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I am stuck on the LIRR, thanks to a thankfully minor train collision (fender bender).

Posts may be delayed a bit. M2*,1:- bit . . .

Moore’s Curse and the Great Energy Delusion: It is delusional to think that the United States can install in 10 years wind and solar generating capacity equivalent to that of thermal power plants that took nearly 60 years to construct. “Energy transitions” encompass the time that elapses between an introduction of a new primary energy source oil, nuclear electricity, wind captured by large turbines) and its rise to claiming a substantial share (20 percent to 30 percent) of the overall market, or even to becoming the single largest contributor or an absolute leader (with more than 50 percent) in national or global energy supply. The term also refers to gradual diffusion of new prime movers, devices that replaced animal and human muscles by converting primary energies into mechanical power that is used to rotate massive turbogenerators producing electricity or to propel fleets of vehicles, ships, and airplanes. There is one thing all energy transitions have in common: they are prolonged affairs that take decades to accomplish, and the greater the scale of prevailing uses and conversions the longer the substitutions will take. The second part of this statement seems to be a truism but it is ignored as often as the first part: otherwise we would not have all those unrealized predicted milestones for new energy sources. [break]

Consumer prices in record decline Inflation falls by a record 1% in October, worrying economists that falling prices will become a disturbing trend.

Byron King: Unsustainable Energy Trends Just over the horizon, things are about to become dicey. This week, the International Energy Agency (IEA) will release a new report on the future of world energy. In its World Energy Outlook, the IEA will state categorically that "Current global trends in energy supply and consumption are patently unsustainable."

There's not much wiggle room in that statement. According to the IEA, despite the recent fall in oil prices, the medium- and long-term outlooks for energy supply are grim. Conventional oil output is destined to decline. Demand will still grow, however, especially in the developing world. And the twain shall only meet by prices rising to clear the market. "It is," as our Arab friends like to say, "written."

Russia: Electricity Providers Face Bankruptcy Electricity suppliers across the country are cracking down as the number of delinquent private and corporate customers surges. They have little choice.

The dilapidated industry is mired in debt linked to unpaid consumer bills and the multibillion-dollar investment programs that investors signed onto when they acquired electricity assets from the state during the privatization of Unified Energy System, which wrapped up just weeks before the financial crisis struck. A chunk of the industry also operates on a system of short-term loans — funds that have dried up in the crisis.

Kyrgyzstan: Energy Crisis Threatens Country's Stability It is the main topic of conversation at every dinner table in the country. After nine months of erratic blackouts and broken government promises, the Kyrgyz are growing restless. Many are even saying the situation is worse than before the Tulip Revolution in 2005.

Jordan: Cabinet addresses fuel crisis AMMAN - The Cabinet on Tuesday looked into alternatives to the controversial pricing mechanism of oil derivatives, which was adopted after fuel subsidies were removed in February, a government official told The Jordan Times after the Cabinet’s weekly meeting.

He added that the government discussed the current crisis in the local market due to a severe fuel shortage that prevailed over the past few days, adding that authorities are considering feasible solutions and alternatives “to neutralise the profits and losses of gas station owners” when updating fuel prices.

Owners of hijacked tanker in ransom talks-Saudi FM ROME (Reuters) - The owners of a hijacked Saudi supertanker with a $100 million oil cargo are in negotiations over a possible ransom payment, Saudi Arabia's foreign minister said on Wednesday.

With gas prices dropping, commuters get back in their cars The Metropolitan Transportation Authority just released their statistics for October ridership: with the exception of the subway, ridership fell slightly from September as gas prices began their free-fall.

Medvedev Warns Crisis Is Spreading MOSCOW -- President Dmitry Medvedev warned that the crisis gripping Russia's banks and capital markets has spread to the real economy and pledged to use the Kremlin's still-massive oil wealth to provide more state aid for stricken industries.

His comments, his frankest on the subject yet, came as the World Bank cut its growth forecast for Russia next year by more than half because of the country's acute dependence on oil prices. The bank said it expects the ruble to keep softening as it tracks oil prices lower.

Ruble May Slide 13% Against Basket on Oil Decline, Survey Shows (Bloomberg) -- The ruble may weaken 13 percent by the end of next year as the plunging price of oil and the erosion of Russia's current-account surplus compels the central bank to devalue the currency, a survey of analysts and investors showed.

Oil prices fall below $54 a barrel VIENNA, Austria – Oil prices slipped further Wednesday, dipping below $54 on fears of global economic weakness that have sent crude down more than 60 percent in four months.

But analysts suggested that prices might be bottoming out as they moved closer to the psychologically significant $50 mark.

Consumer Prices in U.S. Probably Tumbled as Spending Slumped (Bloomberg) -- The cost of living in the U.S. probably slid in October by the most in almost six decades as fuel costs plummeted and retailers discounted merchandise to entice shell-shocked customers, economists said before a government report today.

Consumer prices probably dropped 0.8 percent last month, the most since 1949, after being unchanged in September, according to the median estimate in a Bloomberg News survey. Excluding food and energy, so-called core prices may have risen 0.1 percent for a second month.

Shell, Aramco, Petrobras Speed Project Spending Cuts (Bloomberg) -- The biggest oil companies including Saudi Aramco, Royal Dutch Shell Plc and Petroleo Brasileiro SA are accelerating spending cuts and delaying projects as the world enters a recession, said Morgan Stanley & Co.

As many as 44 projects have been delayed and faced cuts in investments as of Nov. 18, compared with 19 in a Nov. 5 report, analysts Theepan Jothilingam and James Hubbard said in a note today.

Aramco projects unscathed by crisis "All our projects are long-term projects and not short-term ones therefore we don't see an impact," Abdullah Naim, vice president for petroleum engineering and development at the state-run conglomerate told Al Arabiya television.

"We don't think this crisis would be a long one. It will be a short one. It will pass like previous ones did," he added.

Petrobras postpones 28 rig tenders Brazilian state oil company Petrobras has postponed construction tenders for 28 deep-sea drilling rigs to the coming year.

The rigs were to be tendered exclusively to Brazilian construction companies this year.

Chevron Says Nigeria Oil Link Breach May Halt Exports (Bloomberg) -- Chevron Corp., the second-largest U.S. oil company, suspended export obligations on some Nigerian production following a pipeline breach at the Escravos oilfield.

The so-called “force majeure” clause, invoked yesterday after the loss of 90,000 barrels a day last week, will last until Dec. 31, company spokesman Scott Walker said in an e- mailed statement.

