The Oil Drum | DrumBeat: May 26, 2006

DrumBeat: May 26, 2006

Posted by threadbot on May 26, 2006 - 9:35am
Topic: Miscellaneous

Now for some wise words from the readers of The Oil Drum...

103 comments on DrumBeat: May 26, 2006

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tate423 on May 26, 2006 - 9:36am

Global Warming anyone?

http://www.breitbart.com/news/2006/05/25/D8HR4K6G0.html

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wstephens on May 26, 2006 - 9:55am

Hey tate, did you catch the Financial Times article recently about how gold jewelry demand had fallen by large percentages around the world? (just tugging your chain)

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tate423 on May 26, 2006 - 10:04am

No...got a link? I wanna read....check out this article about Bernanke trying to actually CLAIM that the inflation purported by the MSM has an upward bias and urging people to pay attention to CORE Inflation. What a mouthpiece.

http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=1148591127-50950f08-39026

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wstephens on May 26, 2006 - 10:24am

I got no link because I get the FT in print. Scrounging around...here are some quotes:

"investment demand for gold soared in the first quarter but surging prices led to significant falls is gold jewelry demand"

"jewelry demand fell 22 per cent in tonnage terms"

"two thirds of demand is from Asia/Middle East"

some countries -38% India, -43% Turkey, -25% Middle East

"investment flows into ETF's rose 23%...equivalent to 496 tonnes"

"Central bank sales fell 57 per cent to 116 tonnes. This contributed to a 15 per cent decline in total gold supply"

Anyhow, I thought you might appreciate this stuff. :-)

I'm still sticking to my dollar-might-rally concept, with the latest news about Italy's financial situation which seems to fulfill Jim Rogers 1999 idea that the Euro will eventually crack apart.

Also, the helicopters are still parked cold.

Aside from the normal hedonic (sp?) adjustments debate, the only rational argument that I remember over CPI understatement regards the fact that the economic category of "discretionary spending" keeps going up as the other categories have gone down. If inflation was really such a big problem, the argument goes, then why do we keep increasing our discretionary spending?

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babble on May 26, 2006 - 10:40am

The Euro will still work without Italy....

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tate423 on May 26, 2006 - 11:01am

People can't handle the psychological concept of something appreciated in value so quick. If you really sit down and look at the value of gold, it hasn't even kept up with inflation.

People will adjust to the new price and plan accordingly. Once they have adjusted the demand will slowly return. Gold is so valuable in India that banks write loans specifically for the gold lavished at Indian wedding ceremonies. That's not going to stop. It might get scaled back, but that's it.

Im not as sure in the middle east, but I will say that the great fortune of those in the oil kingdoms will start spending their massive windfall petrodollars on ever larger gold hedges against the dollars in their current reserves. Think about what happens when the gold and the oil are in a few hands because the central bankers are sellers. They want to protect the dollar, but their gold vaults will be empty and the electronic press known as M3 still "prints" cash.

I will agree it's in no countries immediate interest to abandon the dollar, but rememeber it only takes a grain of sand to start the sandpil avalanche.

Oh and we increase discretionary spending by in the US simply by leveraging.

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wstephens on May 26, 2006 - 11:31am

Interesting juxtaposition of comments from you two:

"The Euro will still work without Italy...."
"only takes a grain of sand to start the sandpil avalanche"

I've had the luxury of being philosophical in TOD lately due to a minor injury that has kept me from my usual exercising for the past 3 weeks. I'm gettin better, and work is picking back up, but this bull*hiting in here is really fun! I hope to keep firing away ---

#1 This grain of sand thing, I think, was in John Mauldin's weekly, wasn't it? And didn't I see somewhere that Mauldin's eletter goes out to over a million people? And these people would be largely in the financial business wouldn't they? So all of his musings may reflect very well the conditions that already exist in the market. It's possible. Try re-reading Andy Kessler's chapter in Mauldin's last book.

#2 I expect that the Saudi bigwigs will flee the country, gold included, once it's clear to them that their oil production is going to roll over. At that point they will not be net gold buyers. Furthermore, do you know for a fact that assets other than gold did worse during the various currency collapses in the past century? Do you have the data? If not, then you have a 1 variable analysis.

#3 Re inflation. This trend in "discretionary" spending has been going on for so long that you'd think the leverage would already be used up! Anyhow, if "food and energy" are going to experience what economists call a "supply shock" then this is not monetary inflation! It's still supply/demand and there's nothing that Bernanke can do about it other than crush the rest of the economy. I think he may know this fact. He may suggest that people look at "core" because he may know what's going on, rather than not know what's going on? It is possible.

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tate423 on May 26, 2006 - 11:46am

#1 I agree with you on this point. I agree that there exist so much interdependancy to keep the game going that it will only take one more "grain of sand" (whatever it happens to be) to break the system. I haven't read any of mauldin's books yet, but I do get the weekly letters.

#2 I don't get your point about gold and currency collapse. I was simply saying I think its possible that the Saudis would buy gold with their petrodollars. What other assets are we talking about? Do you want links to articles that provide the graphs that say since 1996 our currency has depreciated almost 20%? I'll go get them. Do you want the graphs and the like that talk about inflation adjusted (the real numbers) versus the nominal increases in the price of gold? I'll find those too.

#3 I agree once again. Bernanke is simply a mouthpiece to dispell all those who question. I agree if a supply shock occurs it would not be monetary inflation, however in the face of PO, do you see prices going up or down? So is your money worth less or more? Is this inflation period?

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tate423 on May 26, 2006 - 11:57am

Here is a link that identifies gold in terms of real price, rather than nominal including inflation and it also includes info regarding it's relationship to the DJIA.

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tate423 on May 26, 2006 - 11:57am

http://www.itulip.com/gold_dow_inflation.htm

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wstephens on May 26, 2006 - 12:23pm

#2 For instance, when the Real in Brazil collapsed by half in one day you would have made 100% "instantly" with gold. But, there may be other assets for sale during these collapses for 10 cents on the dollar, so to speak -- which could return 1000%. If you don't have the data and examine these assets (which are productive assets) then you don't have the whole story. Stocks are the best historical asset class vs inflation. A lot of gold enthusiasts seem to promote the idea that gold is the best asset against inflation when the data seems to show that it is not.

