Mark McHugh

Archive for March, 2012|Monthly archive page

The Extraordinarily High Cost of Pseudo-Capitalism

In Open Thread on Thursday, March 8, 2012 at 12:24 pm

Before we empty the SPR or start WW III, Americans should recall that basic arithmetic is our greatest enemy .  A barrel of oil from Saudi Arabia contains 5.9 million British Thermal Units (BTUs), so at the recent price of $120/barrel*, the price per million BTU is $20.34.  Nymex natural gas is already priced per million BTU, and as of this writing the spot price is $2.21   This means Americans now pay over 9 times more for foreign energy than the domestic alternative.  This is just one reason why the “recovery” Wall Street and Washington are always chattering about feels more and more like a death spiral on this side of the rainbow.   Too bad cars don’t run on natural gas, huh?  Turns out they do, but first let’s explore why I’m picking on Saudi Arabia.

We are going to have to deal with energy because we can’t keep on borrowing from the Chinese and sending money to Saudi Arabia. We are mortgaging our children’s future. We’ve got to have a different energy plan.

~Barack Obama

Presidential debate, October 7, 2008

The outstanding balance on your kids’ mortgage is up 51% ($5.2T) since those words were spoken.  The US Government owed China $587B then.  Three years later, that debt more than doubled to $1.27T and the only reason it isn’t even higher now is because China has lost its appetite for US paper.  Although the US has decreased the amount of oil imported from Saudi Arabia in recent years, it is  still America’s second biggest supplier (Canada is #1) and prices paid have more than quintupled in the last decade (the average price in 2002 was $22.81).  Just to drive home the point: Natural gas is 40% cheaper today than Saudi oil was ten years ago.

“The next time you hear some politician trotting out some three-point plan for $2 gas you let him know we know better. Tell him we’re tired of hearing phony election year promises that never come about.”

~President Barack Obama

March 7, 2012

(Thank You, Jesus)

Obama made those juicy remarks yesterday regarding Presidential hopeful Newt Gingrich’s assertion that high gasoline prices are a “direct result” of Obama’s energy policies.  Loathe as I am agreeing with anything coming out of Moon Base’s pie hole, he’s right.  When you spend most of your time completely ignoring your most viable option, bad things tend to happen.  Go ahead, see if you can find a video clip of the President talking about developing natural gas in the first two years of his administration (pack a lunch).  There’s more than 13 million vehicles worldwide running on natural gas, and less than 1% are in the United States. 

Fun Fact:  According to the World Policy InstituteIran is the World leader in natural gas vehicles, with 2.86 million NGVs as of November 2011.  

Meanwhile back in the land of PT Barnum, the Chevy Volt is cementing its reputation as the WTF product of the 21st century (and I don’t mean “Winning The Future”).  On March 4, 2012 General Motors suspended production of the Turd Volt due to poor sales.  The Volt would be a national disgrace if it could be called an “American” car with a straight face, but I won’t spend any time trying to convince you of that.  Simply google the exact phrase “Chevy Volt sucks” and you will find 10,900 results to explain it in agonizing detail.

Since 1998, Honda has been making a compressed natural gas (CNG) version of its popular Civic model in East Liberty, Ohio (’98 – ’08) and Greensburg, Indiana (’09 – present), called the Civic GX.  It has been the only natural gas passenger vehicle produced and sold in the United States and although it’s won tons of awards, including “Greenest vehicle of the year” eight years in a row by the American Council for an Energy-Efficient Economy, most of us have never seen one.  Why? Because there are less than 400 CNG stations open to the public in the country.

The Civic GX isn’t without drawbacks.  It has less responsive acceleration, reduced trunk space, and you can’t commit suicide by running it in a closed garage because its tailpipe emissions are often cleaner than ambient air.  Googling the exact phrase “Civic GX sucks” this morning produced this:

 

WMDs, again?

Of course I speak of “Weapons of Mass-media Distortion.”   If you listen to CNBS today, you’ll get the impression that cars running on natural gas is a brand spanking new idea, and that GE is racing to develop a CNG home-filling station (something Honda began offering in 2005).   GM and Chrysler say they will have engines that will run on both gasoline and nat gas by year’s end!  Neato, but Iran’s ICKO started producing dual-fuel engines in 2009. 

At this point you have all the information you should need to determine if the American energy policies of the last decade have helped or hurt working Americans, and if those policies,  or lack thereof,  were the product of greed and corruption or the fact that our elected officials are utter idiots.  No matter what your opinion, we are here and it is now, so here’s a much more important question:  Why doesn’t the US Government step in and buy natural gas futures and options?  In doing so they could put a cap on energy prices for years to come and create millions of  jobs while transitioning  to a more sensible energy policy.  Stable prices and maximum employment (does that ring a bell?).

They won’t.  They’ll say, “It’s not the government’s place to interfere in the free market.”   Really?  The same government that spent $170B last year propping up the housing market to keep big banks solvent doesn’t like interfering?  $100B+ in student loans to keep education over-priced and young people in debt doesn’t count?

The cruel nature of capitalism is supposed to kill stupidity, by sending the misguided to the poorhouse and the criminal to the jailhouse, yet time and time again, we have seen the natural outcomes of capitalism deemed “unacceptable” by our politicians.   The US Government and/or the Federal Reserve rushed in with trillions of other people’s money to rescue Countrywide, Bear Stearns, Merril Lynch, AIG, Goldman Sachs, General Motors, General Electric, Citigroup, Wachovia, Bank of America, Morgan Stanley and JP Morgan from the fate they rightly deserved.   Yet when faced with the opportunity to help ordinary Americans, create millions of jobs and move the nation toward energy independence, all of a sudden, they’re laissez-faire?  

