enough that people believe the margin between supply and demand is about zero.

Oil wells run dry faster and faster. Most of the big ones have been found. Though Brazil may have discovered a true elephant last week. But our seismic mapping gets better all the time, which enables oil companies to find more and more small reserves.

There is more than a century's worth of oil in the ground. But we have to find it and get it out.


The world and the US needs to commit to using less oil and to not sabotage its food supply by shuttling such a huge percentage of its corn into ethanol. While pilot projects to develop and use modest amounts of corn and switchgrass are reasonable to evolve the technology of alternative fuels, we can build more efficient engines, lighter cars and trucks with new light weight materials and better technology. Houses can be better insulated, solar energy and wind can be better tapped, new generations of led lights etc are all coming on-line. People don't have to buy gas guzzling suv's and they don't have to make them so fuel inefficent. Hybrid car designs are just starting to be tapped and fuel cell cars are already here waiting to be developed and a supportive infrastructure to be built out creating new jobs and new industries. Our infrastructure needs rebuilding and with that efficiency can be increased. Safer nuclear power is designable that won't melt down and we still need to complete a waste site end to the fuel's life cycle. By exporting and working with emerging economies in the undeveloped world early we can further help conserve oil as well as export new technologies and expertise to them once again creating jobs. By example and politics we can surely motivate a number of nations to improve their use and conservation of energy supplies as well as help educate a new generation of talent with those skills which will also impact nation's politically in the energy decisions they make. Probably a third of the price of oil is from speculators, hedge funds, governments, and companies who are betting for and against its price with huge leverage. This works against people buying gasoline even when there are adequate stocks in inventory which there currently is. Also tax incentives for big oil need another look to make sure we aren't being counterproductive to an efficent engery policy. Its all a question of political will which means its also a question of real leadership willing to do a real job.



Some of your claims are accurate enough, at least those about improving our cars and other steps for reducing "unit consumption" of oil. But energy usage is not a game of individual use. It is all about the total -- the aggregate. That takes in the whole world.

As for "speculator" running up the price of oil, well, that's a good subject for a pulp fiction thriller. But I don't think you can provide any economic data supporting your belief.

Whenever a true market exists every point of view is represented by real money. If the margin between production and consumption becomes dangerously thin -- as it has -- prices rise.

Meanwhile, the real bottleneck is the limitations of refineries. On top of that, there are a lot of regulations requiring tailored blends of gasoline for each region of the country. Then refineries must schedule maintenance and repair during periods when operations are shut down.

Drill more and build more refineries. Sink more wells on US territories and build a few new refineries in the US. That will take the pressure off and knock down prices.

Even if we jump into a new era of nuclear power NOW, it will take 12 years before a new reactor starts producing the juice. Oil use will continue to rise till then. Of course oil use will continue to rise even if we re-start our nuclear program because our growing population will continue to own and operate more transportation vehicles of all forms.

I don't know why people are determined to believe the laws of physics and chemistry will change if anger about the current laws rises high enough.


We've all been lulled into the fantasy that "stuff just appears on the shelves" without thinking for a moment how it got there. With risisng gas prices reflected in real prices maybe the truckers will get the attention they've needed for a long time. Over thirty years ago I had car trouble one night and managed to limp into a truck stop. Several of these hard working men helped me figure out what was wrong, fix it so I could make it home and were gentlemanly and considerate in the bargain. Even then it was apparent their lives were hard and it's terrible that now their lives have gotten even harder. Until we (myself included) support real change to give working people a chance to earn a decent livlihood I don't know how we can pretend we're a nation where everyone has equal opportunity to a good education, job, or safe living conditions. And, yes, I agree with you----where indeed were the Democrats?!


Price of oil 22-26 dollars a barrel. devaluation of dollar 60 percent on the euro. 34-38 dollar a barrel. developing markets, china, india, latin america increased demand for oil 55-63 dollars a barrel, refurbishment of aging integrateds refinerys and infrastructre 5-7 dollars a barrel, speculation ordinarily 30-40 dollars a barrel, now 42-62 dollars extra=105-125 dollars a barrel. Speculations are part international tensions, the usual forward hedging by producers of oil and its bigger users, and well pure speculation by hedge funds and well "speculators". Even currency hedgers buy oil to hedge against a falling US dollar as they do gold. Now is this a peak price, and is a reverse, or fall of the euro about to happen?(funny but in part because Iran is transacting all of its oil sales in euro's and to a lesser degree yen)it will now move speculators to those currencys so as to short it or drive the price of the euro and yen(lesser degree down). Benificiarys, certain emerging market bonds and the US dollar. I will leave it up to you to further research this and be equally surprised. Imagine you were a tank farm holding 600,000 barrels of oil in an appreciating environment wouldn't you buy calls that it would continue to head upwards, and a small amount of puts that it would in a rarer event dive downwards(straddle the volatile price). They all do it, even truck fleets and airlines and makers of plastics. Then you have the evil doers who simply speculate on leveraged money that amplify the moves up and down, and can keep price momentum on the move. They trade volatility, up or down and if they get their straddles right they make big money. If not someone gets fired, the taxpayers bail them out or subsidize them with tax losses, and they simply borrow money again and place another trade. And you wonder why they don't teach this stuff in high school or college?


