Wednesday, December 17, 2008

So we have five or six holocaust movies to see this weekend...

...and that is because producers are making a crass grab for the Oscar gold, or so says deputy editor Andrew Wallenstein of the Hollywood Reporter. He flat out declares that these film makers have no interest in Holocaust material, beyond the Oscar incentives. Kate Winslet is even making fun of her Holocaust movie (The Reader) in a BBC sketch comedy show, saying she knew there were no more Holocaust movies to make, and she only did it for the Oscar.

I have an idea. Let's make a movie about a Hungarian Gay Jewish Cowboy politician, who is sent to Auschwitz by the Natzi's when he runs for the Mayorship of Budapest. We will call the movie Brokeback Milkowicz. It is sure to beat Wall-e for the Oscar.

I wonder if the Academy realizes what a predictable mockery it has become?

Monday, December 15, 2008

Obama has Zero Degrees of Freedom

Lately the subject of the economy has been weighing heavily on my mind. It seems to me that the entire house of cards is tumbling down as a result of mortgage banking crisis.
T-Bills went negative last week. That is, investors were paying the U.S. Federal government to warehouse their money in T-bills for an allotted time. This is the logical equivalent of renting a safety deposit box in a bank to store you money in. Why would ultra-rich and ultra-savvy investors ever do such a thing? There is only one answer: It is a vote of no confidence in the banks. Rich men do not trust banks with deposits larger than $250,000 because such deposits are not ensured and they fear the banks may be going out of business. They view Federal T-Bills as guaranteed and secure. This is the only logical explanation.
The logical implications are dire, and they should make your blood run cold. The Implication is that the ultra-rich still expect more banks to fold, and large fortunes stored there-in to be lost. They must not know who is solvent and who is not. Ergo they trust no one. This also implies corollaries about our level of transparency and accountability in finance. This should also make your blood run cold.
Now we hear tell of a simple Ponzi scheme run by--the former head of NASDAQ, and a member of the SEC--Bernard Madoff. This scheme bagged such famous names as HSBC, RBS, and Groupo Santander. $50 more billion has been lost, charities have closed, personal fortunes have been destroyed, but worse still is the level of distrust this has created in the money market at a time when we can ill afford more distrust. Worse still is the fact that many of Bernard Madoff's big customers, like Groupo Santander, knew his transactions could not net the level of profitability he reported. They guestimated that he was engaged in another form of illegal insider trading called 'Front Running', and they fully accepted him on that basis because they believed they were making money.
The prime is at 1% and the Fed is ready to cut that rate in half. That doesn't give them much room left for cuts. Many astute observes have asked what the Fed will do if this latest half-point cut does not work. The answer is: Monetary Easing. This is the last tool left in the box. It is the nuclear option.
What is Monetary Easing? It means the Treasury is going to print a ton of money, and flood us up to our waists in dollar bills. In three years time this will produce double-digit inflation, but in the short run it might unfreeze the credit system. Underscore the word 'might'. This action will prove that Keynes was right: In the long run we are all dead.
The problem is that {lately} the value of the dollar has been crumbling. The dollar surged, strangely enough, in the month of September as the banking crisis broke out. The Dollar made a big move against the Euro, going from 1.54 to 1.25. It improved against 15 major world currencies, as well as commodities like Gold and Oil. Now, in the past week or so, the Dollar is pulling back. Already the Euro has recovered to nearly 1.37. After reaching $40 per barrel, oil has risen as high as $47 and currently sits at $44.68.
If the Fed and Treasury chose to pursue a policy of Monetary Easing, the Dollar will crumble.
Which brings us to the biggest problem of all: What happens if our fiat money system collapses? As you know, our Dollar bill is backed by nothing more than the full faith and credit of the U.S. Federal government. Nothing more. How real is that? Real enough that investors would prefer to warehouse their dollars with the Fed rather than a bank. But how long with this condition persist?
This brings us to the biggest issue, and the subject of this post: Barak Obama has zero degrees of freedom in his upcoming presidency. As I have written before, HSBC predicts the current recession will last 5 years until September of 2013. This is provided the world doesn't end in 2012 as the Mayan calendar predicts.
If we have four lousy years of recession between 2008 and 2012, Barak will get fired. The people are irrational. They believe the president is the commander & chief of the economy. This is absolute bullshit, of course, but the people believe it. When the economy turns bad, they fire the president. Just ask George Bush I. He 93% approval rating at the end of Gulf-War I. He got fired a year or so later when it became clear we were in an Oil-Shock recession. This is the fickleness of the American People, of whom I am one.
If Barak wants to get re-elected, he has to find a way to restore growth, and make it clearly visible before 2012. Otherwise, he will be a one termer. When you are in this sort of a mess, how do you get out of it in 4 short years? The answer is that you do the very best and most complex linear programming you can and you pick every last optimal solution point. You try to bull’s-eye each one of those optimal solutions with pinpoint policies. In this scenario, you cannot afford to custom tailor a bill for even your best supporters. You must pick the optimal choice and not vary from it.
The logical implication is that those on the Left expecting highly-favorable and high-priced legislation are doomed to be disappointed by Barak Obama.

