The Destroyer of Finance

 Dear <Federal Representative of Congress Allegedly Representing Your Interests>,

 I pray to sweet Jesus above that you and your brethren in Congress don’t pound me in the ass with a broom handle.  I’m not a high school football player, you know.

 Faced with the most pivotal moment in your career (a career at least on the surface dedicated to serving the best interests of the country), you have the opportunity not only to bring hope for the aversion of a tragedy to your American people, but also to all your fellow human beings who lay claim to membership in the modern global community.  All you have to do is swallow your politics and ignore the taste of bile and your general dislike for what is happening.

 Or, instead, you could piss it all away like a screaming brat in the grocery store check out lane.  You don’t like the bailout.  Your dear mortal frenemies across the isle don’t like the bailout.  It’s the bloody definition of a compromise as it is!  Let’s take care of business already (so to speak)!

 Oh, sure, hold on.  We’ve got to mug for the cameras.  The senior suits have decided that they need some face time with the thrice damned legislation so that they can carve it up like a back alley Hollywood boob job and slap a name on it (the X – Y Financial Rescue and Reform Bill… think Sarbanes-Oxley, aka SOX in the finance world [or SUX, depending on who you talk to], McCain-Kennedy, etc.).

 Let’s not forget this isn’t a game.  You can’t play “just the tip, just for a little bit” with this.  Not only is it not a game, it’s not even an intern.  If there was ever a time to over react, this is it.  The fine Mr. Dodd’s suggestion of starting out with $150B and the working out the rest later is runner up for “Worst Crisis Mitigation Idea of the Year” only to the plan of doing nothing at all… which apparently some of the more “red” of your colleagues would support.

 I’d like to think that as you are, nominally, a servant of the people, I could be certain of your commitment to work the long hours and work out a deal as fast as the limits of your physical life force would permit.  The world loses faith in our chances to execute this maneuver properly by the minute.  If we tasked a group of media cameras to follow each of you around at all times, would you consider working through the night?

 At the root of things, getting the details right isn’t so important as how quickly it takes place and how much monetary force the government puts behind it.  $700B is great.  $1 trillion would be better.  The taxpayer will get most of that money back in the end anyway, especially if the government modifies all the mortgages it buys.  If you’re worried about losses, require the companies to issue you $1 of perpetual cumulative preferred stock for each $1 of losses (I recommend staying away from common stock… much touchier issue.).

 This is not politics, I probably don’t need to remind you.  This is the shaken foundation of the world’s economy.  If you do not act, it will quite probably fail, and it will pull the framework of our modern society down around you while you watch and dither.  Should that happen, I would certainly write you a letter informing you that I prayed that you not receive the sudden and greatly prejudiced justice you would certainly richly deserve.

 The country, and Congress is faced with two (metaphorical) choices: the first is to be executed with a single round to the back of the head, and the second is to play Russian Roulette with a single round and five empty chambers.  It ought to be an easy choice, so let’s not worry about if the bullet is hollow point or full jacket.  Please?

 Sincerely,

<Your subservient semi tax paying plebe>

 I’m getting the hang of this Detroit thing.  I managed to mug two people before getting mugged myself last night.

 Kidding.

 Or am I?

 Also, Detroit is a really bad place to be a racist with Tourette’s syndrome.  Just sayin’.

 Oil got over $133 today.  Here’s some explanation why.

That’s all ive got for now, Tiger’s game tonight.

 Approximate odds I will make a negative comment about Detroit’s political culture sometime today: 5/2

 Approximate odds I will stare across the river and feel a brotherly conection between my Texas roots and the Quebecois: 3:1

 Approximate odds I will recoil in horror at feeling kinship with descendants of the French: 1:1

 Approximate odds I will be found in a gutter with a 40 of malt in the vicinity of 8 mile: 120 lightning armadillos: 1

  I declare Detroit to be the most corrupt city in the United States, excluding all political capitols and the state of Louisiana.

