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TCO
08-09-2008, 22:43:27
The prospect of a Canadian general election leaves me, and I would guess most of my countrymen, bored.

Now, boredom comes in slightly different flavours, and I will admit that the emotions associated with betrayal enter into mine. But it is like the vanilla in the ice cream; one is so used to it. We have about five parties representing five slightly different grades of vanilla. The Tories perhaps anger me the most, because they promise chocolate chips, and don't deliver. Well, maybe a couple of chocolate chips, but the irritation value of the false packaging more than compensates for them

http://www.realclearpolitics.com/articles/2008/09/canadian_consensus.html

Asher
08-09-2008, 23:19:32
The election boils down like this:

Stephane Dion (Liberal): Career academic turned politician. Can't speak English to save his life. Is trying to ride the "green wave" of environmentalism by introducing what he calls a "carbon tax" which is in reality a complicated wealth redistribution scheme. Of course, vote-rich Quebec and Ontario stand to gain while provinces that never vote Liberal stand to lose. He's absolutely pathetic in the polls regarding leadership, he's a distant third in the polls for leadership even though the Liberals are supposedly the naturally governing party.

Gilles Duceppe (Bloc Quebecois): No one fucking cares. He's a Quebec separatist fuckward that only runs candidates in Quebec.

Elizabeth May (Green Party): No one fucking cares. You can't run a serious political party when all you care about is dryhumping trees.

Jack Layton (NDP): He goes to my gym and he's a total fucking pussy. He talks politics while people are trying to work out, totally fucking annoying. He's also a socialist cunt with fucked up ideas that would screw Alberta worse than the NEP did back in the 80s.

Stephen Harper (Conservative): No personality whatsoever. Incumbent. Bland. Generic. But in a sea of the other fuckwads out there, he's going to get elected because he's the least revolting to most people. (Exception: the Liberal diehards in Toronto who post endlessly amusing comments on The Toronto Star's webpage blaming Harper for absolutely fucking everything. Hilarious actually. Did you know it's his fault that the Dawson College shooting happened a couple months after he took office? Similarly, when the left-leaning consortium of media decided not to let the Green Party [a party whose only purpose is to steal votes from the Liberals] in on the debates, it's apparently fucking Harper's fault)

TCO
09-09-2008, 00:33:02
ty. Isn't Stephanie Dion a singer?

Asher
09-09-2008, 00:37:46
It's Stephane Dion.

This simple campaign ad will go down in history as one of the most effective campaign ads in Canadian history. It single handedly killed Dion's polls in leadership ability.

It's also hilarious.

http://www.youtube.com/watch?v=wEC3vvvD1JI

TCO
09-09-2008, 00:39:37
That's a cute ad. I guess you like a little air of chocolate chip in your vanilla?

Asher
09-09-2008, 00:39:53
What the fuck are you talking about?

TCO
09-09-2008, 00:41:03
reference to story, above

TCO
09-09-2008, 00:41:35
And don't be so gruff please

Asher
09-09-2008, 00:42:10
You don't like it rough?

I still don't know what you mean.

Asher
09-09-2008, 00:42:48
Oh that story. I didn't read it.

TCO
09-09-2008, 00:43:19
No problem. I'll spoon feed you.

Asher
09-09-2008, 00:47:52
To be honest, I normally don't vote or pay attention to Canadian politics at all.

But the "Green Shift" plan the Liberals are campaigning on is just so fucking stupid that I can't stomach the fact they may be in power again. I'll be voting this year for the first time in many years.

TCO
09-09-2008, 00:50:16
You got me motivated. Going to run to the YMCA before it closes.

KrazyHorse
09-09-2008, 00:57:06
From a global perspective, carbon taxes are a good idea. There is harm done by the emission of greenhouse gases. A pigovian tax on their emission is the optimal solution.

From a chauvinistically Canadian perspective, greenhouse emissions are not necessarily harmful. As a first world country we're much better prepared to deal with climate changes than the 3rd world. Also, the opening of the Arctic provides tangible benefits. From this value system (fuck everybody else) it may in fact be beneficial for the Canadian government to subsidize the emission of greenhouse gases.

This is separate from the issue of taxes on gasoline, since the use of gas in vehicles has other negative externalities (congestion and wear on roads)...

TCO
09-09-2008, 00:58:25
Drill, baby, drill.

-workout now.

KrazyHorse
09-09-2008, 02:07:35
The argument over drilling in the US is retarded.

The main benefit to the average voter will not be by reduced gas prices (far too small for that) but by government revenue from issuing leases.

The estimate I've seen of the net present value of these is ~150 bln $ (~500$ per individual) ex environmental issues. If the cost of these is less than that then it makes sense to drill.

Then the only issue to be resolved is whether it makes sense to drill now or to wait and drill later. Since the oil in the ground represents an option of sorts then you require a long-term depreciation in the real price of oil to justify drilling currently (especially given that real drilling costs will in almost all certainty go down, not up).

Asher
09-09-2008, 02:18:21
I assumed when the crowd was chanting "DRILL BABY DRILL" they were referring to drilling Palin?

TCO
09-09-2008, 02:20:18
It takes a while for it to start coming in. I think better to get started right now. Think that prices are pricing in long term scarcity with significant cartel expectation. A marginal producer can crack that (as happened in the 80s). The markets will respond immediately to a reasonable expectation of future supply. heck, they already have. The recent dropoff in price is the markets seeing the incredible change in US sentiment.

