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Newsletter 23: April 10, 2009
Oil and Stocks Advance Further
Oil and stocks seem to have bottomed as I suggested last month. Since that March 16th post, stocks are up another 8%, a scorchingly hot run on an annualized basis. Since March 6th the S&P is up over 21%. Meanwhile the price of oil has risen almost 35% since February 18th, not quite two months ago.
More Gains to Come
I continue to expect further gains for both stocks and oil - and eventually for natural gas - but each is a different case. I see stock market gains as a bounce back from an oversold condition caused by the great banking collapse and subsequent recession. More stock price recovery will come before the market is fairly priced for a mildly resurgent economy that most economists now predict for 2010. Businesses are writing off 2009, throwing all their problems into this year’s P&L. Earnings will be awful. But that sets up 2010 for pleasant surprises.
In the short term there may be - should be - almost surely will be - market pullbacks. For that reason I am keeping a substantial amount of powder dry - about 35%. But Thursday’s Wells Fargo earnings announcement was a wake-up call to the market that the banking sector has pulled out of its free fall. Goldman’s coming equity sale and subsequent repayment of their TARP funds should build more optimism for the whole market. So I’d guess any market declines will be limited and not a serious test of the lows of last November.
Of course we will get more bad economic news. G.M. and Chrysler have to complete their dance of death and banks face huge loan losses going forward, especially in commercial real estate. But it seems increasingly clear that the old rule of thumb, “don’t fight the Fed” is still operational. The fact that credit is currently still very tight is actually a positive because you know that it has to become looser over time. The Fed will win. That will be good for the economy and for stocks. Even the downsizing, de-leveraging, and cost-containment of the U.S. auto industry is a longer-term positive for auto profitability and therefore for the economy.
The level of GDP that can be achieved in the recovery will not compare with the fluffy economy of 2007-2008 that depended on vast financial engineering and consumers borrowing to spend instead of saving. I doubt that world is coming back. Nonetheless, in two or three years we might see more robust growth. When that happens the velocity of money will start to expand and the Fed will need to stop easing. Interest rates will start rising and at that point stocks could be in for a rough correction or even worse if inflation worries begin to gain traction. Oil prices may also be rising rapidly at that point, as discussed below. None of that would be great for the stock market. So even if we have a fairly benign stock market for the next 12 - 18 months I doubt stocks will travel back to their previously high levels. In fact stock prices may not reach fall-2007 levels for quite a long time, but that is another discussion.
Right now the economy is a long time away from growing robustly. That scenario seems like a 2011 problem, not one for 2010 - and certainly not a problem in 2009. So on balance there should be more stock market gains I’d guess (and let’s remember all of this is only one man’s best guess) lasting for perhaps as long as the next eighteen months. A rising stock market would also help the economy’s recovery. Eee gads! Not a positive feedback loop!
Oil and Gas
In terms of oil, I see a mild near-term price recovery. In fact, in the very near term oil prices could well turn down and even test recent lows because there is still a huge amount of global spare capacity for oil production no matter how much temporary tightening might come to above-ground inventories. But whether or not a serious a re-test of recent low oil prices happens, I’d be surprised if oil is not above $75 in a year as stronger demand and lower non-OPEC supplies work off the current spare capacity glut. I suspect 2010 may well see an “equilibrium” oil price around $70 - $90. In that price range drilling will be profitable again but OECD consumers will not feel they are being raped. In 2011 and beyond, as discussed below, I believe oil prices will continue on to new highs.
Natural gas is too low at $4 to be sustainable. Inventories are now high and new LNG capacity is threatening to bring in cheap Qatari supplies. But gas wells deplete very rapidly and many drilling rigs have been mothballed until prices are higher. So at some point in the not too distant future I suspect we’ll see the truth of the old trader’s adage, “the cure for low prices is low prices.” In other words, after a long enough period of low natural gas prices supply will diminish enough to bring prices higher. And even demand may respond to low prices to some extent.
The Car/Oil Cycle
I’ve long believed that there is an oil-related basis for the global car-sales cycle we are seeing. Of course the obvious reason U.S. car sales are down over 40% from 16 million to 9 million is the recession . But I would argue that car sales began turning down well before the financial crisis hit and that weak car sales has been an important cause of our economic pain - not just a result of it.
What started the car sales cycle heading down, I believe, was a new and important motivation for people not to buy cars - the fact that car technology is in a significant and rapid transition phase that is related to the growing shortage of oil. Consumers are well aware that a “next generation” car is in the process of coming to market. They’ve known that since oil began selling for over $100 a barrel. They may not have known if the next generation car would be an electric vehicle or a hybrid or a plug-in hybrid. But they damn well knew that in a few years it’s likely that whatever car they buy might now will be fairly obsolete. That knowledge has to be a significant damper to car sales.
Well, now we can pretty much see how the cycle of new car technology is going to play out. The winning technology will clearly be the plug-in hybrid electric vehicle (PHEV). It will probably have some sort of lithium battery although other and newer battery technologies could well become dominant before too long. But consumers are not hung up so much on just what battery will be in the car (though they should care more). Consumers are more focused on the simple fact that the next generation car will be much more dependent on electrons for propulsion and less dependent on oil than any car they can buy today. That is a sea change. As long as they perceive that the “real deal” next generation car is not yet for sale, they will hold off buying cars in great volume.