 Also, I was given an extremely dirty look when I made an off color remark about Sen. Kennedy after seeing a bit of CNN.

 Stupid enclave of naive socialists… and they wonder why their city is a puss oozing abcess on Satan’s ass.

 They can’t even keep their office buildings at a reasonable temperature.  It’s a beautiful 67 outside, but it’s almost 80 inside the office.  Can’t we just open a window?  Please?

 Detroit someone tonight,

 Blogger

 Moving into the new office space, so things are sort of hectic.

 That and I still need to look up my flight plans for my 3 day Detroit tour.  Sigh.

 I never got around to really saying anything about Horizon Lines, but I think I would have classified it as a “good” value, but not “compelling” due to the price fixing investigation.  Anyway, it’s up about 5% today.  It’s one to keep an eye on for the future.

 I don’t have a lot for today (again), so I’ll just call it quits for today.

 It has its perks.  Ultimate power.  A cool name.  A harem.  Now all I need to do is figure out if the bank will reimburse me the expense of paying for all those things.

 I finally settle my litigation involving Tortilla Chip v. #10 Tooth this morning.  While not the most painful dental operation ever, it was definitely one of the more uncomfortable.  When you reach into my mouth with what amounts to pliers and start pulling on something, I expect some sort of pain killer.  When I don’t get it, I get nervous… get it?  At any rate, new dental work always frustrates me because it doesn’t feel right for a week or so.

 Hell and tarnation!  Oil breaks $126!  What are we going to do about all that?  I can’t afford to drive my pickup down to the corner grocery anymore!  How could the government let this happen?

Light, sweet crude for June delivery rose $2.51 to a new record of $126.20 a barrel in electronic trading on the New York Mercantile Exchange by the afternoon in Europe.

On Friday, The Wall Street Journal published a report that suggested closer ties between Venezuelan President Hugo Chavez and rebels attempting to overthrow Colombia’s government, heightening chances that the U.S. could impose sanctions on one of its biggest oil suppliers as a state sponsor of terror.

There’s also this from Venezuela.

Venezuela’s proven crude oil reserves had swelled to 130 billion barrels as of late April, marking a rise of 30 billion from its prior estimate, energy and oil minister Rafael Ramirez said Thursday.

 Excite you much?  You’re probably thinking that I’m going to burst your bubble, tell you why this doesn’t matter.  Well I’m not.

 Ok, so I am.  It doesn’t matter.  It doesn’t change anything.  In the US, “proven reserves” are a fluid thing partially based on the price of oil.  You see, if it’s going to cost you $200/barrel to extract it, and you can only sell it for $100… well, you’re not going to extract it, are you?  So you don’t get to count it as “reserves.”

 That, of course, is in the US where reserve claims are generally subject to third party review.  Has anyone reviewed the new claims by Venezuela?  No?

 On top of the uncertain nature of the claims, we’re faced with the irrelevance of reserves in general.  The only thing that matters today (and the near future) is the ability to extract oil.  If Venezuela had come out and said it was now able to increase its daily production 30%, that would be important.  You only care about reserves if you’re worried about the world running out of oil.  Economics will ensure we’ll never run out of oil in an absolute sense, but in a relative sense, to satisfy our lifestyle, we need ever increasing production.

 Which isn’t happening.  And isn’t related to reserves.

 Then we’ve got AIG reporting that they’ve managed to more or less permanently misplace about $7.8B, and that Citigroup is planning to sell off $400B in assets.  That’s alot more assets than I have.

 Finally, we have an improving trade deficit (but not really for any good reason since exports were down), and we’re going to continue with the charade of a failure buying a failure.

 Everyone who cancelled their vacation to Zimbabwe and decided to go to Lebanon instead might want to reconsider.  Again.

 I don’t drive a pickup,

 Steve Yzerman

In the battle of Tooth v. Tortilla Chip, T. Chip won, so I am off to El Dentisto this morning.