China to impose fuel tax "very soon": paper BEIJING (Reuters) - China will impose a long-awaited fuel tax "very soon," the head of National Development and Reform Commission's (NDRC) Energy Research Institute said in comments reported on Tuesday by the China Daily.

"The announcement will come very soon, and actually specific plans have already been suggested to the government long ago," Han Wenke, director general of the research body, was quoted as saying.

The perils of cheap oil On Sunday, "60 Minutes'" Steve Kroft asked President-elect Barack Obama if the astonishing drop in gas and oil prices made dealing with energy issues "less important." Obama responded forcefully: "It makes it more important." He observed that there is a cycle of "shock and trance" in American attitudes toward energy. When gas prices go up, there's a "flurry" of activity, but when they go back down, well, never mind.

That's exactly what I want to hear from my president, because the truth is that the current low gas and oil prices are engendering a false sense of security. We are being set up for an even more painful energy crisis in the very near future.

No plans to restore broad drilling ban WASHINGTON – House Democrats have no interest in restoring the broad ban on oil and gas development off the Atlantic and Pacific coasts but will seek to "delineate areas available for drilling" when Congress returns next year, the second-ranking Democrat in the House said Tuesday.

Advocating for Urbanism With the global mortgage and climate crises making sprawl less and less sustainable, planning issues can no longer be consigned to the fringes of progressive politics. Barack Obama seems to realize this and promised during his campaign that if elected, he would establish a White House Office of Urban Policy. At a meeting of African American columnists last week, Obama senior adviser Valerie Jarrett confirmed such an office would exist but didn't give more details.

Vietnam president in Venezuela to boost energy ties CARACAS, (AFP) – Vietnamese President Nguyen Minh Triet arrived in Venezuela where he was set to promote oil and gas cooperation during a two-day official visit, the first by a head of state from the communist nation.

Indian navy destroys pirate boat, more ships taken MOGADISHU (Reuters) – An Indian warship destroyed a pirate ship in the Gulf of Aden and gunmen from Somalia seized two more vessels despite a large international naval presence off their lawless country.

The buccaneers have taken a Thai fishing boat, a Greek bulk carrier and a Hong Kong-flagged ship heading to Iran since Saturday's spectacular capture of a Saudi supertanker carrying $100 million of oil, the biggest ship hijacked in history.

The explosion of piracy off Somalia this year has driven up insurance costs, made some shipping companies divert around South Africa and prompted an unprecedented military response from NATO, the European Union and others.

Suspected US missile strike kills 6 in Pakistan ISLAMABAD, Pakistan – A suspected U.S. missile strike hit a village deep inside Pakistani territory Wednesday, officials said, killing six alleged militants and indicating American willingness to pursue insurgents beyond the lawless tribal regions.

China eyes cheaper electricity for aluminium firms HONG KONG (Reuters) - China's electricity producers have started cutting the fees at which they sell power to aluminium producers, smelter and power sources said on Wednesday, which could help smelters avoid further output cuts and boost flagging demand for electricity.

The aluminium industry in the world's biggest producer and consumer of the metal uses around 6 percent of the country's electricity output, but has been cutting back sharply in the face of lower prices.

GM's possible bankruptcy weighs heavily on Detroit CHICAGO (Reuters) - Devastating.

That's the word being used to describe the impact on Michigan and its largest city, Detroit, should financially ailing automaker General Motors file for bankruptcy protection.

Consumers will suffer if GM goes under Higher car prices, the end of incentives and vehicle shortages could occur if GM and other Big Three automakers don't get a bailout, according to experts.

Will Detroit's cash crisis kill the electric car? With its cash dwindling and U.S. auto sales crashing to 25-year lows, GM has joined Ford Motor Co and Chrysler LLC in seeking $25 billion in federal handouts, which are under consideration this week by the U.S. Congress.

That has critics concerned that a meltdown for Detroit could delay the rollout of green cars like the Volt. Others see a chance to prod GM and rivals to move faster as a condition of providing funding the industry says it needs to survive.

Toyota will show hybrid vehicle fueled by CNG Toyota will reveal a Camry hybrid concept at the Los Angeles Auto Show with an engine that uses compressed natural gas.

The concept signals that Toyota's hybrid technology will be used with engines that operate on a variety of fuels.

Sumitomo Rubber plans tires free of oil TOKYO (Reuters) - Sumitomo Rubber Industries Ltd, Japan's second-biggest tire maker, plans to start selling in Japan tires that include no petrochemical materials by 2013, a company spokesman said on Tuesday.

The company has set a medium-term strategy to fight climate change by introducing a tire which uses as little raw material made from oil as possible and at the same time that spins more smoothly to save more fuel than a conventional tire.

German group SolarWorld bids 1bln euros for Opel car plants FRANKFURT (AFP) – German solar energy company SolarWorld has prepared an offerfor the four German auto factories owned by Opel, a division of US giant General Motors, worth one billion euros (1.26 billion dollars), a statement said on Wednesday.

The solar panel maker would offer 250 million euros in cash and 750 million euros in the form of a bank credit under certain conditions, the statement said.

The Impact Of The Slowdown In Construction Of Wind Generation The last few months have seen a significant stalling in plans and proposals to build new wind-based power generation. These delays and cancellations have significant implications for two important components of American energy: (1) the Renewable Portfolio Standards (RPSs) that have been passed in many states and (2) the reliability of the North American electric grid.

U. S. greenhouse gas regime will impact exporters As if a credit crunch and recession aren't enough for Canadian manufacturers to deal with. Now those exporting to the United States have to watch how their greenhouse gas emissions will impact their business.

UK: Financial crisis gives green builders a welcome boost Government climate change targets and the financial crisis are giving green builders added incentive.

Rainforest nations want coordinated carbon effort MILAN (Reuters) - Rainforest nations will lobby the United Nations to set up a single body to coordinate the use of carbon credit trading to stop deforestation at a conference next month in Poland, an official from the countries said on Tuesday.

"A new body should be built to coordinate initiatives (on cutting emissions from deforestation) that are going around now," Federica Bietta, Deputy Director of New York-based Coalition for Rainforest Nations, which represents about 40 countries, told Reuters on the margins of a deforestation conference in Milan.

Green groups ramp up attacks on oil sands CALGARY - Environmental organizations in Canada and the United States are stepping up their campaign to derail Alberta's oil sands and seeking funding from deep-pocketed endowments, including the Rockefeller Brothers Fund.

Schwarzenegger opens climate summit with Obama BEVERLY HILLS, Calif. – Gov. Arnold Schwarzenegger opened his international climate change summit on Tuesday by upstaging himself with an even bigger political star — President-elect Barack Obama.