DRILL, BABY, DRILL DRILL, BABY, DRILL!

USA! USA! USA!

Asher
09-09-2008, 02:21:43
http://www.theglobeandmail.com/servlet/story/RTGAM.20080908.welectionpoll09/BNStory/politics

The Liberals are losing ground again. Comical. Dion is toast.

Drake Tungsten
09-09-2008, 02:34:20
The argument over drilling in the US is retarded.

No shit. Why there's even an argument about drilling for oil in ANWR is beyond me.

TCO
09-09-2008, 02:57:59
I love that almost sense of menace when they cheer it.

Oerdin
09-09-2008, 10:00:38
Originally posted by Drake Tungsten
No shit. Why there's even an argument about drilling for oil in ANWR is beyond me.

But then you always were stupid.

TCO
09-09-2008, 11:57:46
Me too?

KrazyHorse
09-09-2008, 13:48:10
Originally posted by TCO
The recent dropoff in price is the markets seeing the incredible change in US sentiment.

:lol:

That's a retarded thought...

KrazyHorse
09-09-2008, 13:49:11
Seriously, TCO, that's a pathetic analysis....

Dyl Ulenspiegel
09-09-2008, 14:42:57
It's the Republican line, too. What a coincidence....

KrazyHorse
09-09-2008, 15:12:29
They have a good enough argument from strict revenue standpoint...

Asher
09-09-2008, 15:44:51
The Liberals are trying to do damage control now. They've got a whole website up to portray Dion as manly. :lol:

http://thisisdion.ca/Flashsite/thisIsDion.html

Resource Consumer
09-09-2008, 17:17:14
Originally posted by Asher
It's Stephane Dion.

This simple campaign ad will go down in history as one of the most effective campaign ads in Canadian history. It single handedly killed Dion's polls in leadership ability.

It's also hilarious.

http://www.youtube.com/watch?v=wEC3vvvD1JI

Isn't it Celine Dion?

Oerdin
09-09-2008, 17:51:41
That old crone is now rotting on the Vegas strip.

Asher
09-09-2008, 18:59:29
No, she's done there now.

TCO
09-09-2008, 21:23:41
What do you think drives price changes/market sentiment? Do you think the market is learning radical new things about geology (physical supply)? About long term demand? Competing materials?

TCO
09-09-2008, 21:25:16
Why would it be a coincidence that Repubs are same as me. My problem with them is that they are not conservative enough. (Plus want to leave Iraq and Afgh.)

Maybe I should join the Alaska Independance Party.

TCO
09-09-2008, 21:31:19
Polls are in with McCain up. Tradesports moved a little. Oil prices moved a lot (down).

DRILL BABY DRILL.

P.s. What's the harm if I'm wrong?

P.s.s. I admit to not really understanding things, having thought them all through. I just sorta smell some things that I want us to look at (cartel theory).

Oerdin
09-09-2008, 23:10:08
Basically the Republican plan to move their convention immediately after the Democratic convention worked. It muted Obama's convention bump and McCain's bump is still in effect. The good news is convention bumps rarely last and the polls will return to normal in a couple of weeks.

Oerdin
09-09-2008, 23:10:38
Originally posted by KrazyHorse
Seriously, TCO, that's a pathetic analysis....

TCO
09-09-2008, 23:15:51
I wonder if it's right though.

KrazyHorse
10-09-2008, 01:29:07
Originally posted by TCO
What do you think drives price changes/market sentiment? Do you think the market is learning radical new things about geology (physical supply)? About long term demand? Competing materials?

Short term demand/supply is what drives large swings in oil markets. Since both are relatively inelastic small errors in estimates drive large price swings.

Long-term estimates are total crap, and everybody knows that, so they don't figure into short-term pricing (this is why you don't see hoarding).

Since there is (and was) no hoarding it is ridiculous to assert that projected production 10 years into the future is affecting spot price.

In fact, take a look at forward/future contracts in crude. They've moved in synch with spot prices. If marginal production in the US 10 years from now was going to affect the price of oil then there would be free money in shorting long-term forward oil (since presumably you're claiming that spot market is tighter than future market will be).

Your hypothesis does not stand up to the smell test. It's patently absurd.

KrazyHorse
10-09-2008, 01:31:45
Originally posted by TCO
Polls are in with McCain up. Tradesports moved a little. Oil prices moved a lot (down).

DRILL BABY DRILL.

P.s. What's the harm if I'm wrong?

P.s.s. I admit to not really understanding things, having thought them all through. I just sorta smell some things that I want us to look at (cartel theory).

I already said that there's a good case to drill just from revenue standpoint.

I really doubt that the enviro groups could convince people that the effect of offshore/anwr drilling on the moose and fish is worth 150 bln. Stick to that line. No need to engage in ridiculous arguments about how the oil markets are so prescient that a 1% increase in supply 10 years from now moves the spot price 30%.

:rolleyes:

JM^3
10-09-2008, 01:34:09
But I won't see any of that 150 bln. And most of the rest of the peopel won't either. As such, that 150 bln isn't worth much to me at all.

Now, if the money instead went into the US coffers, then maybe I would think it was more reasonable (since it would benefit me).

JM

KrazyHorse
10-09-2008, 01:34:14
Oil markets are dysfunctional because derivatives traders don't know what they're doing...if they were able to match supply and demand to 1% 10 years out then oil wouldn't fluctuate by 30% on annual basis.