#3 Gold relative to money, say, could stay the same, as "food and energy" relative to money soar. And this is not monetary inflation, the supply of money could remain the same. Bernanke is a smart guy. I think most people are smart (conspiracy theorists exempted). You can understand a lot more about what's going on, if you take the approach that people are being smart, not stupid or mouthpieces. Bernanke may know that he cannot control the price of food and energy. So why try?

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tate423 on May 26, 2006 - 12:49pm

#3 - Your crazy if you think Bernanke is simply acknowledging he can't control the price on food and energy. Can he control the price of toothpaste? No but he includes that in his report of CORE inflation. So the fact that he cant control the price of food and energy doesn't matter. You're missing the point. I'm not arguing with semantics and what inflation is what. You need to understand that CORE inflation is propaganda to mask REAL inflation in the long term.

You've bought into this bizarre manipulation of the formulas used to calculate inflation. You're crazy to think that inflation that happens to energy of food doesn't affect YOU. Get down to the micro level and start thinking like an individual household. If the cost of food and energy increase, you pay it.

He knows what real inflation is. He also knows the Core inflation is not the best barometer of inflation. Have you not researched government reporting of data and how it's been changed, especially since Clinton?

Start with this website and you might get what I'm saying.

http://www.gillespieresearch.com/cgi-bin/bgn/article/id=340

Core inflation is simply a measure of short term inflation. Real inflation that you have to live with daily will matter in the end.

Back to #2....You're mixing Real's & dollars. Are you trying to interject exchange rates into this? Just want to be clear before I respond. Oh yeh about those pesky stocks being so great....

iTulip.com Real Dow Jones Industrial Average
DJIA adjusted for inflation 1924 - 2006
Last Upate: May 24, 2006
The chart above, and the analysis behind it, is the work of an analyst who prefers to remain anonymous. His web site and further details about the analysis behind this chart, and other compelling observations, are available at his web site here.
This chart shows the Dow Jones Industrial Average (DJIA), an index of 30 stocks also known as the DOW, from 1924 to March 2006. This DOW chart, unlike charts you are used to seeing, is adjusted for inflation. Why adjust the DOW for inflation? If you don't, changes in the price of the DOW over periods of years are not meaningful. For example, the DOW was 11,000 at some time in 2001 and 11000 again in 2006. Financial reports will often look at these two price points and state that the DOW has "stayed flat." Not great but not bad, right? But inflation has increased at least 2.5% per year since 2001, although there is good evidence that the average inflation rate is significantly higher.
The author of this analysis used a DOW starting value of 8.42 for the year 1924. Since then, that value has increased at an inflation adjusted annual rate of 1.64% per year. Yes, you read that correctly. The real annual rate of return on the DOW over the past 82 years has by his careful calculation been 1.64%. That modest rate of return has had many dramatic periods of ups and downs that have given the average investor little net benefit. But these ups and downs, known in the business as volatility, been a boon to brokers. Still, the DOW beats the real estate market, which has stayed more or less even with inflation for the past 100 years.
Another way to look at this is in terms of the point price of the DOW as reported and use the Real DOW to make inflation adjustments. For example, the DOW averaged 11281.26 in January 2000, when the Real DOW = 100.0, and both are the all-time nominal highs. In April 2006, 6.25 years later, the DOW averaged just 0.4% less at 11234.68, but the Real Dow is 16.4% less at 83.6. That's because consumer prices rose 19.1% -- the Real DOW inflation index CPI-U increased from 168.8 to 201.1. Using DOW 11281.26 in 2001 as a starting point, the purchasing power of a "share" of the DOW since then is worth 16.4% less as of the date of this report (April 22, 2006) than the average price in 2000. That means the real DOW in terms of purchasing power is "worth" 9480 in 2000 dollars when it is reported at the 11340 closing price Friday, April 21, 2006. In other words, think of the DOW at 11340 today the way you would have thought about the DOW at around 9480 in 2000.
You'll notice how dramatically the inflation-adjusted DOW started to rise April 1995, about 20 months before Alan Greenspan's famous Irrational Exuberance speech. It has adjusted down moderately since then but has a way to go to reach it's 1.64% trend line.
DJIA adjusted for inflation 1924 - 2006
On April 22, 2006 I venture where the author of the chart does not go. I have added to his chart three red lines marked A, B and C to represent three arbitrary potential paths of the DOW back to the trend. Of course, no one can assign a probability to these or any other guesses at a future outcome for the DOW, and a straight line down is really unlikely. All you can say for sure is that the real DOW will revert to the mean and that there are two ways for it to do so: deflation as occurred in the correction from 1930 to 1931 or inflation as from 1965 to 1983. As long term iTulip.com readers will tell you, I have been solidly in the inflation camp since proposing Ka-Poom Theory in 1999.
I throw out three paths of inflation to get the DOW back to trend: (A) rapid, (B) moderate and (C) slow. For selfish reasons, I prefer the (A) case because it gets it over with before I'm too old to care, but it's no more likely than any other path... the market doesn't care any more about what I wish for than the moon cares what I think about its orbit. Path (A) implies an inflation-adjusted DOW of around 50 in five or six years from its current value of 85, about a 40% decline. Not a 40% nominal decline but a 40% real decline on top of the 15% real decline we have seen from its peak in 2000.
One way to get there is for the nominal DOW to stay about where it is at 85 on the chart above -- that's 11,000 and change in the actual DOW index price -- and for inflation to rise around 70% for the period. That's similar to the 1975 to 1983 scenario, but of course two periods are never quite the same. It's not far off from the 100% six year inflation scenario I cooked up to save the average savings-less, over-indebted U.S. home owner's bacon. Also coincides with the commodities boom that guys like Jim Rogers have been predicting since 1999.
Let's watch over the years to see which path the Real DOW takes.
Send as email
--------------------------------------------------------------------------------
Sources:
http://homepage.mac.com/ttsmyf

This is from http://www.itulip.com/realdow.htm

I apoligize to all for the length.

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BrianT on May 26, 2006 - 3:59pm

Good post. The guy forgot to mention that the DOW isn't a real index. Periodically over the years companies that have performed poorly are tossed out and ones that have better future prospects are put in. Most of the companies from the 1924 index don't exist any more. If you adjusted for this "fudge" factor the return would be even lower! Hilarious.