Now it’s becoming clear that a serious number of PHEV’s will make their entry in 2010 - 2011 and that by 2012 there will very likely be a wide enough selection of PHEV’s that consumers can be fairly confident that “the future is now”. Not every car they buy in 2012 will be a PHEV, nor will sufficient PHEV production volume will be available in showrooms in 2012 to satisfy potential consumer demand. In fact, the car industry will have trouble ramping up its PHEV capacity sufficiently to keep up with consumer demand if I’m right about oil prices becoming much higher in 2011. And if oil prices keep rising, as I suspect they will, no matter how hard the industry tries, it will fail to produce enough PHEV’s in 2012 - 2015 to satisfy demand.
There are several reasons why consumer demand for next-generation PHEV’s will become overwhelming in two to three years. One is that the recession will be over and with economic growth will come a lot of catch-up demand for new cars. Secondly, the technology will be dazzling. It will feature great performance characteristics and mind-blowing gas mileage - in the 100 mpg+ range depending of daily driving distance.
But the final reason why PHEV demand will explode is that by 2011, oil prices will again be over $100 and heading north. It just so happens that, as I wrote last month, the recent rapid increase in spare oil capacity will have worked itself down to a shortage position by some point in the 2011 - 2013 time frame. (My analysis of the oil supply/demand flows that back up that statement is here.) That time frame coincides exactly with the other two factors that will drive PHEV sales - the economic cycle and the availability of product.
An Oil-Price-Driven Second Recession?
My recent writings referenced above - last month’s newsletter and my oil spare capacity analysis - included discussions of the possibility that the next oil supply crunch could cause OECD economies in particular to fall back into recession. I won’t repeat the thought process here but I will add two follow-on ideas. First, as mentioned above, the oil price could well stay in some equilibrium price in the range (say, $70 - $90) for some fairly extended period - maybe a year or so. I call it an “equilibrium price” because it would be high enough to motivate new drilling activities and for consumers to buy into the new PHEV technologies but not be so high as to cause OECD economies to be pushed back into recession.
My second thought on future oil prices stems from my supply/demand analysis referenced above. If extreme supply shortfalls in the period of 2013 - 2016 elevate oil prices there will be substantial efforts by automobile consumers and producers and by government to push next generation high-mpg cars into the fleet. But the number of such cars that could be manufactured for U.S. consumption will be limited due to battery shortages to perhaps 1 - 3 million per year - not enough to make a significant dent in America’s 250-million car fleet. That’s one reason Hirsch’s 2005 analysis forecasted a 20-year time requirement for the world to mitigate peak oil.
There may also be enlightened efforts to transition some truck fleets to natural gas. But again, it would require well over a decade for natural gas powered trucks to make a major impact on truck fleet fuel economy. No foreseeable natural gas program would have a major impact by 2015.
So for those reasons I tend to think there could be a great deal of global economic angst generated in a few years by another oil shortage. It will start to be seen in 2011 and will be in full flower by 2013. At the same time, those are the years when the U.S. national debt level could become alarmingly large, perhaps igniting inflationary fears and possibly even a flight away from the dollar. On both of those accounts, it would seem like owning oil - the physical commodity -might be a wise investment choice. (One way is to buy the ETF “USO”.) Whether oil-related equities will fare as well as the commodity is a much harder - probably impossible - question to fathom from this perspective in time.
Instead of worrying about the 2013 - 2015 outlook for oil stocks, at this point I would simply focus on the more near term “sweet spot” of nascent economic recovery and equilibrium oil pricing in the $70 - $90 range that seems likely through 2010. Those gentle winds should propel both oil and stocks - especially oil stocks - a good deal higher than they are now. Slow and gentle uptrends for oil and other commodities will not be alarming. Let’s hold on to that thought and - if I’m right - enjoy the ride.
Politics
Here’s a cartoon from 1933, a wonderful reminder from Barry Ritholtz of how history sometimes does more than rhyme - it actually repeats itself:
I heard these same fears of a U.S. spending program gone amuck at Passover from a relative who is a big Republican at the national level. He actually repeated the old Republican shibboleth that “only WWII got us out of the depression.” Of course the facts are a bit different. FDR’s spending programs succeeded in reducing unemployment from 25% in 1933 to near single digits in 1937 - that is, until FDR reversed course in 1937, increased taxes and reduced spending to bring down the budget deficit - and the economy turned back down. (For details see Krugman’s The Return of Depression Economics and the Crisis of 2008.) So a Keynsian solution to depression was demonstrated to work - it’s just that FDR pulled out of it too soon.
It is astounding to me the number of big issues on which Republican philosophy has been dead wrong in recent history: against Keynsian solutions to economic depression (1930’s and repeating the mistake in 2008-9), against Social Security; against Medicare; against the U.S. entering WWII, against the 1960s civil rights protections for African-Americans, against tobacco reform and class-action lawsuits that were the only way to stop big-tobacco from rapidly killing Americans, against equal rights in the workplace for women. And now against reforming our medical care system that has clearly been proven to be inefficient (in terms of life expectancy where the U.S. ranks 32nd in the world) and wildly too expensive.
