Tag Archives: Oil

Ode to the Auto Feo, Part V – The Bitter End

9/1/2011 Portland, Oregon – Pop in your mints…

With the markets relatively calm until the sparks fly later next week, we conclude our tale.  Our tale is, among other things, a recount of the recent history of Bank of America wrapped up in a vehicle metaphor:  “Ode to the Auto Feo,” originally inspired by the recent passing of a vehicle that taught us many valuable lessons.

You can catch up with the “Ode to the Auto Feo”, Parts I,II, III, and IV by clicking on the following links. 

Ode to the Auto Feo, Part I –  The Birth of a “Need”

Ode to the Auto Feo, Part II –Optimism and Desperation are Poor Bedfellows

Ode to the Auto Feo, Part III –Lemon Discovery

Ode to the Auto Feo, Part IV – Acceptance and Admiration

Our story continues:

After careful reflection, we could see that our reasons for adopting the fateful “gasoline only” policy in the Auto Feo were two-fold and that they reflected two of our character traits which, taken individually are admirable, yet when combined, can lead to terrible decision making.

The first and most obvious of these traits is frugality.  While we do not think of ourselves as especially frugal, we do tend to choose certain items or activities upon which to focus our frugality.  This focused frugality in and of itself can prove extremely useful where investments in proven strategies are concerned.

The second, perhaps less obvious, trait which was expressing itself in this decision was our sense of adventure.  This trait can prove extremely useful when there is something to be gained from the undertaking and adequate margin for error for the undertaking’s failure. 

The terrible decision, then, comes when we combine this sense of adventure, which, we repeat, requires ample margin for error, with our frugality which, by definition, does not provide for any margin of error.

Hence, in retrospect it was obvious that adopting the gasoline only policy in the case of the Auto Feo was a terrible decision.  The only thing to be gained was sheer entertainment value reaped by those unaffected by the decision, a group that you, fellow taxpayer, are happily a part of.

Now that we understand the motivation for such a decision, we offer you the inspiration.

We were inspired by the desire to avoid buying a quart of oil each week (frugality) and, by extension, to avoid further staining our driveway with oil spilled out of the engine block.  To accomplish this, we discovered (or perhaps imagined) an experiment that the military had conducted in which they had never put oil in new vehicles and had been able to rely on the resulting engine shavings caused by the friction to serve as a sort of permanent lubricant for the pistons as they slammed up and down in the engine block.

Now most sane persons and certainly those who are mechanically inclined will quickly realize that there is a big difference between our situation with a 17 year old vehicle which held two quarts of oil and the military who had new vehicles which had never been filled.  There was also a big difference in our respective circumstances.  The military could afford to lose a few vehicles to this sort of experiment.  We, on the other hand, would be walking if it did not pan out.

The experiment began with promising results.  The vehicle’s performance, which was not that great to begin with, deteriorated only slightly.  This did not concern us as.  After all, we only had 1.5 miles to drive each day.  We continued through rain and shine, confident that we were actually on the verge of improving the Auto Feo’s performance and significantly extending its useful life.

Like so many of today’s fiscal and monetary policies, the delusion of sustainability was to be, uh, sustained until the day it came to a catastrophic end.

Six more months passed and two things happened in quick succession.  One turned out to be an omen, while the other an illusory victory.

The omen appeared one late Spring evening when we came upon the Auto Feo in the parking garage on our return commute to find that the driver side window had been shattered and the vehicle’s contents, which consisted of a Bible and a pair of jumper cables, had been clumsily rifled through.  The thief took the jumper cables.

With the bi-annual emissions test that is required in Oregon just one week away, our frugality again kicked in and we resolved to use clear plastic and duct tape to temporarily replace our driver-side window until we could be sure that the vehicle would be cleared by the authorities to operate another two years.

Note to self:  If you need to cover a broken out window in a vehicle, make every attempt not to use opaque or transparent plastic.

We hobbled along for a week of near misses at intersections with limited visibility out of our driver’s side.  On a Saturday, we made the trek to Hillsboro to submit the Auto Feo to the automotive equivalent of a colonoscopy.

Arriving at the emissions testing center, we found ourselves apologizing unnecessarily for the condition of the vehicle and explaining that we wanted assurance that Oregon’s green gods would allow the vehicle to continue to operate on the roads of their realm.