Schwarzenegger, a Republican whose efforts to combat global warming in California have generated worldwide acclaim, wants to show that governments can balance environmental protection and economic growth. He hopes his summit will influence negotiations over a new climate treaty during a U.N. gathering in Poland next month.

UK: MPs pass landmark climate change bill LONDON (AFP) – MPs have given final approval to a bill committing Britain to cut greenhouse gas emissions by 80 percent by 2050 -- the first country to have such a legally binding framework on climate change.

Climate Change Secretary Ed Miliband said on Tuesday that the bill, which must now be signed into law by the queen, "makes Britain a world leader on climate policy".

I meant to get to this fantastic article on GM yesterday in the NYT by Andrew Ross Sorkin. I’ve already written the chapter on the 1980 Chrysler bailout, and was working on the moving target of GM, Ford and Chrysler bailouts circa 2008.

Sorkin perfectly summarized the GM situation, and what needs to be done:

First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing — indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger.

Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.

So, first, the government would force G.M into a prepackaged bankruptcy now — even before policy makers may think it needs to be. As an inducement, the government would allow the merger with Chrysler to go forward. (There’s a lot of resistance to saving Chrysler too, but we need to look at the industry as a whole. And don’t worry: Cerberus, the private equity firm that owns Chrysler, would have its equity wiped out too.) . . .

The automobile industry has argued that bankruptcy will be a disaster for the industry; that people won’t buy vehicles while they’re in bankruptcy for fear that the warranty won’t mean anything. There’s a fix for that too. The government should establish a warranty insurance fund that would insure the warranties of all G.M. and Chrysler vehicles bought while the combined company is still operating under bankruptcy protection. The cost to taxpayers should be next to nothing, assuming the company survives and can takeover the warranty obligations.

I should just excerpt his column and call it a day. I am looking forward to reading his book (next Summer?) titled, Too Big to Fail: Inside The Battle to Save Wall Street.

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Source:
A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11
ANDREW ROSS SORKIN
NYT, November 17, 2008
http://www.nytimes.com/2008/11/18/business/economy/18sorkin.html

See Also:
A British Lesson on Auto Bailouts
NELSON D. SCHWARTZ
NYT, November 17, 2008
http://www.nytimes.com/2008/11/18/business/economy/18car.html

Facing a Slowdown, China’s Auto Industry Presses for a Bailout From Beijing
KEITH BRADSHER
NYT, November 18, 2008
http://www.nytimes.com/2008/11/19/business/worldbusiness/19chinaauto.html

From an anonymous investor:

CNBC Video Clip Denying Existence of Plunge Protection Team (aka President’s Working Group on Financial Markets) -

The link below contains the CNBC video clip and GATA discussion wherein the CNBC crew are AMAZED to learn about market intervention by the PPT of the S&P futures or that such a group and its activities even exists. MSM at its best in trying to suppress the truth.

CNBC VIDEO PPT

Well, well, well … it’s early morning and a guest on CNBC’s Squawk Box blurted out in vociferous fashion about how The Working Group on Financial Markets, or the Plunge Protection Team, has been active in the S&P futures markets … most notably on October 10 and 24. He mentioned that late market action in which the S&P rose 100 points from low to high for no apparent reason, and that the US Government was in no mood to let the markets close for the weekend(s) in a near state of panic.

Well, you can imagine the horror on the faces of The Muppets, especially as this guest, Scott Nations, President of Fortress Trading, refused to back down and kept right on despite protests from the Planet Wall Street apologist hosts. Some reactions and observations…

*Economist Steve Leisman said he had heard from others about the PPT, but that this was the FIRST time it had been mentioned on the show, perhaps even on CNBC. Leisman wanted more specifics, proof. Scott Nations mentioned the George Stephanopoulos ABC public comment regarding the activities of the PPT during the Clinton Administration.

*Becky Bimbo, the one who goes around the world sucking up to Warren Buffet, almost went apoplectic, saying this PPT comment in no way represented the views of CNBC in any way. She was taken aback and acted like this guy had no right to an opinion such as that in America.

*Bank of America economist, Mickey Levy, was immediately praised, especially after he said the PPT notion was silly, while he frowned disdainfully.

*Scott Nations came back with the government is in the bond market, why not the stock market?

*To his credit host Joe Kernan mentioned that with all the money thrown around by Washington these days, that a billion here and a billion there could really move the S&P around in a short period of time.

For some reason Kernan would not let up, questioning floor trader Art Cashin next, who got his Irish dander up …. decrying it was Black Helicopter stuff and “conspiracy crap.”

Kernan pressed him further about others saying the same thing regarding a PP and Cashin began to stutter, becoming madder and madder. Cashin came across as an ole goat of a man, whose 40 year commentary from the floor and dealings in the market had been threatened.

*The net, net from The Muppets was the talk of a PPT was just internet conspiracy talk. Yet, Kernan and Leisman obviously have been bombarded with such talk, and NOT from the internet.

*Most of the Muppets/Planet Wall Street, like Becky the “B” and Cashin can’t handle the truth.

*And finally, and I can say this from personal experience, “Scott” has made his last appearance on CNBC.

This is almost too much to handle in one day. CP sent out an email in which GATA was mentioned in the NY Post. I forwarded the same email this morning, but here it is in case you who missed it…

Related:

CNBC Video Plunge Protection Debate
http://www.ritholtz.com/blog/2008/11/cnbc-discussing-the-plunge-protection-team/

click for video

A look at the October producer price index, with Scott Nations, Fortress Trading; Mickey Levy, Bank of America; CNBC’s Steve Liesman & Rick Santelli

Tues. Nov. 18 2008

John Authers, investment editor of FT, has just conducted a wide-ranging four-part video interview with Jim Rogers, legendary investor and author.

In Part 1 Rogers gives his outlook for the US dollar and what new financial architecture may evolve post-crisis.

In Part 2 Rogers discusses president-elect Barack Obama’s economic proposals and whether it is the right time to buy back into equities.

In Part 3 Rogers discusses China, his outlook for A shares, and whether the economic stimulus package is enough to reverse the country’s slowing pace of growth.

In Part 4 Rogers recommends holding real assets because the spectre of inflation is still real despite a forced liquidation into cash prompting a decline in prices.

Source: John Authers, Financial Times, November 17, 2008.

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WSJ’s Dennis Berman and Evan Newmark finally agree on something: In these tough times, it was right for Wall Street executives to forego bonuses. Now is also a good time to create a fair and predictable structure for the future.