What have Republicans been for? Any sort of military spending, invading Iraq, ending the separation of banking from casino-style risk-taking (Glass-Steagal) in 1999 (Phil Gramm’s brainchild) which put us on the road to the current economic shock, letting the SEC go on vacation from 2001 - 2008, government incompetence at nearly all levels under Bush 43, divorcing science from government decision making including taking no action on climate change or oil dependency, making the tax code so unfair that only the wealthy were able to increase their per capita inflation adjusted income during the most recent years of economic expansion, a “war on drugs” that has only made drugs cheaper and more abundant and criminal gangs vastly wealthy, and finally - insuring the freedom of any gun dealer to sell military-quality assault rifles to nearly anyone.
Not to say that the Dems are always brilliant or right-minded. Plenty of Dems oppose good things for bad reasons, like Harry Reid being against mining reform because the Nevada mining companies own him or Chuck Schumer being against tax reform for LBO firms (they get their incentive comp. taxed at 15% while their secretaries pay 25% on their salaries) because Wall Street owns him. But at least on the really big issues the Dems generally seem to have a sense of fairness and common sense. Frankly, I was not a partisan until recent years, generally voting for the “best woman”. But now? I’ve come to think today’s Republican party is the enemy our country’s best interests. I wish it were not so.
Next
I’m headed to the hospital next week to get a new right hip. I can’t express how much I am looking forward to coming out of re-hab with my new hip functioning and getting back to old pleasures like taking a walk and playing tennis. I hope this letter finds you in good health.
Tags: peak oil investments
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47 responses so far ↓
1 Don Boyd // Apr 11, 2009 at 12:25 pm
good wishes with your new hip
2 Jimp // Apr 11, 2009 at 12:31 pm
It seems of late there has been criticism of USO because it has not tracked or followed the rise in the recent price of oil very well in terms of “performance.” They mention that it captures only the “rolling month to month” price of oil and “contango,” as reasons for its less than accurate tracking to the current price of oil.
Jim, do you agree with the above? Do you think those issues will resolve with time?
I agree with your assumptions that if oil spikes dangerously high, even oil stocks may well go down with the rest of the economy. Therefore, it would appear that owning USO would emerge as an ideal investment vehicle.
Also, from your report, its apparent you still recommend SQM and Lynas corp for there strong positions that they hold. I would even be inclined to buy more Lynas, if I knew there financial situation was moving in a positive direction.
Good luck and good health with your total hip arthroplasty. Make sure to eat lots of nutrient dense foods prior to your day of surgery. Make sure those pesky docs/RNs have clean hands,etc when in contact, they are literal germ vectors.
3 KV // Apr 11, 2009 at 12:44 pm
Jim,
Best to you and will hear from you soon with a new hip!
KV
4 Jim Kingsdale // Apr 11, 2009 at 2:26 pm
jimp: true, the oil ETFs don’t mirror spot oil. Here’s a good analysis:
http://seekingalpha.com/article/33264-oil-etfs-on-trial
It’s complex. I own options on futures.
5 Skasturi // Apr 11, 2009 at 2:42 pm
Jim: Best wishes to you on your hip repair. Are you suggesting that held over long term, USO would not be subject to the tracking errors that many claim? Any opinion on USL? Apparently it is less prone to the tracking errors because of twelve month contract distirbution.
Thankx
6 jimb // Apr 11, 2009 at 2:54 pm
I’m not so sure about the banking sector being done with its freefall. There’s a reason the stress test results are being kept secret and there’s a reason the Obama administration “budgeted” for another bailout. The U.S. banking system is “effectively” insolvent. Meaning its either *is* insolvent and it’ll take another 2 -3 years for that to become so painfully obvious that we shoot some zombies, or they’re just-barely-not-insolvent and they sit on their books and play as safe as humanly possible for the next decade. Either way the U.S. economy cannot recover anytime soon, so why should equities?
7 Jim Kingsdale // Apr 11, 2009 at 3:15 pm
S: USL may track better - I’m not sure. Complex question - see my message above. Note that USL’s trading volume is much lower,
8 fran // Apr 11, 2009 at 4:38 pm
i have yet to see evidence or plausable rationale that the majority of the consuming public will be in position to support your auto growth/recovery thesis. employment problems have not bottomed. the public and local/state gov’ts are deeply in debt. the federal gov’t is in serious debt, assuming some other nations will bail it out.
the economy grows on spending by employed, solvent workers; industry growth to provide the jobs comes from sales,productivity improvement and investment. it is not clear how the current negatives in the economy get turned around to return to historic levels to support the growth
thesis. the only things presented to date are hope, history and horrendus amounts of more debt released by the fed reserve.
how will more debt from all parties already in over their heads in debt lead to success?
may your hospitalization and recovery go very well. good thoughts in your direction. peace.
9 robert essian // Apr 11, 2009 at 6:19 pm
Jim, first I hope all goes well with your surgery. My wife is the manager of ortho-neuro at Henry Ford Hospital here in Michigan. Success with your type surgery is assured. Life will be as you hope. Her advise is to do the rehab and do not rush into activity’s even if you think you feel great. Do as you are told…Please.
I really enjoyed this article today. With anticipation I look forward to the next few years. I truely sense that we are headed for a new, and exciting change throughout the energy world that will eventually lead to a better quality of life.
Battery technology will be the game changer I think. The lion battery is just to heavy, and expensive. Science will figure this out and reduce the cost. Better storage capabilities will get solved.
Thanks Jim, and good luck…Peace
10 Simon // Apr 11, 2009 at 6:26 pm
Best wishes for a speedy recovery Jim.
I have a friend who is only about 45 and has had a hip replacement for the last three years or so.