Tuesday, December 9, 2008

Results of my Survey of HDTVs, Part 1

So, I spent almost the entire weekend shopping for HDTVs this weekend. Not the thing one normally does during a great depression. Still, I trust the results of this survey will be of interest to you. As you know from my last blog, I wrote up a list of 5 contenders to the title. I saw them all this weekend. What were the findings?

1. Pioneer Elite Kuro is over-rated. I watched the better part of an entire John Mayer concert on this HDTV at the Sherman Oaks Best Buy. The concert was presented on Blu-Ray. The device was connected by HDMI. This is the best you can hope for in terms of picture. The picture was great. Was it utterly supreme? I seriously doubt it. This unit was also squared up with many LCDs & Plasmas from other vendors in another portion of the store. It did not fare particularly well against its competitors. Based on this show-case, I would not have purchased the Kuro Pro.

2. Mitsubishi’s LaserVue stinks. It looks like shit. This unit is all-hype. It has all the makings of a complete market failure. I saw this HDTV in two locations: Ken Crane’s big screen TVs in Encino and also Living Spaces in Van Nuys/Panorama City. To say the performance was underwhelming would be a massive understatement. The image was dim. The colors were blown out and extreme over-saturated. There was a massive screen-door effect evident on the unit at Ken Crane’s. Ken Crane’s used the Pirates of the Caribbean 1 (on Blu-Ray) to showcase this HDTV. The device was connected by HDMI. This is the best you can hope for in terms of picture. LaserVue did not perform well at all. It does not outperform the classic DLPs in any way shape or form. Mitsubishi’s own WD-73736 and WD-73835 are so much better in terms of image quality it is almost disgusting. I cannot imagine any rational actor laying down $7,000 for such an HDTV.

3. The LG 60PG60 is nice, but it did not seem to outperform many of the contenders around it. It looked as good as the Kuro… which is good, but again, there were better looking choices around it. If I had a complaint regarding this unit, it is only that the image brightness of this unit is not particularly good. Even after some fiddling, the image on this screen seemed darker than others. The salesman claimed that he always seemed to detect a mild Cheese-Cloth Effect on the LGs. I am not sure what that means. I will post up if I ever discover what a Cheese-Cloth effect is.

4. The Mitsubishi WD-73835 was a bit of a mixed bag. It looked sensational at Ken Crane’s where they had a Blu-Ray demo running on it. It looked pretty good, but not sensational, at Best Buy where it was displaying a composite signal that was split among many HDTVs. The smaller WD-65835 was showing X-Men III on Blu-Ray, and it looked fantastic. The main problem for the WD-73835 is the less expensive WD-73736… More on this later.

So the major story is that surprise contenders surfaced this weekend.