I believe the siteing process alone, with the environmental impact statements, and necessary state and federal approvals is about 5-6 years alone to build a nuclear reactor. So the actual construction time is about 5-6 years and you would think with some serious effort we could reduce the siteing process to 2-3 years while the construction process would still take the 5-6. But a determined effort would allow us to build out new reactors in 7-8 years which is pretty good. West Germany pioneered the sphere technology to a point where by encasing the fuel in fixed diameter inert spheres you can physically prevent a core melt down as the fuel would never get close together enough to generate the heat necessary to just melt together. It would also aid in the disposal process and prevent a spontaenous chemical explosion which the Soviets experienced under the Ural mountains nuclear trash depot. Within a thirty year period another 12-15 or so safe reactors could be built in the US replacing our fossil fuel burning ones. By the end of their 40 year life cycle we could well be on the cusp of fusion energy technology which is possible given we are only now starting up the LHC in Cern which may give us the rest of the particle puzzle(Higg's boson, and higher kinetic forms of energy). That's 60-70 years out or almost three full generations of future scientists and engineers working on the problem. In the same time period the energy transfer efficiency of materials will dramatically improve, though so will our population unfortunately. Physically I think this is all doable with the help of time, and its only our society's insistence on a stuck in the mud energy policy that blocks us. Unfortunately Bush 1 and clinton killed the texas superconducting supercollider project which could have advanced our energy evolution even further making a hundred years progress in twenty. Also the LHC will harness unheard of supercomputing and networking power in a way that will further push us foward. I think we haven't advanced our foward thinking to realize great strides in human knowledge are truely just around the corner. Even serendipitous results such as finding there is no higgs will stimulate us down new paths, but clearly as we approach the kinetics of the big bang we will be on the cusp of symmetry breaking which may give us access to untold ways to harness immense energy. This may make it unnecessary to use hot fusion and huge and unstable magnetic bottles to contain it, but make cold fusion a real possibility and with that much of our current technology will be replaced by a whole new paradigm. If the world just put a few percent of its wealth into pursing these grand projects we could quickly evolve as well as train the necessary new talent which would then become part of our political decision making. Right now we are simply treading water between burning oil byproducts in cylinders and trying to see the higgs. Its really rather kind of amusing the extremes that are pulling on us. If we integrate quantum physics into this evolving picture we may find we do live in quite an amazing world and that our mammalian wars and tragedies we are currently spinning our lances at are totally a waste of time. Instead of harnessing the territorial we will find there is so much more to do. In a quantum world solution set we will truely be on our way to bigger things than standing on sand hills and bopping each other over the head. At that point we will become nature and be part of her decisions, not the children in the backseat of her car.


In my opinion, trading in futures, which is what I think you're calling speculation, reduces price volatility. For instance, one of the reasons some airlines have managed to stay afloat without doubling ticket prices is that they (the smart ones) invested heavily in oil futures when the cost of crude was much lower. They can now get the oil at a much lower dollar cost than if they had to buy on the spot market.

Entering into this equation is the fact that the value of the dollar has been greatly diluted by Federal monetary policies, past and present. Most of the money which is paying for those futures contracts is today's cheap, freshly printed money, not the somewhat harder stuff of yesteryear.

Hence, the price rise of petroleum derivatives in this case has been flattened out a good deal. Of course this situation won't last forever. The good effects of "speculation" and "hoarding" will eventually run out, and then I believe we are going to feel the full weight of the government's reckless money-printing, as well as the simple fact that world demand for oil is rising faster than the supply.


yes there is a difference between hedging the value of a production run and speculating on volatility. So the producer can smooth out his returns that way, but the stock market goes haywire on those on the otherside of a successful trade from the speculators point of view. So retail 401k retirement investors buying and holding mutual funds for long periods of time give up a substantial amount of any gains to the speculators rapid trading, taking profits when they can, and adroitly cutting losses and pocketing the difference. Mutual fund managers attempt to capture some of this with trading turnovers of up to 200 percent but its actually those that are in the right stocks that have lower turnovers of 25 percent or less that make the most long term profit, unless its in a taxable account where risk adjusted holding muni bonds might actually give a greater long term return assuming state and local governments remain solvent. But for the average investor speculators in the form of hedge funds(running about 1.5 trillion dollars in the market) utilizing added leverage have profound effects on volatility. A 10 percent market move in the Dow equals about a trillion dollars, so it would take moving 2 trillion dollars into the market to accure a 20 percent gain. That would be about double, or as they estimate quadruple the losses on subprime and the credit crunch, which is serious enought to shut down the residential housing market, inter-bank loans, all sorts of credit lines, and pinch credit card holders. So no, speculators increase market volatility for investors even if some of them are attempting to stabilize their products real price. Good point about the buying of future contracts in todays flimsy dollars, but their prices have gone up all the same, so I am not sure of how much overall advantage that has except with the help of added mispricings which drive arbitrage volatility, again speculation. Bear in mind you have futures with significant up and downside do to leverage, or call or put options with less downside that function as more an insurance policy till you use straddles carefully laid and then they can generate steady profits, or not. I don't think speculators driving up the price of oil from $80 to $120 has been helpful, not only in gasoline prices but in agricultural fertizlizer and petrochemical/plastics price inputs. It drives an added inflation wedge right through our economy. Things being cyclical in the past suggests that as the dollar stregnthens, oil will cheapen, which will reverse the trade among both speculators and producers of hedgeable product inputs. In that you will see an increase in volatility again as the vix is only around 20 now, new arbitrage opportunities, and a positive revaluation of bonds of all kinds. This may not translate into appreciating stock prices though and apparently Buffet has been making similar observations on stock prices. Fortunately for Berkshire it owns some of its companies outright that do not trade publically(like Sees' Candies) and can still generate internal profits not dependent on the movement of stock. How nice. Nobody knows the precise formula for how these moving parts of the market all interact and long term capitals nobel laureate management can attest to this from their own very personal experience. But I think people underestimate the power and impact of speculation on the entire market place. People like george soros and jim rogers made their early fortunes on simply one big bet and being in the right place in the right time. After that they have the capital to build a host of small trades up over time which in aggregate adds a lot to their wealth from that initial geometric start. But if you subtracted that initial successful big trade, they wouldn't be known today among the legions of smaller fairly successful investors. The big banks, brokerages, and interloculators all thought they could make their big pile in the past few years, and they did at first till it all went sour and with leverage you go south awfully fast. Now they are just writing it off, diluting their stock, spinning off bonds selling off parts of the their company, getting tax payer assistance, and already repackaging(eeeek!) loans into new creations with new twists on their ratings. Has anything really been learned as we go through this next iteration? Well clearly early success with huge leverage does pay if you are the first to sell and move on. But my main theory here is these profits in part come from the long holders of equity and bonds who are totally unprepared to compete in the sharks tank. Though you can thank corporate american and congress for throwing our future retirees into the sharks tank when they relieved them of their pensions and sold them the siren song of the 401k and IRA which in the best of hands will only prove an adjunct to a primary retirement plan, much like social security is only an adjunct to a retirement plan. There has been no major foward financial movement for the American people with the current purge and cleanup. These companies that got us into this are simply cleaning up their balance sheets grudgingly, noisey and quietly one traunch at a time simply to repositon themselves back optimally in the sharks tank. The retail investor is getting nothing, absolutely nothing out of this except lower money market rates to help pay for the mistakes of the big boys. Its truely sad and pathetic and no one cares and the big boys are so ungrateful. The poor truck drivers are just periperaly casaulties of this, the return to trains, run this time with only two operators, because it too is profitable to the big boys. But all this frozen pay and income we are left treading with is that way as anything extra is constantly funneled up out of our political and economic reach to the people who really run this country and have increasingly over the past 35 years.