11/18/2008

Rahm Emanuel, chief of staff for president-elect Barack Obama, outlines the opportunities for bipartisan reform that he says the financial crisis presents at the Wall Street Journal CEO Council in Washington, D.C.

11/18/2008

WSJ’s David Wessel leads a discussion forum at the Journal’s CEO Council, with TIAA-CREF’s Roger Ferguson, Time Warner’s Jeffrey Bewkes and others giving their recommendations for the next administration

Good Evening: The U.S. capital markets went on another roller-coaster ride today, and the “fun” doesn’t look to stop anytime soon. The major averages continued to probe the lows they set in October, though a rally late in today’s session managed to give equities a rare up day. Positive news out of Hewlett Packard and Home Depot were the supposed catalysts for today’s up move, but, as I’ve been writing for months, the credit crisis of 2008 is likely to continue as long as the collateral underlying so many poorly underwritten mortgages continues to decline in value.

Before this morning’s historic drop in PPI could be revealed, and before Congress could even start to whine and moan to Secretary Pauslon and Chairman Bernanke, Hewlett Packard and Home Depot posted positive surprises for their shareholders. Both names were up in early trading, but the HPQ news in particular seemed to steady our index futures prior to the open in New York. The firm predicted 2009 would be a better year — no mean feat for a technology company these days. During the boom, this news might have launched fireworks in the equity market, since investors would have extrapolated one company’s success into positive implications for the whole industry. Today HPQ could only help contain an early slide.

Part of the uneasiness affecting investors before the bell took the form of a record drop in PPI. Given the sharp fall in commodity prices since last summer, this reading shouldn’t shock people. What confused them, however, was the substantial and unusual uptick in the core rate. Those who worry about deflation carped about the headline figures (including Merrill — see below), while those who are concerned about what all the Fed’s money printing might bring in the way of inflation down the road were concerned about the peppy core rate. The TIC data, skewed as they are these days by panicky flows of capital around the world, held little interest for me. But, aside from helping explain the dollar’s recent rise, Merrill’s David Rosenberg thinks these inflows washing ashore in the U.S. are on borrowed time (see below). And in the “can you believe it?” department, the housing news flow was simply atrocious. Case Shiller reported that home prices declined in 4 out of every 5 large U.S. cities, while the Housing Market Index plunged to another all time low (see below). Last month’s reading of 9 is more than just a touch below “normal” (i.e. 50).

Somehow balancing all this news, U.S. equities opened just about unchanged. The rallies and dips alternated for the next couple of hours, but the bias was to the upside. Around lunchtime, though, stocks began a steady and persistent slide, one which looked all too familiar to those who’ve lately been burned trying to pick bottoms. But just when it appeared that the October/November lows would give way and usher in a nasty decline, a rally took hold during the final hour. After being down some 3%, the major averages then jumped 4% to finish the day in the green. Well, mostly in the green, since the Russell 2000 (-0.85%) did lag behind, while the HPQ-aided Dow managed a 2% gain. Treasurys continued to stay firm, and yields were down between 5 bps and 12 bps. The dollar tacked on another 0.5%, and commodities dropped by a similar amount. Crude oil fell to another new low, but in a curious twist, energy stocks helped lead today’s comeback in the stock market. The CRB index shed 0.6% during today’s trading.

Longtime readers know I turned too bearish too early on U.S. stock prices a few years ago. Sensing an imminent reversal in what was then a housing bubble, I maintained that it would be the value of the collateral underneath so many shaky mortgage structures that would call the tune for both the economy and the stock market going forward. The economy limped on even after home prices peaked in 2005 because credit was still cheap and was still available to anyone with a pulse. Encompassing more than just housing, the bubble now long since burst was actually a credit bubble of monumental proportions. Our government is fighting to find a solution — literally fighting, if today’s testimony on the Hill is any guide — but these “solutions” will tend to fall short as long as the collateral (home prices) continue to decline in value. It’s really that simple. As we’ve seen with today’s housing statistics, all the programs put in place to date have had little, if any, impact on home values. Unfortunately, there’s not much either Congress, the Treasury Department, or the Fed can do about it. Until homes become more affordable (which can only come with either rising incomes or further drops in price), and until mortgages become cheaper and more available, then the credit and equity markets should continue to struggle. What was true during the up cycle in housing and has been true on the way down since the peak still holds today: It’s all about the collateral.

-Jack McHugh

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U.S. Stocks Rally, Led by Energy, Computer Shares; Exxon Gains
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aiITcOcwDI5Y

Hewlett-Packard Profit Tops Estimates; Shares Advance
http://www.bloomberg.com/apps/news?pid=20601087&sid=acpyNAtXPFrI&

U.S. Economy: Producer Prices Drop Most on Record in October
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2O9fAZckArI&

Home Prices Tumble in 80 Percent of U.S. Cities
http://www.bloomberg.com/apps/news?pid=20601087&sid=ateSmtYTdPWE&

Homebuilder Confidence in U.S. Drops to Record Low
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKdYsIJg4tUA

Merrill Lynch Reports
TIC-tock: Foreign interest in US securities is likely to wane.pdf

Deflation: you ain’t seen
nothing yetDeflation: you ain’t seen
nothing yet.pdf

In just the last year and a half, Transportation Commissioner Janette Sadik-Khan has begun a dramatic transformation of New York City's streets from mere utilitarian corridors into livable public spaces.

This is no happy accident. It took advocates (and bloggers!) years and years of hard work to make this possible. Only three years ago Mayor Bloomberg proudly stated that traffic was a side effect of the city's growing vitality. Now he's leading the charge on putting into place practical ideas that make the city less dependent on automobiles, more livable, more desirable and inviting to new families that would otherwise choose to live in exurban developments.

This may seem like just a feel good story about something that just increases quality of life for some people in NYC that doesn't have much implication for the rest of the country, but consider this: As the Commissioner states, NYC is planning on a million new residents over the next 20 years. Think about how many square miles of suburban/exurban development that will save for farming. Think about how many fewer cars will be produced if those million people come to NYC. What if every city across the country were a more desirable place to live, work, play, shop than its surrounding suburbs?

As we think about our future, we will need to be very conscious of how we can make low energy consumption urban areas more desirable than high energy consumption suburban areas.

Executives from Detroit’s big three car manufacturers will likely face a great deal of skepticism as they seek a bailout from Washington. Video courtesy of Fox News.