1. Panasonic Viera TH-65PZ850U: Don’t ask me why this unit is currently under the radar, but it certainly won’t remain there for long. This 65 inch plasma can be had for less than $5000 online, and I believe it out-performs the Pioneer Elite Kuro. It isn’t just larger. It is better. The 58 inch PZ850U was in close proximity to the Kuro, and it won the matchup head-to-head. I believe it looks better. This shocking little unit features a 480Hz refresher rate, meaning the screen is refreshed 20x per movie frame. It does not perform a 3:2 pulldown. The result is pretty dang sharp image at all times. It has a 1,000,000:1 dynamic contrast ratio. It is 3d ready. It accepts a standard Cat-6 Ethernet cable, and can be used to display large RSS feeds of news and other info if you like. Panasonic is promising 100,000 hours or 30 years of life for these units. My experience with Panasonic indicates that their products basically last forever. I had a Microwave from these guys that went 20 years before I finally gave it away, still working.

2. Mitsubishi WD-73736 DLP. Don’t ask me why Mitsubishi has deprecated this unit. Seeing it next to the Diamond Scan 835 and the pitiful LaserVue, I would say WD-73736 is Mitsubishi’s finest product. I was originally targeting this unit, but friends convinced me to look at the 835 series because “it is 3d ready.” I have never been a fan of 3d. I just saw Bolt in 3d with a couple of my Cousin’s kids. The 3d experience is not much to shout about. Still, I can see why it would be a cool thing to do at home, but is it worth the price? Is it worth a small declination in quality? Based on my eyes, WD-73736 beats WD-73835 in terms of image quality. Do I pay slightly more and accept slightly less to obtain 3d? This is dubious indeed. The price of the WD-73736 is lower than $2,500 at most online stores. You can have two of these HDTVs for the price of one Panasonic.

3. Samsung PN63A760. I was aware of this unit before going to the field, but it was not on my list due to a series of moderate to poor reviews. Chief among these was the one posted on I am beginning to doubt that the critics know what they are talking about. The PN63A750 is a marvelous HDTV. Perhaps not as good as Panasonic, but marvelous anyhow. Perhaps not as accurate as Kuro, but marvelous anyhow. It is 2 inches smaller than Panasonic, and $300-$400 cheaper at most locations. It is 3 inches larger than Kuro, and about $500 cheaper.

4. Samsung LN52A860. While I am not in the market for anything smaller than 60 inch, and generally don’t go for LCD, this proved to be an seductive little unit. At Best Buy, the HD-DVD of King Kong (2005) was shown on this unit. The main fight between King Kong & the twin T-Rexes realy showed off what this little puppy can do. There was no sign of motion blur. In 120Hz mode, the fast-action scenes were utterly smooth. This HDTV is also razor thin. If you are into the interior-decorator fashion design bullshit, this is the unit for you.
So there you have it, the initial results of my survey. I have not purchased yet, so the final verdict is not in. Right now it is looking like a two horse race between Mitsubishi WD-73736 and the Panasonic TH-65PZ850U. This is a very asymmetrical battle. There are big size, price, & weight differences here. WD-73736 is a victory for conservatism. Panasonic TH-65PZ850U is a victory for radicalism. I have to decide what I want to do. Do I keep doing what I am doing now {which is working very well} or do I get radical and try something completely different {just for the fun of it}?

Much will depend upon financing. I can buy either on a credit card. I do not want to go this route. As you well know, Credit Cards constitute expensive loans. Mitsubishi offers interest free financing, but it is not easy to qualify for this credit given the present turmoil in the banking sector. I am unaware of any special finance available for Panasonic HDTVs. I will let you know if there is any such thing.

So what is the very best HDTV out there?

Note: This is my first non-serious blog.

I've been on-board the HDTV revolution since November of 2006. This was the moment when Microsoft brought out the HD-DVD add-on for the XBox360, Sony introduced the Playstation 3. Around the time, I purchased my Samsung HL-S6187W DLP rear screen projection TV. I added a set of Fluance speakers and an Onkyo TX-NR905B receiver to the mix to create a true home theater environment. I have enjoyed in tremendously ever since. So have all of my friends and family members. They love it. I love it. We love it.