 FD50?

 Monday blog leads off with what else but Bank of America!  BofA struggles in the first quarter and misses expected profit levels ($.23/share v. $.41/share).  Of course, this still means they pulled in $1.2B in profit, so no worries about bankruptcy.  Also, that includes $776 million from the VISA sale, so about 40% of the profit total has nothing to do with the bank’s operations.

 From FT.com, Bank of America looks for cash money to boost its balance sheet, elects to pull some cash out of their China Construction Bank investment.  See, that looks better in the press compared to getting money from a private equity group, but it’s still selling part of your assets for cash all the same.  Don’t delude yourself into thinking that BofA would be considering reducing their CCB position of they didn’t need to money for their capital ratios.

 In other earnings news, pharma drugs are really popular.  Really, really popular.  Consumers love them some chemically induced clear sinuses and rigid members.

 You might have noticed that gas is getting a little pricey.  Well, we should get used to it… oil hits $117 a barrel.  However, the more interesting oil news comes from the sandy sands of Saudi Arabia:  Productions increase?  Not so fast, my friend.

Saudi Arabia, the world’s biggest oil producer, has put on hold any plans to further increase long-term production capacity from its vast oil fields, its most powerful policymakers have said.

In a series of statements, including one by the king himself, the kingdom has warned consumers it does not reckon there is a need for further expansion, an assumption disputed by the world’s biggest developed countries.

Abdullah Jum’ah, chief executive of Saudi Aramco, the kingdom’s oil company, said in a closed door meeting with oil ministers and executives in Rome on Sunday that market signals were ’imperfect’ and that there were uncertainties created by the move away from oil, the world’s worsening economic outlook and the recent turbulance in the financial markets, according to one person who took notes at the discussions. This has impacted Saudi Arabia’s view on the profitability of investing billions of additional dollars into its industry at this point, Gulf sources said.

In a recent interview with Argus, an industry newsletter, Ali Naimi, Saudi Arabia’s energy minister, made clear Saudi Arabia had “no plans” to embark on its next phase of expansion. “We are idling at around 9m bpd and we will reach capacity of 12.5m bpd by 2009.”

Recent announcements will harden the view of those sceptics who argue the kingdom is unable to boost production because of the high decline rates at its fields – a view that is still in the minority among those in the industry and one Riyadh emphatically rejects.

 Count me in the minority.  The Kingdom is beholden to no one and it can tell the world anything it wants about its oil.  Almost everything the outside world knows about the Saudi oil industry is based on conjecture and hearsay.  No one outside of Saudi Arabia even knows for sure how much oil they ship out every month… they just count the ships leaving, look at how deep they are in the water, and then make an educated guess as to how much oil is inside.  No, I am actually serious.

 Imperfect signals or no, their excuses reek of bovine manure.  When these expansion plans were originally laid, years ago, oil was trading for far less than it is now.  Even if oil were to fall back to the bargain basement price of $60 a barrel, it would probably be no less than what they expected when the plans were drawn up.  The cost of oil field development has increased significantly since then (whenever “then” was), but so has the price of oil.

 In the end, I believe this is as clear a signal that they can send about their production capacity.  They are telling the world: “Look, busters, we think we can get up to 12.5mbpd, but 15 ain’t happening, so you better start figuring out how to deal with it.”  I also think they’re still going to spend the money, and I think they’ll actually move forward with the projects they are talking about, but the message here, in my opinion, is that these projects won’t be “Expansion” projects but they will be “replacement” projects.

 Why don’t they come out and say this straight up?  Two things: 1) can you being to imagine the panic it would cause?  At least this way the populace remains in the dark while the people who need to know get the message; 2) In my second hand study of the Middle East, I have been given the impression that straight up rejection is something that is not natural to the culture in the Kingdom.  Excuses, reasons, and delays, yes.  They’ll delay you for so long you give up.  Getting them to tell you “no” is more difficult.  This fits in well with the current oil announcements: delay, rationalize, excuse… just don’t give a straight rejection of “we can’t”.