There is a major difference between commodities trading and stock trading and that is that at the end of the trading cycle, which occurs on a specific day, a physical commodity has to be produced at a specific place. The commodity itself stands in a material relationship with other commodities and with labor. As a result, there are effective limits on the effects of speculation. For example, you can drive the price of oil futures up by buying a lot of them, but eventually you're going to run out of money and credit, and in any case at the end of the day you're going to have a huge stockpile of oil which you will have to sell at a loss (because as you begin to sell it, its price will decline). Famous case in point: the Hunts' attempt to corner the silver market. And unlike precious metals, many commodities cannot be stored for long -- they have to be used, so that extensive hoarding is not feasible. (In any case hoarding also tends to flatten price fluctuations in the long run.)

In short, in commodities trading the day of reckoning is never far off, whereas in stock trading it may never come.

In commodities, the speculators are a necessary complement to the hedgers, the people who are trying to flatten the future price fluctuations of a commodity so that their costs will become more predictable and thus easier to deal with. In a sense the hedger pays the speculator to take risk off his hands. The overall result is a flattening of price volatility, which I think results in prices which are lower than they would be without a market in commodity futures.

I think the main component in the rise of the price of diesel, which is what the truckers are complaining about, has to do primarily with the rise of competition for limited supplies of fuel and secondarily with the extraordinary inflation brought about by Greenspan's monetary policies, which first inflated housing and stock prices, but is now beginning to pervade the whole economy.

There is not a lot the government can do at this point: past policies have created a lot of damage which must be suffered through one way or the other. The government has to bite one of two bullets: massive deflation or massive inflation. Either one will lead to a lot of political trouble, accompanied by the kind of magical thinking already observable in the subject and content of the present discussion, which can quickly morph into a hunt for conspirators and other scapegoats.


Anarcissie---First off you can purchase futures contracts that won't be exercised for many months, 3,6,9 say, and in that time a lot of price movement(volatilty) can and does almost always occur in a dynamic market place that now has true global reach. Secondly futures increase volatility while option contracts can decrease(puts) "or" increase it as calls do. You can trade the volatility index if you want, or gold prices, or general motors. Almost whatever. I don't see this as magical thinking, but market reality and all anyone has to do is google more information on it and they will see. Also you are making a perfect case in point that virtually no-one can design a failproof futures and options strategies and most lose money all the time, even big banks when the trends are too short. The recent carry trade against the Japanese bonds paying near zero percent interest lasted longer than usual and brought in great profits for banks and brokerages with huge leverage---till it didn't. Long Term Capital Management with nobel laureates as its principles built such a wrong programming formula they almost took the entire financial system down. The ideas you are developing apply to hedging producer prices which is something a lot of companys do, but its not what speculators do. They play the volatility and some are more successful than the mass of others. There is an arguement that they help funnel liquidity into the marketplace which would be a good thing, but as subprime once again showed there is no "everytime" it works as liquidity was massively drained from the marketplace. Thankgoodness for the taxpayer's Fed and its access to the Treasury. Sort of like having an uncle with uncontrolled access to the bank vault where everybodies money is kept, short of congressional hearings. On ABC news this sunday morning there was discussion by Hillary of all people about how much the price of oil was a function of speculators playing the markets. I think she settled on the real price of oil being 55$ regarding the cost to actually make it and pour it into a barrel in the warehouse. That is in the ballpark of my estimate that at least a third the price of oil is from speculators. I think it would be interesting to separate out the ratio of speculators to producer hedgers and make a monthly graph over the past three years. You are just taking a conservative intellectual holier than thou view that anyone who has developed an analysis at variance with yours is inferior as "magical thinking" implies. There are hundreds of PhD dissertations waiting to be developed on the whole area of futures and option investing, or speculation as its such a short term trade. Casino theory is more appropriate a lense to look through than economics frankly. As an aside from Greeny, there has been a lot of news punditry this week about the inflationary effect of turning our agricultural inputs like corn into gasoline and how it takes more energy cost to make a gallon of fuel than its worth eating it as corn. Also the wholesale destruction of our manufacturing base and offloading it to subcontractors overseas(china, india, southeast asia, latin America) has also weakened the dollar because we don't make enough stuff anymore. Instead we financially engineer dollars out of the service sector, speculation, and stewarding a lot of rich peoples investments. There seems to be an independent trend to downgrade the worth of labor unless you have a monopoly degree in law or medicine, etc. At the same time globally new lakes of middle class workers are growing in direct competition to our own middle class depressing their wages and worth also. Things like our multi-wars, Iraq, Afghanistan, proxy wars in Pakistan, Lebanon, Columbia, etc, and our own domestic wars like the wars on drugs and terror and God knows what else simply eat up huge dollars and resources in a manufacturing lite, service heavy economy. Its unsustainable and really unsustainable if China and other nations stop buying our treasuries thus eliminating our national credit card. Then note, that in the private sector they are buying up stakes in our companys, even our infrastructure where they can in addition to loaning us money at treasury rate interest. These have all become secular factors in our economic decline in addition to the greenspan inflation of the buying power of the dollar. You can wiki him and see he has a very checkered education and may have used his greenspeak to obfuscate his actual weakness in economic theory. But economics is anything but a science and not much better than witchcraft once you get beyond a few back of the napkin maxims. Clearly haveing a strong manufacturing base is key but we can't compete well against the cheap developing market labor yet, till or when they develop a labor rights movement and push and get hirer pay coming up to our rates. Then a real competitve war could rage as the finished price of products close their gap and issues like quality and service and nontoxic products for the home push the margin on purchasing decisions. In that environment the dollar could stregnthen though against the headwinds of the already acquired twin federal deficits and escalating entitlement programs like social security, medicare, and an incresingly precarious medicaid. One thing our government can do is to create incentives and tax abatement for small developing companies that are niching the new high end high technology manufacturing boutiques that are starting to pop up around America from biotech, machine, water and energy technology, green shops, that just don't exist anywhere else in the world. We do have an inbred innovation capability still among some of our population and entreprenurial talent is still out there. But for these to work we need to create a conducive environment and get some of the financial pressures off our people in education and health care costs, get them more personal time as idle hands will create garage technologies, and deal with issues of future financial needs in retirement and get the burden of poverty off our streets which is an incredible drain on our standard of living and the talent that is idle out there. We need to move from a consumer only culture to a curious try and build something culture. Rather than sit vacant absorbing ipod engrams we should be building something as hobbiests as so many of us use too. I think for this to work more children need intact families, actively involved dad's who are doing something with their lives for an example, and more community programs at a very young age. We need not only redevelop our manufacturing base, we need to redevelop our people, our all important human capital and make them a dynamic part of the solution rather than let them fester as idle consumers or in prison as so many do. We need to evolve our society out again and get our people alive moving in life affirming paths. Instead we have this money obssessed, militaristic, fear based society that puts its rejects for stupid crimes away in prison for many years. Of course some are total sociopaths and its so far proven fruitless to reach them, but many others are victims of bad relatives, bad friends, absent fathers, dangerous neighborhoods, overwhelmed shools, a predatory culture, consumerism to no ends, idle time and for icing on the cake our justice system, court, jail, probation, parole, dissaffection, depression, a meanness within, and damage to others around them for truly stupid unnecessary reasons. Just going out to get a breakfast sandwhich i was surrounded by totally lost young men wandering around, some older homeless that looked like night of the living dead people, consumerists with little electronic conduits to the corporate content machine, and not a smile among them, but only grimaces---they could be reconditioned, trained, and employed, but in our system they never ever will be, but lost, soon possibly sick, victims of crime, or criminals, and we the taxpayer get to pay for all this, these nonviable people for the society we have now, the society sold to us every minute of everyday. We must be an amazingingly productive people to even have all the wealth as a nation we have. Its not all bad, but its stagnating and snowballing and there is no political will to really change it. Hillary said today she noted it was strange that the things American people wanted right now, many of them simple enough to provide, were being tightly resisted by "interests". Yet the people want them, and everything is such a big deal, and immediately shot down by congress, the lobbiests, the conservative think tanks and their spokesmen in the media, and many supposedly neutral pundits. Why is that? That was an interesting observation I thought and it is strange all the resistance we get from those in power to grant what we need. So I will say it again, our government has become an off the shelf entity onto its own agenda. It doesn't do the people's business in many ways, but it harnesses the people to do its own. You would think with all the media outlets and the internet and ipods we would have a more effective democracy, but its just the opposite. I saw a survey saying 80% of the people were against the Iraq war now, and I wonder what it was in the Vietnam war. The message of the pandering media is that the war is bad, but the people who rule us continue it anyway. There is a big disconnect. But it is in this social context financial markets swim and futures and options are two of the motors. Arcane yes. Disconnected also? maybe. Are two totally different mutually exclusive things going on? I don't think so.