Call me foolish. Call me irresponsible. Call me a dreamer, but the 2 year ich has begun to get to me. Two years is an eternity in the HDTV field. HDTV is a field strongly allied to that of silicone micro computing. Moore's law tells us that transistor density {an ergo horsepower} will double every 18 months. This means our digital technology should (roughly speaking) double-up in power and quality every 18 months. So it has been for nearly 4 decades now. I am afraid that not even Alan Moore can explain what has been transpiring in the field of HDTV engineering though. No field of human endeavor has been progressing faster over the past 9 years. HDTV engineers have outpaced basic computing, AIDS research, alternate energy science, global climate science, Mars Lander research, etc. Nothing has advanced farther and faster in the past 9 years. Since it has been more than 2.5 years since the moment my HDTV was introduced, I should, in theory, be able to find a new unit more than 400% better than mine. Such a unit should exist... in theory. This is the thought that has been itching me for sometime now.
Naturally, I have mixed emotions about this itch. I was watching Kung Fu Panda last night with some friends from my old days at UCLA. Everyone was struck by the quality. The Blu-Ray itself was sensational, but the presentation on my wonderful 61in DLP was about as good as you could hope for. I found myself asking aloud why I had been so foolish as to sell of this TV to my Dad for a paltry $750.00. Yep, that's right. I have already sealed a deal to sell my dad this wonderful 61 inch HDTV for a paltry $750. Although he has not yet taken delivery, the deal is sealed. I need to find a new machine.

The last time I was in the market, the month was October of 2006. The Cardinals were playing the White Sox for the series. I spent about 10 hours watching Baseball at Ken Crane's Big Screen TVs, trying to determine who made the world's finest HDTV. I came to some conclusions that were distinctly counter-trendy.

First, flat was not where it was at. I was totally unimpressed by Plasma. Most Plasma TVs were 720p or worse at this time. Many were 1024x768 pixels. This is 4x3 aspect ratio VGA based standard, not an HDTV resolution at all. 1080P Plasmas were a mythical vaporware product, which had been announced, but which had not shipped to market. Ordinary SD content looked fantastic these mid-def TVs. Real HD content looked like shit compared to almost any true 1080P television. Plasma was also very expensive. To crush the deal, it also suffered from burn-in problems, and a very short lifespan.

In sharp contrast, most LCD HDTVs were actually 1080P by this time. LCD looked good, but there was plenty of motion blur for your dollar. Sports exposed this weakness very clearly. LCD was also extremely expensive. For a large screen--say 47 inches--you would need to pony up at least $6,000 USD. Black levels were not good, but I was not all that obsessed with contrast ratios.

So the first conclusion was clear: Plasma was of no interest to me at all. LCD was interesting, but far too expensive to be a contender.

Then I found DLP. My boss at the time, Alan Hope, was a strong advocate of DLP. He loved it. He couldn't understand why world wasn't swarming on DLP. No doubt, DLP was sharp. It was true 1080P, the color was outstanding, there was no motion blur, and the size was massive. Strangely, the price was lower than LCD or plasma. This began about 7 or 8 hours of excruciating comparisons between Mitsubishi and Samsung. After much consideration, I determined that Samsung's HL-S6187W was the finest HDTV on the market. I obtained it through eBay for just about $2000 all-in. It turned out to be a marvelous buy. No regrets. I am convinced I did as well as a man could do in Nov 2006. I have been slap happy every since.
But now it is officially time to do it again. I have been doing some serious homework, trying to ferret out what HDTV's currently occupy the most coveted positions in the rankings. A few serious contenders have been found, but before I cover them, may I say how shocked I am at how the landscape has changed. It seems that everything is different at the pre-dawn of 2009. How so?

1. Classic DLP is dying. This is a very sad and regrettable fact. Toshiba and JVC have basically exited this business. Samsung has deprecated their DLP lineup. Mitsubishi is positioning LaserVue as the successor to DLP.

2. DLP is being reborn as Laser TV. As I mentioned LaserVue is Mitsubishi's brand-new thang. The hype regarding this product knows no bounds. Let's make one thing perfectly clear: LaserVue is a DLP technology. It still uses the Texas Instruments Digital Light Processor chips to transform digital bits into your picture. The difference is that Mitsubishi is using low-intensity laser LEDs to paint that picture. The fancy lamp is gone.

3. Plasma is considered the world's highest quality television technology... with honorable mentions to LaserVue. All current plasma TVs are 1080P. The 720p stuff is 2 or 3 years old. It is liquidation stock. {Don't buy it.} There are no longer any burn in or short lifespan issues. Plasma engineers have successfully resolved these problems. The price has come down dramatically. Although a 60 inch Plasma is about twice the price of a good 60 inch DLP, this is dramatically better than the old days, and both are very affordable choices.

