Thursday, May 15, 2008


The FOMC has spiked the punch bowl. The party is getting lively. More people have decided to attend. Attendees have found extra green in their pockets. Others have decided to stay away while whining about the climate (if it is not the cold it is the global warming). The problem for the whiners is that they are running out of things to whine about. Job growth, income, retail sales, profits, personal income, personal spending, exports and business spending are all holding up well. Big spenders have returned to the party and they are paying big dollars for the right to select the prettiest dance partners.

MSFT is still willing to dance with Yahoo. CBS just agreed to pay big bucks to dance with CNET. HP has made a huge offer for EDS. Grandpa has his shot gun loaded and is insisting that DAL and NWA go through with their marriage. All the while UAUA and CAL continue to flirt.

UAUA and CAL are once again on a date. This time, instead of marriage, they will consider a partnership. After CAL rejected UAUA's proposal, CAL flirted with AMR and British Airways and UAUA has had several dates with US Airways. UAUA may be using CAL to help bring US Airways to the alter but then it might be that CAL is using UAUA to make AMR jealous. CAL is like the widower with 5 kids who enjoys the cooking of another widower who has 5 kids. CAL likes the mutual benefits but is not sure a family with 10 kids is worth the effort. Maybe the widowers should enjoy each others company without moving in together. If CAL is able to form an alliance without getting married, it can let some of the kids grow up and leave home before getting officially hitched.


OPEC has once again lowered its oil demand forecast. OPEC says the market is well supplied and notes that refiners are not even running full-out just before the summer driving season. The NY Times notes that the last doubling in the price of crude has resulted in only a 39% increase in the wholesale price of gasoline. Gasoline supplies in the USA are ample. Clearly the price of gasoline has caused demand destruction. The car market of today is very different than the one of 5 years ago. Toyota just announced that it has sold one million Prius Hybrids. Believe it or not, Japan is now an oil exporter! The amount of exports are not huge but they provide a great example of demand destruction. Japan is using less oil than their refining capacity.

Left leaning politicians continue to attack Exxon for not spending enough on exploration. These same politicians have repeatedly voted to keep 85% of estimated US reserves off limits. Exxon and its successor has drilled up to 7 miles deep in the Gulf of Mexico! A 7 mile deep well costs in the neighborhood of $250,000,000. Once oil is discovered the infrastructure to produce the oil cost additional millions if not billions. In recent years, billions of barrels of oil have been discovered in the Gulf of Mexico. The names of deep water discoveries include Thunder Horse (discovered in 1998 and about to start production), Great White, Kaskida and Jack. The oil companies are willing to drill many miles deep if necessary but there are abundant supplies in ANWAR and along our coastlines that would not cost us nearly so much. The middle classes are suffering the most from the policies pushed by the left leaning politicians.

Hillary continues to push for an awful wind falls profit tax on oil companies. Such a tax would further increase the price of gasoline.

The marketplace is finding its way around the road blocks put up by the left. Billions are being spent on coal plants, horizontal drilling and deep ocean drilling. The daily lease rate on one deep water drilling ship is about $300,000 or about $109 million dollars per year. The operating costs for such a rig are huge.

The market will find the fuel we need or it will find the way around the need. Billions of other dollars are being spent to find substitutes. While these substitutes include nuclear power and other "alternative sources", the really big substitution is in the area of electronics. More and more people will justify the expense of an Apple iPhone as the price of gasoline goes higher. Anything that we can do to live our lives more efficiently impacts the use of fuel. The party is in full swing and the geeks with computers in their pockets are having as much fun as anyone!