11/18/2008

-Chuck D

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My music biz friend Gene tells me that Ian Rogers is a smart guy and nice to boot. Reading his keynote, its pretty clear why gene thinks that:

Music consumption isn’t declining: iPod sales up 59% Y/Y (source: Apple), P2P filesharing volume up 35% Y/Y(source: NPD), audio streaming up 25% Y/Y (source: Accustream). And despite the endless discussions about the “pirates,” there isn’t an unwillingness to pay for music, either: 1.6B decisions to buy music in 2007, up from 1.3B in 2006 (source: Neilsen Soundscan), 40% Y/Y increase in worldwide digital music sales (source: IFPI), 8% Y/Y increase in North American concert revenue — an all-time high (source: Forbes.com), 40% paid an average of $5 in Radiohead’s pay-what-you-want model, Nine Inch Nails self-release generates $1.6M in first week sales, includes sell out of $300 box set in first 48 hours (source: NIN.com).

I’d like to challenge you to consider a different perspective, IMHO the only perspectives that matter, that of the artist and the fan. I see news about the health of the music industry as defined by the stock price of WMG or quarterly earnings of UMG, Sony, and EMI every day. What I don’t see, apart from a few articles on Radiohead and Nine Inch Nails, is an update on how the world is changing from the artist point of view. But I tell you, when I talk to managers and artists they feel it, they feel an ability to take their careers into their own hands, to redefine what success means for them, and that is the emergence of the new music business.

If you are at all interested in the Music/Technology/Business intersection, you will find Ian’s entire keynote worth reading . . .

Source:
GRAMMY Northwest MusicTech Summit Keynote
Ian Rogers
Nov 17 2008 11:26 PM
http://topspinmedia.com/2008/11/grammy-northwest-musictech-summit-keynote/

At the WSJ’s CEO Council, Treasury Secretary Henry Paulson and one of his predecessors, Lawrence Summers, spar over what the most-appropriate corporate tax rate should be in the wake of the U.S. financial-markets meltdown.

IF ANYONE KNOWS WHERE THE FULL VIDEO OF THIS EVENT MIGHT BE, PLEASE LET ME KNOW

11/17/2008

Looking for a less stressful job ?

Stock Market Rollercoaster by Paul Zanetti

One of the strange aspects of running a quant shop is watching some of the fundie guys downgrade previously beloved names long after they have been spanked. Let’s cherry pick a few charts and work our way through them.

We’ve noticed this with GM, AIG, and many others recently. Today’s silly downgrade is US Steel.

I don’t want to pick on any one analyst. Since Goldman Sachs are supposed to be the smartest guys on the street, let’s start with them.

Here is their US Steel (X) chart:

Goldman Sachs current analyst

Source: FusionIQ, Bloomberg

The Buy was made well over $100, the down grade to hold was around $40, and the sell was at $30. Really, thanks for nothing, Goldy.

Here’s our quant system chart:

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Source: FusionIQ

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Because trend and price action are integral to the ranking system, we simply do not let these disasters run too far away from us to the downside. The first sell was at $180, then a neutral near $160, and another sell at $135.

We use neutral as a “unwind your previous position” for active traders. For long only investors, think of it as a “Hey, tighten up your stop” signal. We don’t generate an actual sell short signal, but active traders use the sells as a short signal.

Lastly, let’s look at the Deutsche Bank call on X: How much value add is buying all the way up, and buying all the way back down?

This is what we like to call the Cape Matterhorn trade: Buy Buy Buy!

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Deutsche Bank current analyst

Source: FusionIQ, Bloomberg

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I’m not sure this is even a fair comparison. We do research and manage assets with one the goals of managing risk, avoiding disasters, maximizing gains, and protecting capital. The poor bastards who work for big firms have all sorts of other issues to deal with: Size, banking, clientele, bullish bias, institutional demands, herding, etc.

Fundamental analysts: You don’t need them in a raging bull market, and you don’t want them in a bear market.

Given the central role Saudi Arabia will play in the world's energy future, the continued fuzziness regarding its oil prospects is cause for concern. According to the IEA 2008 World Energy Outlook, Saudi Arabia will remain the world’s largest producer through at least 2030 as its output climbs from 10.2 mb/d (million barrels per day) in 2007 to 14.4 mb/d in 2015 and 15.6 mb/d in 2030. The future totals include Natural Gas Liquids (NGL) production as well as additions from enhanced oil recovery efforts (EOR).

The 2008 WEO represents a step forward in that projections are purportedly based on a bottoms-up querying of a database containing reserves and past-production information for 800 of the world's largest oilfields, rather than just being extrapolated to what future demand will require. However, the results obtained from such a data mining effort are limited not only by the quality of the data therein, but also by the assumptions made when querying the database. A close look at the data and projections for Saudi Arabia in the WEO reveals a rather spotty effort, providing neither a clear picture of what is happening in this important region nor much confidence that the overall report for the world is accurate.
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They're Still the One

Throughout the 2008 WEO, Saudi Arabia is cast in a leading role -- both figuratively:

On present trends, just to replace the oil reserves that will be exhausted and to meet the growth in demand, between now and 2030 we will need 64 mb/d of new oil-production capacity, six times the size of Saudi Arabia’s capacity today.
(from the Forward and Executive Summary)

and literally:

Saudi Arabia remains the world’s largest producer throughout the projection period, its output climbing from 10.2 mb/d in 2007 to 15.6 mb/d in 2030.
(Executive Summary, page 40)

Currently, Saudi Arabia produces over 10 percent of the world's crude oil (with the Ghawar oilfield alone producing 7 percent) and is the largest exporter. If all imminent and pending Saudi Aramco development projects come online as planned, one half of the ten most productive oilfields will be in Saudi Arabia (Ghawar, Safaniyah, Khurais, Manifa, and Shaybah). Consequently, it would seem desirable to get the Saudi picture correct. This is of course hindered by the reluctance of Saudi Aramco to make their data available, but the sheer size of the production and the remaining reserves means that large uncertainties in either of these translate into similarly large uncertainties for the world outlook.

Averaging the Unaveragable

By analyzing all of the world's resources collectively, it is hoped that such uncertainties will tend to average out. Unfortunately, Saudi fields and Ghawar in particular are true outliers. They are unique geologically, with a large volume of oil trapped in relatively few yet accessible reservoirs; politically, in that production is and has been under monolithic control; and economically, as the size of the resource relative to internal consumption has up to now allowed for a more measured depletion than has occurred elsewhere. In some sense, what happens in Saudi Arabia stays in Saudi Arabia, and the value of conflating trends with the rest of the world is dubious. It is perhaps questionable doing this for the other different oil producing regions as well.