4. LCD is the king. LCD technology is beating DLP and Plasma to death... in terms of numbers... and I don't know why. When you count numbers LCD is the winner. More LCDs are manufactured, sold, praised in the market and profited from than DLP and Plasma units combined. LCD is the People's choice.

5. LG is now a major player in the market. In the old days, it was basically a three horse race: Samsung, Sony and Mitsubishi in that order. Now LG has to be taken seriously as contender in every weight class and technology where they compete. They have the world's finest LCD TV: The LG 47LG90. They also have the only *_THX video_* certified technology on the market
6. There is a preposterous obsession with the color black. For some reason, even the slightest declination from absolute black-for-black will get an HDTV disqualified in any critical review. I personally consider this to be a foolish fetish that bewitches the minds of critics everywhere. I doubt you will enjoy Casablanca better on a Pioneer Elite Kuro because of the 1,000,000:1 contrast ratio. Nevertheless, critics are completely swept away by this fascination without merit. I doubt they can justify the time they spend writing about black levels.

7. It possible to obtain a 1,000,000:1 contrast ratio these days. This means a white point on the screen is a million times brighter than a black point on the screen. My current HDTV does 10,000:1. This means I can expect my white points to be 100 times brighter than my black points when comparing my new unit to my old unit.

So who are the major contenders in this football league?

1. The Pioneer Elite Kuro 60 inch: This is commonly regarded as the world's finest HDTV, and it receives the highest critical scores and praise. This unit costs about $5,000, auto-magically tunes itself for the light levels in your TV room, and was the first to offer a 1,000,000:1 contrast ratio. Critics seem untowardly obsessed with this unit's ability to achieve absolute black.

2. The Mitsubishi LaserVue 65 inch: This unit is now challenging the Pioneer Elite Kuro for championship belt. There are significant voices out there who claim LaserVue has already won this battle, and Kuro is a defeated foe. All parties believe that this unit is capable of displaying twice the color gamut of Pioneer Kuro. Critics dispute whether this fact is significant, given the limits of the HDTV color space definition. Significant voices say that LaserVue must exceed calibration specs to show off what it can do, and this is a party foul. LaserVue can also do 3d movies, whenever this tech becomes availible.

3. LG 60PG60 60-Inch 1080p Plasma Frameless Edge HDTV: This unit won the best product of CES 2008. It is the only television on the market to offer THX video certification. It offers a 1,000,000:1 contrast ratio, but the critics have chipped it for not achieving absolute black. Through online vendors, it can be had for just under $3,000.00.

4. The Mitsubishi WD-73835: This is possibly the last of the classic DLP units. It is massive at 73inches. It is only slightly more expensive than the much smaller LG 60inch plasma. It is less than half the price of the LaserVue. It can also do 3d movies, just like it's much more expensive little brother. Many cinema fans regard this as the best value on the market. I am strongly biased toward this unit, because of my past good experiance with DLP technology.

So there they are: The Big 4 contenders. At this point, I am not considering any others. Many Samsung fans will object to the fact that I have not included a Samsung unit on this event card. With all due respect, I am disappointed with Samsung. There entire focus has been on feeding the consumer obsession with LCD units at 46 to 52 inches. This is too small for me. I will not consider anything less than 60 inches. Samsung DLPs are now a far cry from what they used to be. I think their old model DLPs (namely my TV) are better than their new DLPs. This is an egregious embarrassment. Samsung does make a nice 63in Plasma, but the critical reviews are not particularly good. I will look at the Samsung FPT6374 when I go to the field this weekend. If it impresses me, I will change my mind, but right now it is not on my list.

I am taking a crew of fellow UCLA Bruins to the field with me, and we are going to test these units as a unit. Hopefully we *_WILL NOT_* be watching the UCLA vs. USC game as we conduct this review. This game is sure to suck.