“We wanted to see if it would pass before fixing the window,” we offered.

“Looks like its seen better days, let’s take a look,” said the attendant.

She was apparently unfazed by the appearance of the vehicle and we later thought that apart from these people, only body shops and junkyards see more pathetic looking vehicles on a regular basis.

We winced as we watched the attendant place the probe into the Auto Feo’s tailpipe and had to remind ourselves that it was not human.

“Looks like it failed,” said the attendant.  “But it did improve at 2,000 RPMs,”

“Can we give it another try?” we offered in a desperate last ditch effort to forestall the diagnosis.

“Why not?” said the attendant.

And then a miracle occurred.  The Auto Feo passed the emissions test.

We joyfully drove home and quickly arranged to have the driver’s side window replaced.  Our experiment was going swimmingly and the emissions test somehow validated our hypothesis.  The military was right, we are better off not adding oil to your vehicle!

The Bitter End - Rest in Peace Auto Feo

Our delusion, which was now government sanctioned, was allowed to carry on.

Astute readers will quickly draw a parallel between our Auto Feo tale and Bank of America and the current banking system in general:  Our emissions test is a metaphor for the so-called stress tests that have been run on the banks in America and Europe in an attempt to shore up confidence.

When will these delusions end?

In the case of the Auto Feo, two short months after the government sanctioned emissions test gave it the green light, we were forced to make a journey farther than our normal 1.5 mile daily jaunt.

Through knocks, heaves, and roars, the Auto Feo dutifully carried us on our route until, a mere .5 miles from home, the Auto Feo froze up.

We feared the worst but in our optimism we had the vehicle towed to our house.  We waited for the morning.

The next morning, it started!  This truly was a miracle.

Alas, the miracle was that the Auto Feo was simply saying goodbye.  For in the evening, when we jumped in to drive it home, the Auto Feo did not immediately respond.  A brief heave was all it could muster as we cranked the starter.  And then, all was silent. 

Our experiment was a failure, the Auto Feo had passed on.

Bank of America has been in the news a lot lately, and for all the wrong reasons.  The behemoth is too big to succeed and for every client that is making money, there seem to be two or three who are going bankrupt, leaving B of A to foot the bill.

Although management will never admit it, the Bank is now throwing Hail Marys late in the fourth quarter in a desperate attempt to raise capital.  While this is exciting to watch, you probably don’t want to put your money on the team who has resorted to such a desperation tactic.

Returning for one last, painful look at our automobile metaphor, It appears that the FED has decided not to change the oil (i.e. replace member banks’ worthless assets for fresh cash) and the banks will be left to lubricate their engines with the metal shavings as its worthless assets disintegrate on the balance sheet.

How long until B of A seizes up?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for September 1, 2011

Copper Price per Lb: $4.15
Oil Price per Barrel:  $88.71

Corn Price per Bushel:  $7.29  
10 Yr US Treasury Bond:  2.15%

FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,825 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.5%!!!   UP 0.7% IN ONE MONTH, 8.4% ANNUALLY AT THIS PACE!!!
Dow Jones Industrial Average:  11,494  TO THE MOON!!!

M1 Monetary Base:  $2,108,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,473,600,000,000 YIKES!!!!!!!

Oh My, The Giant Snowball is now Rolling Down Hill, can the Central Banks Stop it?

8/8/2011 Portland, Oregon – Pop in your mints…

Oh my.  Two words, four meager characters, made famous by Jesse “The Body” Ventura during his ringside blow by blow commentary in the glory days of the WWF (circa 1986).  These words, which so eloquently summed up the effects of a pile driver, seem strangely appropriate to describe what is occurring in equity markets around the globe during their first chance to “react” to the S&P downgrade of the US Government’s sovereign debt rating.

As we write, the Dow is down 5%, ditto for Oil.  Gold is up over 4% and the downgraded bonds of the US Government of the 10 year variety are up (in other words, yields have fallen) approximately 4%.

What is going on?  We will give you a clue, Bank of America (BAC) is down almost 20% on massive volume.

Still guessing?  We won’t keep you in suspense.  This downgrade, whether deserved or not, early or late, is wreaking havoc with mutual fund investment policies which call for excess funds to be held in AAA rated debt.  There are not enough German bunds or UK gilts in circulation to pick up the excess funds gushing out of Treasuries.

The obvious implication is that USD bank deposits should rise.

