If we don’t do anything about it, it’ll go away. Right?

Obama’s Decision to Punt Oil Pipeline Pleases Almost no One.

http://www.dailytech.com/Obamas+Decision+to+Punt+on+Oil+Pipeline+Pleases+Almost+no+One/article23259.htm

Quotes:

” In one fell swoop the President of the United States (POTUS) Barack Obama managed to infuriate Canadians and Republican U.S. politicians alike.  Those are typically mutually exclusive feats, but his decision to bow to activist pressure and shelve the development of a critical oil pipeline is drawing criticism from both sides.”

“Dubbed the Keystone XL pipeline, the pipe in question was supposed to stretch 1,700 miles across the U.S. plains, transporting process oil sands crude — a low to mid-grade crude to U.S. refineries in Texas for procesing into fuel (the initial removal of sand would occur at local facilities in Alberta).

Currently the Alberta tar sands are underutilized due to insufficient refining capacity.  Meanwhile refineries in Texas sit idle due to insufficient domestic oil supplies.  The pipeline would have remedied both problems, pumping the equivalent of 700,000 barrels a day (249.2m barrels a year) into the U.S. market. ”

“The U.S. uses 19.15m barrels/day, so the new supply would offer approximately 3.7 percent of the domestic demand.  While that may sound trivial, it would allow the U.S. to potentially entirely drop one of its more hostile sources of foreign oil, such as Venezuela (806,000 barrels/day) or Iraq (637,000 barrels/day).”

“The cost of getting all that sand out is a 10 to 30 percent emissions hike in greenhouse gases [source]… However, that emissions hike occurs largely at the extraction level, meaning that as long as Alberta finds someone to sell/ship its crude to, the emissions hit will be taken, regardless of whether that someone happens to be the U.S.  It’s unclear whether the pipelines environmentalist adversaries realize this and are just morally opposed to being involved.”

“Recent studies have shown that in the last decade global temperatures flatlined, even as greenhouse gas emission continued to rise.  Yet many environmentalists and their powerful political allies remain convinced that the long-term trend will be continued warming.  Many of these parties predict a doomsday “runaway warming” scenario, in which soaring temperature amount to mass humans deaths.

Groups like 350.org, Bill McKibben, Bold Nebraska’s Jane Kleeb, and Friends of the Earth decried the potential environmental (mostly global warming) impact of the pipeline and threatened to drop support for President Obama if the project was granted a speedyapproval.  If these groups sound familiar, they’re among those who attacked the POTUS onhis support of modern nuclear power — pressure that the President Obama caved to in the wake of Japan’s Fukushima nuclear accident.”

 

My big issue here is that you cannot have it both ways. You can’t claim that we should avoid nuclear energy and simultaneously complain about the use of fossil fuels, otherwise you are just maintaining the status quo, which is unacceptable. We need to begin to change the way we think. On one end we need environmentally conscious and informed consumers who demand change and vote with their dollars, on the other we need politicians and companies to do the right thing without being coerced. If we don’t, well, we’ll just be living with the consequences and have no one to blame but ourselves.

These are exactly the kind of facts the IC is here to bring to light.

Case Study: Microsoft Courier 11/1/11

http://news.cnet.com/8301-10805_3-20128013-75/the-inside-story-of-how-microsoft-killed-its-courier-tablet/

This is an interesting article on how Microsoft lost out on an opportunity and I think the authors miss an important point. While they highlight the fact that Boston Consulting Group’s survey found that many people want an traditional windows business tablet, Microsoft is large enough to do both. Creating the Courier tablet would have given them immense expertise on tablet design, function atheistic, debugging ect. that would have at the very least put them in a position to make a substantially better business tablet since this market is by no means going to go away. This was somewhat of the strategy employed by Microsoft with its first generation of Xboxs as a loss leader. Instead it seems Microsoft will be left with another Zune. A product that comes late to the market and, although better then the competition’s offering and services, fails to properly drum up word of mouth advertising hype.