You wouldn’t know it except for the fact that he’s keen on showing you the bit they cut out. He boiled it and intends to use it as a walking stick knob one day.
11 C.B. // Apr 11, 2009 at 7:53 pm
I’m sure after your operation you will say “Hip Hip Hurray”
All the best to you.
12 Jenn // Apr 11, 2009 at 8:25 pm
Did you really need to add all that partisan dribble at the end? Maybe you didn’t get the memo, but George Bush is no longer president.
Bashing all Republicans based on the views / stance of one man really makes you sound just as ignorant as W.
Your understanding of economic history is about as bad as W’s also.
13 Larry // Apr 11, 2009 at 9:28 pm
I have to agree with Jenn. I enjoy your energy commentary, but I would think you of all people would realize that the Dems are wrong on offshore drilling, wrong on ANWR, wrong on man-caused global warming and wrong on cap and trade. The Dems weren’t ever calling for the ending of Glass-Steagal that I heard of, and didn’t pass any effort to rescind it when they got control of Congress. Do you see the irony in your going to get a hip replacement and criticizing our medical care, when you might not be able to get it so easily in other countries? I could go on, and I hope you get well soon, but as soon as you are well enough this post will probably be deleted. There is no need to insult Republicans now - I would think you would instead criticize Democrats who are now saddling our kids with enormous debt.
14 Karol // Apr 12, 2009 at 3:47 am
Jim,
Happy Easter!
15 TOM HAMILTON // Apr 12, 2009 at 4:12 am
Good luck on the hip. I’ve had two new knees and it is wonderful to play tennis without pain. Just follow the PT and don’t expect things too fast. Thanks for the insightful information.
16 Karol // Apr 12, 2009 at 4:50 am
Powder dry or dry powder as in cosmetic make-up and gun powder, which is it?
Well it seems the Feds have sent up some blue gun smoke.
Confusing: not the clear black or white smoke one sees when the Roman Catholic Church tells its followers if it had elected a new Pope. But of course the Church had to learn how to make white and black smoke.
So, which is it, powder dry or dry powder? My guess is it’s cash and health and at 35% cash and 65% health (stocks).
Moving on:
I think that to much hope is being placed on PHEV’s. There is no “Murphy’s Law” regarding the speed of change from oil to electric vehicles
17 Karol // Apr 12, 2009 at 5:17 am
So dear readers,
Murphy’s Law or Moore’s Law .
My guess if you “play” the stock market it’s Murphy’s hands down.
Don’t gamble and understand just what investing means.
18 robert essian // Apr 12, 2009 at 5:17 am
To the Republican’s of the group I understand your frustration at the fact that your party lost, and you’re still licking your wounds.
Now let me assure you that the group in office for the next 8 years (at least) are professionals, and that everything they do has a purpose. Included in that purpose is the ability to lead the knucklehead republicans wherever they want because it’s obvious they haven’t a clue how to get anything done or how to lead.
Just look at the last 8 years and the mess they caused. Certainly you can’t say it was their (collective) finest hour.
5 million neighbors and friends have lost their jobs since January, 2 trillion dollar (yearly) deficits were left for the Obama administration, 2 wars, insolvent banks, housing and commercial realestate meltdown, credit frozen, credit card meldown, etc…Just be glad you still have a job…Happy Easter
19 Larry // Apr 12, 2009 at 7:09 am
Robert E.,
Happy Easter to you also! There are a few problems with your analysis about the current economic meltdown, it seems to me. The main problem with blaming it all on Republicans is that as far as I can tell the Dems did not advocate any changes that would have made any difference in the outcome. In fact, the Dems were completely in control of Congress for the last two years, and what did they pass that would have made a difference? In fact, one of their shining stars, Robert Rubin, was at Citi (ground zero) during this whole fiasco, and he didn’t see it coming, or at least didn’t say anything about it. Many Dems were on the payroll of (and getting donations from) Fanny and Freddie and also did nothing to keep this from happening.
In my view, the Fed kept short term rates too low for too long, which could by itself create a bubble which would be pricked when the short term rates began to rise. The bubble in real estate was made worse by allowing subprime borrowers (aided and abetted by Fannie and Freddie) to get into the real estate market, and in fact that (subprime loans) is where our problems still seem to be.
The beginning of the end, however, was when oil prices rose so high, and the slowdown in economic activity started the deflation of the bubble.
Were the Reps wrong in some things? Sure, the SEC seemed to be asleep at the switch, and they (the Reps) could have done more to try to overcome Dem objections to regulating Fannie and Freddie. Even the oversight they were proposing might not have done any good. But it seems to me that low interest rates, made possible by our huge trade deficit with China (which allowed China to buy our bonds at low rates) are the main culprit in the inflation of this bubble, and at the time no one that I know of was saying low interest rates were a bad thing. I think we were all wrong in this case.
I disagree that Bush left these large deficits for Obama - Obama is choosing to make them much worse than they have to be. And as far as the next 8 years and the group in office being professional, I have to chuckle at that. You have much more faith in any group of politicians of any stripe than I do. But we will see. Anyway, thanks for your civil response, and again, have a Happy Easter. Let’s all hope Jim recovers quickly. He will probably delete my posts as soon as he checks out the comments, but this is his site, so that is his right! I just thought I might as well play a little before that happens.
20 Jenn // Apr 12, 2009 at 8:32 am
This is what happens when Jim takes a cheap shot at Republicans — what is SUPPOSED TO BE a blog about energy investing breaks down into partisan bickering.