More deposits that it can’t lend at a profit would tank behemoths like B of A, and Uncle Sam may have trouble saving it.  That, and B of A is being sued for fraud, again.

Enough of B of A, back to the money flying out of US Government obligations by investment policy edict.  Where will this money go?  That is what is currently being sorted out in the markets.  And at the moment it is UGLY for equities on a global scale.  Don’t worry, by late next week, so much money will be pumped into the system that equities will have no choice but to rise.

We can’t help but think back to this chart (BELOW) showing the proliferation of AAA debt in the world.  It seemed as if it was everywhere, like pine trees in a forest.  Now, with one simple action, those who trust S&P’s judgment (which history has show is at one’s own peril) find themselves with at least $14 Trillion less AAA issues to choose from.  More, if you count the implied downgrades of government agency and other government guaranteed debt.

"AAA" Government dominates the market and it is beginning to smell funny!

Stepping away from the technicalities of investment policies and looking at the downgrade in a philosophical sense, it is like a minor earthquake that triggers a tsunami that the financial world is now helplessly watching roll ashore, or like a giant snowball has been pushed downhill and threatens to start an avalanche.

The financial world is looking at these twin disasters and now realizes that the only thing standing between them and the demise of the current financial and currency systems is, are you ready for this?

The Central Banks of the World!!!  Not exactly knights in shining armor, if you ask us.  We might be more comfortable if Pee-wee Herman were on the case.  At least he could provide entertainment as the demise unfolds!

The downgrade is another chink in the armor of the world’s largest knight in shining armor, the United States of America.  Every day, more people are coming to grips with the fact that the US of A cannot provide security and social benefits at such low rates.   Bill Bonner of the Daily Reckoning regularly explores this decline of the American Empire. 

As we touched on the other day, what man calls nations today are, for purposes of analysis, simply competing security agencies which have a man-made geographical monopoly.  The problem, as any businessman will tell you, is that nowadays the agency’s customers can’t take the price hikes.  Neither can they easily choose to move their business to a competitor.  Expatriating is not cheap and involves a host of logistical problems.

The book of Isaiah, chapter 40, God refers to the nations as a “drop in the bucket” and “dust on the scales.”  The obvious implication is that nations do not last, and in extreme cases, dealing with a government may feel like one is dealing with the Mafia.  The need to preserve a geographical monopoly can make an analysis of the actions of a government or a mafia eerily similar.

Seen through this lens, S&P is like the snitch who broke Omerta and tells everyone that the Mafia boss can’t pay on his contracts.  Now the boss will likely face an increase in the vig on what he owes the loanshark. 

How long before the rat gets whacked?

Don’t forget to keep your eye on events in the Middle East, especially Palestine.  Something bigger than we image is brewing there and our guess is that the eyes of the world will soon be focused there.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for August 8, 2011

Copper Price per Lb: $3.97
Oil Price per Barrel:  $83.36

Corn Price per Bushel:  $6.78
10 Yr US Treasury Bond:  2.37%

FED Target Rate:  0.09%  TIGHTENING?  NOT!

Gold Price Per Ounce:  $1,718 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  -0.2%!!!  PULL OUT THE HELICOPTERS!!!
Dow Jones Industrial Average:  10,899  TO THE MOON!!!

M1 Monetary Base:  $2,012,200,000,000 RED ALERT!!!
M2 Monetary Base:  $9,226,100,000,000 YIKES!!!!!!!

Bernanke fires up the Helicopters and Precious Metals Blast off!

7/13/2011 Portland, Oregon – Pop in your mints…

Today Bernanke went before the US Congress and gently laid down the gauntlet.  If Congress fails to raise the debt ceiling soon (by August 2nd, we are told), it could have catastrophic effects on the economy

Given that nearly the entire banking system on the planet depends upon the US Treasury being Grade A debt, Mr. Bernanke may again be credited with the understatement of the year!

We pity Mr. Bernanke.  He is like a pilot flying an Airbus aircraft that is stalling at extremely high altitute.  We don’t know much about aircraft but we understand that Airbus aircraft, with their European design slant, do not give a pilot much freedom to override the plane’s automated systems.  It assumes that all of the necessary corrective actions can be pre-programmed and, if the plane begins to stall, the computers take over to attempt to correct the problem.

Actual Airbus pilots are free to dispute the merits of our oversimplification.  We just needed a metaphor.

