The World is Flat

Today’s economy is global one, with country boundaries really only a reality on maps and governments. Successful corporations operate around the world to meet their basic underlying goal, to grow and make profit. This is not too different then each individual, most people want to grow economically.

Supply Side Economists believe that the way to grow the economy is to encourage investment in business and capital. By doing this business will grow and create more jobs. This approach works well on a global scale.

The problem arises when ones perspective is about jobs in America. Corporations in general do not have a goal to increase jobs in America, so moving jobs to where the workers best meet the requirements is what they must do. I say must do because these corporations compete with the best, the best will find the combination that will result in a winning strategy.

Attempts to limit corporate success to America will ultimately lead to their downfall. This creates the dilemma that faces the country.

Supply and Demand

During my time at Berkeley getting my MBA there were two professors that peaked my interest in economics and corporate America. I am going to write a series of articles covering various topics related to my interest and what I have observed from many years in the corporate world.

I tend to look at things in very simple ways, that way I can understand the relationship between various elements of the overall system. For me economics all comes down to the law of Supply and Demand. It is quite simple; if you have something that someone else wants you control the price. If there is a large supply then one has to sell at a lower price. Look at gas prices. The oil producing countries attempt to control the supply to match demand so that they can get the maximum dollar for all of their oil. Along come the speculators who basically add a bit of Las Vegas to the equation. They are all betting on whether the future prices will go up or down.

This does add an interesting element to the mix, but in the end it all still comes to Supply and Demand. It basically depends on one person making one bet and some else another. For every winner there is a looser. Each is making a statement about their perception of how much demand is there for their bet.

So watch what happened. Demand was growing rapidly for petroleum products and at the same time the oil producers were holding the supply constant. Sure enough the price began to rise. Then along came the speculators and their bets. The prices rocketed up.

With the higher prices the natural effect is that demand will do down. We did see a large reduction in the demand for gas. So now the prices begin to go down. All the betters are faced with a Supply and Demand problem. The demand for their high priced bet is not there and the whole house of cards collapses.

Of course there are plenty of players that attempt to manipulate either supply or demand. There are plenty of stories about tankers full of oil delayed until after key dates have passed. The government also seems to want to get into the game, more on that in a later article.

Sarah Palin

America really wants to like Sarah Palin and why not, here is a small town American girl that does all those things that people dream of. She is the American Dream. Her debate really played to this with the folksy jargon and the wink of the eye.

Unfortunately, being the Vice President of the United States isn’t being on Mayberry Street. I find it interesting that people look at debates like they are a hockey game with a winner and a looser. Every one on the ice knows what their role is and they have been coached to do it in a prescribed way. Freelancers are quietly weeded out or they become heroes.

So goes it here. My take from the debate was the Sarah utilized all of her news casting skills. She had memorized all of the buzz words and she knew exactly what was expected of her. Looking directly into the camera she delivered every play just as scripted.

I have made several trips to Alaska and it is a spectacular state. In this context though many of the people that I met said that the events of the rest of the US and world really don’t impact them. Based on my reading, Sarah held a similar view and didn’t pay much attention to events outside of Alaska. As the governor this probably made a lot of sense. As the VP of the US this terrifies me.

Current Economic Situation is Understandable

The US is certainly in an interesting economic cycle, one that for many is a bit scary, in reality it is a huge opportunity. The two themes that seem to dominate the news are the weak housing markets and the high cost of energy.

I believe that the current correction that is occurring in both is one of the healthiest shift that could occur. The housing market has been a house of cards for the last 30+ years. Something is fundamentally wrong when you see people bulldozing down million dollar houses to build multimillion dollar homes in its place; banks making no money down loans to people with no steady employment. As we all know when you pull a card out the whole thing comes tumbling down, and so it has.

Hopefully this time when we rebuild the base will be on solid bed rock.

Energy, the US has lived a fairy tail life, with relatively low energy costs. This has lead to a number of problems. First, consumption has been rampant. The US has become a corn society; you may ask how does corn relate to energy? Read virtually every label in your home and in someway corn has been involved. It is used for feed, soda pop sweetener, diet sugars, and antibiotics and on and on. Corn consumes huge amounts of oil, from farm equipment fuel, transportation to market fuel and fertilizer. Just to put this into perspective, every cow that is grown in the feedlot has taken on barrel of oil to produce.

High energy costs are already shifting Americans out of the gas guzzling SUVs into more fuel efficient cars. I find it surprising that the likes of GM didn’t see this coming, although I know that there is much more profit in a Hummer then in a Saturn. Local farms are going to become more competitive since they don’t have to ship food around the world.

What do I think will happen now? I am very optimistic about America, we are resilient and we are winners. In the short term oil futures will continue to drop and the big money will be looking for the next big opportunity. The two obvious places are equities and real estate, both of which are very undervalued at the time. With the extremely weak dollars there may also be resurgence in manufacturing in the US, especially when couple with the increased transportation costs.

Isn't America Great

As I sit here looking out at another spectacular summer day I am reminded how great a place America is. With all of the issues splashed across the media one can quickly get mired in negative.

Being an American there are things that I really appreciate.

The melting pot and diversity that is allowed is amazing. The richness that results from having people from all backgrounds, with differing ideas is something. This is a power that very few other countries can match.

Religious Freedom, the whole concept of separation of church and state was a brilliant move by our founding fathers. It is great that people with differing views can peacefully coexist.

Innovative drive and a will to win, who would have ever guessed that the original pilgrims could ever survive the harsh reality of early life in America, the drive and ingenuity along with a bit of luck that they demonstrated has served us well. In my mind there are no people in the world today that are more creative then Americans. Given virtually any problem we can solve it.

Capitalism, we live in an extremely complex world, one that can really never by fully understood. Action is one place will have unexpected consequences somewhere else. The all mighty buck can drive some strange behavior, over time however it does seem to get it right.

Weak demand on Oil

Watch out little cats, the big boys are really starting to play games in the price of oil. After starting out talking about Iran’s Missile program and its impact on oil demand, now James Ritterbusch, president of Ritterbusch & Associates is saying that demand maybe weak, so the price of oil plunges. My view is very simple and is based on basic economic, namely the rule of supply and demand. Supply is holding steady and in fact it is growing slightly. Demand is a bit more uncertain with large third world countries moving into the market. But how about the rest of the world? For the US the weak dollar is clearly causing the price of gas to climb rapidly and with that comes a reduction in demand within one of the largest world markets for petroleum. But the rest of the story is a recurring theme for me, the speculators. They are driving up the price of crude which in turn eventually drives up the price of gas. This is causing gas prices outside of the US to climb also. My guess is that the demand will start to fall in those countries as well.

So my simple formula is Delta Demand/Delta Supply equals the price. Let’s see, Supply is flat or growing and demand is shrinking, you can do the math, but I would bet that means price should fall.

So little cats watch out, the big boys are getting you buy their over inflated futures and then they will leave you holding the bag.

McCain's lack of internet literacy

I read an interview with John McCain in the New York Times and was shocked to learn about his lack of internet use. In the interview he stated that we relied on his wife and aids to get him on-line, but that he was going to learn. He also said that he didn’t use or have a need for email.

Certainly these things are not requirements for the office of President of the United States, I would expect however that anyone in the sort of positions he is in would have moved into the internet world. Not being there means that he literally can’t understand what makes anyone less than 25 years old tic, and in fact probably the majority of Americans.

With the magnitude of the changes that the internet is making on world, we can not afford to have a President that isn’t even a player.