Thursday, July 10, 2008

Belly Up to the Bar

A regular reader wrote that the new president of WB will make millions within two or three years when his stock options soar in value. He also wrote that CAL would have made big money at $75 oil and a strong economy but it does not look good for oil to go back below $90.

The following is my response.

I agree with most of your comment. I bought WB for a friend yesterday; we are hurting already but we will hold. The congress will pass the housing bailout bill this week or next and a deal will be made with Iraq and with Iran. The outlook for financial stocks could look very different in a week, prices could be up 20%. Obviously, my timing was on CAL was wrong. My only argument is that the $75 "good price" has been moved up to $90 or so. The dramatic cutbacks, bankruptcies and consolidations will make airlines highly profitable at about $90 and the price is going to fall well below $90.

What has proven again is the concept that the size of the tap is more important than the size of the beer keg. The crowd can not get drunk if there is not enough room to belly up to the bar. There is plenty of fuel in this old world but, in the short run, the taps are too small. Investments have already been made to build new saloons and to increase the size of many taps; trillions of investments are underway. Some new taps will flow this year, others next and so on. Hardly anyone believes we will see $70 oil again, I would bet my house that we will.

T. Boone would have the US invest 41 Trillion Dollars to build wind mills. The EIA says we need to invest 20 Trillion Dollars on mostly other stuff. It simply makes no sense to spend 41 Trillion Dollars on wind mills when we have 200 years worth of "enriched coal" available. We need to tap coal, oil, natural gas, wind, bio diesel, tar sands, shale oil and nuclear power. Unless a major break though occurs, the portion of the 20 Trillion to be spent on wind should be small. There are some exciting high altitude wind projects under way but the break troughs have been flowing steadily in the areas of nuclear, solar and microbial production.

Right now, no one really cares that the University of Sidney has just come up with the technology to increase speed of the Internet 60 times. As this technology is developed, it may increase the speed 1,000 times! The "serious news" of the day was about Jesse Jackson and Obama's nuts. The Sidney discovery was hidden deep. This new technology "scratches glass" to separate bits of data at super speed. Those who see gloom and doom forevermore need to make the connection between 60 fold increases in the speed of communication and lower demand for traditional transportation fuels. The Internet is only one of many taps being opened wide. The Internet is a gusher. Those who want to "see the world" can visit streets and neighborhoods today. Google just added a virtual world application. In the short run, these virtual worlds are merely games. In the long run, they will be substituted for actual trips. Add super high speed to remote sensors and every ones heart beat can be affordably monitored continuously.

How will Paris change when ones virtual self can spend a few hours there each evening? It sounds like science fiction it was easy for others to see a different world after Edison invented the light bulb. There is good news in the future, short term and long term. Now is the time to dig deep and to belly up to the bar. Stock prices are cheap.