Wednesday, December 3, 2008

Just a Quick Note About Oil Prices

Down and down she goes and where she stops nobody knows. According to this story:

The price of oil fell below $45 briefly today. That is Brent Crude fell below $45, not Light Sweet Crude with a GI of 30. Brent has an API Graviety around 38, and higher sulfer content. It is a good source material for gasoline, though.

Light Sweet Crude finished the day at $46.79. The current price in over-seas markets sits at $46.99 according to This means the price of Light Sweet Crude is down more than $100 USD per barrel from the historic highpoint of $147.27 this summer. Wow... Wow...

Agent K claims that the price of LSC is going to drop to $10 per 55 gallon Barrel. I am very skeptical, even if the new Saudis {Brazil} begins to compete vigorously with the old Saudis. Still, I believe $30 per barrel LSC is attainable. This would mean 1 gallon of regular unleaded gas should return to about $1.00 in many parts of the country.

The most interesting angle on this story is the stimulus reduced gas prices may lend to our economy. Oil is a vital input to just about every form of commerce and production in our land. The very high price of Gasoline and Diesel fuel must have had something to do with the current recession we are in. Massive cost reductions in this area must be of some help, particularly in the transportation section.

In the San Fernando Valley of Los Angeles County California, you can already find several gas stations where all grades of gasoline are below $2.00 per gallon. This was much more prevalent in Fresno California during the Thanks Giving Day weekend. A drop to $30 per barrel could put us $1.15 per gallon.

Seems just like old times.

Tuesday, December 2, 2008

Regarding the Length of the Current Recession

Last night I was watching Happy Hour on the Fox Business network. This is basically my favorite channel these days, and I like and respect the principal members of the show. The best segment of the show involved predictions regarding the length of the recession.

In short, the average duration of the last four recessions is 18 months. Since we have been in this present recession for 11 months now, we are supposed to get out of this mess by June or July of 2009. This fits snugly with the optimistic and popular prediction that growth will return in the second half of 2009.

With all due respect, I non-concur. The epicenter of the chaos is extremely important. The center of this quake is the financial sector of the economy. We have had only one previous recession where the lead-decliner was the financial sector. That is the Great Depression. By the most limited and conservative estimates, the Great Depression lasted 43 months from 1929 to 1932. Many will tell you that the FDR administration never actually reignited the private economy. Many will tell you that it was WWII that ended the Great Depression. WWII did not officially get underway (in these United States) until Dec 7th of 1941. We had a Bear market that went from 1932 to 1941.

More recently, Japan had a lost decade in the 1990s where limited or no growth took place. The reason was a housing and mortgage bubble much like our own. Japanese banks were notorious for their denials of their default rates. They would not declare defaults, even when faced with the worst performing loans. Although this is happening in some cases I personally know of, U.S. law largely forces Mortgage companies to write-down poor performers and take their losses early. For this reason, we are supposed to get out of jail quicker than the Japanese did.

How much quicker? HSBC economists recently released forecasts of the recession's length to their partners and friends. According to HSBC, the U.S. will be in recession for 5 years. The recession could be shortened to 4 years if we have super policy and good luck. The recession could stretch for 6 years if we have poor policy and/or bad luck. Note that this prediction was issued before it was determined that we have had 11 months of recession. The length is irrespective of how long we have currently been in recession. Given this schedule, growth will return in September of 2013. HSBC is no collection of rooty-poots. HSBC is the world's 4th largest corp and 2nd largest bank. Given a couple more weeks of this mess, they will probably be the world's largest bank. Citi is going down sharply.

This prediction does not bode well for President Barak Obama, but that is a subject for another post.

As I have mentioned in a previous post, the grand ultimate cause of this disaster is the insane price of housing. Financial order cannot return until the real estate market is finished correcting itself. It is going to take a long, grinding, brutal deflation to shave another 30% off the cost of the common housing stock. There has to be a large and growing population of losers over a long and sustained period of time to make this happen.

I concur with HSBC: 5 years is the likely length of this present recession. 4 if we have good luck and policy. 6 if we have lousy luck and policy. Growth will return in September of 2013.

Brazil is the new Saudi Arabia

Well shocking news will never cease. It would appear that two weeks ago, entire global crude oil narrative changed and changed radically. The problem is that nobody noticed. So just what the hell happened?