The real take away here is to let people properly preform their jobs. Microsoft particularly created a skunk works division for the exact reason of creating new and innovate products that help move the company towards a more diversified (read large and more profitable microsoft) product portfolio. In fact it seems that Microsoft has set up an innovation team that rivaled any consultancy team. They had done their homework and come up with an innovate idea and product, so innovative that it still seems interesting even with the iPad 3 launch on the horizon. Had Microsoft followed through, it is hard to believe that they would have regretted the decision. On a corporate level did sticking to their core base of products make sense? Yes. In the long term, however, if the company remains overly conservative how long will it really be relevant? If only people in the financial world are the ones using excel, then Microsoft has lost 90% of its business. I have a feeling AOL went somewhere down the same path.

You can contact me or any other American at informedconservative@aol.com… oh wait.

Articles of the Day 11/1/11

Well, that was an interesting Halloween. Here are a few extra to make up for the weekend, which included Monday, off.

MF Collapses under global euro zone bets
http://www.reuters.com/article/2011/11/01/us-mfglobal-idUSTRE79R4YY20111101

Quotes:

“Corzine, 64, who once ran Goldman Sachs before becoming a U.S. senator and then governor of New Jersey, had been trying to turn the more than 200-year-old MF Global into a mini Goldman by taking on more risky trades.

But once regulators forced it to fully disclose the bets on debt issued by countries including Italy, Portugal and Spain, it rapidly unraveled with no buyers willing to step in.

MF Global’s meltdown in less than a week made it the biggest U.S. casualty of Europe’s debt crisis, and the seventh-largest bankruptcy by assets in U.S. history.”

“Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm,” the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said in a joint statement

The New York Times reported later on Monday that federal regulators had discovered that hundreds of millions of dollars in customer money had gone missing from MF Global.”

“In the end, regulators and markets reacted swiftly to MF Global’s troubles, which may have been exacerbated by Corzine’s affinity for risk-taking over the course of a career that took him to the top echelons of Wall Street and then into politics.”

“The bankruptcy is reminiscent of the collapse of Lehman Brothers in 2008 at the height of the financial crisis. But market participants said the impact from this collapse, far smaller, would likely be contained.”

This is another matter of banks getting lazy and trying to pull in quick profits but substituting risk for research. A lot of hedge funds will turn a fortune in the eurozone crisis, but banks that took on considerable risk pre-crisis are finding themselves in a tough situation where their debt is only worth 35% of the face value.

Not to mention the fraud here, Occupy Wall Street is going to have a fit if they can actually understand what happened.

A Risky Game Retail Investors Play
http://www.forbes.com/sites/panosmourdoukoutas/2011/10/31/a-risky-game-retail-investors-play/

Quotes:

“With interest rates at record low levels, chasing after high-dividend paying stocks has been a popular trade among retail investors in the last two years… Trading Direct, for instance, lends investors who are willing to assume a heavy debt load at a variable rate of 1.25 percent. “

“On the surface, this game is like printing money, and then some. Investors, who have been playing this game for the last year, they have hit the jackpot: They have reaped off both the “spread,” the difference between the dividend rates and the margin rate, and the appreciation in the price of these stocks that ranges, anywhere between 14 percent and 26 percent, compared to 4 percent for the S&P500.”

“On a closer examination, this is a high-risk game for several reasons. First, it pushes the price of these stocks way above their fair value, e.g., the price warranted by economic and business fundamentals—utilities and tobacco are usually slow-growth industries. Second, as more and more investors chase after these companies, pushing their stock prices higher, the “spread” narrows, making them less appealing—the trade becomes crowding. Third, it leaves investors exposed to a sharp increase in interest rates that may hurt them in two ways: on the investment side, as utility stocks may take a big hit, and on the borrowing side, as borrowing rates may spike higher; and margin calls come in.”