KrazyHorse
10-09-2008, 01:36:07
Originally posted by JM^3
But I won't see any of that 150 bln. And most of the rest of the peopel won't either. As such, that 150 bln isn't worth much to me at all.

Now, if the money instead went into the US coffers, then maybe I would think it was more reasonable (since it would benefit me).

JM

That 150 bln number is the estimated net worth of issuing leases. It goes to the US government! What they do with it is a political problem.

Estimated value of rents to the oil companies who do the extraction is 90 bln. Total extracted value of oil is 600 bln. The difference is the cost of extraction + time cost of money.

KrazyHorse
10-09-2008, 01:36:50
Oh, I think the estimate I saw also has some smaller number going to state governments....

KrazyHorse
10-09-2008, 01:40:38
Misremembered some of the numbers.

http://www.nber.org/papers/w13211

State tax receipts 37 bln
Fed tax receipts 124 bln
Industry rents 90 bln

Total value of oil extracted 374 bln

JM^3
10-09-2008, 02:09:02
Hmm, so they are going to get 123 bln for paying their employees + work + profit?

JM

TCO
10-09-2008, 02:36:13
Yeah, there are a lot of good jobs to be had drilling oil. The sort of non-McJob that Democrats always say they want.

Still, not clear to me that short term disruptions are driving prices. Not when the 5 year future was also moving as well. That implies to me a change in the expected value long term of the depleting resource. Also the long run up and the recent run down have not seen dramatic inventory dynamics, so this implies long term market view of the product rather than short term kerfuffles.

Hotelling discusses how for any depletable resource, current pricing will take acount of expected future supply and demand (and the cost of money and storage). Of course long term elasticity of demand and short term may be different. So a suddent disruption (hurricane) should affect spot price, but not future (at some time frame t).

Oil is pretty easily "hoarded" in the ground. Also, you don't even need to "think about hoarding". Price just adjusts as per Hotelling above.

http://www.econlib.org/library/Columns/y2008/Murphyoil.html

http://www.rff.org/Documents/RFF-DP-03-01.pdf

TCO
10-09-2008, 02:48:22
Originally posted by KrazyHorse
Oil markets are dysfunctional because derivatives traders don't know what they're doing...if they were able to match supply and demand to 1% 10 years out then oil wouldn't fluctuate by 30% on annual basis.

How do you explain going from $20 to $100+ over ten year period? If the market had reasonable expectation that we would be at $100 or $140!, they should have been pricing higher 10 years ago (per Hotelling).

1. Back then, did they underpredict macro energy demand growth (seems unlikely, China was already on the horizon and expectations for general Western economic growth were higher then than now.)

2. Did we have some radical new learning of geology over last few years?

3. Did the market expect new substitutes to come on line quicker, but they didn't (seems unlikely given alternative energy was not so much the buzz back then.).

4. Did the market expect global warming concerns to lead to reduced demand faster than happened? Or now the markets think global warming either won't happen or won't get restrictions? (Seems unlikely, AGW more mainstream accepted now than then.)

5. Did environomental restrictions on drilling change in some way different than best predicted?

6. Did something major happen to reduce expectations of conventional substitutes?

7. Do markets just not follow Hotelling and so they sell the oil without any expectation of future value and then just get caught by things? (You're not allowed to say yes to this.)

TCO
10-09-2008, 02:49:35
Perhaps some of the things that changed more than we expected were...

OPEC getting it's act together.

9-11,

Bush messing up Iraq.

TCO
10-09-2008, 02:53:28
Thought experiment:

What happens were I king of teh World and able to announce tommorow (no warning...other than what we've had...which is some...but still not certainty) that I was opening all US coastline, and ANWAR to drilling?

What happens to current price?

To 5 year future?

Think about if you actually had to make a bet one way or the other on these changes and I could look at your predicitons and take a side of the bet. You dividing the cake and me picking the peice.

TCO
10-09-2008, 02:58:03
Note: I really don't know which effects are dominant, but just showing how I canoodle about this thing. I'm sure with some Google surfing (like I did for Hotelling), I could find someone who discusses things the way I've tried to think about it and added numbers and developed the thoughts further.

P.s. I think one effect that is happening is that the WTI (sweet) is going up faster than sour, because of the continued and increasing restrictions on emissions from fuels. Lack of refining capacity hurts here since sour is more refining demanding (however, I don't know that refineries are being restrictedd world wide, just US we have not had a greenfield in a bazillion years) and not sure that anything very different from expected has happened here. So make of that what you will. Still a good page of the excell and appendix chart of the PP deck to have, for whatever it;s worth.

Oerdin
10-09-2008, 05:51:41
OPEC is having a meeting soon to discuss increasing production. I imagine that had more effect on spot prices then rhetoric at a political convention.

Funko
10-09-2008, 07:44:31
Best thread ever?

Bob
10-09-2008, 08:43:15
Maybe, I like the use of the word "Arschetype" in the title

King_Ghidra
10-09-2008, 09:25:54
I do think it's good that Asher goes to the gym with one of the candidates.

Funko
10-09-2008, 10:05:23
That's a sex scandal waiting to happen.

Oerdin
10-09-2008, 10:28:43
Just imagine the stuff that goes on in that gym's bathroom.

http://www.youtube.com/watch?v=L1yF8GIPQ1k

Funko
10-09-2008, 12:17:38
There's no way I'm clicking on that link after that description.