Brian '... On ABC news this sunday morning there was discussion by Hillary of all people about how much the price of oil was a function of speculators playing the markets. I think she settled on the real price of oil being 55$ regarding the cost to actually make it and pour it into a barrel in the warehouse. That is in the ballpark of my estimate that at least a third the price of oil is from speculators. I think it would be interesting to separate out the ratio of speculators to producer hedgers and make a monthly graph over the past three years. You are just taking a conservative intellectual holier than thou view that anyone who has developed an analysis at variance with yours is inferior as "magical thinking" implies. ...'

Fine, show me the speculators and their money. There must be quite a lot of both if they account for 1/3 of the price of crude.

You know, the Senate got excited about the price of gas a year or two ago and went looking for evil speculators and middlemen who were somehow mystically drawing off billions and jacking up prices -- I spent some time writing programs to extract pertinent information from raw trading records on their behalf. To no one's surprise they couldn't find any. Or maybe the speculators bought them off?

I have not been paying much attention to the Democrats' nomination struggles, but every time I inadvertently hear something about Clinton it seems to be evil. Now this. She seems to have turned into quite the demagogue, and I'm impressed. If I find myself in agreement with anything she says in the future, I'm going to check my facts and my reasoning very, very carefully.


There are speculators betting the price of things will rise; there are speculators betting the price of things will fall; there are hedgers protecting themselves against price increases and hedgers protecting themselves against price decreases. There are speculators who actually bring the thing to market hoping they will sell it for more than it cost them to obtain it. There are competitors hoping they can sell the same thing for less, and other competitors hoping to sell a better product for more. Products come and go -- all because markets evolve and then disappear.

Brian, the collapse of Long-Term Capital cost a few principals a lot of money and it cost some other people a small amount of money. But the claims that Financial Ruin Was At Hand are nothing more than overheated and breathtaking proclamations by a grandstanding press.

As for the cost of ethanol and its impact on everything -- it can be argued that the price of oil is higher than the $115 a barrel -- or whatever it is today -- due to the value of the military subsidy it receives.

Does it matter? If people truly want a country that depends less and less on oil, then it's necessary to replace the oil with something. Ethanol may well be one of the cheapest alternatives available today.

It would be even cheaper if the US dropped the subsidy to ethanol makers and dropped the tariff on imported ethanol. It is remarkable that we put a tariff on imported ethanol but not imported oil.

Is there any better evidence of an insane energy policy than one that raises the cost of every possible source of energy while taking almost no steps toward increasing supplies.

If our loony legislators had legislated plans that worked, the price of oil AND ethanol would have dropped. Thus, the best bet is to get out of the way of people who know how to achieve actual goals rather chase rainbows while paying more.


chris: '... Is there any better evidence of an insane energy policy than one that raises the cost of every possible source of energy while taking almost no steps toward increasing supplies. ...'

I don't think it's insane to consider externalities. What I object to is the notion that the government can revoke physics, economics and logic.


Anarcissie, physics, economics and logic are not challanged by the sane plan of building a few more refineries and drilling for oil everywhere in the US that we believe it can be found.