This is one of those unforeseen (well, not really unforeseen, more like the specifics were unpredictable, but it was an obvious strategy) side effects of a low interest rate. Essential bankers can borrow money at a low rate and then invest them in high dividend paying stocks which returns a higher payment then the rate of interest. Free money… except for the risk. You’d think that the people who engineer adjustable rate borrowing that helped to crash the country would know to avoid it, although  my guess is they plan to dumb them and liquidize their holdings the moment the Fed issues signs that it will raise the interest rate.

The Magic Money Tree
http://www.economist.com/blogs/buttonwood/2011/10/euro-zone-crisis

Quotes:

“three aspects of the deal – Greek debt write-down, bank recapitalisation and the boosting of the firepower of the EFSF. On Greece, a 50% writedown of debt is what many people had called for. But this is just a write-down of private sector debt (even then it’s not clear whether this can be achieved on a voluntary basis). A lot of Greek debt is now owned by official bodies who are not willing to take a write-down at all. So Greece will still be left with an 120% debt-to-GDP ratio by 2020, a level that looks unsustainable. The word “solution” hardly seems to apply.”

“Any Greek write-down would hit the banks which is why recapitalisation is needed. But the €106.5 billion being raised is a lot less than others thought necessary (including the IMF). Nor is it clear from whom the money will be raised or whether the capital ratio will be boosted instead by banks shrinking their balance sheets, a development that would be unhelpful for the European economy.”

“The EU leaders really desire a magic “money tree” which would come up with a new source of wealth to deal with this issue. The French hoped that the European Central Bank would act as the tree, guaranteeing all Italian and Spanish debt. The Germans vetoed the idea. Of course, the ECB has no “wealth” of its own; European governments stand behind it. So an ECB bailout would be another back-door way of having the rest of the euro-zone support Italy and Spain, but without telling the voters. (The hope was that such an ECB commitment would act as a bazooka that did not need to be used. By itself, ECB backing might push down Italian and Spanish yields and eliminate the funding problem.)”

“So how to gear up the EFSF without a huge and explicit governmental commitment? The answer was to come up with two complex structures, either an insurance scheme or a special purpose investment vehicle (SPIV). Again, EU politicians were trying to dance round the problem of where the losses might fall. If the weak EU countries pay a market rate for insurance, they may be no better off than before; the insurance cost would offset the lower yield they would pay on the bonds. And if the strong EU nations bear the loss, then their own credit ratings might be affected (notably France’s AAA).

The idea of the SPIV was to get in outside money (from, say, China) to act as the money tree. But the Chinese are (quite logically, from their point of view) likely to drive a hard bargain. They have no desire to bear the losses. They may well demand that the strong European nations guarantee repayment. But if they do so, that leaves the Europeans bearing any losses (and thus back where they started). If the Europeans have to agree political concessions as well, this seems like a very bad bargain.”

“The big lesson from last week is that European governments could not (or would not) sort out the problem on their own. It is hard to see why this was a desperately bullish sign. The bond markets seem already to have seen through the plan; Italian ten-year bonds now yield 6.18% and are close to a record spread over German bunds. “

In my mind this refusal to take responsibility is what caused the crisis in the first place. Three Greek government refused to acknowledge that it had promised things that it could not possibly provide and lied to make them seem possible. The people  of Greece refused to admit that they had demanded these unreasonable benefits from politicians that created the situation and reduce their claims on previous government promises. Instead you have game theory at its worst, with almost all sides refusing to act together and in their self interest. You also has a storm that has the potential to curtail all global growth for this quarter.

Unpaid wages in China: Can’t Pay, Won’t Pay
http://www.economist.com/node/21534838

“EFFORTS to curb inflation in China are having some painful side-effects. A squeeze on bank lending has prompted some businesses short of cash to stop paying wages to blue-collar workers. Even the much-vaunted state sector is feeling the pinch. Work has all but ground to a halt on thousands of kilometres of railway track, and many of the network’s 6m construction workers have been complaining about not being paid for weeks or sometimes months.”

“This[migrant worker discrimination] has done little to protect the more than 150m rural migrants who perform most of the country’s manual labour.”