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wstephens on May 27, 2006 - 8:47am

Actually Jeremy Siegel's book shows that (in the case of the SP500 at least) that the opposite is true. S&P has consistently added stocks that have underperformed (over subsequent periods) the stocks that S&P threw out. The book is a detailed analysis where every stock that was ever in the S&P 500 is tracked, including dividends, spinoff, etc. Siegel's book does a lot to dispell the myths that people have about stocks. Highly recommended.

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BrianT on May 27, 2006 - 7:40pm

My comment only applies to the Dow-that was the arbitrary index the author had studied.

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wstephens on May 26, 2006 - 4:25pm

First, I try to avoid the use of the word "inflation" because it means so many different things to people. Ordinary people define this as "prices going up". Economists often separate "prices going up" from "money supply" increases. And yes, this is semantics.

So, re "prices going up". I never indicated that the price of food and energy is not experienced by people. I am just pointing out that the recent rapid increases in those prices are not necessarily a monetary phenomenon. The price of oil over the past 5 years has risen approximately 28% per year. Do you think that is mostly money printing? I don't.

I haven't "bought into anything". As I understand it institutional investors calculate their own "inflation" guages in order to evaluation their investment needs. An example of this is retirement packages for state employees which index benefits to CPI plus X% -- because they fully understand that CPI doesn't capture the specific inflation that is experienced by retirees. This is no secret. You seem to think smart people out there don't know this already.

If the author of your quoted piece has not included dividends (which it appears he has not) then he has missed most of the gain in the DOW, and has made an enormous error in calculating the return. For comparison you could look at Jeremy Siegel's lateset book where he calculates returns in stocks and painstakingly includes all the dividends -- and shows that the indexes are much less efficient at capturing the returns from stocks than other "unmanaged" portfolios. Also, Siegel shows that the return for gold is dismal over time.

All this being said, I'll refer back to my earlier comment that "discretionary" spending is the economic category that seems to be growing as a chunk of people's income over long periods of time -- not energy, not housing, not food, etc. If "inflation" is so bad then why is it that people's houses (which have grown is size and features over the decades) are full of every imaginable geegaw and gizmo made? My closets are full, and so are everybody else's -- to the extent that the rental storage business has been one of the fastest growing businesses around!

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Oil CEO on May 28, 2006 - 3:11am

Excellent work. You get an A+.

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wstephens on May 27, 2006 - 7:23am

Tate423! Tate423! This week's Barron's "INTERVIEW WITH JAMES TURK: This longtime gold authority says the yellow metal has plenty more room to rise -- possibly to $8,000 an ounce." You might want to get a copy.

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TheloniusM on May 27, 2006 - 11:28am

Sorry, but that analysis is 100% wrong -- because it doesn't include DIVIDENDS, only price changes. Dividend yields have averaged around 4.2% annually on the Dow stocks over the long-term (though currently only about 2.3%.) Add 4.2% to the compounded annual price change and stocks have greatly outperformed inflation over the long-term.

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fallout on May 29, 2006 - 2:24pm

Most stocks do not pay dividends of any kind, and those that do have severely curtailed them in recent years (the last decade or so). Obviously you guys own few or no stocks.

"Stock dividend yields, which fell' to historic lows in the last few years, remain skimpy in the 1.9 percent tc 2.5 percent range, depending on which broad market average you look at."

http://www.andrewtobias.com/bkoldcolumns/980312.html
http://www.findarticles.com/p/articles/mi_m5072/is_16_25/ai_101172680
http://www.investopedia.com/articles/03/011703.asp
http://www.cross-currents.net/archives/feb05.htm
http://experts.about.com/q/Financial-Stocks-1075/Conversely-Dividends-Value.htm

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DelusionaL on May 26, 2006 - 8:45pm

Time to invest in the 6 pack. The wife informed me that the price of a 6 pack of Deschuttes River Black Butte Porter went from $6.99 to $8.99. Hmm...ethanol or beer? Stay home and drink!

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Dragonfly41 on May 26, 2006 - 9:37am

What happened to the crude stock inventory figures on Wednesday?

I saw that gasoline inventories rose due to imports, but nothing on crude inventories.

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wstephens on May 26, 2006 - 9:44am

I go to "EIA weekly status report" and scroll down to the figures that get released after 1pm on the day of the report. Are these not right?

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Dragonfly41 on May 26, 2006 - 9:49am

Ah...very nice...thanks. I just didn't see it reported on my typical sites like Bloomberg. So we went down in 3 million barrels of crude oil?

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wstephens on May 26, 2006 - 9:52am

Looks like.

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neuroil on May 26, 2006 - 10:53am

Interesting figures in these reports.

I noticed the following :

* last week, for the first time since October 2004, the gasoline outputs from refineries matched gasoline sold with an exces of 3000 b/d (not yet the case for the 4-week average of supply)

* imports of crude were down. For the first 20 weeks of 2006, imports of crude are 3% below the imports for the first 20 weeks of 2005.

Since volume of crude refined now matches consumption, one would expect imports to raise dramatically, which will perhaps happen in the next weeks. Of course stocks are still high compared to last year, about 1 day more of crude in crude oil stocks at last week's range (actually 22 days in commercial stocks of crude, 67 days in SPR+commercial stocks), but that won't last long probably.

WestTexas getting a point here ?

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Dragonfly41 on May 26, 2006 - 10:56am

Hmmmm...perhaps this is why no one in MSM reported it???

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westexas on May 26, 2006 - 11:46am

I think that we are going to see import declines, followed by: price increases, a bidding war, a reallocation of supplies to the highest bidders, and then the cycle starts all over again with another drop in imports. Basically a progressive cycle of demand destruction. Already there are news reports of pretty significant cutbacks in consumption in places like Thailand and Senegal.

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neuroil on May 26, 2006 - 12:46pm

Sadly, cutbacks occur firstly in the poorest countries, whose people aren't collectively less dependent on oil, at least in the urban areas.