Asher
10-09-2008, 13:36:56
Originally posted by King_Ghidra
I do think it's good that Asher goes to the gym with one of the candidates.
Not lately, he's too busy flying to Alberta and telling the people Oil Companies are evil. I think he got confused about which province he was in.

That's like going to the UK and insulting football or something.

KrazyHorse
10-09-2008, 15:37:44
Originally posted by TCO
Yeah, there are a lot of good jobs to be had drilling oil. The sort of non-McJob that Democrats always say they want.

Still, not clear to me that short term disruptions are driving prices. Not when the 5 year future was also moving as well. That implies to me a change in the expected value long term of the depleting resource. Also the long run up and the recent run down have not seen dramatic inventory dynamics, so this implies long term market view of the product rather than short term kerfuffles.

Hotelling discusses how for any depletable resource, current pricing will take acount of expected future supply and demand (and the cost of money and storage). Of course long term elasticity of demand and short term may be different. So a suddent disruption (hurricane) should affect spot price, but not future (at some time frame t).

Oil is pretty easily "hoarded" in the ground. Also, you don't even need to "think about hoarding". Price just adjusts as per Hotelling above.

http://www.econlib.org/library/Columns/y2008/Murphyoil.html

http://www.rff.org/Documents/RFF-DP-03-01.pdf
Hotelling rule is overly idealised for the analysis you're trying to perform.

It assumes that resource extraction rate is infinitely adjustable, that all future production and supply is perfectly known etc.

This is not suited for any analysis of anticipated changes in future supply and their effect on current prices

KrazyHorse
10-09-2008, 15:38:57
Also, OPEC cut production today. If there was an important anticipated future increase in supply then to match Hotelling's rule they would have increased it...

KrazyHorse
10-09-2008, 15:40:59
C'mon, TCO: explain how an increase in supply of less than 1% (assuming 10 years from beginning of production to depletion of fields) causes a 30% swing in the price of a resource which demonstrates a price elasticity of demand >0.2....

Funko
10-09-2008, 15:49:50
Magic.

Resource Consumer
10-09-2008, 17:44:59
Originally posted by TCO
What do you think drives price changes/market sentiment? Do you think the market is learning radical new things about geology (physical supply)? About long term demand? Competing materials?

I blame Celine Dion

Asher
10-09-2008, 18:14:21
What's interesting is that Stephane Dion is more similar to Celine Dion than Dion Phaneuf, even though Phaneuf and Stephane share a gender.

TCO
11-09-2008, 00:09:30
Originally posted by KrazyHorse
Hotelling rule is overly idealised for the analysis you're trying to perform.

It assumes that resource extraction rate is infinitely adjustable, that all future production and supply is perfectly known etc.

This is not suited for any analysis of anticipated changes in future supply and their effect on current prices

You're missing the point. Of course it is idealized in terms of the listed assumptions wrt storage and knowledge and the like. They are listed front and center. Still the basic intuition that current prices reflect the markets thinking of how supply and demand will change over time makes perfect sense. Otherwise there are arbitrage opportunities.

TCO
11-09-2008, 00:11:19
Originally posted by KrazyHorse
Also, OPEC cut production today. If there was an important anticipated future increase in supply then to match Hotelling's rule they would have increased it...

Maybe an Occam's Razor implication would be that they cut production to try to keep the price up. That is their job after all. They are a cartel.

TCO
11-09-2008, 00:13:39
Originally posted by KrazyHorse
C'mon, TCO: explain how an increase in supply of less than 1% (assuming 10 years from beginning of production to depletion of fields) causes a 30% swing in the price of a resource which demonstrates a price elasticity of demand >0.2....

It's the expectation of cartel cracking. I don't know if 1% is needed or 5. But the idea is to get producers at the margins to get enough action going so that the cartel implodes and they all start cheating like back in the 80s. Then the whole shebang implodes.

TCO
11-09-2008, 00:41:02
Clarification. Think you are addressing or honing in on the monopolist profit maximizing dimension of Hotellings rule (which is a simplifying assumption). But the key insight that I'm trying to convey is that future supply/demand has implications for current pricing. This is the case whether the market is free or monopolist controlled. The actual prices free and monopolist, may be different. But in both cases, we still have anticipation of future demand influencing how the current product is priced. (Or else an arbitrage opportunity presents itself.)

Oerdin
11-09-2008, 01:42:50
Originally posted by TCO
It's the expectation of cartel cracking.

My foot. A 1% increase does not crack a cartel.

RedFred
11-09-2008, 03:42:09
Wasn't this supposed to be about the election?

I cannot believe they excluded the Green from the debate.

Oerdin
11-09-2008, 03:54:36
They exclude everyone from the debates.

Asher
11-09-2008, 04:08:08
They let the Greens in now.

Now we're going to have 5 dipshits yelling over eachother and not saying anything instead of 4. Happy day.

KrazyHorse
11-09-2008, 04:12:22
Originally posted by TCO
You're missing the point. Of course it is idealized in terms of the listed assumptions wrt storage and knowledge and the like. They are listed front and center. Still the basic intuition that current prices reflect the markets thinking of how supply and demand will change over time makes perfect sense. Otherwise there are arbitrage opportunities.

You're missing the point. In the event that far-future predictions are known to be pure fantasy, the weight of these predictions in current prices is virtually nil.

KrazyHorse
11-09-2008, 04:13:52
Originally posted by TCO
It's the expectation of cartel cracking. I don't know if 1% is needed or 5.

