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.

Fat Cats and Oil

I received an interesting open letter from the executives of many of the leading airlines in the US, making a plea for action on Oil Speculation. They provided data that confirms what intuition would suggest.

Clearly the very weak US dollar is having a big impact on the cost of fuel in the US and on the cost of crude oil since it is dollar based. At the same time commodity speculation is having a huge impact.

In the letter from the airlines they state that 20 years ago, speculators made up 21% of the purchases of crude oil. Today this number has grown to 66%. Crude Oil futures are bought and sold many times before the oil is ever delivered to the company that actually refines the oil. Each time it is sold the price goes up.

Industry experts estimate that this is adding $30 to $60 to the cost of a barrel of crude oil; this means a 20-40% increase in the price. All of this speculation is adding no value other than making a lot of money for a few Fat Cats.

For more information check out the following web site: http://capwiz.com/sosnow/issues/alert/?alertid=11571321.

I am getting so skeptical about the world financiers that now when I see concern about Iran’s missile launches I am convinced that it is the Fat Cats finding ways to extend the demand for the futures that they purchased.

If it wasn’t for the serious impact this is having on the global economy it would be fun to watch as the really big Fat Cats screw the smaller Fat Cats by selling them higher priced futures just before the bottom falls out of the market. Is it coincidental that the Iran Missile speculation comes out days after the price of crude drops to $136 a barrel?

American Dream

This election year we seem to have the opportunity to bring about change. I know that President Bush firmly believes that he is doing the right thing for America. I would contend however that he is trapped in a past paradigm, one reminiscent of the old cowboy movies where there was the good and the bad. The way to solve problems was with a six gun.

My dream for the world is that we let the experiment called America expand to the rest of the world. Here we have a country that was made up of people from all over the world; a country that allowed people to flourish regardless of background. Sure we made some big mistakes along the way, but what fledgling doesn’t.

Expanding this dream will not happen if we continue our view of the US as the parent and others as our subordinate kids. Many major US corporations have shifted there view of the world from one of markets to dominate to global resources that each bring unique contributions.

So why is the US Government so trapped in yesterday’s view? I think that it is for self preservation, after all how can you rally Americans behind a cause unless there is someone to hate. Add on top of this the huge special interest groups and cigar smoking billionaires.

I hope that this year people step out of the partisan view that has been the norm for American politics and start asking the really important questions. This is our opportunity to make America the place that we have all dreamed about.

The American Way

I have an image of a cigar smoking gentleman in a high rise club in New York joking with his friends about how much money he has made with his Petroleum Futures. He has no regard what so ever about the millions of American’s are suffering because of the impact he is having on the world economy.

This has been a repeating theme through the years; all you have to do is read about the Robber Baron’s in the 19th century. Names like Rockefeller, Hearst, Carnegie or Astor have become associated with doing good, but look at their dealings and you find a slightly different story.

Did and are these people doing wrong? I guess that depends on your perspective. They really reflect what is great about America, the ability for everyday people to compete and build upon their dreams. How is this really much different then the athletes beating each other up on the Grid Iron? You know that great American pass time.

United States of America?

I am getting tired of the liberal vs. conservative or Democrat vs. Republican rhetoric that continues to dominate the airways. I try to be open to various points of view and spend time listening to others trying understand.

The other day I was listening to the Rush Limbaugh radio show where he talks proudly about how much he loves the United States of America. What a farce, I have never heard a more divisive person. Anything that a Liberal or Democrat does was categorically wrong. What Rush actually stands for is the DSA, the Divided States of America.

This same view has taken over in Washington, on both sides of the aisle. The real losers in this game are people of the USA. As voters it is time that we demand our leaders work together to solve the big problems that we face. For politicians that don’t get it, let’s vote them out of office. For radio and TV celebrities that don’t get it, turn them off.