Posted by: thefinancedude | June 3, 2008

Two Pennies – June 3, 2008

Skyrocketing gasoline prices force changes

http://www.latimes.com/business/la-fi-gas3-2008jun03,0,6874230.story

 

“You’re seeing more Americans trying to work from home, finding jobs that are closer to their homes or moving to new homes that are closer to their jobs,” Portalatin said. “These are fundamental changes.”

 

Lets follow this trend.  More and more people at different stages of denial will begin adopting the same attitudes.  I must reduce the use based purely on cost.  Don’t get me wrong, most of us will hang on to our cars till we’re dead.  We might move within five miles of work and still use our cars because we demand the freedom of mobility.  This is the scariest part of the coming transformation. 

 

We will attempt to maintain this mobility even though we’ve only been enjoying this non negotiable lifestyle for a little over fifties years.  Sure the assembly line was invented a few decades before, however war efforts shut down all private industry.  We became a war machine and arguably within the context of the limiting variables, no one can ever come close to the total efficiency achieved in our efforts to achieve victory.

 

Those people, who are cognizant of this trend now, will be prepared to cash in.  Distressed properties close to any mass transit will be rewarded albeit not at the moment.  I remember hearing from all my fathers’ friends that GM owns patents on technology that would give us like 100 mpg and that was when they used carburetors.  I didn’t believe it then, so if anyone knows where we can find the information on this technology I would love to see it.  I just can’t believe GM and Ford would bankrupt their companies holding out.  It doesn’t add up.

 

“The price of oil is going to have to go down before gasoline begins to decline, because we’ve already seen that demand for gas has been dropping,” said Marie Montgomery, a spokeswoman for the Automobile Club of Southern California.

 

If you’re hoping for this to stop, you’ll be left behind.  To understand why this is happening we need basic geology and a dash of math.  Oil is trapped inside ROCKS and we drill into them and they pop like a pimple.  When they stop gushing on their own, we inject gases into the wells to squeeze out more puss, er oil.  Each well ramps up production and then trails off – a bell curve.  All the oil wells in the world follow this pattern to different degrees.  When they all reach an average peak, the world has peaked.  From that moment on, you’ll never see the same or equivalent amount of oil. 

 

We’re currently on a plateau with the world hoping something pushes us higher.  There are no oil fields that can possibly make up for the declines of the old fields.  It’s here and understanding that there is a NEW Industrial revolution upon us is required.  Leave your old thinking behind and begin to think outside the box you’ve grown up inside.  It’s hard, but as Einstein said, “You can not solve problems with the same thinking that got you there.”

 

“If the dollar continues to stabilize and we don’t get any big storms in the Gulf [of Mexico], I see no reason for the market going higher,” said Phil Flynn, vice president and energy analyst for Alaron Trading Co. in Chicago.

 

Remember what Katrina did to prices?  That was when they got pushed to $2/gal. If we spiked 30% from here, we’re north of $5 real quick.  Plan accordingly.  Risks are extremely high.

 

Airlines Face ‘Desperate’ Situation, Official Says

http://www.nytimes.com/2008/06/03/business/worldbusiness/03air.html?_r=2&ref=business&oref=slogin&oref=slogin

 

“It’s not an industry problem anymore — it’s an economic disaster for countries if we fade,” Mr. Bisignani said. “You can’t cross the Atlantic on a train.”

 

Perhaps the new paradigm has shifted the structure of travel.  Perhaps people won’t be able to afford the LUXURY of flying.  We must begin paying for travel with our time.  At one point it was financially feasible to burn oil to fly, but the precious resource is becoming harder to extract.

 

Flying moved from a novelty for the upper crust, to the regular folks and the pendulum is swinging back.  Perhaps the only feasible use for air travel will be to cross a giant ocean with speed, rather than the land masses in between.  We have not prepared as the Europeans did and I know they’re privately enjoying what happens when a rich, fat country believes our own lies.

 

“We fight crisis after crisis with our hands tied because flags, not brands, define our business,” he added. “This must change.”

 

He criticized the European Parliament for imposing 100 amendments to its emissions trading plans after the International Civil Aviation Organization had already agreed to ambitious environmental goals.

 

I had no clue there was so much restriction on European airlines.  I know there were domestic competition issues like Dallas Love Field in Texas.  Southwest was actively denied access to fly somewhere because some bureaucrat was buddy buddy with their competitor.  It would hurt business so people were forced to pay more to travel between two select cities.  What nonsense!

 

It’s ironic that after letting this develop in such a way, we’re now overreacting in a manner that will force morals and capitalism to collide. My bet is on capitalism, you?

 

World food crisis: Production must rise by 50%, says UN chief

http://www.guardian.co.uk/environment/2008/jun/03/food.unitednations

“Any such figure is always an estimate but when the population is rising rapidly, you need more food. It needs to be done in a way that supports people rather than undermining them.”

If you want to support people, you make them pay market prices.  Market prices communicate scarcity and force rationing onto people rather than rationing forcing shortages.  People who grow it will have an incentive to squeeze out more production knowing he will be paid for it. 

Industry provided the green revolution in the middle of last century.  Turns out it wasn’t a green revolution so much as an oil conversion.  We burn oil to grow food – from the fertilizers, to the diesel powered tractors, to the transportation system to reach markets. 

“We need to make it possible. It’s a question of political will and investing in agriculture.”

Pope Benedict XVI today told the summit hunger and malnutrition were “unacceptable” in a world that had enough resources.

 

Malthus made a bold statement in 1798 when he stated that population increases faster than the food supply.  Misery then acts as a check on additional increases to population.  People generally speaking, don’t want to bring in kids who will just die.  Birth control wasn’t around though so I suppose they really did depend on this to kill off marginal offspring. 

 

Malthus may have been accurate in his time however it appears that food supply output exploded in the last half century mainly due to increased productivity of fields. Some data sets can be had here.  For a short time it appears output increased faster than population leading to the exponential surge in population based on prices communicating surpluses.  

 

If anyone believes that hunger and malnutrition are preventable, please send me your proposals.  There will always be rich, there will always be poor and there will always be more people who call themselves in the middle.  Nature, which we struggle to identify as a separate entity, is harsh and we can not change this course. It serves as the price to be paid for imprudent planning.

 

Each of us can, if we so choose, to attempt to help others, but we do so at a cost.  Most of us intuitively realize this and quickly change subjects.  There will never be an end to poverty any more than there will be an end to being wealthy.  The only way out is to raise everyone’s standards to that of the wealthy, while they figure out how to set new standards.  Then we whine about the living conditions of the poor.  It’s all relative when the poor inside the US have big screen TV’s and washing machines.

 

At one point only royalty had a lawn to manicure.  Now it’s an American birth right practically. Look at my yard, its greener!  Forget that I had to dump a bunch of natural gas on it to happen, ITS GREEN! Our priority has been misguided and there has been little leadership. 

Worse we’re so deluded by our “leadership” we can’t think for ourselves. We were a nation of dissidents, what happened? Even those immigrants had a spirit of defiance as they ended their patrimony to country. Stop thinking of us and them and start thinking about yourself and how you can survive.  If each of us would focus on ourselves instead of each other, we could concentrate long enough to do something meaningful for us all.

 

Food output will not increase 50%, so let’s agree the rich countries stand the best chance to weather this storm. Limits to growth have been reached and nature is fighting back.  Unless we manage to create those micro black holes that suck us into oblivion, we’ll be put in our places kicking and screaming by the source.

 

 

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