The Elephant in the Report

Every analysis of Saudi Arabian oil should begin and end with Ghawar. Matt Simmons covered Ghawar thoroughly in the book "Twilight in the Desert", questioning many of the reassurances of Saudi Aramco about the future of the field. The Oil Drum (Stuart Staniford, Euan Mearns) has probed further into the state of the field, showing that it is possible to assess the resource independently using published information. Subsequently, I have shown that it is possible to independently monitor depletion mitigation efforts in Ghawar using satellite images (see these stories on The Oil Drum and Satellite o'er the Desert). One particular result of such studies relevant to the question of remaining reserves is an improved estimate the area of the field, necessary for an estimation of oil initially in place (OIIP). For Ghawar, a value of approximately 193 billion barrels was determined. The assumptions and method for this determination are given in Appendix 1 at the end.

The 2008 WEO mentions Ghawar often, but there is little new information presented. The 2005 release of the WEO had a specific focus on Middle East oil, and both the 2005 and 2008 releases of the World Energy Outlook have close-up looks at the Ghawar oil field. In fact, much of the Ghawar content from the former was copied and pasted verbatim in the new IEA 2008 report (with notable differences which are rather interesting). Both versions stumble right out of the gate with the same geographical error:

The area of the field — more accurately described as a collection of oil-bearing formations — is partitioned into six geographical areas, from north to south: Ain Dar, Shedgum, Farzan, Hawiyah, Uthmaniyah and Haradh.

As shown in the map below, the above listing of geographical areas is somewhat random rather than strictly north to south:

This is perhaps a minor (repeated) mistake, somewhat irrelevant to the goal of predicting future oil flows, but it indicates a certain level of carelessness with regards to the information presented. And as will be seen, the numerical data follow this theme. From 2005:

Ghawar is a large anticline structure, 280 km long by 25 km wide, with about 50 metres of net oil pay. Initial oil in place is believed to amount to at least 300 billion barrels. Cumulative production is 61 billion barrels and, according to Saudi Aramco, remaining proven reserves are about 65 billion barrels. Saudi Aramco has not provided sufficient data for a proper assessment, but the recovery rate could be between 40% and 60%.

and the corresponding text from 2008:

Ghawar is a large anticline structure, 280 km long by 25 km wide, with about 50 metres of net oil pay. Initial oil in place is 250 billion barrels, of which initial recoverable reserves are estimated at 140 billion barrels (implying an expected ultimate recovery rate of 56%). Cumulative production reached 66 billion barrels in 2007, so remaining reserves are about 74 billion barrels.

According to these reports, in three years time, Ghawar has lost "at least" fifty billion barrels of oil originally in place (OIIP), yet it seemingly has accrued nine billion barrels more in reserves -- and add to that the 5-6 billion barrels produced over that time. Reserves is the amount of the OIIP which is estimated to be economically extractable, and this can increase over time as technology improves or the price of oil changes. In this case, however, we also have an unexplained decrease in the OIIP.

Where did the 2005 number come from? The WEO suggests that most of the data came from the IHS database, although published accounts suggest that the IHS figure for 2005 was 210 billion barrels (Laharrere, 2005). It is probable that the 2005 WEO number does not originate with IHS but elsewhere. An indication of a possible source for the OIIP is the APS Review Gas Market Trends from October 2005, which has the following snippets:

Ghawar is the largest axis of fields in the world and is the main producer of Arab Light crude oil in Saudi Arabia. It is 250 km long and 15 km wide. It contains several fields, of which eight are major oil producers, and huge fields of natural gas in a Khuff reservoir deep beneath the oil formations (Fms). Ghawar's recoverable crude oil reserves exceed 70 bn barrels. Oil in place in the Ghawar region is estimated to be over 300 bn barrels.
...
The Ghawar fields are now producing close to capacity, with the output being AL crude oil. The other Ghawar fields producing this grade are Khurais, Harmaliya and Abu Hadriya.

The scope of misinformation in the above is too vast to address here, but the "over 300 billion" figure is strangely familiar. It seems possible that, in the least, the above document and the 2005 WEO have a common source for this value. Along that line, Saudi Aramco quotes a reserves value for Khurais of 27 billion barrels, so perhaps the extra 50 billion is accounted for by the Khurais OIIP. But beyond this forensic trivia, the more important point is that the value of 250 billion for Ghawar is still much higher than what appears to be in the IHS database (unless their estimate for Ghawar has been abruptly increased) and is much larger than is obtained (193 Gb) using the best available public information (see Appendix 1).

A Wrong Turn

A final revealing clue in this autopsy is revealed in a sentence at the end of the Ghawar segment:

Reports suggest that enhanced oil recovery techniques are being used to boost capacity in the mature zones of the Shedgum and Uthmaniyah areas, where extensive drilling programmes have recently been undertaken (Source: Sanford Bernstein, 2007).

The "reports" are two documents released by Bernstein and Associates which described investigations of Ghawar using satellite imagery. Unfortunately, as detailed here and here, the work contained major flaws, including the misidentification of rock outcroppings and electrical transmission towers for oil wells and an erroneous placement of the Ghawar field in the images. There is no evidence - or statements from Saudi Aramco - that anything other than continued peripheral water injection (plus infill drilling and workovers) is being used to coax oil from Shedgum. That the IEA analyst relied on the Bernstein work is not a positive development.

Whither Ghawar Decline?

While the WEO quotes a figure of 5.1 mb/d for current (2007) Ghawar production, there is no estimate provided for future levels. Indeed, Ghawar is still in the "plateau" stage according to the WEO criteria. It is not clear what decline rate rate for Ghawar, if any, was use to predict future Saudi production levels. There is acknowledgement, however, that decline is occuring:

The most recent project, involving the Haradh area in the southern part of the field, was completed in 2006, tripling capacity there to about 900 kb/d. This has helped to offset natural declines in other parts of the field. The overall capacity of Ghawar is sustained by infill drilling and well work-overs to maintain flow pressure in various parts of the field.

Thus, with no areas of Ghawar left to re-develop, maintaining current production levels will become more challenging.

