Monday, June 9, 2008

SAR #8161

The great triumph of free trade, supply side, "trickle down",
Voodoo economics: Families living in their cars
waiting for the pawn shop to open.

Love Is Blind: Busybodies say that over the weekend Lehman Brothers agreed to an indecent proposal by NJ Division of Investment and others that will enrich Lehmans by $5 billion just as they write off $2 billion. Word is that Baraclays also got lucky this weekend.

Export Decline: In May, Russian and Kazaka oil exports through the Caspian Pipeline were down 9.5% from April. At the same time, Kazakhstan, where a promised oil bonanza is still, after years of development, just around the corner, has announced that it faces an immediate energy crisis.

More Bad: House prices dropped 14% from a year ago. But more frightening, there was a 6.7% decrease from 4Q07 to 1Q08 - that's an annual 26.8% drop in average house sales price.

Contained: In 2000 it cost about $2500 to ship a container from Asia to New York. Today it's $8000. At $200 a barrel for oil, it will be $15,000. Everything in Wal-Mart will increase by 15%.

The Short Of It: The current financial mess is quite explainable. It was caused just like so many before, when the financiers realized it is easier to take big chances with other people's money. Heads I win, tails they loose. Let's go double or nothing.

If Only... : The Government has several programs to help folks negotiate with their mortgage holders. Trouble is, about 80% of these loans have been repackaged to the point where no one knows who the mortgage holders actually are. Great. Seems the only way to find out who owns the loans is for them to default. Where's the GPS?

Roadmap: An excellent summary of how we got here, where we are headed, and why we are in handbasket by Nouriel Roubini.

Demand Spiral: Asian and Middle Eastern countries that have had strong price controls or government subsidies on fuel are being forced by rising prices to abandon these controls. This is causing rapid demand destruction and may lower demand to match the falling supply. As soon as demand drops enough to drop prices a bit, demand will revive and prices will rise. Repeat.

Libor Follies: Banks understated their own interbank borrowing costs, thus depicting LIBOR at a much lower level than it actually was. This made mortgage resets lower than conditions warranted. With LIBOR reflecting true costs, ARM resets will be higher.

Unfound Funds: US infrastructure has been falling apart due to a lack of maintenance funds because Grover and the boys have been shrinking the government for 20 years. The future for highways and bridges is even worse now as tax revenues fall with a failing economy. Next, more falling bridges.

Head Cold: Railway executives say that by 2035 the US rail system will be so congested that trains will halt for days with nowhere to go. Gridlock.

Beyond The Car: It will come as a surprise to many Americans, but petroleum is good for more than driving the SUV to soccer practice. There are some 57 major uses of petroleum beyond aimlessly driving around the mall. Everything from cosmetics to ballpoints, to chewing gum and medicines are based on petroleum. Increases in the cost oil will increase more than the price at the pump.

Porn O'Graphs: Oil supply, crudely, fertilizer, too.

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