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totoneila on May 26, 2006 - 5:08pm

Hello Neuroil,

So true that the poorest countries are affected first. The Ijaw tribespeople in Nigeria are using the wrong strategy against the oil companies. Blowing up pipelines only further adds to the local ongoing environmental destruction causing further people Overshoot vis-a-vis what is sustainable. I suggest they follow the energy--as Nature intended-- have people peacefully pack the topdeck and insides of every supertanker trying to leave the Guinea Gulf. This would make every importing country have to decide if the imported energy is worth more than cost of supporting the imported people.

Would the MSM gladly broadcast videos of this new non-violent combined importation and emigration strategy [blood and oil], or would they decline to show videos of soldiers gunning down unarmed people on a supertanker's deck [blood for oil]? Or best of all, would the MSM finally encourage worldwide mitigation thru Powerdown and Voluntary population control education funded by the elites' wealth?

Nature forces all Life to follow the energy-- roots seek sustenance, animals swim, crawl, fly, slime, walk to their energy sources of food and water [or die trying]. Humans are no different.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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totoneila on May 26, 2006 - 5:30pm

Hello TODers,

A brief example. What would Secretary of State Rice want to do if: a video was released showing the very large Chevron supertanker "Condoleezza Rice" having thousands of gallons of fresh blood pouring off the sides into the sea?

Link to this image to help visualize:

http://www.denkfabrik-info.de/mediac/400_0/media/CRoiltanker.jpg

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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Oil CEO on May 28, 2006 - 3:19am

Bob, what I have always loved about you is that you never stop fighting. And you have never hesitated for a moment in excersizing your right to free speech. From one American to another on this Memorial Day Weekend. Cheers.

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totoneila on May 28, 2006 - 3:22pm

Hello OilCeo,

Thxs for the compliment, but I am just another typical American: if I cannot exhale my thoughts, then I hope a precisely centered .50 cal curtails my ability to inhale.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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wstephens on May 26, 2006 - 9:37am

Financial Times

Russian minister calls for review of foreign oil projects

Two other ministers defended the current production sharing agreements though.

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westexas on May 26, 2006 - 9:38am

Question: does a low gasoline tax do long term damage to a country's financial health and overall well-being?

It would be interesting to correlate per capita net income, net wealth, obesity rates and overall health to the gasoline tax (I love to suggest projects for other people to do). I have actually loosely compared obesity rates to total miles driven, and as one would expect there is a pretty much a linear correlation--obesity rates go up as total miles driven goes up.

Norway is the obvious country to compare ourselves to. They have the highest gasoline taxes in the world, and I believe that they have the highest per capita income in the world. They also have abundant hydro power, but we have lots of wind power possibilities. The rate of car ownership in Norway is about half of what we have here in the states.

My fundamental question I guess is has our low gasoline tax encouraged a vast waste of capital and energy on nonessential uses, such as our vast low density suburbs? If so, what do we do about it?

I have finally added the text to several excellent graphs that Khebab did: http://www.energybulletin.net/16459.html

Following is the last paragraph from the article:

"As we stated in our previous article, in order to speed the adjustment to the realities of declining world oil production, we recommend that the United States abolish the Payroll (Social Security + Medicare) Tax and replace it with either a liquid transportation (petroleum) fuel tax or an overall (nonrenewable) energy tax. In effect we would tax energy consumption to fund Social Security and Medicare. The primary reason for implementing the proposal is that it would cause an immediate and massive across the board push for greater energy efficiency and it would unleash enormous free market forces against profligate energy use. This proposal would also find favor with those concerned about Global Warming."

IMO, we should all unite behind some form of move toward taxing energy consumption to fund Social Security and Medicare (which is certainly not an original idea that I came up with) combined with Alan's Electrification of Transportation proposal.

In effect, IMO we need to at least try to remake our society based on the Norwegian model. Will we fail? Probably. But shouldn't we at least try?

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Glenn on May 26, 2006 - 9:57am

I know energy is our primary target of attack, but what about just an overall tax on consumption of "goods" and no tax on "services"?

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tate423 on May 26, 2006 - 10:05am

Maybe a Federal sales tax? I hear the keyboards being slammed already....

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Dan Ur on May 26, 2006 - 10:39am

Yeah but will this energy tax actually pay for the Medicare and the S.S. like the other taxes don't? Oh yeah, I forgot, They are funded forever really it's just not looking like that on the books. What stops them from using the "EXTRA" money for pork elsewhere and still doing a small payroll tax?

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tate423 on May 26, 2006 - 10:45am

Not a damn thing. I live in Missouri..some people speak it MISERY, and the state gove't is inept at best.

We have a lot of Casinos and they are SUPPOSED to fund education. That's how it was brought to the people decades ago. The tax revenue from casinos is suppose to add a ton of cash to our education system, yet the money goes into a GENERAL USE FUND. Guess where that money goes? It's not in schools as state spending on schooling has decreased and all the homeowners increased their property taxes to maintain the schools. What a joke.

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Dragonfly41 on May 26, 2006 - 11:24am

Yes...and the roads are still horrible too. Where does that casino money go in the General Use Fund?

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tate423 on May 26, 2006 - 11:52am

I've seen plenty of investigative news stories here in STL about it and they seem to come up with it going all over the place. It's a general use fund, so once the money reaches it, it's really hard to really tell where it's earmarked.

The general use fund is more a slush fund to bring all the various gov't profit centered monies into one big pile.

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wstephens on May 26, 2006 - 5:19pm

Completely agree on the lottery scam issue. The politicians are trying to get a free lunch. Here in North Carolina we got our first ever lottery stuff in April (weekly jackpots haven't even started yet). If it were up to me, lottery money would be spent by a separate group of representatives in a separate budget, so that the regular budget would have to stay "honest". I can't imagine the politicians accepting such a plan though. I'd love to win the first lottery just so I could rant about this on TV. Wish me luck!

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AlanfromBigEasy on May 26, 2006 - 10:50am

Obesity is significantly lower in New York City than elsewhere in the US. I have seen (long time ago) correlations between miles driven & obesity in various US cities.

Also, please consider seriously the option of a gas tax that goes up a bit every month (giving people time to adjust) balanced with a FICA/Medicare tax that is lowered annually.

A few percentage of the tax drained off to improve Medicare & fiscal soundness of reitrement/disability benefits is an option.