“Similar problems have also been reported in road building and property construction, prompting a growing number of demonstrations and violent incidents, including clashes with employers and suicides. Such difficulties are likely to get worse towards the end of the year, when companies traditionally try to settle accounts with employees. Wage inflation is adding to employers’ woes. Minimum wages have risen by an average of nearly 22% in the two-thirds of China’s provinces which have adjusted them this year. Nice if you can get it, but not much use if you are not being paid at all.”

This is one of the visible signs of the problems, that I believe, exists in China. No matter what the world believes, or what China convinces it to believe their economy is not stable. It is experiencing a major debt crisis and many of the major industries are unable to compete with their global counter parts without fudging on their financials.  Much of the global belief in the stability of their economy comes from the 1.2 Trillion in foreign reserves that the government holds (with the Europeans screaming my precious and trying to use that same money to revive Greece). In reality that money has been spent multiple times over, China is instead holding it as political capital, but that will not fix the long term problems that I believe are rampant in their economy.

Want an example? Look at China’s high speed rail corporation. Ridership is no where near it was predicted to be (about 50%) and the company itself is in so much current debt that it amounts to 5% of GDP, not to mention operating cost. There was also that ugly incident after that crash where survivors were probably buried along side in the wreckage.

I predict that we will continue to see such short term problems bubble up to the surface and, that for every one we hear about, ten are suppressed.

Student Loans in America: Nope, Just Debt
http://www.economist.com/node/21534792

Quote:

“The total amount of debt is staggering. The New York Federal Reserve Bank puts it at $550 billion, but includes a footnote in the “technical notes” section suggesting this may be an underestimate. Sallie Mae, the school-loan equivalent of the housing industry’s Fannie Mae and Freddie Mac, reckons there are $757 billion-worth of outstanding loans. A bank heavily involved in the area says there is at least another $111 billion in purely private loans, and with new lending estimated in excess of $112 billion for this year alone, the total amount outstanding will surpass $1 trillion in the not-so-distant future.”

I suggest reading this as summarizing it would be hard without quoting the entire article. This article does a good job of point out what will probably be a massive problem in the coming future. Also one can connect this to America’s poor education system. One that funnels (very badly unless your on one of the coasts) everyone into an academic track that may not suit their best interest. In order to promote those children who don’t belong they lower the standards. This creates a double standard in Universities. Many exist to educate those whom the high school system failed. Those students generally leave university with a massive debt and a degree that leaves them unemployable and unable to pay their debt. Ever heard of a better definition for toxic asset?

An important source is the chart provided by the economist. The majority of this debt is public and leveraged and the U.S. government is planning on receiving it as it balances out its budget. A scary thought, one which I don’t have the implications or time (waking up at 7am and going to bed at 2am, I don’t ever advise anyone in any university to take 22.5 credits. Ever!) to fully examine, although I’d be happy to discuss.

Globalization: Extreme Shipping
http://www.economist.com/blogs/banyan/2011/10/globalisation

Interesting to read about globalization first hand and the economy of scale involved in getting products to consumer. Particularly interesting is how few people it takes to run such a massive behemoth.

On a business note, America build’s the world’s biggest carriers, but we can’t use high-tech manufacturing to overtake South Korea for these contracts? It would be interesting to know actually how expensive our labor is that this isn’t feasible. The government of this country needs to start getting experts in to evaluate why we have lost advanced manufacturing that provides middle skilled jobs which this country expertly needs. Without those jobs and an improvement in the American education system I have a feeling for years to come I will be reading about the biggest ships in the world being built in South Korea with German and Japanese parts run by computers with chips fabricated in Taiwan.

Although there is a rosy outlook, with the insurance underwriters for sea voyages lifting its ban on armed guards aboard these massive ships, at least their guns will probably be American.

World Population: Space Invaders
http://www.economist.com/blogs/dailychart/2011/10/world-population-1

Hey, invest in property in cities. As long as Al Gore isn’t right and half the world isn’t underwater your apartment should be exponentially more value.

Maybe this is what college teaches students by forcing us to live in a shoebox?