Posted by: thefinancedude | May 21, 2008

Two Pennies – 5/21/08



Neil McMahon, of Sanford Bernstein, said: “Peak oil views – regardless of whether right or wrong – are seeping into the market and supporting high prices.” Since January, long-term futures oil contracts, such as those for delivery in 2016, have jumped almost 60 per cent, while near-term prices have gone up 35 per cent.


That trend was exacerbated by T. Boone Pickens, the influential investor who believes world oil production is about to peak as aging fields run dry. He warned that oil prices would hit $150 a barrel by the end of the year. “Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87m,” Mr Pickens told CNBC. “It’s just that simple.”


Mr Pickens’s view is still in the minority in the oil industry. But concerns over future oil supplies are fast moving into the mainstream and influencing investors.

This comes as demand, especially from China, is set to continue to grow, while that of the US slows. Adam Sieminski, chief energy economist at Deutsche Bank, said: “The price is going to go up until governments that subsidise oil consumption in Asia and the Middle East can no longer afford it.”


I think the writing is become clear.  We are not running out of oil anytime soon, however we have run out of cheap, easily accessible oil we’ve enjoyed for the past one hundred years. The next twenty will be the worst yet.  Zero point energy research namely the Aether Physics model, may prove fruitful and the path to a future of energy independence.


Anyone who believes oil is gushing out from everywhere is insane.  This isn’t a bad thing.  We are using almost four times as much per capita as other developed nations.  Our free ride is over.  We’ll suffer now, to emerge from this in the future.


AAA Can Do Better


Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.

The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.


“However, it would be inconsistent with Moody’s analytical standards and company policies to change methodologies in an effort to mask errors. The integrity of our ratings and rating methodologies is extremely important to us, and we take seriously the questions raised about European CPDOs. We are therefore conducting a thorough review of this matter.”


S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”


At first I thought this was crazy!  Then I realized they are a sanctioned monopoly without competitors.  Fitch was smart enough to realize they were in over their heads and bowed out.  So Moody’s was only able to get these their coveted AAA with a software glitch, yet S&P stands firm on their model is correct.  Between the two of them it’s clear both have lied and are in damage control mode.  Since no other companies are allowed to put their stamp of approval on debt, we’re stuck with inept choices not to different from political runs for the highest office – a lesser of two evils.


Why are we advocating MORE regulation to fix any of this? Free markets don’t fail.  They allocate resources most efficiently and create winners and losers.  Attempting to change this course serves only to distort the level of loss and gain.  Government regulation is nothing more than one person, or maybe a panel of a whole three, decide how they can take from us all to give to a few.  How does that parallel American values? Since when do we advocate free lunches when something goes wrong?  You mean we can eliminate consequences to our choices?  You can in Amerika at the moment.



  1. Nice writing style. I will come back to read more posts from you.

    Susan Kishner

  2. Do you think the oil markets are being manipulated?
    Media talk about “supply threats” and other obstacles in Nigeria etc. are easy straw mans to prop up in order to explain the price of oil.

    As long as oil’s traded in greenbacks, the price of oil reflects the weakness in the greenback. The price of oil doesn’t go up as much against the pound, or gold.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


%d bloggers like this: