Financial topics

[Trevor]

Let's not forget the state that's probably in the worst condition: California. We're not Greece just yet, but we're in a similar condition to Spain, with massive unemployment, high cost of living, and the second lowest bond rating of any in the United States. If we go under, and it's a real possibility, California is big enough to crash the rest of the country.

I keep hearing people tell me we're in no danger of becoming like Europe. We are Europe, just not as far along.

[Higgenbotham]

I keep hearing people tell me we're in no danger of becoming like Europe. We are Europe, just not as far along.

The only difference I can see of much consequence is that Europe can more easily break off its insolvent pieces, while many of the core northern European countries are still solvent and intact.

That's not the case in the US. Nearly every large US state is bankrupt - California, Illinois, New York, etc. The only US states I can think of offhand that might be as solvent as Sweden, Norway, The Netherlands, or maybe Germany would be Texas and North Dakota.

[Trevor]

None of them are in real good shape, but California is among the worst. As I said, we're Spain and heading towards Greece. Europe isn't going to survive. They aren't willing to throw out Greece and Portugal and even France and Germany aren't really doing that well. It's just that they're not in full-scale collapse.

After Greece defaults, there's a decent chance that they'll slip back into dictatorship. I know a good candidate for the position.

[Higgenbotham]

How many economic theories treat resources as if they are finite? The O.E.C.D say “none” – that no such theory exists.

http://www.context.org/ICLIB/IC41/Hawken1.htm

When a few people have a corner on the money supply and they can artificially raise prices while at the same time real disposible income gets cut, that will extend the infinite resource paradigm just a little bit longer. Then when the population gets cut, that will buy a little more time.

As I read about the mechanisms for keeping the population of most animals down, it struck me that there seem to be parallels in humans. Dilworth talks about many species being “territorial,” and how aggression among groups is one of the first approaches to keeping population down. When that fails (as with humans’ globalization), social power structures and hierarchies become more important. This seems to happen with humans also:

Paul Buchheit, from DePaul University, revealed, “From 1980 to 2006 the richest 1% of America tripled their after-tax percentage of our nation’s total income, while the bottom 90% have seen their share drop over 20%.” Robert Freeman added, “Between 2002 and 2006, it was even worse: an astounding three-quarters of all the economy’s growth was captured by the top 1%.”

This sounds exactly like the kind of hierarchical behavior observed in the animal kingdom when social species get stressed. If there is not enough to go around, resources that are available are concentrated in the hands of those at the top of the pyramid, marginalizing those at the bottom of the pyramid. If total resources are inadequate, population at the bottom of the pyramid is reduced, leaving those at the top untouched.

http://ourfiniteworld.com/2012/02/15/hu ... ent-wrong/

[OLD1953]

The latter is what I expect to happen, the lowest on the list will be shut out and starve. Given a global world, we'll have this occur globally.

Money from speculators now is 70% of the oil futures market.

Oil speculation - the Goldman roll.

http://thinkprogress.org/green/2011/09/ ... ?mobile=nc

GREENBERGER: When you look at it carefully, the speculative money has all been heavily weighted in the favor of buying in the direction of the price going up. […] They go in and buy long in the regular futures market, which sends a long signal to the market, that there’s a supply problem that really doesn’t exist. To keep their long bets in place, they have to do something called the “Goldman Roll,” which is these contracts don’t go on forever. They expire. So what they have to do is sell short to get out of the contract when the expiration takes place, then roll around .
******************

Goldman Sachs study says they can raise oil prices:

http://www.cftc.gov/PressRoom/SpeechesT ... ment022412

Those are just some examples, and here’s another one: a Goldman Sachs study last year stated that each million barrels of net speculative length in the markets adds as much as 8 to 10 cents to the price of a barrel of crude oil. As of February 23, 2012, the CFTC Commitment of Traders Report showed that “managed money” held net positions in NYMEX crude oil contracts equivalent to 233.9 million barrels. Using the Goldman Sachs research figure, and multiplying 10 cents times 233.9 million would mean that, theoretically, there’s a “speculative premium” of as much as $23.39 a barrel in the price of NYMEX crude oil.

Incidentally, I disagree with Hawkens most emphatically in his contention that energy prices do not reflect replacement costs. Energy prices currently reflect far more than replacement costs, if replacement cost plus reasonable profit was all that was charged for energy, prices would be far lower. Discounting imaginary "worth" of product that has not been brought to the surface of the ground, energy is one of the most profitable businesses in the world vis a vis the equipment cost and labor required to extract it, and a huge part of the wealth of the .1% is built on added costs to energy production. The true fight he senses is not between shortages and infinite recycling loops, but between small efficient systems that do not produce massive upstream profit and large distributed systems that do produce massive upstream profit. This battle between large scale and local has been brewing up since shortly after WWII. Home owners associations have become a silent front line in this fight, fighting against anything that represents the "different". Devices such as fuel cells are now available for home sized units that both produce electricity from natural gas and heat. When used for heating and electric production, efficiency approaches 90% of power input.

http://www.clearedgepower.com/residenti ... ll-systems

Literally, there isn't a cheaper solution for energy costs, until home or neighborhood size nuclear reactors become available and are mass produced. That will be a while yet, the technology has been developed, but the fear of nuclear anything will keep it from being adopted for a long time.