Any honest appraisal of the past 16 years would prove beyond a doubt to an objective observer that there is plenty of blame for both parties. Bush failed on many counts as explained by every “news” talking head for the last two years. Clinton put a politician in charge of FNMA and passed a law making CDS trading legal. Alan Greenspan’s horrible central economic planning was the result of being appointed by a Republican and reappointed by a Democrat…
Anyone who thinks either party is innocent needs a reality check.
21 Burt Jaffe // Apr 12, 2009 at 9:44 am
I am an advocate of pure EV over PHEV. Why add an ICE which adds cost and servicing? The BDY E6 is a 5-seater with an acceleration of 0 to 60 mph of around 10 seconds. Top speed should be about 100 mph, and the battery pack, which is located under the rear passenger seats, will be based on BYD’s own lithium-ion iron phosphate technology. Range per charge is expected to be 186 miles. But most impressive of all: “BYD projected the battery had a life of 2,000 cycles, for a lifetime range of about 373,000 miles” It has already been shown at a Chinese Auto Show.
To read more, go to “http://www.treehugger.com/files/2008/04/byd-electric-car-e6-crossover-mpv.php
22 Isaac // Apr 12, 2009 at 10:47 am
Thanks for the thoughtful analysis Jim- appreciated as always. Hope you had a good Passover. Best recovery to you.
And to those who don’t like your political opinions- I say bravo for freedom of speech/ religion/ thought/ and web publishing. Go start your own web site.
23 Jimp // Apr 12, 2009 at 11:32 am
The way I view it is: Invest most in USO/USL/OIL ETFs so that when high oil dampens the equities, your immune. Secondly, I would invest in SQM for its large reserves in lithium. There’s a good chance that lithium will eventually be the top dog for PHEV,etc.. I also like the rare earths (lynas corp,) which is needed in both lithium and nickel applications. I also like PBR, and would purchase a brazil & China ETF. I will carefully watch the trends for batteries and other alternative energy ie. solar for “break-out” trends.
24 Larry // Apr 12, 2009 at 1:06 pm
Isaac,
To be honest, I think Jim has every right to say whatever he wants to on his site. In fact, if I were him I would probably delete my two previous posts because any political discussion can get quickly nasty, as we all know too well. On the other hand, a little constructive criticism never hurt anyone, and Jim can ignore it or consider it, whatever suites him. As you imply, if I don’t like his political opinions, I can go somewhere else if I choose to. The truth is that I enjoy his insights enough to check in occasionally, and I can also ignore his occasional political opinions, if I don’t agree with them.
However, to me it is a little tough to separate oil investments and politics. For instance, if the U.S. continues to run such huge deficits, will it affect the dollar (almost certainly, yes, which is positive for oil). What is the likelihood of cap and trade being enacted, and what will that do to the outlook for oil investments? (international - little effect, domestic - possibly harmful) If the Chinese and the oil producing countries decide to quit buying treasuries, who will buy them? What will the Chinese buy instead? (apparently resource stocks - good for oil, coal) Is there really such thing as anthropogenic global warming? (If you look at the real science yourself, I don’t see how you can think that. In fact, the trends look to me like it will get colder for twenty years or so, which is positive for oil and especially coal and nat. gas. In addition, if the evidence against AGW keeps accumulating, it makes oil and coal as energy sources look much better - although coal still has many solid pollutants) Anyway, all of these things have a political component and will in all likelihood affect the price of oil.
25 Isaac // Apr 12, 2009 at 2:57 pm
True enough Larry (that politics is difficult to seperate from energy policy and thus energy investments). The way I see it is that there has been great failings of will and vision by both parties when it comes to energy policy since 1970. One party may be slightly better on this than the other, but they are both way too busy just working to get re-elected, putting partisanship over good policy.
And regarding your statement regarding global warming- I am a scientist and I do believe that the release of tens of millions of yearsworth of photosynthetic CO2 into the almosphere in one-two centuries will surely add significant instability to an already unstable system. And this isn’t just theorectical- with 7 billion mouths to feed, the global food system isn’t going to handle this instability very well at all. As I scientist, I also believe that the earth is a sphere and that humans came to exist through a process called evolution. Not all scientific knowledge is convenient.
26 robert essian // Apr 12, 2009 at 2:58 pm
To my most respected Republican citizens, I will offer my hand if you unclinch your fists.
One last thought though, do you honestly feel that Bush/Cheney served our country well? I don’t, and until you admit that they were incompetant you won’t be able to move on…Respectfully
27 Jim Kingsdale // Apr 12, 2009 at 2:58 pm
Hi Burt. I think both EVs and PHEVs will have their markets. But the EV market is limited to people who write off the possibility of taking a long trip and I think that will be a smaller segment than the more flexible PHEV segment - even though PHEVs will have the added cost of an ICE. But we’ll see in a few years. It will be interesting - and good -either way.
Jim
28 Jim Kingsdale // Apr 12, 2009 at 3:11 pm
Re: politics. I knew my little rant would rankle some and probably not be generally helpful to the discussion of energy issues. I did it as a little pre-hospital present to myself. It was self-indulgent.