At least 6% with most optimistic (for your scenario) assumptions, given measured elasticities.

In reality, more like 10%.

KrazyHorse
11-09-2008, 04:25:11
Spot and near future supply and demand determines forward (and spot) price of oil. Projected far future demand doesn't do shit.

http://www.durangobill.com/OilChart.gif

Far forward oil prices have actually dropped less recently than spot and near forward prices. Which is exactly the opposite of what you would predict if there was to be a new source of supply at some point in the future....

KrazyHorse
11-09-2008, 04:28:21
There's only one country with any real reserve capacity left, and that's Saudi Arabia. And they showed recently that they didn't really have that much to spare. Now they're pulling back from where they were, which was almost flat out production. In order to maximize the current value of their resource, given the prediction of an increased supply on 10 year horizon then they would INCREASE production as much as possible to get the price trajectory back to hotelling's rule.

KrazyHorse
11-09-2008, 04:33:10
OPEC doesn't matter as much as it used to because OPEC countries are mainly pumping as fast as possible. World demand caught up to the excess supply faster than people had predicted. That's why price increased so fast. If people had properly predicted future supply/demand then there would have been big storage tanks sitting around full of oil waiting for the price to go up.

Dyl Ulenspiegel
11-09-2008, 09:04:49
Originally posted by TCO
Still the basic intuition that current prices reflect the markets thinking of how supply and demand will change over time makes perfect sense. Otherwise there are arbitrage opportunities.

And Mr Market just goes through one of his irrational bouts. This "market thinking" is strongly driven by the thinking of a bunch of short-term momentum speculators burning other people's money without any responsibility. They took a fundamental development to ridiculous extremes, and then to the inevitable correction.

Or maybe retarded bitches killing moose makes oil prices drop, I don't know.

TCO
11-09-2008, 10:50:21
Originally posted by KrazyHorse
You're missing the point. In the event that far-future predictions are known to be pure fantasy, the weight of these predictions in current prices is virtually nil.

Huh? I guess you think stock prices don't reflect the market's view of NPV?

What do you mean far future predictions are known to be pure fantasy? Where is that coming from? I'm not talking about a specific official projection. I'm talking about a basic concept. Are you saying that Hotelling is full of shit? Are you saying that markets do not seek to eliminate arbitrage opportunities? :hmm:

TCO
11-09-2008, 10:56:39
Originally posted by KrazyHorse
At least 6% with most optimistic (for your scenario) assumptions, given measured elasticities.

In reality, more like 10%.

So you do think that cartel action is significant here? The expectation of future cartel action is significant? If so, I'm not sure how you get those numbers, but would love to know. How do you calculate, when cheating occurs and when it doesn't? I wonder if you are just doing a free competition calculation and ignoring this impact. Also wonder if you are aware of the long history of efforts to cartelize the price and how alternate production has helped affect that. Heck even in the 80s.

TCO
11-09-2008, 10:58:09
Originally posted by Oerdin
My foot. A 1% increase does not crack a cartel.

A percent here, a percent there. Who knows.

TCO
11-09-2008, 11:02:21
Originally posted by KrazyHorse
Spot and near future supply and demand determines forward (and spot) price of oil. Projected far future demand doesn't do shit.

http://www.durangobill.com/OilChart.gif

Far forward oil prices have actually dropped less recently than spot and near forward prices. Which is exactly the opposite of what you would predict if there was to be a new source of supply at some point in the future....

How can current supply and demand determine future price? And if the two prices are roughly trakcing, this shows that current price INCLUDES an expectation of future supply and demand. Otherwise, why would people sell it now? You can't seriously be arguing against this basic concept can you?

Your comments on the spread...please develop them. Maybe there's something there in your favor, but I'm not getting it.

TCO
11-09-2008, 11:12:01
Originally posted by KrazyHorse
There's only one country with any real reserve capacity left, and that's Saudi Arabia. And they showed recently that they didn't really have that much to spare. Now they're pulling back from where they were, which was almost flat out production. In order to maximize the current value of their resource, given the prediction of an increased supply on 10 year horizon then they would INCREASE production as much as possible to get the price trajectory back to hotelling's rule.

They are capable of setting price. This is not a free competition situation.

I wonder if on some ways, the cartel is more stable at high prices, given the higher profits generated, since the demand is relatively inelastic. What I want to happen is some sort of free fall, where the price starts dropping and all the players lose discipline.

Are you sure that everyone else is really pumping and developing (its not just about immediate actions) full out? Perhaps part of better cartel discipline has been acheived by limiting pumping ability. This has a game theoretic aspect. Maybe we need bigger wedges to affect that sort of better cartel behavior.

I don't think that you can use a decision by a single player as the best insight for how the market is estimating future supply and demand. You seem to keep wanting to think of this in terms of deliberate things where players sit down and think about Hotelling.

TCO
11-09-2008, 11:21:50
Originally posted by KrazyHorse
OPEC doesn't matter as much as it used to because OPEC countries are mainly pumping as fast as possible. World demand caught up to the excess supply faster than people had predicted. That's why price increased so fast. If people had properly predicted future supply/demand then there would have been big storage tanks sitting around full of oil waiting for the price to go up.

They may be pumping fast, but they also have a relatively larger share of the world's oil. I wonder which affect is dominant. Also, there may be ways in which they try to deliberately constrain their pumping capacity to maintain discipline.