I think gradual is MUCH more acceptable.

I was thinking increasing gas taxes 1.5¢/month (with quarterly inflation adjustments) for 20 years. No ethanol exemption. Coupled with a SMALL carbon tax and oil import duty (currently 0%). Poeple know that it is coming (unlike Peak Oil, which they do not know is coming, yet).

Perhaps all gas taxes are rebated; carbon & oil import duties go for other purposes (Medicare, funding Urban Rail, etc.)

A sudden, one time shock has costs associated with the sudden change. These costs can be eleminated with a gradual change IMO.

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BrianT on May 26, 2006 - 11:03am

IMO, the USA will never be like Norway. The USA's problem is not that solutions to the country's problems (economic and otherwise) are not obvious to most observers. The problem is that those in a position to address these problems have their own agenda (usually to increase their personal wealth and power). I know this sounds cynical but it appears that the USA is becoming more like Argentina than Sweden. The fact that the country works as well as it does in spite of this handicap illustrates the vast American potential (which will probably never be realized).

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jdeely on May 26, 2006 - 4:32pm

Of course the US will never be like Norway.... Norway is a small, little country with (4.5 million) people whom are lucky enough to enjoy huge natural resources. If you were going to compare Norway, maybe you could compare it to the BayArea or the state of Utah, but you definitely can't compare it to the US.

Norway's population grows by about 17,000 a year, about 8,000 of which are immigrants. Almost any medium sized city in the US has more immigrants than this. Norway is a white-bread country with a homogenous population. Its a great place to visit, but like Utah, I would never want to live there.

As far as the US becoming more like Argentina.. not sure what you mean by this, and I hope that we don't become like Sweden either.

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DelusionaL on May 26, 2006 - 11:24pm

Westexas, I like the tax idea however...I do not think we have felt PO enough as a society that these funds will go to the most effective solutions yet. Look at the ethanol debate(aren't we still playing politics here). There needs to be some kind of event or shock that gets peoples attention. Maybe a slowly unwinding deep depression would have everyone paying attention...will that turning point what ever it is be to late? I look at timing on all of this...poeple are myopic.

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phineas gage on May 26, 2006 - 11:06am

My fundamental question I guess is has our low gasoline tax encouraged a vast waste of capital and energy on nonessential uses, such as our vast low density suburbs?

This is undoubtedly true. A while back I started a blog on the very topic of how cheap oil/ gasoline has contributed to America's obesity problem, called "fats and oils". Here's a link: http://fatsandoils.blogspot.com

But alas, with small children at home, a death in the family and a busy practice it's been months since I contributed to it. Sorry I don't have a link right now, but obesity rates do correlate very well with car ownership/ mile driven (as well as with television viewing).

Here's a dramatic visual of the obesity problem in America. It's a CDC power point presentation, but go down to slide 6 and follow it down as it's show the growing obesity rates over the last 20 years in America. You'll be stunned.

http://www.cdc.gov/nccdphp/dnpa/obesity/trend/maps/obesity_trends_2004.ppt

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tate423 on May 26, 2006 - 12:09pm

EVERYONE look at that last link. I know it's not the topic here, but it's visual. You don't have to read hardly anything. I couldn't get over how in 1997 they had to add a higher category and not even 5 years later they had to add ANOTHER EVEN HIGHER category to measure to obesity. Disturbing.

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fallout on May 26, 2006 - 2:55pm

Awesomely disturbing. It looks all the world like an outbreak of some kind of slow-moving disease or virus is being documented.

Perhaps it is:
http://www.sciencedaily.com/releases/2006/01/060130031548.htm

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TrueKaiser on May 26, 2006 - 3:36pm

the virus theory is just another attempt to shift the blame to anything else but the actual cause. that is the people who are obese are solely responsible for their condition and no one else.

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Twilight on May 26, 2006 - 7:16pm

Ultimately they are, but let's not forget the massive dietary experiment we've been conducting - corresponding well I think to the years of this study. The things we eat now have never before been considered "food", and it's unclear what the results might be. Obesity may well be one of them.

Some of this is due to the fact that our food sources are now farther away, and all the food is old. And some of it is because the costs must go down to increase profit and to compensate for the transportation costs, so we look for other things to put in there that are cheaper. At least that's how I see it.

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tappel on May 26, 2006 - 1:22pm

Oh dear. The last link is seriously shocking. Maybe we more or less healthy and slender Europeans and Asians should start donating bicycles to the American youth as charity work.

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Donal on May 26, 2006 - 2:22pm

Thanks! Just send me your credit card info, and I'll order the bike myself.

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odograph on May 26, 2006 - 7:55pm

For what it's worth, I'm enjoying the paleo diet and excercise route. A good story is here:

No wonder we're fat

A little more in-depth paper (pdf) is here:

An evolutionary perspective on human physical activity: implications for health

I start on the skinny side, but if I don't exercise I end up skinny-and-flabby or skinny-with-a-gut which is no fun.

On the other hand, hiking or bike-riding, and then barbecuing, is fun. And you know, as fossil fuel becomes more dear, that's just the way we are heading.

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JN2 on May 27, 2006 - 6:52am

Interesting, any idea how much the recommended minimum meat intake is compared to the US average? That is, how much agricultural land could be released for other purposes? :)

[currrently 70% of ag land is for grazing and/or animal feed, IIRC]

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odograph on May 27, 2006 - 10:33am

I think people are still shying away from eggs more than they should. There's an efficiency option.

And of course, when things get a little more tight, backyard chickens make a comeback ;-).

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Oilrig medic on May 27, 2006 - 10:44am

Khaki Cambell ducks are a nicer option. More personality.

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odograph on May 27, 2006 - 10:55am

I was reading some amusing ginnea fowl pages a couple days ago. Apparently they can forage for a good part of their diet. Of course, if I got anything I'd have to start shooting coyotes(*). Man, I saw a big one last week, bold as brass, in broad daylight.

* - and my city isn't zoned for gunfire ;-)

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AlanfromBigEasy on May 27, 2006 - 11:19am

Grazing land, orchards and timberland are the most sustainable agriculture that we have. Some of it could revert to row crops (as much of it once was) with enough economic pressure.