Back to Bernanke, with the autopilot mechanism failing, the pilot does not know what to do.  If the US Congress had dutifully raised the debt ceiling as it had 94 times in the past, as the Airbus autopilot manual said it would, Bernanke’s reaction to the most recent US jobs report would have been to simply propose a third round of quantitative easing (read: money printing or counterfeiting of currency).

On the Airbus, he would get on the intercom and say “please fasten your seatbelts until we pass through this patch of rough air.”

However, the failure of the US Congress to reach a deal to raise the debt ceiling has thrown a wrench in his plans.  What is his plan now?  Think helicopters, Zimbabwe, Gideon Gono.

Mr. Bernanke is going on a safari!

Yes, fellow taxpayer, with each day that passes, it is becoming clearer to the majority that Mr. Bernanke is unwittingly following in the footsteps of none other than Gideon Gono.  Some may recall that Mr. Gono, the Governor of the Reserve Bank of Zimbabwe, was forced to “do extraordinary things that aren’t in the textbooks,” meaning that he oversaw the printing of large amounts of his country’s currency which produced an amazing modern example of hyperinflation.  

In an interview with Newsweek in early 2009, Gono offered an explanation for his actions and predicted that the US would do the same, as it has:

“I’ve been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not. I decided that God had been on my side and had come to vindicate me.”

The hyperinflation in Zimbabwe led to shortages of real goods and destroyed the economy.  Why would Mr. Bernanke’s experiment end any differently?

Meanwhile, over in the Eurozone, the Airbus is in rapid descent and everybody on the plane is offering ideas as to what went wrong and how to fix it.  Its auto-pilot has not been programmed to deal with the failures the plane is experiencing and as the pilots and passengers engage in a heated debate, none are able to grab the controls much less safely land the aircraft.

 it will not be long before impact and the smarter passengers are starting to grab for the parachutes made of Gold and Silver.  Gold closed up almost 1% to a record of $1,583 and Silver gained nearly 6% on the day.

Back in the US, whether or not Congress passes legislation to raise the debt ceiling is irrelevant.  The US Treasury will borrow and the FED will print even without Congressional approval.  That is what makes modern Government fun, if you don’t like a rule, just ignore it and claim that you were exercising “Leadership.”

All of the countries in the Eurozone will soon surrender their sovereignty to Germany and the IMF in exchange for the “privilege” of using Euro as currency.  The ideological divide that is being exposed in the US may eventually lead to civil war.

But these events may be small compared to what is occurring in the Middle East.  Iran opened its own international Crude Oil exchange today which is akin to declaring war on the western governments and banking interests.

And keep your eyes on Palestine.  The UN vote on Palestinian statehood in September is eerily similar to the vote 62 years ago when the UN accepted Israel as an independent state.  Our guess is that this vote will spark events there that will capture the attention of the whole world.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S. 

P.S.  If you enjoy or at least tolerate The Mint, please share us using the buttons at the bottom of this post.  If you feel that you can’t go another day and risk missing The Mint, please register by clicking here.  Thank you!

Key Indicators for July 13, 2011

Copper Price per Lb: $4.35
Oil Price per Barrel:  $97.83

Corn Price per Bushel:  $7.26  
10 Yr US Treasury Bond:  2.89%
FED Target Rate:  0.07%  JAPAN HERE WE COME!

Gold Price Per Ounce:  $1,582 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.2%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,492  TO THE MOON!!!
M1 Monetary Base:  $2,020,000,000,000 RED ALERT!!!
M2 Monetary Base:  $9,112,300,000,000 YIKES!!!!!!!

*See the MINT Perceived target Rate Chart.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

72 Hour Call for June 28, 2011

Today’s Call:  September Wheat to rise.  Currently $6.71-6.

Rationale:  Kansas Wheat was reported as 55% cut today and reports that the harvest is 100 million bushels lower than last year will weigh on prices as word spreads.

Result of Call for June 23, 2011:  Nymex Crude Oil to rise.  Was $91.92, Currently $92.92.  Good Call.

Calls to Date:  Good Calls: 32, Bad Calls: 27, Batting .543

Daily Default:  TerreStar Networks, Nebraska Book

Key Indicators for Tuesday, June 28, 2011

Copper Price per Lb: $4.11
Oil Price per Barrel:  $92.92 A FAILURE TO INFLATE, WILL TREND LOWER

Corn Price per Bushel:  $6.83   MONETARY POLICY IS NOT WORKING
10 Yr US Treasury Bond:  3.05%
FED Target Rate:  0.08%  UH OH!

