Tuesday, June 10, 2008

SAR #8162

Most Circuses have three rings...

Progress: Since the Bernanke's first rate cut to fight the "liquidity" problem last August, the price of oil has doubled. Or at least it takes twice the number US dollars to buy a barrel.

Scarecrows: Fertilizer prices are up over 200% while global demand is up 14%. Supply shortages are forcing farmers to skimp on fertilizer, try substitutes, or to switch crops. That 14% doesn't sound like much until it is explained that that is an amount equal to the entire US market.

Double or Nothing: Last year buying and holding the S&P 500 would have lost you 8.5% of your money. But if you had followed the advice of the highly paid Wall Street investment advisors, you could have doubled that to an average 17% loss.

Shifty Crisis: As credit squeezes into the next turn, home equity loans seem to be the leading failure, slightly ahead of prime mortgages, credit card debt and option ARMs. Because lenders seldom recover a penny on foreclosures (first mortgage holders are, well, first), banks just swallow them. And in medium and smaller banks, HELOC losses may well swallow the banks.

Understatement: Global Food Supply Is A Growing Problem. Well, yeah.

Export Land Model: Never mind how much oil is produced; how much is for sale on the export market? In 2005, global petroleum exports reached 46.342 million barrels a day. In 2006 this dropped to 45.838 mbd, and in 2007 to 44.832 mbd. So far in 2008 global exports are averaging about 43.8 mbd. Down a half million bpd, followed by another million bpd and yet another. Demand increased. If the price of oil is not a bubble, it is not going to crash.

Everything's Connected #48: Zimbabwe's energy network, like its political structure, is in a state of collapse. That's why dairy products are expensive and disappearing. No, not from lack of refrigeration. Think about it: How many cows can you milk by hand?

Are We There Yet? The paltry $350 billion or so from the mortgage system failure is nothing, compared to the effects of the collapse of the monoline insurance scam. Banks are already estimating write-offs in the hundreds of billions of dollars. The $62 trillion in Credit Default Swaps will fall apart so quickly it will take months to figure out who owes whom how many billions. And it won't matter; there won't be enough capital among them all to settle up at even 10 cents on the dollar.

Negotiations: Nigeria is demanding that Shell and Exxon pay the government $2 billion in bribes back taxes, production sharing costs, getaway money.

Chilling Forecast: The USDA's most recent predictive report on the effects of global warming on agriculture is chilling, complete with frightening details about rainfall, drought, crop failures and other detailed descriptions of what to expect.

Geology Lessons: After the America's kids walk to school next fall - schools not being able to afford fuel for the buses on alternate days - they will continue their geology lesson in the cafeterias, where peak oil will have downsized the portions and the choices while supersizing the price of the meals by 50%.

Porn O'Graph: North Sea Oil Peek .


Anonymous said...

hate to be pedantic, but that's 62 trillion in CDS, right?


Yes, it should have been trillion, not billion. Correction made, mk, and thanks extended.