On the other hand, I haven’t read any response that challenges my lists of the big issues that Republicans have favored and opposed since FDR. Those lists - not any view of Bush in particular - is the reason I find the party itself a threat to America’s best interests. I just think that on the really big issues like having effective regulatory control of markets (that spin out of control otherwise), promoting racial equality, going to war against Hitler, providing social safety nets, allowing the sale of assault rifles, and having tax equity (not small things like tax allowances for drilling rights) Republicans have put together a remarkable record of favoring things I think are bad and opposing things I think are good. Just my views. I don’t expect agreement.
29 Larry // Apr 12, 2009 at 4:07 pm
Jim,
Good luck to you on your hip replacement! Since you have not objected so far, I will answer Isaac and Robert. However, let me know at any time and I will stop immediately.
Isaac,
Some of the reasons I don’t believe we have AGW (except for a very small amount), are the lack of increase in heat levels in the stratosphere, the fact that CO2 is really not a very strong greenhouse gas, CO2 exists in the upper atmosphere in very small concentrations, the fact that the earth’s temperatures are actually cooling, and have been for nearly ten years, the lack of evidence of positive feedback for increased levels of CO2, which most AGW scientists say is essential for AGW to exist, the existence of a very strong, but staggered, correlation between ocean temperature and CO2 levels in the atmosphere. There are other reasons, but the fact is that we will know in a few years who is right about this and who isn’t.
Of course, when the AGW scientists found out that the earth was actually cooling, they changed the issue to “climate change” rather than global warming. I guess according to this theory the level of CO2 in the atmosphere will cause some sort of instability (which you allude to), although this theory has the benefit of not having any predictions it can be measured against - because the theory, as I understand it, is that the climate will change - it does not posit in which direction it will change. That might be a valid theory, I don’t know, but it seems to me that it could also be an example of a political movement in search of a theory that hasn’t already been disproved by facts on the ground. In any event, I tend to believe that there is negative feedback (that is, natural stabilization) in the atmosphere, as in most systems, and I don’t see any evidence of positive feedback from increased levels of human-produced CO2 emissions. In fact, the CO2 levels have in the past been much higher than they are today, so wouldn’t there be some evidence of this instability in those times?
With respect to the CO2 levels over a century or two, unless we start making a whole lot of deisel out of algae I don’t think we have enough viable carbon-based fuels to last that long. To be honest, I think that the effects of peak oil and even peak coal (!) on the world economy will make AGW or “climate change” the least of our problems in a decade or two.
But that is just my not-so-optimistic opinion.
Robert,
If I seemed to have a clinched fist, I apologize. I think that Bush served the country very well in some areas (defense, Supreme Court appointments), and not so well in others. Of course, even with the judicial appointments we had to go through the Meiers fiasco before he got it right, so I understand your point about competence. I was going to go on with some comparisons with respect to competence of the first few months of the Obama administration, but this is really getting political and far from anything related to energy, so I will stop. I was just responding to your question.
Jim,
Thanks for your energy insights and for letting us discuss these issues a little bit. Happy Easter/Passover.
30 robert essian // Apr 12, 2009 at 7:16 pm
Larry, you are civil, and well spoken. You have your thoughts and I respect them.
While reading your last posting on CO2 it dawned on me that I do not want anyone playing russian roulette with whether it’s relavant to climate change or not. The outcome if you or any like minded people coming to similar opinions is un-acceptable. I want to reverse course on CO2, and debate about the issue later. Win, Win as I see it. Surely the logic of that doesn’t escape you…Sincerely…PS: For the record I am an independent. I choose to vote for the best man, and he won.
31 rbblum // Apr 12, 2009 at 9:38 pm
. . . earnings announcement was a wake-up call to the market that the banking sector has pulled out of its free fall.
Although the banking sector may have pulled out of its free fall, it would be interesting to know how the government’s invisible hand actually is being played in the financial markets. For example (and just one example), why would any financial entity grant a student loan to a student of general studies or planning to receive a degree in a category likely to receive a low wage/income? Talk about artificially maintaining higher costs of the educational system of higher learning.
Just seems as though the government’s invisible hand seems to be overlooked too often.
32 robert essian // Apr 13, 2009 at 2:27 am
With the three day holiday weekend, and what looked to be a heavy driving one (even in depressed Michigan) I’ll be looking at the gasoline draw (EIA Report) this Wednesday. I’ll be looking for a little bounce (unscientific observation).
For those who care to know, Michiganders are a hearty bunch. We are in a depression but not depressed. Good manners, and neighbors helping neighbors appear to be the norm. Similarly in North Dakota where citizens from Minnesota, and surrounding States have come to make an artificial levy to keep the river back. Heartens me it does. What I love is that my president didn’t tell these people to go shopping instead…Peace
33 Larry // Apr 13, 2009 at 5:32 am
Robert,
Thanks for the compliment, and the respect of my opinions. I appreciate your open-mindedness about political disagreements. Unfortunately that is a rare trait these days.
With respect to CO2, I have looked at the science of CO2 and climate change, and it just seems to me that possibly several years ago the evidence really looked like there was climate change occurring, and the AGW scientists understandably were alarmed. Now, however, the evidence for AGW is so weak and the evidence against so consistent and growing, it just seems to me that either (a) the AGW scientists are so entrenched in their statements about AGW that they can’t even think of walking them back (but in fact a few of them have abandoned the idea of AGW), or (b) AGW is now a cash and publicity cow for the AGW scientists and environmentalists, and they don’t want to give it up.