But the "highest & best" use for much of it is grazing. Grass feed beef is not as tender, but it does have a bit more taste. "18 month old" grass fed beef is still fairly tender. And all of it is good for lean hamburger.

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Substrate on May 27, 2006 - 12:18am

I'd like to see a study on the correlation between air pollution and asthma, and then go on to examine the correlation between asthma and obesity.

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AlanfromBigEasy on May 26, 2006 - 9:43am

I have heard that if we have a normal summer (no hurricanes, average heat), that we will run out of natural gas storage and wells will need to be shut in.

This was, of course, an argument against any sort of peaking, etc.

How true is this ? (This will affect my investments as well. What better time to buy NG producers than when there is a glut a couple of years before a shortage ?)

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wstephens on May 26, 2006 - 9:48am

This idea was expressed during the last Chesapeake Energy, CHK, conference call. This is why CHK has perhaps the largest single hedge in history, 1 Tcf, over 2006, 2007, and 2008, I think. The ceo expects natural gas to remain in the $6 range for approximately this timeframe, and for that to cause financial harm to companies that have planned this businesses around $10+ prices.

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AlanfromBigEasy on May 26, 2006 - 10:53am

If we have mild to average weather; summer & winter, no hurricanes, I can see $6 NG for several years till declines hit us.

LNG has a floor price, I have heard $7 and $8. Anyone know better ?

Will the NG storage fill up in October if we have an average summer ?

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odograph on May 26, 2006 - 9:48am

Maybe I can add my question to the good ones above: I get the general feeling that US is close to peak natural gas, but that the rest of the world is lower on the curve ... that with LNG maybe continued natural gas ues makes sense?

It is still the cleanest fuel available, with lowest emissions of all types per unit work done.

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AlanfromBigEasy on May 26, 2006 - 11:29am

Quite true, but WHERE will we then get the NG for GTL plants to keep our SUVs going ?

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odograph on May 26, 2006 - 11:54am

OK ... you convinced me Alan, I am ready to give up the SUVs ;-)

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Robert Rapier on May 26, 2006 - 10:10am

I have posted an expanded version of the E85 essay to my blog:

E85: Spinning Our Wheels

I have added "Conclusions" as well as a section detailing the mathematical assumptions in greater detail.

I also had an interesting question posted to my blog:

Can the United States make enough E85 to replace the crude oil imports (ignoring the energy that it takes to create the E85)?

I realize that it ignores a whole bunch of stuff: decreasing crude oil supply from within the USA, energy used in growing corn, etc, etc.

But, that seems to be what the politicians are saying...we can use ethanol to replace the imports.

Fair question. So, I looked into it a bit. Here was my answer:

We import around 200 billion gallons of oil a year, and it contributes roughly 100 billion gallons of gasoline to the overall pool (as well as diesel, jet fuel, fuel oil, etc.). As my analysis shows, turning 100% of the corn crop into ethanol would only equate to 18.8 billion gallons of gasoline. Therefore, ethanol can't possibly enable us to stop importing oil.

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Will on May 26, 2006 - 11:26am

RR... I read your revised E85 essay. Enjoyed it as much as the first draft. It's great to see the issue addressed so concisely.

It spurred me to investigate E85 sites. I wanted to see how E85 boosters were addressing the mileage and cost issues. I wanted to see the EPA mileage figures for the new GM lineup.

Guess what...

We have a real communications issue. NONE OF THE SITES, even the relevant page on Sen. Obama's (Illinois) site provide honest numbers. There are weasel words everywhere. (Though you see lots of American flag pictures.)

I wish there was a way to get your earlier Taurus example out into greater blogdom. Knowing that E85 mileage is almost 30% less may be a very big consumer issue.

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odograph on May 26, 2006 - 11:54am

"There are weasel words everywhere. (Though you see lots of American flag pictures.)"

Good summary.

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tate423 on May 26, 2006 - 10:11am

I think it's become VERY clear where we are headed. Can anyone provide a reasonable reason why we won't at minimum experience a recession? Even the Fed's FAKE inflation indicator (CPI) is outside their comfort range.

http://www.forbes.com/home/feeds/ap/2006/05/26/ap2775669.html

So you know that the real inflation we are living with right now is 3-6% (@ minimum) higher using the correct original formulas.

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odograph on May 26, 2006 - 11:56am

The only reason I can give for no recession is just uncertainty, unpredictability. Conditions certainly look right, but markets (in the general sense) always have the ability to confound us.

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tate423 on May 26, 2006 - 12:02pm

It only takes one large hedge fund and the game is over.

I read two articles this morning about two hedge fund managers who managed to pockets over A BILLION DOLLARS for their management fees. One guy got $1.5B. When you get a Long Term Capital Management like hedge fund failure it will be catastrophic.

The fundamentals don't change and the cards have to fall....such an econ thing to say.

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odograph on May 26, 2006 - 6:55pm

Yeah, the hedging, and multiple levels of derivatives, are worrying.

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wstephens on May 26, 2006 - 5:55pm

I'll try to bait you, and see if you go for my trick. :-)

Since you think that CPI is fake, then do you think the "personal savings rate" of -1.2% or whatever is fake also, or is that real?

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Oil CEO on May 28, 2006 - 3:23am

Good approach.

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SHiFTY on May 26, 2006 - 10:21am

Iran apparently offered a formal peace proposal to the US in 2003 which was ignored/torpedoed by BCR.

Included in the proposal was-

-Peace with Israel
-Cut off assistance to terrorist groups
-"full cooperation with IAEA based on Iranian adoption of all relevant instruments (93+2 and all further IAEA protocols)."

http://www.antiwar.com/orig/porter.php?articleid=9040

IMHO, The invasion will happen no matter what Iran does, and has been policy for a long time...

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wstephens on May 26, 2006 - 10:33am

There have been reports of minority violence in Iran lately. One story I read had people dressing up in police uniforms, stopping a government motorcade, and executing over a dozen government employees in the southeast part of the country. And just in the past few days there were reports of protests? violence? (I'd have to check back) coming out of the Azeri minority population -- with Amadi-Nejad accusing the U.S. of creating "unrest". Jackals at work?