Certainly, it's possible that the market did not anticipate growing world demand properly. This is I think the conventional view. I guess looking at numbers and such would help us think about this and if it is the only factor, how important of a factor, etc. Maybe the recent drop-off is just the market thinking that growth won't happen as fast.

The market is going to be integrating views of supply and demand over time. And long term supply and demand are very important to the price of the product right now (this is almost irrefutable. It's arbitrage. It's a Nobel Prize.) Now, perhaps the only dimension of uncertainty is future world wide demand. But I'm merely floating a possibility that cartel effectiveness and the expectation of future cartel effectiveness is also an important factor.

And it's a very easy product to store. And you don't need to have it in tanks and such.

Resource Consumer
11-09-2008, 12:53:50
hmmmm......

What are the short and long run marginal production costs of oil?

Venom
11-09-2008, 16:05:57
I keep opening this thread, waiting for the comical threadjack but it just remains a terrible, unstoppable machine of boredom and asshattery.

Funko
11-09-2008, 16:08:14
True, true.

Tizzy
11-09-2008, 16:13:52
Stop waiting and do something about it.

Oh. I forgot who I was talking to.

Venom
11-09-2008, 16:15:34
Whatever could we talk about? I can't be interesting on purpose.

Funko
11-09-2008, 16:15:35
What's for dinner?

Funko
11-09-2008, 16:17:30
Not an x-post.

Tizzy
11-09-2008, 16:17:45
Fish and chips

Funko
11-09-2008, 16:17:53
Ok it was. Shut up.

Funko
11-09-2008, 16:18:18
So was that. Grr.

Mmm. Fish and chips.

Tizzy
11-09-2008, 16:21:20
And beans (ok, you can have peas)

Venom
11-09-2008, 16:30:12
Funko doesn't likb beans?

Resource Consumer
11-09-2008, 17:58:32
even worse it is full of Polyism....

KrazyHorse
11-09-2008, 18:41:18
Originally posted by TCO
Are you saying that Hotelling is full of shit?

Hotelling works for a situation where individuals can substantially predict the future. It does not work when predictions (even market predictions!) of future supply and demand are blatant nonsense.

KrazyHorse
11-09-2008, 18:42:23
TCO, what arbitrage opportunity are you claiming?

TCO
11-09-2008, 20:43:44
Originally posted by Resource Consumer
hmmmm......

What are the short and long run marginal production costs of oil?

Develop the thought please.

I'm willing to play along, if you prefer, and attempt to answer of course.

TCO
11-09-2008, 20:46:35
Originally posted by Venom
I keep opening this thread, waiting for the comical threadjack but it just remains a terrible, unstoppable machine of boredom and asshattery.

Well...I did start that thread on fighting five year olds. That seemed like pure CounterGlow. Very un-TCO Surprised no one brought it up before.

P.s. You can always abuse me and print Poly Poly.

P.s.s. Cat still likes to knead my fat butt.

Oerdin
11-09-2008, 20:53:14
I like Thai food.

TCO
11-09-2008, 21:00:39
Originally posted by KrazyHorse
Hotelling works for a situation where individuals can substantially predict the future. It does not work when predictions (even market predictions!) of future supply and demand are blatant nonsense.


The current price of oil reflects expectations of future supply and demand. They do not have to be well known or exact. The markets will still try to price that in, somewhat similarly to how they do for the inexactly understood future earnings of a stock. Changes in the expectation of future supply and demand, will change the price paid currently. There's nothing fancy or heretical about this concept Kitty. It's true religion Roman Catholic microeconomics. This holds for expectations of everything (growth in demand, substitutes, geology, etc. etc.)

The issue of cartel effect is a different one. I don't know that cartel action is having a significant effect. But I posit that it may, may in the future as well. Certainly it has in the past. Given that, pricing can be impacted by expectation of future cartel effectiveness.

Oerdin
11-09-2008, 21:05:05
You know BBQed pork is also good.

Oerdin
11-09-2008, 21:13:41
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TCO
11-09-2008, 21:14:42
I just had barbecued chicken.

Oerdin
11-09-2008, 21:15:22
Dear Email Account User,

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For the Chief Executive Officer (CEO),
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Singapore, Asia

TCO
11-09-2008, 21:16:18
I miss Sand Dog.

Oerdin
11-09-2008, 21:19:22
http://img379.imageshack.us/img379/6563/azr10255314gn1.jpg (http://imageshack.us)

Oerdin
11-09-2008, 21:20:26
http://img183.imageshack.us/img183/4306/seesawwp8.gif (http://imageshack.us)

Lurker the Second
11-09-2008, 23:38:14
I think he's made his point pretty well.

TCO
12-09-2008, 00:16:47
me? Oerdin?

TCO
12-09-2008, 00:23:35
http://www.nytimes.com/2008/09/12/business/worldbusiness/12oil.html?_r=1&oref=slogin

Hmm...could this be from the growing willingness to drill in the US? Maybe mix in a little bit better outlook for ME peace as well? And could the SA continued pumping be not done to placate us or anything like that...but because they need the dollars and don't want to take it in the ass for the whole cartel?

Lurker
12-09-2008, 05:25:21
Originally posted by TCO
me? Oerdin?

Hehe, I was referring to your quote of RC's post that on my settings was the last post on the previous page.

The fact that I typed all that means I should be shot. If you try to make sense of it it means you should be shot.