[Higgenbotham]

I haven't read any of those studies but anyone who watches the markets can surmise approximately these same facts - speculators roll the paper and at the 2008 high in oil, open interest on the oil contracts was very high. Earlier today, I guessed $50 of it was spec length in 2008 - I just checked the archives and had actually, in early 2009, said, "the last $30-40 was mostly due to speculation."

"by Higgenbotham » Fri Jan 23, 2009 4:13 pm

As far as whether oil and commodities were in a bubble, I don't know if people are aware, but many pension funds were putting a few percent of their money into commodity index funds. Pension funds! Many hedge funds and individual investors were doing the same thing.

I've watched this debate go on and on. Most, but not all, futures traders believe that oil prices were driven higher to some extent by speculation. Estimates vary. My guess is that the last $30-40 was mostly due to speculation. That's based on how the chart went parabolic at the end and what people were generally believing ($300 oil, $8 gasoline, etc.). In my opinion, there was also a fundamental story but fundamentals weren't the whole story. That's not an informed opinion based on knowledge of the oil market."

The $23 figure seems approximately right at this time at the high end; I would guess it is actually more like $15 now.

[vincecate]

Vince, the precious stone market priced in synthetics a century ago when the Verneuil process was developed. Diamonds have not as they are still under weird circumstances of supply, though that seems to be breaking up now. Telling the natural stone from the synthetic is not that difficult in most cases, you just have to know what to look for. There are stones that can't be duplicated at this time, and some may not be until nano assembler technology is available, such are of course very rare in nature due to the same reasons they can't be duplicated easily, conditions of formation were nearly impossible and such are usually found in a single location. Parabia tourmaline is an amusing exception to that rule, it is actually a single deposit found in two widely separated locations. Apparently the deposit split apart when Pangaea broke up......

It seems you are saying synthetics are priced in and then giving reasons that the transition to synthetics is happening over a long period of time. If the transition is over a long period of time then the drop in value of the natural gemstones will happen over a long period of time. But something that is dropping in value over a long period of time is still not a good store of value.

[OLD1953]

No, I'm saying that any transition already happened decades ago. Natural stones still are worth more than synthetics, and people simply prefer them in most circumstances. All crystals (save a few very special lab crystals) have flaws of some kind. Natural crystals have different flaws from the synthetic stones, and in many cases the natural stones flaws actually increase its value. The rutile needles and feathering of the natural star sapphire give it a distinctive appearance. A synthetic sapphire will show a star, but backlight it and the appearance is utterly different, it's full of tiny bubbles. The natural sapphire is a much more interesting stone. Ruby is of course simply the red variant of sapphire, just as helidor, emerald and morganite are the yellow, green and pink variants of beryl crystal, and the stone flaws in beryl are again very different from the synthetics. Good quartz with gold inclusions is highly valued, while I suppose you could produce that synthetically, I'm not sure why you would bother, as the value is in the patterns the gold forms in the quartz. And so forth.

[vincecate]

No, I'm saying that any transition already happened decades ago. Natural stones still are worth more than synthetics, and people simply prefer them in most circumstances.

The machines and methods of making synthetic gems keep improving. The transition is ongoing. Eventually there will be no difference in price.

I buy gold from the public ("cash for gold"). So I see many gems from many people. I have a book on gems and read stuff on the internet. I talk with the people selling me the gold with the stones on them. In 2 years of doing this I have yet to meet a customer that says anything like, "see these bubbles that means ...". None yet have known how to tell if the stones are real. A number of said, "when I bought it there was a certificate". I have a couple diamond testers and can say that very few I see are real. After reading stuff on the net and this book I have some chance of telling that some diamonds are not real (really it falls to the testers) but again, I don't think I have met a customer yet that could tell.

Anyway, I think the prices on diamonds will keep going down as synthetics get better and do not think that diamond prices going down is any evidence of deflation.

[John]

Interview on CNN on Sunday with John Hofmeister, Former Ceo, Shell
Oil, Citizens For Affordable Energy

JOHN HOFMEISTER, FORMER CEO, SHELL OIL, CITIZENS FOR AFFORDABLE
ENERGY: Well, my concern is that the crude oil price could hit $120,
$130 a gallon. It's $109 today. That's up about $10 just in the last
two weeks. And it's going to get worse, Candy, because what has
changed dramatically from before, and nobody talks about it -- are the
actual statistics of China's demand. Ten years ago, 4 million barrels
a day. Last year, 9 million barrels a day. By 2015, 15 million barrels
a day.

They have played their ace on us. What they have done, they have
granted loans, $120 billion in loans, in the last three years alone,
to state-owned oil companies so they get first oil. That oil is not
going to come on the global trading market.

Our demand is down 6 percent year-over-year, and prices are
skyrocketing. It's going to stay that way, and it could get worse in
2014, 2015 as well. ...

People should not underestimate that right behind China is
India. India is going for 4 million barrels a day to 7 million barrels
a day demand. That's 10 million barrels a day, and the world seems
stuck at about 88 million barrels, when we need to be getting to 96 or
98 million barrels. That's the big problem. It's a game of math.

And even if we're using less and paying more or headed for gas lines,
that's not good for the economy. I worry about the future of the
economy under this high price scenario.

http://transcripts.cnn.com/TRANSCRIPTS/ ... tu.01.html