Gold Price Per Ounce:  $1,501 BENEFITING FROM PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.25%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,189
M1 Monetary Base:  $1,895,400,000,000 RED ALERT!!!
M2 Monetary Base:  $9,086,900,000,000 YIKES!!!

*See the MINT Perceived target Rate Chart.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

72 Hour Call for June 24, 2011

Today’s Call: 10 year US Treasury Bond yield to fall (price to rise). Currently 2.87%.

Rationale: Even though there will soon be a heightened risk of default by the US, moves such as releasing oil from the strategic reserve will give reason to believe that the US will make good on its obligations.  With the debt ceiling talks stuck on taxes, soon demand for Treasuries will overwhelm supply.  US Banks still reinvest in Treasuries and will likely continue to be obligated to do so.

Result of Call for June 21, 2011: US Dollar Index to fall.  Was 74.61, Currently 75.63. Bad Call.

Calls to Date: Good Calls: 31, Bad Calls: 26, Batting .544

Key Indicators for Friday, June 24, 2011

Copper Price per Lb: $4.10
Oil Price per Barrel:  $91.16 A FAILURE TO INFLATE

Corn Price per Bushel:  $6.70 MONETARY POLICY IS NOT WORKING
10 Yr US Treasury Bond:  2.87%
FED Target Rate:  0.08% UH OH!

Gold Price Per Ounce:  $1,502 BENEFITING FROM PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.25%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  11,935
M1 Monetary Base:  $1,895,400,000,000 RED ALERT!!!
M2 Monetary Base:  $9,086,900,000,000 YIKES!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

72 Hour Call for June 23, 2011

Today’s Call:  Nymex Crude Oil to rise.  Currently $91.92.

Rationale:  Oil was oversold today on the announcement to release 60 million gallons of oil into the global supply from strategic reserves with 30 million gallons coming from the United States reserve.  The 60 million gallons does not even represent one day’s worth of global oil consumption.  In other words, this is a token announcement.  The world has more of a money supply problem than an oil supply problem.  Both are policy problems which will not be soon resolved.  These problems will keep the price of oil in dollar terms on an upward trajectory.

Result of Call for June 20, 2011:  JPMorgan to fall.  Was $40.48., Currently $40.20.  Good Call.

Calls to Date:  Good Calls: 31, Bad Calls: 25, Batting .553

Key Indicators for Thursday, June 23, 2011

Copper Price per Lb: $4.05
Oil Price per Barrel:  $91.92 A FAILURE TO INFLATE

Corn Price per Bushel:  $6.80   MONETARY POLICY IS NOT WORKING
10 Yr US Treasury Bond:  2.91%
FED Target Rate:  0.09%  FED IN PERMANENT DESPERATION MODE

Gold Price Per Ounce:  $1,521 BENEFITING FROM PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.25%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.2%
Dow Jones Industrial Average:  12,050
M1 Monetary Base:  $1,895,400,000,000 RED ALERT!!!
M2 Monetary Base:  $9,086,900,000,000 YIKES!!!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

72 Hour Call for June 10, 2011

Today’s Call:  Dow Jones Industrial Average to rise.  Currently 11,952.

Rationale:  Assumption that the plunge protection team will move over the weekend to prop up the Dow, a widely watched stock market indicator.

Result of Call for June 7, 2011:  NY Crude Future Oil to rise.  Was $98.42, Currently $99.29.  Good Call. 

Calls to Date:  Good Calls: 28, Bad Calls: 19, Batting .596

Key Indicators for Friday, June 10, 2011

Copper Price per Lb: $4.02
Oil Price per Barrel:  $99.29

Corn Price per Bushel:  $7.87
10 Yr US Treasury Bond:  2.97%
FED Target Rate:  0.09%  FED STILL IN DESPERATION MODE

Gold Price Per Ounce:  $1,532

MINT Perceived Target Rate*:  2.25%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  11,952
M1 Monetary Base:  $2,022,700,000,000 RED ALERT!!!
M2 Monetary Base:  $9,005,800,000,000 STARTING TO DRY UP?  NOT!

 *See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.