Of course, I could be wrong. However, carbon sequestration and CO2 reduction are not costless, and it seems to me we should weigh the cost of carbon capture/CO2 reduction against the future potential drawbacks from excess CO2, if any, and we should also take into account the probability of those drawbacks actually occurring. In my opinion the costs of carbon sequestration/CO2 reduction are much too high to be worth it, given the low likelihood (again, in my opinion) of any of the projected AGW scenarios (which, by the way, seem to be getting more and more far-fetched as more of the public becomes AGW-agnostic) coming to pass.
Don’t get me wrong, I am for alternative energy and conservation, since we literally can’t go on exporting the money we are sending to the petrostates forever. I just think the costs of wholesale adoption of alternative energy are too high right now to make massive adoption feasible without some extreme economic damage. In addition, alternative energy has its own problems (battery disposal, for instance). Hopefully these obstacles can be overcome soon.
Given these views, I think you can see why I think we should be drilling offshore and in ANWR. Frankly I think in five years we will be, no matter who has political power then.
Jim,
Whatever you do on your own site, you have every right to do, and of course everyone has a right to their own opinions. Thanks for clarifying the reasons for your opinions, and thanks again for all the hard work you put into the site. I think we can all tell from your site that you are a classy person, and I am glad to see that you give dissenting views a fair consideration.
34 Jenn // Apr 13, 2009 at 9:32 am
Jim,
At no point have I suggested that Bush was a competent, much less good, president. My arguments were: (1) Claiming that “all” Republicans support XYZ policy is absurd; (2) even if you could prove to Karl Rove that Bush is an idiot, that wouldn’t help the country going forward, but would cause further division and promote extremism (in both parties); and (3) there has been an abundance of stupidity by politicians of both parties.
I would point out that Democrats were considered a “rudderless” party at the end of Clinton’s term. Even prominent Democrats like George Soros thought so, opting to fund liberal leaning think tanks to provide some intellectual foundation for the party. Every talking head on the TV had written off the Democratic party as “lost” (I think they made the same claim when Newt Gingrich rose to power in the 90s?).
By my score keeping, reports of the death of the Democratic party have turned out to be exagerated.
Bush’s policies were not universally supported by “all” Republicans, not even in 2000 when he started. By the same token, not all Democrats support Obama. Hilary Clinton (the candidate in July or August) said it was impossible to attack Obama on issues because he “doesn’t stand for anything”.
The number one reason to vote for Bush was his opponents- not any attribute of Bush himself. I have to wonder how many people voted “Obama” and how many voted “Not Bush” in 2008.
The problem with energy policy in the US, and most policy, is that we have too many Democrats and too many Republicans — and a very serious shortage of Americans
When you make absurd blanket statements about the other political party, you sound just as foolish as a member of Congress.
When you make comments about the energy markets and related investments backed with hard numbers, you gain credibility.
There was another investment blog that I used to follow. The author was (and still is) very intelligent — however, he stopped making intelligent observations about the markets and became obsessed with bashing Bush.
He now has about as much credibility as Chief Inspector Dreyfus has ranting incessantly about Inspector Clouseau.
Bush is gone (mercifully) — time to move on
35 KV // Apr 13, 2009 at 11:16 am
I have one suggestion for Larry. How about documenting Republican failures for the last eight years they were in power, and begin with oil. 9/11 was a perfect opportunity to move away from oil, and country would have been solidly behind them. But, the novices wanted to thump religious superiority while trying light the behinds of Iraqi. Go for it Larry, give Jim to read and laugh.
36 Larry // Apr 13, 2009 at 12:04 pm
KV,
Sorry, but I have no interest in getting into any kind of flame war with anyone on this site. It is your right to bash the Republicans, and if you want to do that, go ahead.
37 rbblum // Apr 13, 2009 at 12:08 pm
Granted, there is sooo much blame to go around regarding BOTH the R and the D parties not representing the people in an honorable, fiduciary manner. And, the political class members have actively ignored most of their duties of responsible oversight.
One item to consider in regard to primary government involvemnet without thinking through a specific problem and all possible solutions/options: Consider how easy it will be to facilitate legal action when the healthcare industry
standardizes its patient records on a common computer system. Whether in the form of class action or individual law suits, medical care costs should go up, thanks to the participation of attorneys.
Perhaps a real duscussion/debate should take place first of what should be altered and why before comitting to authorizing a blank check to a nationalized
world of healthcare.
Better to be independent and not enslaved by actions of the political class.
Best to a speedy recovery, JK.
38 KV // Apr 13, 2009 at 1:56 pm
Jim,
I wish you speedy recovery, not withstanding my comment for Larry that you may have chuckled but decided to remove. Republicans are crybabies, and they have now learned to start crying as their argument, and simply forget all the mess they created. They want bygones be bygones for Bush, but they still want to complain about FDR. They are very logical when it comes to preserve their interest, and frankly they could care less about others. I kid you not, Cheney’s position was these soldiers signed a contract! The argument was carried for the bonuses, but when it comes to honor the contract with labor or investors they go bankrupt. I will not invoke Moses again (so you would not delete this!) but the analogy applies.
39 jkingsdale // Apr 13, 2009 at 2:23 pm
I think that’s about all I want to read about politics. I won’t post on it again - I’ve learned my lesson.
Note: oil down today. I think it has further down to go. Note WSJ piece on “peak demand for gasoline” - fodder for the oil bears.
