Barry Ritholtz recently pulled back the curtain to reveal one of the mechanisms behind the credit crisis.  No surprise: the problem was good old short term personal greed and lack of concern for customers or long term reputation on the part of everyone from the Chairman to the floor clerk.  Here is his fascinating little post:

UBS $37B Write Down, Part II

Posted: 26 Apr 2008 10:26 AM CDT

Buried at the end of the report discussed earlier is the specific criticism of the financial compensation system in place at UBS for traders and …

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They threw the kitchen sink at oil today.  Nearly everything that could push up oil prices happened.  There were three - count ‘em three - significant oil crises.
1. the Bournemouth strike that could take 700 kbpd of North Sea oil off the market for a week or longer is set to start Sunday,

2. Nigerian rebels destroyed pipelines causing Exxon to take 200 kbpd off the market for an indefinite time, and

3. There was some sort of armed conflict rumored to have occurred between an Iranian vessel and a U.S. military …

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The best advice I may ever offer is this: if you haven’t been to the Galapagos, go there.  And if you can, take your children or grandchildren.  It’s not about thrills and it won’t teach you any general principles that you don’t already know.  Rather, it is an experience of appreciation - of non-human beings and of the talented, energetic humans who protect them. And the beauty of our world. Much like a trip down a great river, you simply cannot appreciate this without experiencing it.

I may not be any …

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Underlying nearly all discussions of the oil price is a standard economic concept: supply and demand. It seems so elementary that there is no doubt of it. It says that   demand has been growing more rapidly than supply recently and that at some point the world will reach Peak Oil and the price will zoom northwards.

But the reality is more complex. Peak oil is not just a point in time or even a plateau  when oil supply becomes unable to expand to meet demand. We need a more nuanced model …

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A number of readers have written to ask how they can pursue my crude oil futures investment strategy, which I first wrote about here.  Let me recap the strategy:

   1. The strategy’s objective is primarily to protect the portfolio in case oil prices rise so rapidly or so far that the global economy is endangered causing stock prices to plummet.  (For further color on the possibility of this scenario, please re-read Charlie Maxwell’s recent interview.  I highly recommend it.) 

   2. The reason we need such protection is that …

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Election season brings much tax talk. Yet there is precious little discussion of the lessons learned from the one new tax that our economy has experienced in spades during the past three years. That, of course, would be the Oil Tax which is far from trivial.

With oil around $90, this tax is running about $60 per barrel more than whatever an economist might have calculated it to be in 2003 based on $30 oil. Since America consumes about 21 million barrels per day, that $60 represents about $1.26 billion per …

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Time to Step Aside

Greetings from snow-bound Crested Butte. CO.  I was supposed to be driving to California this weekend for two weeks on a Sausalito houseboat, but the gigantic west coast storm moving in my direction changed my schedule. The storm may be fortuitous – and symbolic. It provides time for reflection on the storm that raged in the stock market last week. And also the Iowa electoral storm that shook up the political world.

The stock market looks a lot like last August when the credit and mortgage market problems …

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Following up on the new ethanol “mandates” contained in recent federal legislation and also on my essay on ethanol and biodiessel , a discussion of ethanol in the Oil and Gas Journal of November 26, 2007 is of great interest. A quick review of some of its salient points follows.

The introductory paragraphs are a dramatic summary: “The rapid increase in ethanol consumption during 2002 – 06 will prove to have been a one-time event that captured two thirds of the ultimate near term market. Growth beyond the remaining third of ethanol’s …

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The substitution of alternative liquid fuels - ethanol and biodiesel - for petroleum-based gasoline and diesel fuel is a “fountain of youth” dream of clean, renewable resources replacing scarce, dirty ones. Is the dream practical? There are uncertainties because technology and the role of government subsidies and mandates will change. But there are clearly big differences between the two flavors, ethanol and biodiesel.

Ethanols

Corn ethanol is a tragic diversion from the important work of mitigating peak oil. It’s production does not yield much if any net energy gain; it is difficult …

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Canadian Oil Sands Trust (COS) owns 36.74% of Syncrude, Ltd, one of the largest and most developed oil sands operations in Canada. Sycrude has a record of profitability and has already achieved construction of the bulk of its long term capacity goals, including in July an upgrade that increased output capacity by 40% to approximately 350,000 barrels per day, or about 129,000 for COS. A de-bottlenecking upgrade will add another 50,000 b/d to capacity in five years and a final planned expansion will bring production to 500,000 b/d in about …

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Since 7/31 the price of oil has dropped about $6 or 7.6% while the price of natural gas has risen about 50 cents or roughly 8%. Both moves are counter to their longer term trends which seem to be well justified by the fundamentals. That is, there was no new supply or reduced demand for oil that would account for a drop in its price since month end. Nor was there any interesting drawdown of the gargantuan gas storage numbers or adverse weather that would have raised the price of …

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Merger of the Drilling Titans

The merger of Transocean (RIG) and Global Santa Fe (GSF) was remarkable on a number of levels. First, it’s pretty close to a true merger, a nearly extinct animal on Wall Street. While RIG has about twice the capitalization of GSF, and while RIG will be the name partner, the resulting company will be owned pretty much in proportion to the existing ownership.
The more interesting thing in terms of energy investing is that as the first major recapitalization in the deep water drilling segment, …

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In days of yore, oil exporting countries produced as quickly as they knew how. After all, it only cost a dollar or two per barrel to bring the stuff up and it sold anywhere from $10 to $30. So present value analysis said convert it into cash ASAP for maximum return.

Then producers formed OPEC to keep prices closer to the top end of the range than the bottom by asserting production discipline. Problem was, every Oil Minister wanted all his peers to restrain their production so he himself could sell …

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