Brazil's national oil company Petroleo Brasileiro, AKA Petrobras, probably made the largest oil discovery ever in the entire history of the world. We're talking about something like 3.5 billion barrels of oil in the so-called Parque das Baleias area of Brazil’s Espirito Santo state. Something like 1.5 to 2 billion of those barrels are light sweet crude with an American Petroleum Institute gravity ranking of 30. It's about 180 miles off the coast, trapped under a few miles of sea water, rock, heavy oil and salt. This region is already producing crude oil. They made the discovery when {unexpectedly} they found light-sweet crude in two existing oil wells in one of their off-shore drilling rigs. The remaining 1.5 to 2.0 billion barrels are heavier grade oil which Brazil is already shipping to market. The fact that this region is already producing oil vastly simplifies the process of bringing this oil to market. The infrastructure (namely the drilling platforms) are already there.

Now, on Dec 2, we have a new announcement of another 2.o billion barrels in an ultra deep well, 1 mile below the ocean floor. This new field is just 80KM off the cost of Brazil. This latest discovery has increased Brazil's proven oil reserves to a total of approximately 14 billion barrels. The biggest problem in developing this resource is the falling price of crude and global credit crunch. Almir Barbassa, CEO of Petrobras, is said to be entirely focused on finding investment capital, rather than confirming or refuting the resource base itself.

So what the fuck does this mean anyhow? It means Brazil is the new Saudi Arabia. Brazil's current resources may exceed those of Saudi Arabia's diminishing resources. Rumors continue to abound that Saudi Arabia's production peaked several years ago. This means that they pumped more than 50% of their total resource base out of the ground. The remaining 50% will be much more energy intensive and expensive to harvest. Brazil's resources may be a heck of a lot easier to cultivate.

If true, the geo-political, economic and environmental ramifications of discovery cannot be overstated. It means a staggering power shift is in the pipeline, pun intended. What are these ramifications?
1. Oil scarcity will cease to be a function of diminishing resources for awhile (at least)
2. If there is oil scarcity, it will be politically motivated and executed.
3. With two Saudi Arabia's competing with each other, we can expect to see oil prices fall.
4. Dependency on the turbulent Middle East for vital energy will fall off.
5. With abundant cheap oil, the drive to alternate energy will abate (for a time).
6. We will keep burning fossil fuels, and greenhouse gasses will continue to accumulate
7. Ford, GM, and Chrysler may only need bridge loans. This may be a serious statement of fact after all. This when the claimed need for a bridge loan seemed like a Band Aid on cancer.
8. Because Brazil's oil reserves are offshore, there is no necessary destruction of rain forests in view. However, offshort drilling has its own environmental problems.

Wow... Wow... Wow...

There is much to consider. A reduction of oil prices to $30 per barrel would cripple our enemies, and provide $0.90 gasoline again. However, this is far from a clear cut good thing. I had expected the drive to alternate energy to be the prime source of economic growth in the near future for the United States and the world. An alternate energy economy may not even be financially feasible in the light of this current discovery. Further, continued consumption of oil, even at the current diminished pace, is not a good thing.

Monday, December 1, 2008

So why the hell are we in this financial crisis anyway?

The root of the present crisis is pretty simple: The price of housing has reached the preposterous point where every common middle-class home is totally unaffordable by every common middle-class buyer. Housing has been overbought, over-speculated, and overpriced for some time now.

Call me foolish. Call me irresponsible. Call me a dreamer, but I think you have a serious structural problem when every common home is unfordable by every common buyer. I remember when my Dad told me I had to jump in the housing market back in 2005. He insisted that housing had appreciated at the rate of 7% compound per year for the longest time. It was only going to get more expensive. I needed to jump in.

"Where is the growth in real wages to cover this 7% increase in housing prices?" I scoffed.

"Real wages, adjusted for inflation, have been increasing at pretty close to 0.0% for the past 20 years. It might even be negative, according to some reports. Prices cannot continue to increase like this. Houses are already unfordable. Who will buy this houses in a few years?"