40 robert essian // Apr 13, 2009 at 4:03 pm
Professor, you provided a great civic lesson that I found entertaining, and worth the spirited, and mature responses.
My last response on the subject: Obama is our president, and surely the nation needs to get behind him and support his very difficult tasks ahead. Even though the Republicans haven’t voted yet for any of his proposals less 3. How is that possible especially since the Republicans are directly responsible for this DEPRESSION. So sad, so petty…I wish you well Jim…You are in my prayers.
41 Karol // Apr 14, 2009 at 3:33 am
Well, what’s next?
I sense that the market is getting back into day trading style.
Hence a drop in oil price at this time is perhaps a good time to pick up some. I don’t believe it like trying to catch a falling knife.
Example: my base price for DXO is $2.30. I can take a profit now and see if it falls below the cost of two trades. That is sell and buy.
What can you do?
When you figure that it might drop below the cost of trading then the result would be picking up a few.
Good trading to you!
42 KV // Apr 14, 2009 at 8:51 am
I took Larry’s post and counted words he wrote: over 2000, in less than two days!
In his first comment, he agrees with Jenn, (which I think is also Larry), then goes on dumping on Jim, like Rush L and other pre-programmed dittoheads, and keeps dumping all the lines.
Basically, he compliments, then spits venom. My invitation to him to document all the things Bush did wrong is open. I bet he will never do that! Why? Republicans don’t make any mistakes! They f— up grandly and then tell others it is f—ed up!
43 eliz // Apr 15, 2009 at 7:24 pm
Enjoy your web site. Thought you might be interested in this from World Bank Energy Week:
http://siteresources.worldbank.org/INTENERGY/Resources/335544-1232567547944/5755469-1239633250635/Lew_Watts.pdf
Csaba Csere also gave a very interesting presentation on the future of car technology and batteries, with no ppt tho and unfortunately I lost my notes!
44 Ron // Apr 23, 2009 at 1:22 pm
Natural gas is too low at $4 to be sustainable. Inventories are now high and new LNG capacity is threatening to bring in cheap Qatari supplies. But gas wells deplete very rapidly and many drilling rigs have been mothballed until prices are higher. So at some point in the not too distant future I suspect we’ll see the truth of the old trader’s adage, “the cure for low prices is low prices.” In other words, after a long enough period of low natural gas prices supply will diminish enough to bring prices higher. And even demand may respond to low prices to some extent.
++++++++++++++++++++++
Unfortunately, due to the mind boggling massive shale gas discoveries, the near and long term future for domestic NG is weak, at best. You can attempt to play a bounce off the bottom, but that is merely an attempt to time the market and not a fundamental reason to want to own NG. And even with a 100% bounce from current prices it’s still barely break even for many producers. The Encana CEO said today:
“We have vast resources now at much lower costs and, as a result of that, we believe that North America is flush with natural gas and will be for a very long time,”
The only rational place to invest is in conventional oil, preferable light sweet/medium oil. (the greens are attempting to tax “dirty” energy like oil sands/coal out of existence) And with the cap and tax plans being proposed in NA and Europe, the place to be is in international oil. The junior space is particularly good as they have the opportunity to dramatically grow production on drilling success. Check out plays like Coastal Energy or Gran Tierra.
45 Mark Morris // Apr 27, 2009 at 9:17 am
Jimbo, I love your energy analysis, but when you start talking politics you make me want to puke!!! Here’s a suggestion, get up off your knees for the democrats and stop trying to rewrite political history. The problem with attitudes like yours is that you’d argue that there really is a difference between the left and right. But here’s a clue, they all take their orders from big money, big banks and Wall Street, and you know that. And, as an example, please remind me if you can: who really killed Glass-Steagall and who created the Comm. Reinvestment Act? Pretty important stuff for which the republicans had no material part I believe. For you to blame the Glass-Steagall repeal on Republicans is an ignorant lie! (can you say Clinton-Summers?)
And as far as Keynesian solutions, I wouldn’t be surprised if you choked on those words in the next two years, along with the dollar-gorged American economy.
Again, I love your energy work, but if I were you I’d just stick to oil and gas and leave the political analysis to those with any objectivity, those without a dull ax! Anything beyond that expertise just destroys your credibility.
46 KV // Apr 30, 2009 at 7:06 am
Mark Morris - Here is simpler stuff for you to think and answer: when Clinton left we had budget surplus and we would have paid of national debt by 2011 or 2012.
After eight years of Republicans, we have broken military, broken financials, broken economy, deficits forever: all this was done intentionally. It is well known Republican misconception that if there is no money in the Govt, it can not spend! Govt. can create money and tax those who have been robbing the country blind. Unfortunately, biggest robbers are republicans who run banks, businesses, real-estate driven financials, and even the retirement programs through mutual funds etc. It is time to develop a common understanding of what is a basic level of living in these great united states, and how do we create climate for betterment of all, especially those with minimal resources.
47 KV // May 1, 2009 at 9:41 am
Mark Morris - You are a ditto-head. Look at my post to Larry. See if your hindsight lets you list the things done wrong by the Bush administration. If you do that I will entertain your foresight, or rather fear mongering. You see, when Repubs are in power, they become greedy. When they are out of power, they advocate fear! You don’t need any eyes to understand this (you can have your computer sound out this to you).
I have no problem with GOP. However, I do have problems with neocons and naysayers like you who have undermined our great country in last eight years to stone-age level.
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