The Obama administration recently accused Iran’s elite of profiteering  “on the back of the average Iranian” regarding imposed US sanctions.  I guess our government would know an awful lot about that sort of thing….

Hopefully you’re beginning to understand just how expensive pseudo-capitalism is.

 

 

 

Data Sources:

US imports from Saudi Arabia:

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTIMUSSA1&f=M

Imports from all countries:

http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm

Most recent “top importers”

ftp://ftp.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html

 Gross Heat Content of Crude Oil by Country, Most Recent Annual Estimates, 1980-2007

 www.eia.gov/international/RecentGrossHeatContentCrudeOil.xls

Natural Gas Prices:

http://www.eia.gov/dnav/ng/hist/rngwhhdm.htm

 Note: Prices actually paid for Saudi oil are based on the Argus Sour Crude Index, which is almost as elusive as the Argus Apocraphex (stifle your curiosity unless you have an hour to waste). 

http://www.cmegroup.com/trading/energy/crude-oil/argus-sour-crude-index-financial_quotes_settlements_futures.html

 Debt to the Penny:

http://www.treasurydirect.gov/NP/BPDLogin?application=np

 

Bubble Spotting

In Open Thread on Friday, March 2, 2012 at 12:19 pm

Screen shot of Finviz’s awesome Relative Strength Index.  Presented without comment.

What Really Happened This Week in Gold and Silver

In Open Thread on Friday, March 2, 2012 at 5:50 am

Hard to believe, but CNBC and the World’s chartologists missed a very important point:  In the last three days JP Morgan’s house account has taken possession of 3 times more physical silver than it did in all of 2011 (626 contracts, or 3.1 million t oz.)  bringing their 2012 total to 1,058.  The last time the Morgue took delivery of this much silver was September, 2010 at around $20.55 (it’s almost like they knew QE2 was coming – more on that later).

On Tuesday,  when silver shot up more than 4%, the CMEgroup initially issued blank trading reports, as in “!!!! NO DATA !!!!”, but eventually  published this:

492 of the 513 contracts delivered (96%) came from the Bank of Nova Scotia (425!) and the US Government   JPM customers.  So it wasn’t exactly so “widespread buying!” was it?

Now let’s jump over and see what happened in gold:

Of the 335 gold contracts delivered, JPM (customer & house combined) supplied 334.  There was only one  gold delivery that didn’t come from JPM, and that one contract went to, wait for it, JPM.  So JPM was involved in 100% of the physical gold transactions on February 28, 2012.  To recap, JPM delivered a bunch of gold and took a bunch of silver, BoNS delivered silver and took gold.  That’s really all that happened, unless you believe paper-metal traders throwing confetti around  impacts things (spoiler alert: nope). 

So it all boils down to this multiple choice question:

A) JPM suddenly hates gold

B) BoNS suddenly needs/wants more gold

C) BoNS suddenly hates silver

D) JPM’s house account suddenly needs/wants more silver

Figuring out the correct answer is your job, but I will tell you that in the wake of the “Gold & Silver Crash!!!” hyped on TV,  BoNS has nibbled at silver (6 contracts),  and JPM customer(s) have taken back 47 gold contracts.  Maybe the Bank of Nova Scotia is looking to buy oil from Iran, or maybe despite everything you’ve been told, QE3 is very much on the table.  Either way, I highly recommend looking beyond the chart.

You can follow the action whenever the tools at the CMEgroup (who definitely picked the wrong week to stop sniffing glue)  feel like updating their data:

http://www .cmegroup.com/delivery_reports/MetalsIssuesAndStopsReport.pdf

http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsMTDReport.pdf

http://www.cmegroup.com/delivery_reports/MetalsIssuesAndStopsYTDReport.pdf

The data delays, combined with missing and incomplete reports by the CMEgroup has gone from annoying (like all the Jamie Dimon knob-polishing  going on at CNBC…JPMs a “fortress”?  And how would Maria B know?) to downright disgraceful (which is what Jamie’s appointment to Treasury Secretary will be….just wait).

****

Update:  JPM House took delivery of another 187 silver contracts Friday 3/2/2012, bringing them to 813 for March and 1245 YTD net.    ….The big sellers were Jefferies (customer) and HSBC (house) who delivered 134(net) and 80 respectively.  Note: You have to save the reports to your own computer if you want them for future reference.

Other notes: Remember, a gold contract is 100 t oz., silver is 5000 toz (fifty times as much stuff).  6.2 million (the amount of t oz. silver JPM has taken so far in Q1) might not sound like a lot, but US production is only about 10 million t oz. per quarter.

Fun Facts:  As mentioned in the article, JPMs house account has not taken delivery of this much physical silver since September of 2010, when they took 1,630 contracts.  The last time the London Bullion Market Association (LBMA) silver fix was below $20 was September 13, 2010.  http://www.lbma.org.uk/pages/?page_id=54&title=silver_fixings&show=2010&type=daily

Funner Facts:  On November 23, 2011 JPM agreed to buy an additional 4.7% stake in the London Metals Exchange (LME) from the bankrupt MF Global for $38.9 million (read “dirt cheap”).  The purchase made JPM the largest shareholder of the metals exchange (which trades aluminium, copper, tin, nickel, zinc, lead, aluminium alloy and NASAAC, steel billet, cobalt and molybdenum), with a 10.9% stake.  http://dealbook.nytimes.com/2011/11/23/jpmorgan-said-to-buy-mf-global-stake-in-london-metal-exchange/ JPM is also the custodian for the iShares Silver Trust  (SLV), which is the World’s largest silver stockpile, currently with 313 million t oz.