Links 1/16/09


  1. Anonymous

    the telegraph is possibily one of the most unreliable newspapers in the world, don’t take what they write seriously.

  2. fresno dan

    The 10 most unethical people in business”
    kind of disappointing – what does blagojevich have to do with Business? And is Paulson stupid or unethicial??? And Rubin should be 1st, unless someone can come up with someone who has overall had a more negative affect on the current situation.

  3. Richard Kline

    Regarding the Brent-WTI gap, it stinks. We have had probable manipulation and collusion on the oil price surge of 09. We have yet to have serious discussion of the probable manipulation and collusion of the oil price plunge of 09-10—but that’s what I call it. Yes, demand is in a big drop. We still drive all these cars, and heat all these buildings, in all these countries. Oil at $45 is on the lower edge or rationality, but in these conditions, and especially as a down bounce from the extraordinary mania spike is not necessarily out of line. Oil at or below $35. I don’t believe that that is a market price. And clearly neither do some in the industry. This is a ‘punish the specs and kneecap the producers’ price.

    Why anyone, anywhere thinks that markets are ‘free’ is . . . mystifying. Game the system is the oldest game in town. And we see it on the downside here, sez I. Shouldn’t I applaud, then?: no. A stable price is in everyone’s interest, while the manipulator’s are against _everyone’s_ interest because they act in their interest alone. Of course, we will see no better investigation of the plunge manipulators then we have yet seen of the spike manipulators, nor will we.

  4. Anonymous

    another link

    Why Geithner and Rangel Matter
    Edmund Wright – The American Thinker

    “… While working for the International Monetary Fund, Geithner failed to pay taxes even though the IMF “grossed up” his pay to actually give him the money with which to pay his taxes. They also attached a stub that showed exactly what his pay was including how much had been grossed up … it showed exactly what taxes he owed on that particular income.) I mean, this was not complicated.

    Not only that, but Geithner himself prepared his own tax returns for several of the years where this underpayment was made. Bottom line: He either is not capable of handling a rather pedestrian income statement for tax purposes or he flat out cheated.”

  5. Independent Accountant

    What about Fuld, Mozzillo, Blankfein, and Paulson? I don’t like his list. Yes, Robert Rubin belongs there.

  6. Independent Accountant

    I read Jeff Miller’s article about accountants. I rarely resort to ad hominem attacks, but it is one of the stupiest I have read in a long time. I looked at his site, and conclude the man is stupid. By the way, I am frequently critical of my profession, the CPA profession. For what? Concealing fraud! This is what Miller wants more of!

  7. Bob_in_MA

    Why is it the only media outlets that share my outrage over the indifference shown over Geithner’s tax fraud are right wing? Even the WSJ’s editorial was milk toasty. Kind of disconcerting to someone on the left who maintains a healthy cynicism about the powers-that-be.

    I haven’t seen any of the economic blogs even mention it.

  8. macndub

    Good article on the WTI/Brent reverse differential.

    I don’t believe that the 2008 spike was manipulation by financial players; rather, it was non-price-sensitive Chinese buying. The evidence? Low storage builds and flat term structure. Krugman wrote a lot about this, as I recall, and I agree with him. Light sweet crude on Nymex hit its peak in July last year (that’s the August contract). That’s coincident with the timing of the Olympics.

    Different story today. The steep, steep contango and decoupling of benchmark crude slates points to financial speculation to me. The problem is that I don’t know how it will end: will the contango pull spot prices up (ie, the long speculators win), or will the dated light-sweet Nymex contract fall to spot levels?

    I don’t follow the crude market as closely as I follow natgas, but this situation reminds me of Brian Hunter kicking the market around in 2006. That ended badly for the longs, not least of whom was Mr. Hunter himself.

    Indeed, noncommercial long commitments outnumber short by more than 2:1, evidence that financial buying out the curve is supporting prices beyond the prompt month. Is this socially bad? Perhaps, to the extent that speculators don’t get punished for bad calls. But unlike, say, MBSs, the gov’t won’t be bailing out underwater commodity traders. And as Lune pointed out last year, you need to post a lot of collateral to make these trades.

    How do we fix this? I think that letting the market do its thing will work out in this case. I don’t see an alternative to the price discovery that futures markets allow (we definitely don’t want the whole trade to move OTC onto Cargill’s and BP’s books). Also, the business has been thinned significantly because of credit requirements. In fact, it’s possible that this volatility is due to too few traders (too thin a market), not too many.

    The good news is the same as the bad news: the prices of actual crude oils have decoupled from the light sweet Nymex contract. Western Canadian Bow River is trading at a 20% discount to Nymex, for example, which high: it should be more like 30%. So the financial gyrations are not translating into the real economy. So far.

    Since the Chinese are likely back to burning coal, and the world economy is hitting the toilet, I have no trouble believing that supply-demand fundamentals can drive a 50% or more price reduction from the peak last year. That works out to a combination of supply increases and demand destruction adding up to about 6% of world demand: a huge, but not unprecedented change.

  9. joe c


    Global oil demand fell in 2008 and will drop again this year amid the impact of the economic crisis, the first time since 1982 that consumption has declined for two years in a row, the International Energy Agency said on Friday.