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fallout on May 26, 2006 - 2:58pm

Sure sounds like some black ops type activity.
I've read numerous accounts to the effect that we (the US) have operators in country, and have had for some time now.
Impossible to tell for sure, though. Just as desired?

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alan on May 26, 2006 - 4:13pm

The unrest from the Azeri population started over another cartoon. The politcal cartoon portrayed them as cockroaches.

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Essex Land Rover Man on May 28, 2006 - 2:29am

I have heard that there are 20 million Azeries in Iran. That is not a number the Persians could be happy with. 20 million is a substantial minority.

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Dan Ur on May 26, 2006 - 10:54am

I just got back from my trip out to Colorado. Did As much as I could for Lady and her house. What I did notice was that my Mini-Van, Chevy Ventura gets 25 mpg, even at speeds of over 80 mph, and AC running. But I was pushing for a one day trip of 1,017 miles, I did it in 16 hours, not bad for one days work.

The one thing that did bother me was the fact that the South Platte farming area is in a drought, yet people are still watering their green grass lawns in a rock and sand tumble weed landscape. Sure they look nice, but come on, think!! You live in the High Plains, the only way you get grains to grow is to pump up out of the ground, water to grow them. While there, I overheard folks comparing rain they got one night. 2-tenths of an inch to 4-tenths of an inch. If it had been daytime the rain would have gone poof back into the air. And these farmers are going to give Hillary all her E-85 yay them!!

I did notice a few signs for E-85 pumps at one station in Nebraska Yesterday afternoon.

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jdeely on May 26, 2006 - 10:54am

Big Jump in GDP - Decline in Energy Usage

Two interesting reports yesterday...

From EIA
ttp://tonto.eia.doe.gov/whatsnew/newwhatsnew.cfm

"U.S. total energy consumption for the first two months of 2006 was down 4 percent compared with the first two months of 2005 and down 7 percent compared with the first two months of 2004."

From the BBC
http://news.bbc.co.uk/2/hi/business/5016526.stm
"The US economy roared ahead by 5.3% in the first quarter of 2006, its fastest growth rate in two-and-a-half years, revised official data has shown."

So... big jump in GDP and a decline in energy usage. Hmmm........

This should definitely help energy intensity numbers to continue their downward trend.
see- http://www.eia.doe.gov/emeu/mer/pdf/pages/sec1_16.pdf

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odograph on May 26, 2006 - 11:07am

The much-maligned invisible hand makes his stealthy appearance. ;-)

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mikey on May 26, 2006 - 11:18am

Check out The Suburban Fantasy by James Howard Kunstler over at TomPaine.com.

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bradshaw on May 26, 2006 - 11:43am

Nice link... I've read his book in fact...

This comment is priceless

There is now powerful evidence in the production figures worldwide that we have reached global peak oil production. The collective nations of the earth will not make up for this by importing oil from other planets.

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DelusionaL on May 26, 2006 - 11:47pm

Hmmm...is this why Bush wants to go to mars? He musta watched that good ol boy Bruce Willis in that asteroid movie. "Why mars just needs a couple of oil wells and some MOTL(mars oil to liquid) facilities. If we get there first the whole damn planet will be ours. I can make all the decisions. I won't have to run for reelection." Woohoo

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joule on May 26, 2006 - 11:20am

Here is a little reminder of how far we have yet to go when it comes to developing a more conservation-oriented mindset.

There was a piece in our local paper about how the price of gasoline is starting to put a crimp on pleasure boating. One owner of a 56-foot, $1.3 million custom yacht complained that he consumed $7,500 worth of fuel bringing his boat up from Ft. Lauderdale, FL to it's home marina on the Chesapeake Bay. He said that when cruising at 21 knots his boat consumes over 60 gallons per hour and that some marinas are now charging as high as $3.85 per gallon.

Many owners of large luxury boats are using them more as floating party pads rather than taking them on long cruises.

See, things are tough all over, and even the affluent have their problems too.

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cynus on May 26, 2006 - 11:52am

The owner of a 56-foot, $1.3 million custom yacht shouldn't be complaining about anything.

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neuroil on May 26, 2006 - 1:11pm

Had he read TOD, he would have covered his expenses with leveraged call options on crude futures.

Or better, he could buy a sailboat.

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totoneila on May 26, 2006 - 3:21pm

Hello neuroil,

Which brings up a good point for consideration. If a bird flu [or some other nasty virus], causes a total global pandemic powerdown and the nearly instant crash of the civilizational infrastructure: Can FEMA sail the USS Constitution, and other sailboats to distribute vaccine in a 'last chance' global gasp to avert the worst conclusion?

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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Dragonfly41 on May 26, 2006 - 9:51pm

Well...and this is evil conspiracy talk...perhaps BCR wants the bird flu to strike (outside the USA) to help with the global energy demand issue.

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AlanfromBigEasy on May 26, 2006 - 3:13pm

From a bicycling buddy, an innovative street striping proposal. Worth a look ! :-)

http://www.austincycling.org/art/after_the_peak.jpg

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fallout on May 26, 2006 - 3:22pm

I like it!

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tate423 on May 26, 2006 - 3:33pm

Build it and they will come, right?

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totoneila on May 26, 2006 - 4:02pm

Hello TODers,

Consider this latest link to Zimbabwe:

http://planetsave.com/ps_mambo/index.php?option=com_content&task=view&id=7229&Itemid=68

Excerpt:
-----------
HARARE, Zimbabwe (AP) _ As impoverished Zimbabweans hunkered down for a biting winter, business tycoon Philip Chiyangwa unveiled his latest acquisition _ a car that rolls off the assembly line at nearly US$200,000 (euro164,000).

A blaze of publicity surrounded the car this week in a country where public utilities are collapsing and thousands of families, homeless because of a government slum clearance operation last year, face night temperatures plunging to near freezing.
-----------------
Does anyone think the first world will be any different postPeak considering how quickly the elites are gaining wealth? Human nature is universal.

Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?

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BrianT on May 26, 2006 - 6:15pm

In terms of distribution of wealth and income (Gini index) the USA is currently similar to a 3rd world country. European countries such as Denmark, Sweden, Norway, Germany,etc. are markedly different in this regard. You are correct in stating that this scenario will likely arrive in the USA (but not the entire "first" world).

