Roll Out the Barrel . . . February 29, 2008 4:00pm by Barry Ritholtz We’ll have a barrell of fun! ~~~ > Spread the wealth. twitter facebook linkedin What's been said: Discussions found on the web: erstwhile commented on Feb 29 Don’t want to be picky, but the word “barrel” appears to be spelt correctly, twice, in the cartoon. So I can only put down the post header’s misspelling to…um…educashun. ~~~ BR: D’oh! Fixed . . . Eric Blood Axe commented on Feb 29 Mr & Mrs Blue, no doubt. Adam commented on Feb 29 IMHO the reiteration of AAA ratings for Ambac, MBIA, et al. was a critical negative for the U.S. economy. No other event in the past decade has so brazenly demonstrated to our foreign creditors how corrupt the U.S. financial system has become. Why in the world would any creditor ever again trust any rating out of these companies (e.g. S&P, Moody’s) when they claim that these monoline insurers are in the same class of creditworthiness as the U.S. gov’t or GE? I welcome all rebuttals. bt commented on Feb 29 Hmmm, no one is forcing us to use gobs and gobs of oil. Let’s stop using our cars for a few days and limit purchases only to essential goods. Instead we accuse our suppliers of taking advantage of our addiction. daveNYC commented on Feb 29 Silly cartoon… US consumers don’t walk, they drive everywhere. Estragon commented on Feb 29 Adam, We`re off topic, but what the heck. The seeds of one rebuttal may lie in your assertion that monolines are of the same creditworthiness as the US gov. I could argue that, like the GSE`s, the monolines simply will not be allowed to fail. If it came to it, the government would do whatever was needed to avoid a failure. If this is correct, the defacto guarantee allows for a AAA rating. Whether the US government deserves a AAA rating is another question ;-) scorpio commented on Feb 29 funny cartoon, but some of this recent price-rise is self-induced: Bush administration lining up 3 carrier groups off Syria in the last few days. sounds like an October surprise in the making. JST commented on Feb 29 It’s just a number. bluestatedon commented on Feb 29 I agree with Estragon. Whether it’s right or wrong or smart or dumb is open to debate, but I don’t think the US gov is going to allow the duolines to completely implode. Whatever that’s done will be too late to avoid some pretty hefty losses, but I’d bet the powers that be consider the consequences of a total collapse far too horrendous to allow to happen. Marcus Aurelius commented on Feb 29 Yes, but it’s a high number in a place where we don’t like high numbers. Max commented on Feb 29 Estragon, explain then why is the monolines’ CDS paper currently trading at junk levels. Who do I trust – the corrupt rating agencies that are trying to put lipstick on the pig, or the cynical market? Pat G. commented on Feb 29 The per barrel price is only going higher as the FED’s rates go lower. $4 a gallon gasoline coming to a service station near you by summer. Estragon commented on Feb 29 Max, I`m no expert on CDS, but isn`t it possible that a default event is declared (triggering a payout on the CDS) but the underlying debt is ultimately made good in the bailout? Pool Shark commented on Feb 29 Sorry to disagree with Mr. Pickens, but oil is actually cheap right now compared with other commodities. Case in point: In 1964 (before the oil crisis) gasoline was about $0.30 per gallon – 3 silver dimes. Today, the silver in those 3 dimes is worth $4.29. Gas at $3.50 per gallon is still a pretty good deal. Max commented on Feb 29 Estragon, but the AAA rating stands for very low, virtually non-existent, chance of a default. Suppose you are a fund manager for poor orphans, and you see MBIA rated AAA, but at the same time the implied quality by the market spreads is CCC? What are you supposed to do? And more importantly, when the default event happens, how certain can the said manager be that he/she recovers the proper share of the pie? Tom C commented on Feb 29 Great stat, Pool Shark. ken h commented on Feb 29 It’s a mind twisting stat but it’s still bullshit like 100 oil. I am so tired of hearing how expensive gas is in other countries and how lucky we are? OPEC just doesn’t seem to understand how lucky they are that Americans are driving SUV’s,..oh that’s going to change…and Americans are going to like it! My family and I were one of the worst guzzling families and we have taken up conservation. We could get away with not changing much but we enjoy it. Easy too. Stocks anyone. The oil companies are going to fuck this up and end up like the tobacco companies. Let them bring $4 dollar oil. It’s going to be short term pain for us and a fucking funeral for oil companies. bt commented on Feb 29 ken h: No driving allowed in public areas. LOL. Steve Barry commented on Feb 29 OT: Remember a couple of months ago I decided to liquidate a sizeable chunk of RMBUX, Rochester Municipal Bond Fund, as the duoliners started crashing. Turned out to be a great move as this “safe”, tax-free investment is now in freefall, even as Treasuries bounce. The financial markets are about to become smoldering craters. RMBUX spiny mcdob commented on Feb 29 i am a fund manager for an orphanage and i feel cheated by the monolines……. rickrude commented on Feb 29 The oil companies are going to fuck this up and end up like the tobacco companies. Let them bring $4 dollar oil. It’s going to be short term pain for us and a fucking funeral for oil companies. Posted