My Dad didn't like that at all. He had just refinanced his house, through Country Wide, at something like $350,000. He harvested a ton of 'equity' to open a restaurant, which is now closed for business. The notion of being locked at debt level, or being underwater, did not appeal to him at all. He hated that notion. Still, he grimaced in pain, understanding that there was a problem.

The problem is that markets like to get even. The market is getting even right now. The real value of homes dropped more than 10% from historic highs by the month of September. This created systemic failure in the credit and finance industries. Speculators who were underwater, stopped paying their mortgages. Many abandoned investments, looking forward to foreclosure as a way to get out of a risky gamble. As the losses mounted Country Wide, Fannie Mae, and Freddie Mac all exploded. LIBOR shot through the roof. AIG was swimming in red ink due to "Mortgage Default Swaps", a type of insurance we don't call insurance.

How can the mortgage industry drag the entire system down like this? How can a single burst blood vessel in your brain kill you? How can a little blood clot in your heart give you a fatal heart attack? How can one crushed vertebrae in your back paralyze you? All it takes is one serious point of failure to bring the whole system down into a collective crisis.

But I digress... The real subject of this crisis is the outrageous price of housing. The credit crisis is a side effect not the cause of problem. The boss of BB&T bank, John Allison, says that all the chaos of September 2008 was created by a 10% drop in that price. The good news is that housing has to drop another 30% in order to reach a point of moderate affordability across much of our country. The bad news is that housing has to drop another 30% in order to reach a point of moderate affordability across much of our country.

If most of this chaos and crisis was fomented by a 10% drop, what will 30% more look like? There have to be a lot of losers over a significant period of time for the average price of a home to decline another 30%. A lot of ordinary home owners will have to take losses when selling. A lot of real estate investors and developers will have to take losses. A lot of banks will have to take losses. A number of insurance companies have to take losses.

This is going to be a long, tough, grinding deflation.

When Bernanke Speaks, People Listen

So, one of my coworkers is a heavy investor. Actually, I am sure several of them are, but this is the guy I know. We'll call him K. K hates Ben Bernanke with a passion. Once at a party, he burst out with the following quote: "If I am down to my last bullet, and I have Osama Bin Laden to my left, and Ben Bernanke to my right, I am going to shoot Bernanke!". K is now famous around the office for this saying.

K spelled out his reasons for this choice in detail: "The damage Bin Laden has been done can be measured around few hundred billion. The bamage Bernanke has done is in the Trillions." Of course, he omits the carnage aspect of this comparison, but this was intended to be a funny saying in the first place.

According to agent K, every time Bernanke speaks, the market takes a nose dive. Well, today is Dec 1, 2008. Bernanke spoke. The market just took a 420 point shit. Wow... This isn't the first time I have observed this phenominon in action either.

What did Bernanke say? He said the economy is likely to remain weak for some time. The S&P 500 heat map turned red as Hell itself. Just check out You will see the S&P 500 heatmap.

Granted Bernanke has had a rough ride. The economy has been getting worse and worse over his 2 years. It looks like Greenspan bailed out at the right moment. That probably wasn't a co-inky-dink. Bernanke has had a lot of bad news to give us. Shooting him is like shooting the messanger.

Still, K says Bernanke is a son of bitch. If anybody aught to be cautious about what he says, and discrete with bad news, it aught to be Bernanke. Nobody in such a post should be so forthright, says K. "Thou shalt not speak" should be his commandment. He remains bitterly disapointed that Obama has done nothing to terminate Bernanke's post.

So how does a Fed Chair share bad news? How did Greenspan negotiate this problem? There were moments of bad news during his time. The economy tanked in 1991. He was ostensibly a good Fed Chair. What would Greenspan do?

Greenspan was notoriously incoherant and incomprehensible. His speech was like the writings GWF Hegel. He issued a lot 180-200 word sentences which added up to confusion. The Motley Fools used to have a segment called "Dude, what the hell did he just say?" which attempted to decode Greenspan's impenetrable speech patterns.

So I guess the moral of the story is clear: If you have bad news to give, write some anti-gramatical 180 word sentences and deliver them slowly. Bernanke's problem is that he is prettly clear that there is a problem.

[Editor's footnote]
The Market closed down 680 points. That is the fourth largest decline in history. It was a big one.