    Although others, including the US Department of Energy and private sector analysts, have warned about the first decline in oil consumption in more than 25 years, the IEA had until now maintained that consumption was poised to increase this year, albeit only slightly.

    However, the agency said on Friday that oil consumption dropped by 300,000 barrels a day in 2008 and will fall by another 500,000 b/d this year. The changes, the IEA said, ”try to reflect the worsening trends evident since mid-December.”

    Overall, the IEA slashed its forecast for oil demand this year by 1m b/d, leaving it at 85.3m b/d. ”Forecast global oil demand has been sharply revised down for 2009, following a reassessment of global economic prospects,” said the agency, the western countries’ oil watchdog.

  10. Carlosjii

    IMO ‘Sir’ Alan Greenspan belongs at the top of ANY list of the most incompetently unethical. He has been too old to hold responsible office for at least 15 years – since the first bubble began in 1996.

  11. Anonymous

    Yves, have a look at Barclays. Something going on. Volume as well as price. Also RBS to a lesser extent. But B is the real thing.

  12. doc holiday

    The Aztecs and Mayans, along with other natives of Mesoamerica, considered the owl a symbol of death and destruction. In fact, the Aztec god of death, Mictlantecuhtli, was often depicted with owls. There is an old saying in Mexico that is still in use (considered politically incorrect): Cuando el tecolote canta, el indio muere (“When the owl cries/sings, the Indian dies”). The Popol Vuh, a Mayan religious text, describes owls as messengers of Xibalba (the Mayan “Place of Fright”).

    This was on Wiki, so it must be true!

  13. Richard Smith

    Anon of 1:19 – plenty at Alphaville about it – a) prospect of synthetic CDO ratings downgrade (Barclays are big holders; that exposure has been discussed before at AV) b) Calpers & GM reputedly dumped their Barclays holdings today c) UK financial short selling permitted again as from today: we'll be able to see on Monday whether that was a factor.

  14. Juan


    In your reading of Krugman did it appear that he understood the type of price regime which developed out of OPEC’s mid-1980s loss of control and especially the turn to commodities as a financial asset class during the earliest years of this decade?

    My impression was that he did not but remained within an efficient pricing type of model, as though futures centered price formation for benchmarks _must_ correctly represent fundamentals rather than self-fulfilling speculative activity.

    If reversion to long-run and very long-run price still has some validity, and if the global economy is in process of so severe a contraction/fragmentation as I tend to think, further decline in price of oils seems more probable than not.

  15. macndub

    I do not believe that investors are rational, nor that commodity futures predict future commodity prices. I also believe that financial, long-only funds can move commodity prices deep in the term structure (ie, not in the prompt month).

    My impression was that he … remained within an efficient pricing type of model, as though futures centered price formation for benchmarks _must_ correctly represent fundamentals…

    This doesn’t reflect Krugman’s analysis, in my opinion. Instead, he believes that supply and demand must close every day; therefore, today, the price of oil represents supply and demand for it, today. Any speculative buying must show up as increases in inventory. Speculative production cuts will also drive prices up (such as keeping oil in the ground hoping that it will be worth more later).

    The reason is simple: if you are long the prompt month contract, on Jan 22, somebody will call you to schedule delivery of your crude oil. As an ETF based in Manhattan, you really can’t take delivery; therefore, at some point before Jan 22, you are mechanistically rolling off the prompt contract and into the second month. Generally, this process starts very early, certainly before the trading month is half complete.

    This trading strategy is a disaster. Suppose that everybody does this: it leads to a contango in a falling market. You are always buying into a contango (because you are mechanistically buying the second month, while selling the prompt). As the contango erodes, because supply and demand fundamentals on the spot market haven’t changed, you are continually getting ground down in the value of your portfolio.

    The other way to financially speculate in commodity is to buy it and store it: keeping it off the market. In this strategy, you need to have storage capacity, and you are short the second month as you deliver into the contango. This is how storage operators make boatloads of money.

    Bottom line: with financial speculation, you will either see a spike in inventories, or a deepening of the contango, or both (as we have right now). That’s my only point.

    I’m a believer in long run mean reversion, that the price of commodities holds flat in real terms. The problem is, of course, is that markets can remain irrational longer than… well, you know.

    further decline in price of oils seems more probable than not.

    Yeah, especially in if the contango gets run off by price declines in the future. Jan/10 is still almost $60.

  16. Juan

    This doesn’t reflect Krugman’s analysis, in my opinion. Instead, he believes that supply and demand must close every day; therefore, today, the price of oil represents supply and demand for it, today. Any speculative buying must show up as increases in inventory. Speculative production cuts will also drive prices up (such as keeping oil in the ground hoping that it will be worth more later).

    He then believes causality to run one way, real supply/demand to price even as the latter is made in financial markets which are open to speculative pressures and, as you say, can be or become quite irrational?

  17. Glen

    Unethical list; I think most of us belong to that. Weren’t we all peeved off when our super funds didn’t pay 17%+ returns or our house didn’t appreciate 30% in 6 months? Why is my unit trust is only returning 20% when yours is doing 25? These are the returns we demanded which we all wallowed in and there was a good reason why these numbers were so, in hindsight, unrealistic – it literally was too good to be true. We demanded; they gave; we’re now paying.

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