by: ken h | Feb 29, 2008 7:02:43 PM ?????????????????????????????????????? you just summarised the american view of oil. Only problem is your running out of oil, you going to beg and get in line like other importing nations… get used toit. Darkness commented on Feb 29 The cartoon is either meant to be silly or strictly represents a clueless consumer’s point of view. We’re a democracy, if we as a nation decided mass transit didn’t match our culture, that unplanned development that put people an hour or more from where they worked was in our best interest then that’s what we decided. We could have decided differently, but we didn’t $100 a barrel is cheap. If people are complaining now they are going to be sad sad sad later. Sheesh and to put Iran in that picture having fun is total ignorance. The more expensive oil gets the more broke the Iranian government gets subsidizing gas (including electricity generation) and oil to its citizens. Last time they tried to raise the prices consumers paid, they had riots on their hands. That place is a youthful powder keg and the Iranian government is barely keeping a lid on it. Being able to (rightly so) paint the U.S. as belligerent is one of the few things helping hold things together there. But we are as freaking brilliant about diplomacy as this cartoonist is at satire. Steve Barry commented on Feb 29 In fact, the muni market is in freefall per Bloomberg. Muni freefall N commented on Feb 29 Pizza and beer now cost an arm and a leg! http://www.msnbc.msn.com/id/23415510/ …Sure sign we’re heading for a recession: Even cheap eats are hard to find! JustinTheSkeptic commented on Feb 29 Did I mention what Ludwig von Misis said, why back when: ” There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a boluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Kinda like the 1970’s motor oil commercial: “you can pay me now or pay me later.” Well, later has arrived! B.B. commented on Feb 29 O/T, I am going to throw up. OK, I watch Kudlow, I dont want any responses to that. The point is tonight They had that flippin’ idiot DENNIS KNEALE hosting!! you have to be kidding me? They didn’t ask you BR? They turn to some bull cheerleader to run the show… After 5 mins, thats it, off.. and i am drunk and I still can’t watch that Kneale unbeleivable… John Borchers commented on Feb 29 I think the oil price will deflate along with everything else. My theory on everything remains the same. I’d like someone else to give me feedback on what they think about this theory because it’s not publicly discussed. Circular kiting describes forms of kiting in which one or more additional banks serve as the location of float, and involve the use of multiple accounts at different banks. In its simplest form, the kiter, who has two or more accounts of his/her own at different banks, writes a check on day one to himself from Bank A to Bank B (this check is referred to as the kite), so funds become available that day at Bank B sufficient for all checks due to clear. On the following business day, the kiter writes a check on his Bank B account to himself and deposits it into his account at Bank A to provide artificial funds allowing the check he wrote a day earlier to clear. This cycle repeats until the offender is caught, or until the offender deposits genuine funds, thereby eliminating the need to kite, and often going unnoticed. Complex versions of this scheme have occurred involving two separate people, each with an account at a different bank, constantly writing checks to one another, or a group of individuals writing checks in a circular fashion, thereby making detection more difficult. Some kiting rings involve offenders posing as large businesses, thereby masking their activity as normal business transactions and making banks inclined to waive the limit of funds made available. Now think of this instead of people with checks as the banks, or people flipping houses to each other. No one has the money to actually buy the house they get it on credit and pass it to someone else who does the same thing. Neither can really afford it they just figure they will make money because the price always goes up. Now the question is how many houses were flipped endlessly for the last 10 years because those houses aren’t actually needed. How many loans have the banks flipped and swapped to each other? Marcus Aurelius commented on Feb 29 We’re a democracy, if we as a nation decided mass transit didn’t match our culture, that unplanned development that put people an hour or more from where they worked was in our best interest then that’s what we decided. We could have decided differently, but we didn’t Posted by: Darkness | Feb 29, 2008 8:28:51 PM ____ You have no idea how politics works in our ‘democracy’. Did you ever give your approval for a new subdivision? Did you ever attend the meeting for a ‘Notice of Public Hearing’ staked in front of a rural hayfield or forest? Do you know what charities your local builders contribute to and if/how those charities are connected to your elected officials? Do you know how your local Zoning Board works? Have you ever sat in traffic and wondered why no one fixes chronic bottlenecks? Was that issue on your last ballot? Politics doesn’t usually permit the best solution to any particular problem to rise to the surface, nor does it often do what is in the best interests of the electorate. It’s about the money and how having it gets you