Vincent
12-09-2008, 06:04:43
Originally posted by Venom
I keep opening this thread, waiting for the comical threadjack but it just remains a terrible, unstoppable machine of boredom and asshattery. This is well spoken

Vincent
12-09-2008, 06:16:05
Originally posted by TCO
Well...I did start that thread on fighting five year olds. That seemed like pure CounterGlow. Very un-TCO Surprised no one brought it up before.
And I guess this is the mentioned asshattery

Funko
12-09-2008, 08:04:11
Originally posted by Venom
Funko doesn't likb beans?

I do, but not with fish and chips.

Resource Consumer
12-09-2008, 09:49:27
Originally posted by TCO
Develop the thought please.

I'm willing to play along, if you prefer, and attempt to answer of course.

Well, if the market price was very close to marginal cost (even long run marginal cost) then it would be hard to argue that a cartel had any power.

I thought that a market price well in excess of industry marginal costs would be the first issue in deciding on cartel power and future.

Maybe that's just plain wrong.

Funko
12-09-2008, 10:01:54
Oh shut up RC what do you know about energy company economics anyway?

Dyl Ulenspiegel
12-09-2008, 10:16:57
True, but he knows all about moose.

Bob
12-09-2008, 10:39:57
I'd rather hear about moose.
I'd even rather hear MoSe!

Tizzy
12-09-2008, 10:41:03
Be careful what you wish for

Dyl Ulenspiegel
12-09-2008, 10:41:16
So what's the price of MoSe?

Bob
12-09-2008, 10:45:08
Demand is 0

The Shaker
12-09-2008, 10:49:49
Supply unlimited

Bob
12-09-2008, 10:51:53
The price is too high

Resource Consumer
12-09-2008, 10:56:14
Originally posted by Funko
Oh shut up RC what do you know about energy company economics anyway?

Nothing, but at least I don't draw graphs.:)

Bob
12-09-2008, 10:57:29
Did you ever do some MoSe mining?

mr_B
12-09-2008, 10:59:08
:gasmaske:

Resource Consumer
12-09-2008, 11:13:09
Originally posted by Bob
Did you ever do some MoSe mining?

Is that sort of enema leaching?

Tizzy
12-09-2008, 11:15:47
It sounds painful whatever it is

Dyl Ulenspiegel
12-09-2008, 11:25:15
Dem Mineur ist kein Mose zu schwör.

Funko
12-09-2008, 11:49:23
Does the supply of amateur economic bullshit in this thread exceed demand?

Tizzy
12-09-2008, 11:50:59
Well, demand was zero, so yes.

Bob
12-09-2008, 11:52:22
it exceeds my imagination

Funko
12-09-2008, 11:53:33
You should be more positive.

Venom
12-09-2008, 11:55:41
Our only option is to lower supply. I suggest using a Glock 17.

Resource Consumer
12-09-2008, 12:02:30
Originally posted by Funko
Does the supply of amateur economic bullshit in this thread exceed demand?

I suggest they form a cartel to restrict the supply.

Tizzy
12-09-2008, 12:04:02
I prefer Venom's option.

Bob
12-09-2008, 12:18:23
you better also shoot my imagination

Funko
12-09-2008, 12:19:42
But you don't have one.

Bob
12-09-2008, 12:21:49
that was fast

Tizzy
12-09-2008, 12:27:37
Good shooting

Bob
12-09-2008, 12:28:21
I can't imagine who did it.

KrazyHorse
12-09-2008, 12:51:33
Originally posted by TCO
The current price of oil reflects expectations of future supply and demand. They do not have to be well known or exact. The markets will still try to price that in, somewhat similarly to how they do for the inexactly understood future earnings of a stock.

Well duh. That has nothing to do with how strongly the market prices future expectations into spot prices. The spot price is a certainty. The spot price at some future time is an expectation. There is no arbitrage between the two.

KrazyHorse
12-09-2008, 12:55:57
Originally posted by Resource Consumer
Well, if the market price was very close to marginal cost (even long run marginal cost) then it would be hard to argue that a cartel had any power.

I thought that a market price well in excess of industry marginal costs would be the first issue in deciding on cartel power and future.

Maybe that's just plain wrong.

If we lived in TCO's world where expectations are 100% certain then (since oil is a non-renewable resource) we could actually expect the price of oil to be significantly higher than the short-run marginal cost to produce...

C.G.B. Spender
12-09-2008, 12:58:58
TCO's world. What's the name of that planet? Planet 101?

Resource Consumer
12-09-2008, 13:03:15
Originally posted by KrazyHorse
If we lived in TCO's world where expectations are 100% certain then (since oil is a non-renewable resource) we could actually expect the price of oil to be significantly higher than the short-run marginal cost to produce...

irrsepective of demand/utility?

Bob
12-09-2008, 13:03:48
Is this the Spore thread?

Dyl Ulenspiegel
12-09-2008, 13:05:59
What about substitution?

C.G.B. Spender
12-09-2008, 13:07:27
It sucks

Dyl Ulenspiegel
12-09-2008, 13:08:30
A substitution for sucking is needed.

C.G.B. Spender
12-09-2008, 13:11:02
Substitute - me for him
Substitute - my coke for gin
Substitute - you for my mum
At least I'll get my washing done

Resource Consumer
12-09-2008, 13:12:59
Originally posted by Dyl Ulenspiegel
What about substitution?

You can no longer use 11 in friendly football matches

Dyl Ulenspiegel
12-09-2008, 13:50:11
That sucks. :(

Resource Consumer
12-09-2008, 14:03:40
Blame Sven

Dyl Ulenspiegel
12-09-2008, 14:08:28
The plague on the house of Sven!