Saudi Oil Beyond Ghawar

The 2008 WEO has many non-Ghawar references to Saudi Arabia oil, but the data is usually combined with other countries as well:

There are 101 upstream oil projects currently under development and planned in OPEC countries as a whole, involving an estimated 48 billion barrels of proven and probable reserves. Of these projects, 56 are onshore, involving about 28 billion barrels of reserves. The largest element of new production is due to come from Saudi Arabia, which will bring four new onshore fields into production.
(p. 273)

First, there are the pending onshore projects:

Saudi Arabia will continue to play a vital role in balancing the global oil market. Its willingness to make timely investments in oil-production capacity will be a key determinant of future price trends. Five major onshore projects, Khurais, Khursaniyah, Hawiyah, Shaybah and Nuayyim, which collectively hold 13 billion barrels of reserves, are all in the final phases of development and are projected to provide a total gross capacity addition of close to 3 mb/d by 2015.
(p. 274)

There are a few problems with the above excerpt, the first being the total reserves. If Khurais has roughly 27 billion barrels of reserves (as per Saudi Aramco), than the other four in that list have negative 14 billion. Next, we have Hawiyah (part of Ghawar) listed as a separate development project, which is not the case; it is being re-developed similarly to the rest of Ghawar. The Hawiyah NGL plant was completed recently, but it's not clear how NGL reserves are computed in Saudi Arabia by IEA. As for oil, Hawiyah by itself probably has 13 billion barrels remaining.

For production rates, we consider the described addition of "close to 3 mb/d by 2015". The following capacities can be found from many sources including Saudi Aramco :

This adds up to 2.72 mb/d, which perhaps could be rounded up to 3. But clearly distinguishing between crude and NGL would seem to be a good idea here.

There is one offshore project in the works: the re-development of the Manifa field, although its delay for economic reasons seems likely:

Over the next five to six years, 45 offshore projects are either under development or firmly planned in OPEC countries, totalling 20 billion barrels. The largest project by far is the Manifa field in Saudi Arabia, accounting for one-quarter of these reserves. This field is expected to come on line in 2012 and will produce close to 1 mb/d when the plateau is reached about three years later.
(p. 274)

The Manifa output probably includes NGL, but only about 65 kb/d is expected to arise from that contribution. There might be some redevelopment of other offshore fields, but it is not clear how much (if any) additional IEA assumes there will through 2030 -- although the ramblings of Saudi Oil Minister Al-Naimi have been referenced:

Expansions of the Zuluf, Safaniyah and Berri fields could give further momentum to Saudi Arabian production.
(a footnote references Saudi Oil Minister Al-Naimi's comments at the Jeddah Summit on June 22, 2008)

So up to 2015, there is an addition of 4 mb/d oil + NGL to existing Saudi production (after being rather generous in rounding) from current projects. There are also many discovered but undeveloped fields remaining, although these are much smaller than those currently producing. Such development would also likely occur after 2015:

There are more than 100 onshore fields awaiting development, each holding more than 100 million barrels and with combined reserves of more than 50 billion barrels. The bulk of them are in just three countries: Saudi Arabia, Iran and Iraq. Two-thirds of those reserves are concentrated in about 30 giant fields (each holding more than 500 million barrels), including Sharar, Niban, Jaladi, Dhib and Lugfah fields in Saudi Arabia...
(p. 273-274)

Elsewhere, the report seems to give a figure for total Saudi reserves in undeveloped fields:

There are 6.2 billion barrels of reserves in 11 other known fields in Saudi Arabia that have yet to be developed — the highest in the world. Each of them holds reserves of at least 150 million barrels and the average is 450 million barrels.

Wait...11 fields times 450 million is 4.95 billion. Either the total reserves or the average is wrong, but it is difficult to surmise which without at least knowing which fields are included. One of these is offshore:

The largest known undeveloped field, Hasbah 1, holds 1.8 billion barrels. Part of the increase in gross capacity will be offset by the decline in capacity at existing fields. Saudi Arabia aims to maintain spare capacity in the range of 1.5 mb/d to 2 mb/d in the long term.

Production in 2015 and 2030

So, what differences are expected for Saudi oil production by 2015? Table 11.4 in the WEO gives a total liquids (crude plus NGL) value of 14.4 mb/d, which is a net addition of 4.2 mb/d from 2007. From above, we have the IEA additions of 3 mb/d from onshore and 1 mb/d from Manifa, totaling 4 mb/d. This leaves 200 kb/d unaccounted for, but more importantly, leaves little room to account for decline from existing production. Any assumed decline must be offset by a corresponding amount of new production in order to match the production predicted in the WEO. Several possible development projects are identified, but none of these are likely before 2015. If IEA has assumed new development in its analysis, they should provide specifics. And as with Ghawar, it is difficult to parse out exactly how much production growth is expected vs. how much decline. Net production is obviously the bottom line, but IEA should demonstrate that such predictions are backed by reasonable estimates.

For 2030, the WEO provides a more specific breakdown for total Saudi production (utilizing Figure 11.4): From 2007 to 2030, total liquids increases from 10.2 mb/d to 15.6 mb/d. About 3.5 mb/d of this increase is due to NGL, and 1.9 is due to crude oil. Furthermore, 1.2 mb/d of the added crude flow is attributed to enhanced oil recovery (EOR) efforts beyond 2015. Similarly to the prior period, any substantial gains in crude production due to new development must be offset by declines elsewhere, and the fate of growth potential for Saudi Arabia production lies with natural gas liquids.

CONCLUSION

The 2008 IEA World Energy Report urgently (and appropriately) recognizes the need for an assessment of future energy supplies based on a detailed accounting of the world's inventory. This need is not reflected in the data presented for the specific yet critical example of Saudi Arabia. Building and querying a database of the world's oilfields is good, but this is only of value if the underlying data is sound. Given the importance of Saudi Arabia's oil production, both from a practical and a symbolic standpoint, it is unfortunate that surprisingly little incremental effort was expended from WEO 2005 to WEO 2008 on conducting a truly original analysis of the situation for Saudi Arabia, especially given recent events. Furthermore, the aggregate data presented contains several glaring errors, casting further doubt on the quality of the raw data (assumed to be provided by IHS). IEA has clearly been hamstrung in its own efforts of painting an accurate energy picture, both in its available resources and in its access to the necessary data. It would be useful if IEA made available the raw data used for their work, thus allowing for additional analysis from the larger energy community. The focus on the world's oil future, and Saudi Arabia's in particular, needs to be sharpened.

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Appendix I: Estimating Ghawar OIIP

An important part of determining the cumulative amount of oil expected from a newly discovered field is to calculate the total amount of petroleum trapped within the geologic structure. This requires the following determinations:

1. the area encompassing the field
2. the thickness of the oil-bearing reservoir
3. the porosity of the reservoir rock
4. the percentage of the pore space occupied by water
5. the change in volume for the petroleum upon being brought to the surface

The overall calculation is then:

In a simple approximation, the bulk rock volume will be the area of the field times the average reservoir thickness.

Saudi Aramco keeps most of its data regarding Ghawar under wraps, but quite a bit is known from reports prepared before Saudi oil was fully nationalized. Many of the parameters are available from the Greg Croft website as well as in "Twilight in the Desert".