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tomruen on May 26, 2006 - 7:37pm

Welcome to Sustainable Future

I am Mr. Rourke, your host, welcome to Sustainable Future. I'm here to help you transition. What would you like today?

Oh, thank you. How about a couple gallons of gasoline for my riding lawn mower?

I'm sorry sir, gas-powered lawn mowers have been banned - too polluting and wasteful. Most urban lawns have been converted to gardens or grazing land. Would you like some help converting your lawn?

Hmmm... ahhh, maybe later, I like long grass anyway. How about filling up my car with gas then?

Yes sir! I hope you don't mind, we had to trade in your car to one that meets code (Don't worry the government covered the costs) - it's a two-seater, a Honda Grasshopper CX model, very stylish. It only weighs 300lb and gets 145 mpg on the highway. The new tank holds 3 gallons, and a gallon of gas costs $37.539, so that'll be $112.67 to fill 'er up.

Ummmm... okay, but where do our 3 kids sit?!

Oh, no problem, we have an optional attachment carriage, a 4-seater, this first one is also on the house for all parants thanks to Uncle Sam, although it'll lower your milage to 120 mpg.

Okay, but that little thing? It doesn't look very safe - I want to protect my kids you know!

Oh no, it's very safe. It has a wide wheel base, and now that the speed limit is 25 mph on all roads, there's not been a traffic fatality in 8 years!

How do you enforce a 25mph speed limit? Don't people just speed anyway?

We've had no problem there since the law says passenger vehicles can only have up to a 15HP engine, so it takes a few minutes to accelerate to that speed. Besides the government spent so much money on converting cars, they were short on road repair funds, so there's a few potholes. Don't worry, all the seats have springs and shoulder harnesses, and the kids LOVE the bouncing - just make sure they all keep their shoulder harnesses locked.

How sustainable are disintegrating roads? We'll not be able to travel at all if this keeps up!

The government has prioritized maintenaince and has directed primary road reconstruction into the old paver brick design which takes a little longer to rebuild. We use solar powered kilns to fire the ceramic bricks so they're very strong. It's a bonded 90 year project, and roads that don't make the cut will be abandoned or converted to gravel.

Well, I'll take a nice drive with the kiddies then and explore the new city. Hmmm... hot day today, looks like this car doesn't have A/C. Maybe we'll head down to the beach and cool off. Thanks for the conversion Mr. Rourke!

You're welcome! Next please?

I am Mr. Rourke, your host, welcome to Sustainable Future. I'm here to help you transition. What would you like today?

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Seadragon on May 27, 2006 - 9:15am

Damn! And I wanted to keep driving at 80 mph...I just know I'm getting somewhere faster when me and everyone else does that.

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tomruen on May 27, 2006 - 10:47pm

Maybe Sustainable Future trains can handle our "need for speed"? I don't think air travel will survive well as fuel costs rise.

I wrote an essay a decade ago called "How fast is enough?" contrasting speeds for personal travel and objectively concluded that 30mph was VERY FAST, comparing to renewable energy sources - sailboats, horse-drawn carriages, bicycles, even steam engines! (An unaswered question is "How far is enough?" asking ideally how much travel is ideal per day.)

I've wondered if we optimized our vehicles for lower speed, lower power what sort of fuel milage is possible, but I don't know any guesses on answers, except comparing to mo-peds and motorcycles.

Beyond "personal vehicles", I believe larger vehicles ought to be capable of more efficient higher speeds and higher cargo ratios. On the other side, it seems crazy for a single say 200lb person to be carted around in a 5000lb SUV, or maybe even a 2000lb compact Metro!? No matter how efficient the engine, efficiency "per cargo weight" is horrid when you have to carry around so much "dead weight" especially where speed can't be constant.

Anyway when people talk about "demand destruction" as fuel prices rise, my hope is that this can best be created through lower power/weight vehicles. Wish I knew more, since I'm just guessing on basic physics.

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IowaBoy on May 26, 2006 - 8:45pm

Energy content is not the only measure of a fuel's useful energy. I accept the essence of Robert Rapier's analysis of ethanol, but the miles per gallon with ethanol is not as much lower than gasoline as the BTU content suggests because they burn with different efficiencies. The efficiency depends on the engine's ability to exploit ethanol's higher octance. See http://www.nrel.gov/vehiclesandfuels/fleettest/pdfs/ohio6.pdf

That NREL study found only a 7% drop in miles per gallon instead of the 19% lower BTU's per gallon. Their combustion efficiencies are different. Robert, how much does that affect your analysis? Not much, I'd guess. Gasoline combustion is pretty inefficient. Most of the BTU's wind up as heat in the radiator and exhaust.

In fact, still without disagreeing with the conclusion of Robert's analysis, sometimes converting energy at a poor efficiency (CTL?) may be worthwhile because the resulting product (liquid!) has unique other properties, such as safe transportability.

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JN2 on May 27, 2006 - 5:26am

The report you reference is ambiguous. At one point (page 3) it says the mpg ratio is 23 : 24.6 => -7%. But then in the table on page 5 its shows 15.8 : 21.1 => -25%. Weird. And inconclusive.

I agree though that engines can be optimized for E85 and Saab's 2.0 litre BioPower has 20% more power and 15% more torque when using E85 at a cost of -12.5% mpg (IIRC).

Anyone know the relative mpg for FFV vehicles in Brazil?

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IowaBoy on May 27, 2006 - 10:10am

Re-reading the report, it is ambiguous, even though they state clearly on page three the number I quoted.

I infer now that they did not use E-85 all the time, and the occasional use of gasoline increased their mileage, making their 7% claim dubiously meaningful. I suspect "MPEG" is miles per equivalent gallon, whatever their standard for equivalence is.

I have seen reports of "only" a 9% drop, however, because of changes in timing to exploit the higher octane. Sorry, I don't have a better reference. This is the NREL; I'd hope for cleaner answers, but maybe it's politically forbidden to discuss how bad it is.

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jhm on May 26, 2006 - 8:55pm

FT has an article about a US electricty generator that bought coal from Columbia, and 'trucked; it several hundred miles from the coasy, because there are fears that coal may br running short this summer.

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103 comments on DrumBeat: May 26, 2006

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“The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…”

—Winston Churchill, November 1936