Jimmy Carter(the most maligned president in modern history--yes more so than Nixon) actually accomplished a lot in energy conservation by wearing cardigan sweaters and turning down the white house temperature to 68 degrees. I remember everybody following his example by turning their thermostats down and wearing sweaters and driving a bit less and the price of oil collapsed as the demand decrease shocked Opec into adopting a more reasonable pricing structure for fear of the US changing permanently its energy usage to a lower scale. Other things like proper tire pressure, following speed limits, and as Chris says dropping the import tarriffs for ethanol along with our glacial move to energy efficent light bulbs and led's, and simply siting one new refinery, more build out on solar cells and wind power, reroading of electric cars, dropping of the suv tax write offs in place of more hybrid incentives, etc etc, and switching some air conditioners for swamp colors, and we could drop the entire US energy usage a good 10-15 percent with a minimum of effort. That would have profound pricing effects of oil on the margin. Good point about all the military usage of oil for fuel and jets with all our wars going on. I am sure that is the most inefficent usage of energy you can imagine short of burning oil in swimming pools in all our back yards. We could improve a lot easily, we could, we could,



When Jimmy Carter left the presidency, the population of the world was about 4.4 billion.

Today it is about 6.5 billion. By the middle of this century the number of people will grow to about 9 billion.

By that time the population of the US will climb to 450 million from today's 305 million.

Thus, the number of cars traveling the old and new roads in every country of the world will multiply. Not just increase, but multiply. In many countries the number of vehicles will increase exponentially.

Those 9 billion will need a lot more electricity than today's 6.5 billion.

Everyone who believes in conservation ignores the real rate of increase in energy use that results from the combination of rising population and rising prosperity.

The other factor always ignored is the economic factor. People seem to believe that high oil prices today mean oil prices will go higher tomorrow. Nothing could be sillier.

Oil is sold via a global auction market. Every oil producing nation will continue to produce and sell this resource as long as a market exists.

It will be decades before solar energy displaces much of the power now generated with oil. Solar will have to offer practical advantages or price advantages to obtain users.

People in remote locations are likely to become solar-energy users. Maybe more people will move to the "country" and become "sun people" as a result of practical solar power. But if they do, they will use a lot of that solar power to run their air conditioners where no air conditioners previously existed.

Thus, if analysts want to predict energy usage, they should estimate the number of energy-consuming devices likely to exist in the future.

With prosperity rising in China and India, the auto and motor vehicle industry is looking at a future promising explosive growth. The total number of vehicles toodling around the roads will soar.

But so will the number of computers and the data centers to which they are linked. Data centers are huge power users, and the world is still in an early stage of computer development.

In other words, there is no chance we will see a slow-down for energy use. Any moderating successes in the US will be exceeded by surges in China and India and elsewhere.

Hence, we must either drill for more oil or reduce the population of Earth. That means there is only one choice.


chris: '... physics, economics and logic are not challanged by the sane plan of building a few more refineries and drilling for oil everywhere in the US that we believe it can be found.'

That depends on what you're taking into consideration. Many people think that their physical environment is important, for instance, which might inhibit their pleasure at having an oil well in their back yard. As for refineries, I've read that those who might be expected to build them are deterred by the expectation that the consumption of fuel will decline due to higher prices, from crude on down the line to retail gasoline and diesel. Sounds like they have come to grips with reality even if the public and the politicians haven't.

This doesn't mean dieoff is necessarily at hand. People can probably live happily without driving gigantic SUVs or having artichokes flown in from Baja every morning.

As for population, I believe the tales of its explosive growth may be exaggerated; if you try to run down the figures for the less developed countries, you often find the source is the vague estimate of a bureaucrat or aid worker with an interest in portraying said explosive growth. Where accurate figures are available, they are much lower and in the case of many countries, now slightly negative.


Anarcissie, private property is still private property. Thus, no one will find an oil rig in his back yard simply because it is known there is oil beneath the neighborhood.

However, drillers will offer good money to those who will allow the rigs in.
Furthermore, it's not likely there is much oil below population centers. A lot of the newer reserves are found beneath rugged terrain.

The threat to building refineries is not the possibility of lower oil prices. Existing refineries were built when oil was much cheaper than it is today.

But there are legal considerations that get in the way. Of course these legal issues are all human contrivances. So, either we want more refined petroleum products at lower prices. Or, we will pay higher and higher prices due to our own folly.

Mocking the situation by suggesting that Americans spend all their time driving SUVs or ordering artichokes from Baja helps no one. The presence of SUVs has no impact on the price of gasoline. There are many vehicles that get fewer miles per gallon and many that get more. But the aggregate distance driven by all the drivers on Earth continues to rise. Gas sonsumption is rising with mileage, which will happen until there is no more gas to burn.


We are going to be paying higher and higher prices for two reasons: (1) easy, cheap oil has been taken, and now we have to go for the hard-to-get, expensive oil; (2) the currency has been in effect debased by the government in order to fund its reckless spending, especially for foreign wars and other exercises of imperialism. We will most likely being seeing a lot of inflation, which will include inflation in the price of gasoline, diesel, and other petroleum products.

I agree the SUV by itself does not loom very large on this stage. It is, however, an apt symbol -- a hostile or frightened individual who feels he must get around by driving in a phony tank, in many cases less safe than an ordinary car, and everyone and everything else be damned.


Anarcissie, inflation and the greater difficulty of obtaining crude oil in the future will undoubtedly affect the price of fuel -- all fuel.

But nothing changes the fact that a gallon of gasoline contains about 100,000 BTUs of energy, and nothing else packs as much energy into as little volume.

Whether we power cars with gasoline, ethanol, natural gas or french-fry oil, the price of fuel will reflect its energy content.

Hence, oil will never lose its appeal.

If oil reaches $200 a barrel, shooting parties will head to ANWR to execute the elk and leave no argument for screwballs who think animal habitats are more important than the humans who are the US economy.

But if oil does go to $200 a barrel, other energy supplies will cost roughly the same on an energy-equivalent basis. So you should hope that enough people in Congress are smart enough to spare us from the damage that $200 oil would cause.

The NYC MTA pays huge bills for electricity. Surging oil prices will add up to higher subway fares.

I had high hopes for the "congestion pricing plan." Convincing commuters to leave their cars home and ride the subway is a good idea. But the best way to do it is by putting tolls on all the river crossings into Manhattan. Hit drivers with a toll high enough to convince them to leave their cars at home during the workweek.


While I respect what the truckers are going through, I don't think a blanket government reduction in gas prices is the answer. It is a very limited resource with a very high environmental cost that has deleterious effects on truckers, as well as the rest of us.