reelected. Darkness commented on Mar 1 >Did you ever give your approval for a new subdivision? Did you ever attend the meeting for a ‘Notice of Public Hearing’ staked in front of a rural hayfield or forest? Yes, actually, many times, trying to limit commercial and apartment development around the neighborhood I grew up in. Trying to limit landfills and incinerators too. It’s an endless battle because all the township (in this case) cares about is the size of the tax rolls. But, it turns out, those subdivisions don’t actually pay for themselves through taxes. It’s farm land that brings in more in taxes than it takes in services. If you do your homework, you CAN convince your local board to (not perhaps stop a project) but at least cut the density of it. Local elections are the kind of thing you actually can have an impact on. A few thousand votes is a lot and with some organizing, not hard to get. If were important to people they would go. They don’t so it must not be important. People want to b*tch but they don’t want to do the legwork. Get what you deserve in that case. It certainly does not have to be this way. I’ve spent every summer for the last ten years in Europe. They have the same system of government we have, but they believe in getting something for their taxes. They have political will (this the people I’m talking about, not the politicians, who are just as clueless as ours if not crazier) to pay $10 a gallon for gas to pay for a real transportation systems and now dedicated high speed rail. The reason we don’t have that here is not some shady special interest. People can’t stand to pay even thirty cents a gallon in taxes. They psychotically freak out at the barest hint of a getting a government service that they might have to pay for. That’s a mentality Americans have, not a special interest problem. Listen to how Europe as a place is discussed in the U.S., it’s derided and mocked. We as a people have decided that’s not for us: organizing around government plans and paying taxes in exchange for a higher quality of life. Special interests did not decide that for us. We decided that. Thanks to our priorities, we have a system dependent on cheap access to the 23,000 man hours of labor stored in single a barrel of oil. I guess I’ll just say that I think the next twenty years will be interesting times. And under this duress, we will certainly get to see which set of priorities was the wiser one. cm commented on Mar 1 John Borchers: As far as I can see, you are describing how a credit system operates, and how could it otherwise? The difference with your kiting scheme is that the implied credit is not obtained in good faith. David commented on Mar 1 The US consumers does not look like this cartoon. Let’s have fair play on cartoons! “Cry ‘Havoc’, and let slip the dogs of war, that this foul deed shall smell above the earth with carrion men, groaning for burial” William Shakespeare zero529 commented on Mar 1 I may or may not get used to it, but are these annoying in-line animated ads part of our future on TBP? Static in-line ads are bothersome but tolerable; animated ads are just plain obnoxious. ken h commented on Mar 1 BT, LOL, yes I had a few. I know, the tobacco company analogy was wishful thinking. RR, come on, Carter told us we would be out of oil in a decade. The shortage of oil ploy is no different than the “Their not making any more land.” “Don’t be priced out forever.” Sound familiar? Let’s see, an ice age in the 70s, oh now it’s a, ..Global warming. Next they will putting my music back on vinyl (hook in mouth). You want to keep playing, go ahead. Yes, I will be forced into short term pain, but not forever. I will be off grid in, hopefully 10 years. Our land produces good game, fish, fruits, and vegtables. My daughter and I are working on a exercise bike that produces power. New solar cells are almost to the point of 40c per watt. Wind and water production when all combined can easily suppport a home. My son is studying how to use minimal solar power to create hydrogen for heating a home in the winter. My friends and I are all carpooling and I ride a bike to a office that is close to my home now. This is coming from an American family that has had a huge footprint with large SUV’s, boats, jetski’s, RV’s, Quads….you name it. Am I going to give all that up….no…but I’m cutting back, Yes. Years down the road will give a shit what happens to oil although I imagine there will be plenty. Another tidbit, Several of my patients are now having to cancel because of lack of funds for fuel. You can’t buy it if you ain’t got the money. Sure, short term, they will get in line, long term they will find another way. Long term this is a problem for countries that rely on oil, not America. It’s good for America in my opinion. $100 oil is bullshit. Good luck with your oil positions. jst commented on Mar 1 ken h I agree this is good for the U.S. Short term, it sucks. If you believe that the U.S. has the capacity to innovate and create than this is a good thing. I have no data but I imagine that there is significant work being done in carbob fiber materials and wheel hub electric motors. Right now none of us can see it but we may be ten years away from the 120 mpg personal transportation vehicle. The amusing point is we will not conserve anything rather we will develop a greater appetite for energy – just what form of energy. If anyone has the chance, read “The Bottomless Well: The Twilight