It is also necessary to estimate the areas for each of the Ghawar regions. These were computed from the field original oil-water contact (OOWC) locations determined using Google Earth. As a first approximation, the OOWC location can be assumed to lie under the curve connecting all the peripheral water injector wells. With the use of several maps showing the OOWC location relative to oil wells in the center of the field, however, it is possible to locate the OOWC more precisely. From a Google Earth kml file containing the polygon descriptions for each of the Ghawar regions, areas are measured using an online tool which uses an algorithm described here. I have tested this approach by tracing the boundaries of several US states, and the deviation from published areas is less than 3%.

A Google Earth file containing the current field boundaries and areas measured for Ghawar can be found here.

The measured field areas and parameters obtained from Greg Croft, along with the OIIP results, are shown in the table below.

There is much uncertainty as to what the average oil layer thickness values in the above table refer to. Towards the edges of the field, the oil layer thins out, as shown below in a diagram (modified from Mearns).

Specifically, if the stated thickness represents an average over the entire field (or region) including the edges, then a simple multiplication of the area by this average will yield the total volume of oil-bearing rock. Note, however, that the physical parameters of interest here, especially porosity, will vary both across the field by also vertically through the various reservoir zones. An accurate determination of OIIP requires the integration of oil content over all three dimensions.

From interpolated well core samples and more recent 3-D seismic investigations, Saudi Aramco clearly has more accurate numbers than from what is computed here, and given that there is no other way to check, it is worth comparing if available. The summed OIIP for the Ghawar regions of 'Ain Dar and Shedgum was reported by Baqi and Saleri of Saudi Aramco as being 68.1 billion barrels. The corresponding value obtained here is 64.6 billion barrels, an underestimate of about 5%. Extrapolating to the entire field would raise the OIIP to just over 200 billion barrels.

Alright fellas… I’m headed for the knife tomorrow and they tell me I won’t feel like doing much of anything for a week or so. While I can’t imagine not writing for an entire week, I definately will be playing hooky from my other duties: shipping merchandise, stamping Alliance tags, answering emails, etc… So, be patient with me and I’ll get things back to normal just as soon as possible - promise.

In the meantime, what ya gonna do? Why don’t you check out some oldies, but goodies? Ration yourself and just read one a day. You’ll be glad ya did.

Understanding Context, an article about old shit.

The Mabee Special came from my home town. It’s a small world.

A Day In A Crazy Man’s Life…

Bob Bleed talks about Building For Speed.

Dragmaster Dragsters - a pictorial…

The color photos of Bob Roddick.

Home Made Tools & Equipment!

Norm Jones does the 1957 NHRA Nats!

The Coachman Show

Racing With The Devil

As They Were - Some incredible photography…

The Great Putdown is off topic, but wonderful.

A post from 2004 titled, “My Back Hurts.”

News From The Road.

See you fellas later… I plan to be back with a major vengeance very soon.

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James Pethokoukis is the money and politics blogger for U.S. News & World Report, where he writes the monthly Capital Commerce magazine column. Pethokoukis is also the assistant managing editor of the magazine’s Money & Business section. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.

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Strategist Ed Yardeni says that “everything that [Hank] Paulson has done or endorsed has worsened the credit crisis and sent stocks reeling.” Like what, for instance? Like these, and I quote:

(1) Paulson’s Super-SIV proposal was a distraction that went nowhere. It was the first clue that he likes half-backed schemes that are hard to implement.

(2) The vaunted “Teaser Freezer” hasn’t worked. Neither has the Hope Now Alliance. Indeed, many borrowers who’ve been foreclosed never even heard about these new outreach programs to keep them in their homes.

(3) Letting investment banks borrow from the Fed’s discount window just after Bear Stearns failed suggests that letting the firm go was done as a risky gesture to the principle of avoiding moral hazard, which has subsequently been thrown out the window.

(4) The government’s unwillingness to provide transparent rescue plans started with the mysterious $29bn Bear Stearns portfolio acquired by the Fed.

(5) After multiple assurances that Fannie and Freddie were solvent, they were seized and put into conservatorship. Stiffing owners of their preferreds opened an estimated $25bn black hole in the capital of regional banks that owned these securities. It also seized up the one market that financial firms had for raising capital.

(6) Refusing to support the suspension of mark-to-market accounting was Paulson’s second biggest mistake.

(7) His biggest mistake was letting Lehman go under. Dick Fuld should have been forced out, and Lehman should have been rescued. A guy who ran GS and all the MS advisors around him should have known that letting Lehman go under would blow up money market funds and the commercial paper market. It also blew up the prime brokerage business and massacred the hedge fund industry, which sent stock prices into a free fall.

(8) When AIG was seized, the terms of the government’s rescue package were punitive. They’ve been recently eased, but the firm can’t raise funds by selling only 49% of its various non-core assets, as required by its “bailout” deal.

(9) TARP was a really bad idea that was sold to Congress and the public by inciting a panic, and sending the global economy into a tailspin. Claiming that the Treasury could purchase one-of-a-kind troubled assets in reverse auctions made no sense. The RTC solution to the S&L crisis of the early 1990s won’t work to end this crisis.

(10) The Capital Purchase Program of TARP, started on October 14, is providing capital to banks that probably should be forced to fail and to those that don’t even need it. Hopefully, Congress won’t give the second $350bn installment of TARP to the Treasury.

(11) Paulson has been aiming to kill “bad” hedge funds. The result of his disjointed fixes has been a massacre of innocent bystanders, including long-only investors getting killed in all the stocks that hedge funds are being forced to sell.

My take: I think Paulson’s credibility with the financial markets has been exhausted. Now I am not sure what the magic solution was. Maybe some recapitalization of key players plus an Uncle Sam-led home refinancing plan. Or maybe a) suspending mark to market, b) a zero capital gains tax for the next five years, and a corporate income tax holiday. But I will give this to Paulson: He does strike me as a guy who is working himself near death to deal with an amazingly tough problem.

– James Pethokoukis

October PPI had the biggest decline on record on a month over month basis.

The -2.8% was far below consensus of down 1.9%; the core rose 0.4% (more than consensus 0.3%).

The year over year gain is now 5.2% — and that’s the lowest since September 2007; Core year over year gain of 4.4% is the most since 1989.

Biggest contributor? A 24.9% decline in gasoline prices.

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Chart courtesy Barrons Econoday

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chart via Econompic

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Source:
Producer Price Indexes - October 2008
BLS, NOVEMBER 18, 2008
http://www.bls.gov/ppi