There is a problem that needs to be solved. Part of that problem is that stuff needs to get around; another part of that problem is that due to very stupid decisions for the past fifty years, stuff can really only get around by truck (though other options could be more fully exploited than they are); the third part of that problem is that truckers are getting the squeeze personally via rising fuel costs. If we seriously believe that the only viable solution is to artificially suppress fuel prices, we are in deep trouble--because this is a temporary solution that postpones a day of reckoning, and that's it. Instead of these truckers paying the price, it'll be their kids. How's that better?

When other industries have faced similar issues--when, through technological advance or social change, they have become obsolete or otherwise restructured, government intervention was typically better-focused on longer-term solutions, no? Such as retraining. But "cheap gas for everyone" is exactly what got us into this mess, by encouraging us to over-use a resource with a limited lifespan and huge environmental consequences that could turn out to be catastrophic. Now or later, the industry needs to change. The better question is how to buffer individuals from the effects of that change and prepare them for a different future.

I love your books and admire your work, but I don't believe this solution is the best for the problem.


Andrea -- I would not worry about the government changing the price of fuel much, especially in the direction of reduction. They can't do it. They could subsidize trucking, the way they used to subsidize shipping, but that wouldn't change the price, it would just change the payer. In any case, the independent truckers have a partial solution at hand -- they can raise their prices, which is what businesses usually do when their costs increase. This will reduce business somewhat -- when the price of those Bajan artichokes doubles, there'll be fewer customers for them -- but it's not going to do away with it for many, many years. No need for retraining. In any case, what would you retrain them for?


Andrea, you wrote:

"Part of that problem is that stuff needs to get around; another part of that problem is that due to very stupid decisions for the past fifty years, stuff can really only get around by truck..."

Where did you get this nonsense? The cheapest way to move goods is by rail. The US benefits from nationwide railroads that reach every part of the country.

True, many goods are shipped by truck, and other goods go by ship. Shipping is getting bigger every day. That's why Panama is expanding the locks in the Canal.

Then there are products that travel across the country in pipelines. That includes natural gas, which flows from the Gulf of Mexico to New York, Chicago and west. There are other pipeline systems that move gas from Wyoming to the West Coast and others that come in from Canada.

We also have refined products pipelines that pipe gasoline and other refined products from refineries to various parts of the country.

Then there are expensive forms of transportation, like air transport. And courier services, which depend on an army of crazed bicyclists.

Do you have any ideas for alternative shipping methods that would be cheaper than those available today?


An interesting little tid-bit is Iran has filled 22 supertankers with its sulfur heavy crude(few refinerys can process it) and parked them at its ports thus marketly reducing the number of available supertankers in that region which itself raises the price of oil. They constantly pressure Opec to raise prices or reduce production and people forget next to Saudia Arabia Iran is the world's second largest oil producer even if it has only one gasoline refinery in the entire country. Apparently it figures if it can't sell its heavy crude it will simply decrease the number of tankers available for other oil "marketeers" to use.



I take your story about tankers and high-sulfur oil with a big grain of salt.

First, Iranian crude is high-sulfur crude, a constant in the oil world.

Second, I don't know who owns the tankers, but tanker companies cannot afford to have ships idling off shore unless they want to lose money.

Tales like this one always arise when oil prices surge. The same thing happened in 1979. Americans were claiming that tankers were sitting off-shore, refusing to dock and off-load their cargo as a gambit to raise consumer prices.

The Wall Street Journal conducted an investigation of the rumors and traced them all the way back to notable oil authorities like disgruntled housewives in Maryland angry about the price of gasoline.

What's your source for this story?


CNBC. i am not a "housewife" from madison wisconsin. Sounded credible to me. They did a number of pieces with guests on energy and oil the past two weeks. You are right it costs money to park a tanker, but less than sailing, and I suppose the Iranian government can afford to burn 1-2 million dollars a day(of their people's money)or so having them sit around if they already hedged its price and delivery dates smartly. Interesting the US is one of the few countries with refineries that can refine high sulphur crude and in that sense both Iran and Venezuela are dependent on us as thier preferred customers even if they don't like us. Oh, and Iran is doing all its transactions in Euro's and Yen, etc now, not in petrodollars. I would like to know if and how much they are shorting the dollar. They may be huge speculators in the oil market driving the price up also. But as events have shown their internal political considerations often constrict their market economies. I suppose if they had more developed infrastructures and larger middle classes internal demand for money would prove a political problem for them. For now though they can well afford to just sit on their oil up to a point if they want too, and we could just say no we don't want any. Its an interesting conundrum in that as the governments stare each other down the people they are supposed to serve are paying the price. It is amazing that governments can just do their own thing even when it makes no economic sense for the people they govern. Ahmaddinajad is especially in trouble economically at home as he ran domestically on a progressive economic platform and has failed to deliver while public funds are shuttled into their nuclear, miliatary and proxy (hizbollah)programs that are destabilizing to everyone else except Venuzuala and
syria. I hope you aren't going to start apologizing for Iran they are part of the problem, not the solution. In Barron's this week they did a huge piece on options in Chicago Hope and some peripheral mention in another article on the rampant speculation in oil futures etc, was mentioned showing increasing editorial interest in the subject. I suppose if they were truely hard working they would do a full article on the whole process and its current impact. There was also an article on how mbia was shorted into the ground by hedgers who made a "4000" basis point profit on leveraged money after talking it down through official and unnoffical channels including working the media. I think you must be retired out of the industry as this hedging and speculation are all the talk for the past month. What I would like to see is a really good comprehensive take on the "magnitude" and "impact" of the problem on current markets so we finally have a grasp of what it is we are now dealing with as this is new stuff. And it will affect the mass of workers retirement nest-eggs and their ability to afford housing, food, and medical care. I take this as a profound social misallocation of their wealth into some very clever leveraged hands who can at times function as a monopoly on short time lines with inadequate dissemination of transparency till its too late and with no scruples.



The fastest route to solving some of the world's peskiest problems boils down to firing about a dozen cruise missiles into the government offices in Tehran and Damascus.

When Ahmadinejad and Assad realize they have been personally targeted for death, they would show the change of heart necessary to send most of the world in the right direction.

As for the tankers, you did not mention their owners. I doubt Iran owns them. Since Iran can build nothing, it cannot build Ultra-Large Crude Carriers that handle the bulk of global oil shipping. Second, it is far more costly for tankers to idle in harbors than it is for them to steam around the globe. The owners are paid to deliver the cargo. Nothing is delivered when the tankers are bobbing around in the harbor.

