Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1208.3 | -10.9 | -0.89% |
| Eurostoxx Index | 2328.2 | -27.3 | -1.16% |
| Oil (WTI) | 86.21 | -0.59 | -0.68% |
| US Dollar Index (DXY) | 77.005 | 0.398 | 0.52% |
| 10 Year Govt Bond Yield | 2.18% | -0.07% |
After a lull in activity, Merger Monday is back upon us. Today’s activity is in the energy space as Kinder Morgan is buying El Paso for $38 billion in cash and stock, and Norwegian Oil company Statoil is buying E&P independent Brigham Exploration. The KMI / EP deal is a bet that natural gas will continue to grow its market share of energy in the US. Barclay’s will provide $11.5 billion in financing, which is a good sign for the credit markets.
Germany poured cold water on the idea of a complete sovereign debt crisis fix at the Oct 23 summit. G20 finance ministers met over the weekend. This has all the feelings of a negotiation, not a Lehman-esque crisis.
Citigroup posted better than expected earnings this morning, while Wells Fargo missed. Citi announced they have $32.4 billion in European exposure. Lowe’s announced they will close 20 stores and lay off 2000 workers.
Robert Sameulson has a piece in this morning’s Washington Post which discusses why our children’s future doesn’t look so bright. IMO, this sort of thinking is part and parcel of recessions. If anything, I think the national mood was worse during the late 70s / early 80s, where people thought that the US would be devoured by the two headed monster of OPEC and the Japanese. It turned out that oil demand was a lot more elastic than we thought, and the Japanese were in a bubble of their own. US manufacturing rebounded smartly as US companies adopted just-in-time and adopted Deming’s quality concepts.
I remember during the early 90s recession, we were supposedly heading for a generational war as the baby boom generation took all the job opportunities from Gen X-ers. Unemployed Gen X-ers would supposedly toil away forever at temp jobs while highly paid baby boomers bid up real estate prices to unreachable levels. Instead, we got the dot-com boom, which made many Gen X-ers extremely rich.
The point is that conventional wisdom, especially in the area of economics, is usually wrong because it overreacts to what is going on at the moment and extrapolates that forever. It accounts for the Business Week “Death of Equities” cover story in August 1979 as well as Dow 36,000 which was released in Oct 1999.
While I do believe that this recession is indeed different that past Fed-driven recessions, it isn’t a permanent state of affairs. This too shall pass. Booms don’t last forever, and neither do busts. My view has been that we are on a cusp of a revolution in energy which will collapse prices and turn the US from a net importer of energy to a net exporter. And that revolution will be a true elixir – it will go a long way towards fixing our budget problems and our trade deficit. It will also directly benefit the middle class the most by increasing disposable incomes and providing jobs.
We do have some more wood to chop economically – housing has to bottom, and the imbalances that stemmed from the real estate bubble have to be corrected. The debt that accrued during the last decade has to be worked off. Fortunately, while debt levels are quite high according to historical levels, debt service levels (principal and interest payments) are on the low side because interest rates are so low. Which means the debt will be worked off faster.
In economic data, Empire Manufacturing came in lower than expected. Industrial production was .2% and Capacity Utilization is slightly lower than expected at 77.4%. Below is a chart of capacity utilization. It shows that there still is a tremendous amount of slack in the economy, which bodes well for inflationary fears.
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All Things in Moderation 
Thanks BrentI'm already looking forward to your morning report everyday. For some reason it lifts my spirits. I made some money on El Paso last year, yay.Our daughter's on her way to Houston tomorrow for 4 on site interviews so it looks like she's set herself up pretty well for the future anyway. Go energy!!!!!!!Anyway, I guess we keep our heads down and pay down.
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What is the coming energy revolution? The long-promised alt energy revolution?
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I'm interested in an energy revolution. That would be awesome. Historical trends don't seem to bode well for it, but I'm hoping Brent is right. More and better cheap energy would be a great thing. Paul Erlich (he of the Population Bomb) once compared the idea of giving humanity an abundant source of cheap energy to giving a mentally handicapped child a machine gun. And if Paul Erlich doesn't like it, then it has to be good. Bring on the energy revolution!
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"we are on a cusp of a revolution in energy which will collapse prices and turn the US from a net importer of energy to a net exporter."Um; what are we going to export? Europe is ahead of us on green-tech. So is China. If we were focusing on the technology, I'd be more inclined to agree; but as it stands we're not doing much to take part in any forthcoming energy revolution.
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The upcoming energy revolution will occur on the supply and demand side. On the demand side, the main driver will the electric car, which will only get cheaper and better. We are at the inflection point of the S curve. The Nissan Leaf can go 100 miles on about $4.00 worth of electricity. A Honda Accord can go 100 miles on about $11.00 worth of gas. At the moment, the price difference between the Leaf and the Accord isn't large enough to drive consumer behavior (35k vs 23k), but that differential will drop and the performance will only improve. And don't forget, people will buy them even if the savings doesn't cover the cost (witness the Prius) because of environmental consciousness. People will object that you can't go on long trips with an electric car, which may be true. Zipcars can easily fill that need. The other part of the revolution affects supply. The fracking and horizontal drilling techniques that have kept natural gas prices so depressed are applicable to oil as well. The US will be able to tap reservoirs that were previously thought inaccessible. The Canadians aren't going to take this lying down either, so they will increase production. IMO, this is one of the reasons (Libya is the other) why US oil trades at such a discount to international oil (WTI vs Brent). Supply is going to increase while demand craters. And further to my point about people extrapolating extremes to the future, I give you this: http://middleeast.about.com/b/2008/06/10/why-are-oil-prices-so-high-dont-blame-opec.htmAs far as alt-green, until we come up with a way to store electricity, alt energy will be unable to handle the heavy lifting of our energy needs. It is going to be coal, nuclear, and natural gas for the time being.
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Also, is that capacity utilization chart showing a stead long term decline, or is it just me? That capacity was in the upper 80s in the 60s & 70s, but only touched 85 in the 90s, then hit just 82ish in the aughts is disturbing. It seems to reflect the long term productivity gains that are seen in median wage stagnation.
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@bsimon:We will export oil and LNG.The capacity utilization decline is due to productivity and globalization. My point was that this shows inflation isn't in the cards.
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So the contention that the US will become a net energy exporter is based on the idea that natural gas & oil extraction will get cheaper? I am extremely skeptical; how much capacity would we have to develop just to supply 100% of domestic demand? Also, that's not an energy revolution. If the 'revolution' is the electric car, I can't help but notice the two models cited are from Japanese manufacturers – so that's not an exportable technology for us either.
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Nothing to add, other than to say that I also really like the summation. It's really interesting the difference in tone and content quality between here and Plumline, given that the contributors are/were pretty much the same.
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jncWe just set it up a little differently and make an effort to make our various points without the "I disagree with you so you're either stupid or morally reprehensible" language. Scott's still being mean to me though………..jk. We tried to include people in the group who didn't already resort to eliminationist rhetoric.
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Freakonomics did an interesting podcast a couple of months ago about how people buy the Prius because of the image it projects, even if they aren't really that all that concerned abou the environment. It looked at the market share of the Prius even though it was more expensive and not any better for the environment than alternatives. My point being that electric cars will also be bought because people want to be seen in an electric car. I know I take a second look at every Chevy Volt that I pass on the highway.
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