of Fuel, The Virtue of Waste, And Why We Will Never Run Out of Energy” rickrude commented on Mar 1 ken, you not answering the question, is the US a net oil importer ?? In the Carter days, or previous to that, the US was not so. I’m going to continue to hold Gold and Oil because when you realise that you are wrong, is when we will mark the top in commodities. ken h commented on Mar 1 Rick, What question? Who’s bottom line is it going to hurt if consumpton here drops 20%? Not Mine. The bottom line of my business will improve as in a normal non-bubble market prices will have to drop. I imagine it will improve for most American businesses. I would say we account for more than the all the top five importers below us combined. So we get squeezed and drop consumption, does that bode well for oil prices?? Tell me story would you of how it’s different this time. It’s different all right, it’s the next bubble. You want to massage the top, go for it. Hey i got out early in real estate too, but I’m not sad. I doubled my money in real estate (could have been way more but never look back)and I’ve cashed my positions in oil and some of the gold. Debt free with the ability to go off grid and independently support myself. Shout out to Ben’s housing blog for the heads up years ago. Again, good luck on your oil ride. I still say $100 oil is bullshit and a mistake for oil exporters. Juan commented on Mar 1 rick, yes, the U.S. is a net oil importer and has been for years. yes, by definition, the world has been ‘running out of oil’ since the first well came in, i.e. deductions from a finite resource can be termed ‘running out’. nevertheless when unconventional oils such as found in the orinoco (venezuela) and athabascan (canada) are factored in, total reserves push up into the 5 trillion barrel range while advances in horizontal drilling and in-situ recovery technologies are increasing the recoverable portion of such heavy oils even at lower price/bbl. It is, though, a mistake to compare today with the 1970s since we’re talking about two distinct oil price regimes: the former was primarily one of oligopoly and cartel pricing which had collapsed by the mid-1980s, being replaced in 1987 by a system of futures market determined pricing of marker crudes to which all others are referenced. more correctly, arabian light was replaced by other markers (WTI, Brent, for a period ANS, Dubai) and their prices became tied to futures, which effectively opened pricing to non-oil financial pressures. I would say that these have been the primary price driver, particularly as long-only funds began flooding in a few years ago robert mabro of oxford energy put this nicely in a 2005 paper: The economic price of a commodity, a good or a service is the price that arises from the interaction of the supply of and the demand for this commodity, good or service in a market where sellers and (buyers) offer and (purchase) them. The market may be competitive or more likely suffer from some degree of imperfection. Concentration on the supply side usually restricts the volumes on offer but the price that emerges is still the result of an interaction between these volumes and the demand curve. In oil, the price of a physical barrel in international trade is linked very closely to that of a futures contract. As always this price results from the interaction of supply and demand; but of the supply and demand for the item that is transacted on a futures exchange, which is a futures contract and not a physical barrel of oil. The determinants of a transaction in the futures market include, of course, expectations about developments in the supply of, and demand for oil. In that sense there is a relationship with the physical oil world, but not to actual conditions at given points in time. It is expectations that matter as would be to some extent, but only to some extent, the case in a physical market. There are other determinants for transactions on futures markets that are not related to the oil situation. This is because the futures oil contract is a financial instrument held by many economic agents (particularly hedge funds, banks, other financial institutions) in a portfolio of various financial instruments. One aim is to optimise the composition of the portfolio. Funds move in or out of a financial market, be it oil, bonds, foreign exchange etc. etc., depending on relative expectations. Hence a decoupling between price movements in the futures market and the economic fundamentals of the supply of, and demand for, the physical barrel may occur from time to time. A tidy mind will find it odd that the reference price for a physical commodity should be borrowed from a market where people buy or sell a contract that carries its name but which is only partly related to it. (The International Oil Price Regime Origins, Rationale and Assessment Published in The Journal of Energy Literature, Volume XI, No1, June 2005, Mabro) rickrude commented on Mar 1 hey guys, bet with your money, I’ve been betting for the last 4 yrs on oil and gold. Go short if you guys think the US will have it easy with cheap oil again. Read this next.September 1, 2008 Hurricane TrackerOctober 8, 2012 China Telecom Giant Huawei A Spy?April 8, 2009 Paint it Black: Avoiding the Financial Beast of Burden in 2009 and Beyond Posted Under Commodities Consumer Spending Energy Previous Post Batten Down the Hatches! Next Post Global Warming Denialists: We Suck at Math Also!