The story sounds like the usual nonsense jabbered by people with no knowledge of the oil industry, but nevertheless understand that viewers love these fairy tales.

As for MBIA and shorting, you have to accept the fact that whenever a public company has a problem of undefined magnitude, the players are going to pound it in both directions. Thus, short-sellers will do their best to send it down while buying call options as it descends. When the short-squeeze begins, they'll profit on the way up. And so will all the others who go long the stock as it drops during the short-selling fury.

What you see in the end is that some funds make huge profits on one side while giving back a little through their hedging. Then, when the bottom is finally hit, other players have their moment.

It's obviously not a zero-sum game, but there are only small pockets of huge returns.

Hedge funds have been the biggest beneficiaries of fawning press, even if the press reports that hedge-funds are the epitome of greed. Too many media people think hedge funds have cracked the secret code of making money. But the funny part is that I know far more people who have run their hedge funds into the ground and lost everything than those who have bought huge homes in the Hamptons, on Park Avenue, and Greenwich, CT.

In other words, the ain't as smart as you think, but they've fooled a lot of people into believing otherwise.


chris: 'Tales like this one always arise when oil prices surge. The same thing happened in 1979. Americans were claiming that tankers were sitting off-shore, refusing to dock and off-load their cargo as a gambit to raise consumer prices.'

They were. I used to take the Staten Island ferry daily in those days, and New York harbor was jammed with tankers. There was no oil storage space to be had closer than Maine, which was of considerable inconvenience to smaller oil distributors.

I don't think the purpose was to raise consumer prices, however; I think oil was being hoarded in anticipation of _future_ shortages and price rises. While hoarding (like trading in futures) can cause short-term shortages and price jumps, in the long run it tends to reduce them because sooner or later the oil has to be sold. The pile-up of tankers and stored oil was no myth, however. But I don't think anything like that is going on today. Oil is flowing out of the Gulf and elsewhere with uninhibited speed; what has changed is the level of demand.


While the level of demand has gone up arithmetically the price of oil has gone up geometrically. Production is said to meet demand, to it being 2 million barrels a day short. Who knows? But national stocks on hand are better than usual, there is no shortage,(not discussing peak oil here) and the strategic petroleum reserve continues to be filling up. There aren't even any spot shortages and the US and the unusually high number this year of refinery turnaronds are finishing up which will set the stage for increased multi-year production runs overall. Rapid growth rates in China and India are beginning to decrease their rate of ascent for a variety of reasons both internal and external and projections for the coming years shows a modest slowing down. A real recession would increase that decline if the pollution overkill doesn't get them first. Some feel a turning point, an inflexion point, on price is near, like Lehman. There is no supply-demand reason for it to go to $200 as some others are saying and like in the Carter days that would surely collapse demand in the developed world. Even opec is starting to reconsider releasing more oil before some panic sets in. If the federal government hadn't given such huge tax write-offs for suv's over the past years our demand would be considerably less than it is now. As we know any bubble can continue stretching out longer than we think it should, but one day it just stops and bursts. I would give $70 a barrel oil a high probability in the not too distant future as once the above happens and some of the speculation is wrung out we should see a 30-40 percent price decline.


Anarcissie, you wrote:

"They were. I used to take the Staten Island ferry daily in those days, and New York harbor was jammed with tankers. There was no oil storage space to be had closer than Maine, which was of considerable inconvenience to smaller oil distributors."

For years I have gone out Shore Road in Bay Ridge to look at NY Harbor and the ships coming and going. There are ALWAYS ships in the harbor, in line to off-load their cargo.

The mistake EVERYONE makes when claiming they SAW tankers idling in the harbor in 1979 or some other period of high prices is the mistake of having no basis for comparison.

No one jots down the name of ships in harbors, determines how long they're in port, and compares this data with data collected in other periods.

More importantly, there are no refineries in NY. Tankers steaming into the harbor are delivering refined products. Moreover, there are two companies I can name -- Buckeye and Transco -- that run refined products pipelines into NY City, delivering millions of gallons of gasoline without a drop coming from a single ship.


Brian: 'While the level of demand has gone up arithmetically the price of oil has gone up geometrically. ...'

Actually, in the case of oil both supply and demand have become relatively inelastic. That means that radical price changes can occur quickly if either supply or demand changes even minimally. And demand is going to become even more inelastic as discretionary users are sweated out of the demand population by high prices. That is where your $200 barrel of oil is going to come from. In fact you will see far worse than that if something further pops loose in the Gulf region.


Brian, an early story from Monday's Wall Street Journal.

Hedge-Fund Stars Rise After Big Flops

Eager Investors Embrace Latest Projects
Despite Losses; 'It's a Mulligan Industry'

May 12, 2008

Jeffrey Larson lost $1.5 billion for his hedge-fund investors in a few painful weeks last summer. He shuttered Sowood Capital Management LP in July, one of the more embarrassing meltdowns in recent memory.

So what are the 50-year-old Mr. Larson's summer plans this year? He is trying to raise money for a new fund, arguing that he has learned valuable lessons. And he is attracting some interest.

Wall Street likes to consider itself a strict meritocracy, but hedge-fund managers who fail in ugly ways often convince investors to hand them piles of cash so they can give it another go.

Says Ken Phillips, who runs RCG Capital Partners, a Boulder, Colo.-based firm that invests in hedge funds: "It's a mulligan industry," referring to the golf term for a second chance after a poorly played shot. "That's what makes America great."

Just over a week ago, Drake Asset Management announced that it was closing its $2.5 billion hedge fund after heavy losses. Executives say they already have more than $800 million committed to a new fund.

Some investors in Daniel Zwirn's D.B. Zwirn & Co. fund recently received subpoenas from the Securities and Exchange Commission regarding an investigation into the fund, which is closing. But some already have told Mr. Zwirn that they would be interested in giving him money for a new firm he is considering.

Meanwhile, trader Philippe Jabre, who received a record fine for market abuse from the United Kingdom's market regulator, launched his own fund last year after raising $3.5 billion. And John Meriwether, who oversaw the collapse of Long-Term Capital Management a decade ago, is dealing with fresh losses at his latest hedge fund.

Traders sometimes even get third chances. Take Brian Hunter. After leaving Deutsche Bank amid a dispute, his trades led to $6.6 billion of losses for hedge fund Amaranth Advisors. He now is advising a new fund.

