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Links 5/12/08

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Is divorce bad for the parents? PhysOrg

British Gas fights Accenture over billing Times Online. A world class IT mess.

Shipping rates near record levels Financial Times

The case for invading Myanmar Asia Times, Mirable dictu. The Asia Times, which is is pretty unsparing in taking the US to task, is calling for a US foray into Mynanmar. This would be a “humanitarian intervention” but I wonder what the subtext is. Does this mean they don’t trust the locals (China, India. Thailand etc.) to do in with UN coordination and blessing?

When to ‘have a go’ Willem Buiter

Capital market deals raise $20bn FT Alphaville

Oil Nonbubble, Paul Krugman, New York Times. Krugman argues (as he has on his blog) that the lack of inventory buildup means that there is no oil bubble. The problem I have with that argument is we cannot be certain of the supposed lack of inventory increases. The New York Times, in a recent story on the runup in agricultural commodity prices, discussed how some farmers who cannot sell to elevator companies and are frustrated with the ways the options and futures markets are misbehaving are doing deals outside the exchanges, directly with sponsors of commodity funds such as AIG. AIG, which runs commodity index funds, buys the commodity, the farmer stores it for a fee, and the farmer buys it back later at a pre-set price. Again, does the inventory held with the farmer by a commodity index fund get recorded anywhere? And note further (if the author got it right): commodity funds are not supposed to buy commodities. But AIG, the fund manager, apparently did. If this is somehow to AIG’s advantage (certain) it’s a no-brainer that Goldman, which manages about 60% of the GCSI funds, is doing similar moves on a greater scale. And if private deals of the sort depicted in the article aren’t recorded, we could indeed have more inventory that is widely recognized. (And remember, even if inventories are actually growing, bubbles can go a very long time before they burst).

Bottom line: more deals are being done OTC, and physical trades related to them may not be fully captured. Anyone with knowledge is encouraged to comment.

NAR President-Elect Brays About Banks Bank Lawyer’s Blog. Amusing.

Two Posts Everyone Needs to Read Angry Bear

Antidote du jour:

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8 comments

  1. bobo7874

    In arguing about whether there is or is not a bubble, one needs to take into account how long it will take to increase production of oil from tar sands. Alberta tar sands become profitable at $40 bbl, Venezuelan at $60 bbl, and Rocky Mountain US at $80 bbl. Even assuming $120 bbl oil (or higher) is currently justified, once significant capacity in tar sands comes on line, oil prices will fall significantly. Presumably, investors with a 5 – 7 year time horizon are taking into account tar sands in determining terminal values for variou energy companies. Even if short-term traders, and uninformed journalists do not.

  2. mlnberger

    Ms. Smith: I want to first say that your blog is consistently the most thought-provoking collection of referrals and commentary on the web –

    I have no formal training in economics and so therefore found the articles from Cassandra on deflation and the Angry Bear referral to Money Illusion to be very unsettling to what I had understood to be common wisdom — i.e., that inflation (above say 2%) was, to paraphrase Friedman, at all times and all places a bad thing. Indeed, adding these views to other articles you have referenced, I am coming to see the fundamental problem for the United States is not inflation / deflation but rather income / wealth distribution. I had long thought that this development was not only morally repugnant and socially destabilizing, but now I can see is likely to be economically very corrosive. To be precise, inflation in the U.S. with its skewed income distribution is likely to be more damaging to our economic system than inflation in, say , Denmark or Sweden or Europe as a whole or deflation would be in Japan due to a more equitable distribution of income (and pain and benefits). For example, public benefits such as health care, education, and unemployment assistance and retraining are more likely to be jettisoned if the super rich have no stake in them. (The social segregation that follows from this maldistribution of wealth also enables the rich never acknowledge the role chance plays in their success, but that is a topic for another day.) I am now eager to start testing this thesis — but I wanted to thank you for giving me the information to formulate the thesis.

  3. Anonymous

    “does the inventory held with the farmer by a commodity index fund get recorded anywhere?” “And if private deals of the sort depicted in the article aren’t recorded, we could indeed have more inventory that is widely recognized.”

    Both oil and grain are easy to keep track of, the farmer has to house his grain in silos.
    The oil is stored in huge above ground tanks. Oklahoma has the largest tank farms in the US.

    The EIA keeps track of this compared to last year the US is down 20 million barrels of petrol products from May 2 2007 (1,000 million barrels) to May 2 2008 (973 million).

    Basically a 1% increase in US population combined with 2.5% decrease in oil products equals shortage.

    Bobo
    I wouldn’t hold my breath on tar sands. We have already had 5 years with oil above $40. Production takes too much water. In Canada they have enough water to perhaps double current production. In the Rockys diverting 10 million barrels a day of water to produce 1-2 million barrels a day of oil would produce a range war between farmers and oil men.

  4. Anonymous

    I know more about tracking oil inventories than grain inventories, but I can confirm for oil that Bobo is right. Oil inventories are closely tracked in all OECD countries. U.S. oil inventory data is particularly well-tracked by the EIA.

    Iran is holding some high-sulphur oil in tankers at the moment, and the entire world has reports on how many tankers and how much oil.

    Production reserves are much disputed and not at all transparent, but not inventories. Krugman is right–if the high price was due to speculation, we’d see high inventories, and we’re just not seeing inventory builds anywhere.

    Moe Gamble

  5. Scott

    Any non-US comment calling for a new US military intervention is asinine. The rest of the world has been complaining incessantly about Iraq and now the Asia Times wants George Bush to invade Myanmar? Leaving aside the fact that the US military has been worn down due to the Iraq campaign, there is no political will here in the US for any new military adventures. The author of this editorial should be lose his job. His assertion that “A unilateral – and potentially United Nations-approved – US military intervention in the name of humanitarianism could easily turn the tide against the impoverished country’s unpopular military leaders, and simultaneously rehabilitate the legacy of lame-duck US President George W Bush’s controversial pre-emptive military policies” is absurd.

  6. Yves Smith

    Scott,

    I wasn’t advocating the Asia Times position. The US is clearly badly overextended.

    I simply found it curious that a paper which is generally pretty cynical about the US still found it preferable for us to intervene than India or China. That would seem to say that while we are mistrusted, the big Asian powers are even more so.

  7. Scott

    yves,
    I didn’t mean to imply that you were advocating the AT position. I just thought that the editorial that you linked to needed a response.

    I agree with you that in reality the US is seen as less of a threat than other large countries like India or China, or Russia. That is what makes the current international anti-American drumbeat so aggravating.

    In any case, your blog is excellent and very informative.

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