 In the end we won’t know the truth of the matter until it happens either way.  The Kingdom can say whatever it wants, and it is under no obligation to give out any information about anything it does.  (As a further example, when I reference increases in Saudi well drilling activity, that’s based largely on second hand accounts and cobbled together info on how many drilling rigs Saudi-Aramco is leasing.)  If, in 2012 (or whatever) they say “we’ve changed out mind, and now we’ll restart the projects” then fine.  I’ll be wrong then, but until that point I’ll stand by my intuition.

 By the way, these projects are like high school science fair homework assignments.  This crap takes years (3-5 or more) to complete, so that decisions have to be made far in advance for the impact of the additional oil to be timely.  Take that into consideration when weighing the veracity of the Kingdom’s rationalization.

 L33t,

 John Law

 Breaking the streak of at least superficially acceptable bank earnings, Washington Mutual announces losses of $1.40 compared to an expected loss of $1.40.

 The earnings estimate I first saw apparently wasn’t so on target, since I initially was under the impression that the market expected a loss of $1.05.

“Nothing of this scale has happened since the Great Depression,” Chief Executive Kerry Killinger said at WaMu’s annual meeting. “This is the toughest credit cycle I have seen in my years in the industry.”

 Hmmmm

It seems like I actually have a little time today…

The City Under the City

 Sadly, I was not on the best curling team in Texas over the weekend.  That’s not really a shameful statement since the level of competition was noticeably higher than it was last year… and in our loss in the third game I think we may have been the victims as asymmetrical information (one of the sets (our set) of stones had chipped runners, and I think the other team knew that, but we didn’t until afterwards).  We also didn’t feel real happy thrashing a team of rookies 15-4 in our second game.  To give a frame of reference on the tally, our scoreboards only go up to 10.  We weren’t trying to run up the score, but to borrow from football, if you score a touchdown by running up the middle on every play, well… sometimes the defense needs to tackle you.

 It too bad the season is over now since I just made some improvements in my delivery yesterday, and now I’ll have to try to hold onto them until October (if we get a team together for a bonspiel in Wisconsinin for the Halloween spiel) or until November when the regular season fires up again. 

 Might also go to Winter Carnival in St. Paul if we can find enough women to get two teams together (teams have to be 50/50).  Well, and the money thing.

 Onto more important events.

Perhaps you know my reputation. I’ve engineered some very big things.

 Democratic nomination doesn’t get stupid, just stays stupid.  Meanwhile, McCain let’s us know that he’d rather run against Clinton.  Thanks, John… nice to know you’re paying attention to the obvious.

 Putin seems to have found a way to stay near power, much to everyone’s TOTAL surprise.

 Zimbabwe is still screwed, but they’re probably used to it by now.

 I used to this this stuff was cool, but now I’m wondering: Guinness World Records: Stupid?

If you want fresh air, don’t look for it in this town.

 Sort of business, but PEMEX (Mexico’s national oil co) needs this is the WORST possible way.  PEMEX is dying trying to do stuff on its own.  It doesn’t have the equipment, people, or, yes, funding (since the government takes so much money away from PEMEX for the national budget) to do what needs to be done.  The national gov’t of Mexico has mismanaged this shit for so long, if they keep going it alone, they might as well just cut to the chase and shut everything down now.

 Circling back to politics:  Obama talks big on Chinese Yuan. 

“What we need to do is just be better bargainers and say ‘Look, here’s the bottom line: You guys keep on manipulating your currency, we are going to start shutting off access to some of our markets,” he told a large crowd of unionized steelworkers in the industrial city of Pittsburgh.

 Really?  How much more like a typical politician can you get?  Such a fraudulent statement made for the sole purpose of pandering to a crowd.  Let’s gaze into my cristal bahl:

 Obama: We are going to start shutting off access to some of our markets.