Investors have a range of explanations for opening their wallets for failed managers. Sometimes, managers demonstrate that big losses made them smarter investors, or they offer to waive some of their hefty fees for those who got burned in previous funds. Some managers who had stumbled in the past, such as David Shaw of D.E. Shaw and William Ackman of Pershing Square, restarted their careers and generated big returns.

It can be helpful to have lost loads of money, rather than a smidgen of cash.

"It's crazy, but the guy who's down substantially often will have a lot more options versus someone smaller who hasn't lost much money," says Neal Berger, who runs Eagle's View Asset Management, LLC and invests with funds. "Some investors will say 'lightning doesn't strike twice in the same spot,' or, 'there must be something smart about him that someone gave him the opportunity to lose so much money in the first place."'

Those like Mr. Larson, who were felled by volatile markets rather than because of any improprieties, usually receive more interest from potential investors. "He was a smart guy who got caught in a severe market dislocation," notes RCG's Mr. Phillips, who says he would be interested in meeting with Mr. Larson to learn about his new fund.

Still, Mr. Phillips acknowledges that there may be more to the phenomenon than a hard-headed calculus about returns. "The hedge-fund industry tends to glamorize managers," he says, "and people get star-struck."


Interesting. Clearly some people have so much speculative money available they have no fear to plop down a pile on another spin of the wheel in the very same casino. What would ruin ordinary people beyond repair is not a factor for these lucky folk. I say lucky as they managed to relieve others of a lot of money to get their pile to speculate with in the first place whether by inheritance or "business" on a grand scale 99 percent of the people can only dream about. I read an article on Bloomberg where they pointed out many of the managers who make mistakes at the big banks who get fired still walk away with huge bonuses and by networking if they chose not to retire simply create a new firm. Some are serial fire-ee's, who after two or three business boom and bust cycles are set for life. They are never asked to pay back the money they lose for others, many of whom are working people who depended on that savings to grow to fund their child's education, their retirement, their house, thier health care. Wallstreet paid out 39 billion in bonuses last year, the record. You could build 4 Nimitz class aircraft carriers and stock them chock full of new f18's for that kind of money. I think the compensation programs fueling this behavior are a big part of the problem and some firms are taking a serious look at trying to "re-align" their pay packages with the long term interest of an on-going business. I wonder how they will deal with short term stockholders with large hands in their firm wanting blow out quarters. Mutual funds are notorious for not advocating for their customers in contrast to noisy pension plans like Calpers. Barrons periodically puts out reams of pages of hedge fund performance and most do quite well actually and the story is still out on their actual impacts on "leveraged" markets. Finally an aggregate number of 1.5 trillion dollars has been bounced out as an estimate of their holdings, but that doesn't address their leveraged positions and hedges. Some of the more eggregious big bank/brokerages were leveraging up 14-15 times to 1 their actual invested assets compared to the 8-9 X of the good old days. The numbers kicked around for credit default swaps is in the insane hundreds of theorhetical trillions. How many dozens to hundreds of billions? is the total long position on oil right now? Maybe even a trillion plus. Its fascinating how there are no figures out there kicking around---a great area for research(and publication). I wonder what the short position building on oil is also. Its a set up for highly volatile markets, the kind of environment hedge funds thrive on. They can simply profit on volatility. It is true they add liquidity to the markets if they trade, but much of that is dependent on the availability of credit. Perhaps when the credit seize up melts away, increased volatility will be extreme for a while. That would explain why the VIX is so sedate at around 20 now which is counter-intuitive to the current panopoly of one-off events simmering just under the market. I think those who think the market problems aren't over yet are quite right while the global story of continued growth is also right. Its funny but this all has a quantum Copenhagen feel to it as the financial markets are creating their own proxy wave of the economy, while the classical or what we consider the real economy is still plugging along. Its in the realm of arcane and poorly understood maths currently and until you are layed off it really doesn't affect you much except in annoying ways like that suv is costing way too much gas, or that condo flip isn't working out. Those would be the measurement points where the quantum proxy or probability wave collapses into an simply reality affecting your biology. Less money for bell's and whistles, stop that trip to the mall, call off that weekend in paris, but as long as you are employed life goes on, just less fun stuff. Gordon Gecko said greed(liquidity) is good, and its sure sloshing around the globe trying to find new places to haunt. Anyways, even College endowment funds are simple hedge funds now, some earmarking 40 percent of their money towards non-stocks, nonbonds equity of one sort or another. From commodity positions to private partnership shares to futures on futures they are doing it, even at Harvard. It is a mass movement off classical economic reality to a quantum probability wave of potential riches. Its never been group tested like this before with the huge global net of nodal interlocking finanical instruments. A supercomputer can barely compute the rate of global warming and you can bet it won't be able to compute this. Wealth can be made from artifices now rather than "things". I think this is a profound change in the world economy. One for the people and the other for the financiers, arbitragers, and speculators(merchants of probabilities). Our economy is morphing in the information revolution into a theorhetical machine that makes money fall out of imbalances and inefficencys. It doesn't create wealth, it reallocates it, ultimately from those who make things or provide other types of services(cafeteria meal, health care, pick one) though what is really nothing other than clever schemes. Like any ponzi scheme, or the elementary school game of musical chairs it works only so long as things are in motion and everyone "feels" a winner and buys into it. Yes there is a huge behavioral component to its success. Greed looking for outsized rewards on one end and fear and the police state on those who won't buy into it. Anyways, I think we are all witness to something really, really, new. Thanks for the article. It seems that by subliminal osmosis a consensus is building along similar lines.

leo manzetti

I used to live in Key West but left for College at UNLV for International Business.

Bad times sent me to CDL School & I write a blog about the horrible fleecing that is taking place with Gov't $ to retrain workers.

The Driver shortage of 125% is a self-perpetuated myth to created more students that are Cheap Labor & are able to get Hazardous Materials Endorsements with ZERO experience driving a Big Rig.

I have joined Twitter as @TruckerDesiree to raise awareness that what's is happening in trucking matters to everyone.

I lived in Paradise most of my life & never thought much about Truckers.

I've reached out here because I know your books & Key West we have mutual friends.

The underbelly of corruption is ripe for attention in this industry & America is listening.

Many Media & Politicians are following me on Twitter & I'd like to make a difference.

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