    China: Where are you going to find replacements for all the goods we export to you?

Obama: We’ll make them ourselves.

    China: Not really, since you don’t have the facilities or the workforce for that.  And it would take years for your corporations to build new plants in a different country.  By then you will have lost your re-election bid in the biggest landslide in US electoral history.

Obama: Well, but… it’s not fair.

    China:  Like how we’ve been pouring money into supporting the value of the dollar for several years now?  I guess we could liquidate our hundreds of billions of dollar holdings and see what happens then.  How do you plan to finance your government deficit spending without us?

Obama: Ethanol?

    China: Look, I’m hungry, so why don’t you go down to the kitchen and see if my food is ready and bring it back.  If you’re nice, I’ll pretend we didn’t have this conversation.

 Wow, that was intense.  Good job standing up to those Chinese, Obama!

Wow… if this pace of work keeps up, blog might have to become a weekend/evening thing.

 Not really much news today of real note…

 I just booked a flight plan on American Airlines, who continue to do their best to make people forget about Southwest’s mistakes.

 Retail sales were bad in March… and the trade deficit grew… but new fillings for jobless claims were less than expected, so that cobmined with people spending money on bargain products at Wal-mart makes Wall Street happy today.

 If you can’t figure out why the US media keeps giving bad economic news cheerful headlines, maybe you’d like to hear that the Canadianite Finance Minister believes that the US economy is doing worse than they expected.

 People get snippy when money is involved, and here’s a case of both people having some valid points:  Income gap growing in Texas.

Their study of inflation-adjusted census data shows that in Texas, the gap between the average income of the richest 20 percent of families – $126,658 – and the poorest fifth – $16,088 – is the ninth-biggest among the states.

Co-author Elizabeth McNichol of the Center on Budget and Policy Priorities, a liberal research group based in Washington, said that no one state “is doing everything that could be done to push back against inequality.”

She said states such as Texas and Tennessee, which don’t have income taxes, are more likely to solve budget squeezes by raising sales taxes or fees “that disproportionately burden low- and moderate-income families.”

States such as California and Minnesota have steeply graduated income tax rates that more heavily hit the rich, are fairer and help reduce inequality, Ms. McNichol said. She said Maryland and Michigan recently raised income taxes to help reduce budget deficits.

In Austin, conservative activist Michael Quinn Sullivan of Texans for Fiscal Responsibility blasted the study as “partisan drivel dressed up as nonpartisan research.”

“You can either live in Texas, where you may be poor but you have lots of job opportunities, or you can do what these people propose and turn us into Michigan or Illinois, which are hemorrhaging jobs,” he said. “There, if you’re poor, you stay poor.”

 The reliance on sales taxes does place a heavier burden on the poor, it’s true.  Texas does also have some whip-ass property taxes that generally hit the rich in the pocket book more (although if you live in a $50k house, you won’t pay much in taxes even if you’re Mark Cuban).

 However, to the surprise of probably no one, I’m more inclined to disagree with the point of the study.  First, the point of a growing, healthy economy isn’t to be “fair.”  The growth should help improve the general quality of life, but equal improvement isn’t the goal… nor should it be.

 Secondly, the growing income gap in Texas is very easily explained: the state has a constant inflow of unskilled labor (I don’t know where it might be coming from, it’s just there) keeping wages on the unskilled end of the spectrum low.  Meanwhile, partly due to a good college system in state, partly due to the bad, mean, evil tax structure, and partly due to a booming oil industry, jobs that require skilled labor continue to move into the state, driving up wages for the skilled laborers already present here.

 Finally, the guys point about Michigan at the end, while smart ass, is valid: when your state’s economic stimulus plan is to raise taxes MORE, you get Michigan… and companies moving out of state (to Texas, in some cases).

 Anyway, that’s about all the time I’ve got today.

 Mel Blount