Resource Consumer
12-09-2008, 14:16:31
That's what we all say!

KrazyHorse
12-09-2008, 16:59:46
Originally posted by Resource Consumer
irrsepective of demand/utility?

Yes, unless there was low enough demand that the supply can't be considered scarce...

Resource Consumer
12-09-2008, 17:42:41
hmm.....

interesting

TCO
13-09-2008, 01:14:22
Originally posted by KrazyHorse
Well duh. That has nothing to do with how strongly the market prices future expectations into spot prices. The spot price is a certainty. The spot price at some future time is an expectation. There is no arbitrage between the two.

So when the spot and long term future price both drop ~30%, why is that? Doesn't that implicate the outlook for the long term supply and demand changing? The market's "view" of long run supply demand (probably well past the future contract itself) changing? The implication is that before it was thought that a barrel of oil was worth more just sitting in the ground. Now, not.

TCO
13-09-2008, 01:27:55
Originally posted by KrazyHorse
If we lived in TCO's world where expectations are 100% certain then (since oil is a non-renewable resource) we could actually expect the price of oil to be significantly higher than the short-run marginal cost to produce...

I have made multiple comments to the effect that markets do not (how could they) have 100% certainty. It is their guesses on future value which have implications on current prices.

11-09-2008 16:00 (this thread). Several other comments also in this thread.

Do you understand that market guesses on future value (hence supply and demand as functions of time) affect current value of an asset?

It's a very similar concept to the price of a stock reflecting NPV of earnings (which is also not written down with 100% certainty and subject to change with prices reflecting new market estimates (not nescarrily written estimates) of the future situation.

This is Roman Catholic stuff, Kitty. Don't make me defend orthodoxy. And make sure you understand what the priest is saying before you nail up the theses.

TCO
13-09-2008, 01:35:58
Originally posted by Resource Consumer
Well, if the market price was very close to marginal cost (even long run marginal cost) then it would be hard to argue that a cartel had any power.

I thought that a market price well in excess of industry marginal costs would be the first issue in deciding on cartel power and future.

Maybe that's just plain wrong.

I like that insight. I think what makes it tough is thinking about the marginal production in future times (which can be at a different total production and also reflect different type of geology...and also exhaustion of existing geology). So I think you're right. It's just tough to think of in comparison to some simple manufacturing analogy.

Also, of course, if low cost producers are withholding supply, the marginal cost of production (moving along the curve) may still be close to price...moving to other players not withholding supply. But for a large player like Saudi Aramco, their marginal cost of production might be well lower than price (long or short term). So if you think of that as the marginal production (which you probably should), it fits right into what you are saying about cartel action and pricing power and the like.

P.s. I don't have any background in looking at these kind of problems and have never even taken an econ course. So, I'm just trying to talk and think. May not have a trained skill in analyzing this with best issue analysis.

TCO
13-09-2008, 01:38:28
Originally posted by Resource Consumer
irrsepective of demand/utility?

Please expand/ound?

TCO
13-09-2008, 01:44:58
Originally posted by Dyl Ulenspiegel
What about substitution?

I think the best way to think about substitution is with respect to price elasticity and switching of individual segments (when building up a curve manually with rectangles). Of course, this is a simple first effect way of looking at it. On a more complex level, the substitutes have their own supply and demand curves (even as functions of time...can think about them running out...or become more plentiful for instance). So to really solve this, need a computer and some solver program. However, the market can just integrate that in. For instance, on a simple level, if a bill starts going through Congress outlawing coal, then (if we agree that oil and coal are substitutes), price of oil will start climbing in expectation of future higher demand (because of more difficulty for segments to switch away in the future). Could imagine an inverse effect were it a subsidy (or even were it just R&D, to the extent that the market thinks R&D will work.)

Sorry if this is boring. This is first chapter of first year Econ 101. But that's how I try to think first. If you had some other implication, than please elaborate.

TCO
13-09-2008, 01:46:54
Originally posted by KrazyHorse
Yes, unless there was low enough demand that the supply can't be considered scarce...

Expand/expound please.

RedFred
13-09-2008, 03:37:19
Originally posted by TCO
So, I'm just trying to talk and think.

Well... talk anyway. ;)

I did not think it was possible to make a Canadian election thread even more boring.

Since you seem intent on delving into macroeconomic issues impacting the U.S., could you explain why Fannie Mae and Freddie Mac needed to be bailed out?

My theory is that it was because both organizations had silly names.

Bob
13-09-2008, 05:15:39
good point

Resource Consumer
13-09-2008, 09:23:17
Originally posted by TCO
I like that insight. I think what makes it tough is thinking about the marginal production in future times (which can be at a different total production and also reflect different type of geology...and also exhaustion of existing geology). So I think you're right. It's just tough to think of in comparison to some simple manufacturing analogy.

Also, of course, if low cost producers are withholding supply, the marginal cost of production (moving along the curve) may still be close to price...moving to other players not withholding supply. But for a large player like Saudi Aramco, their marginal cost of production might be well lower than price (long or short term). So if you think of that as the marginal production (which you probably should), it fits right into what you are saying about cartel action and pricing power and the like.

P.s. I don't have any background in looking at these kind of problems and have never even taken an econ course. So, I'm just trying to talk and think. May not have a trained skill in analyzing this with best issue analysis.

Fair points.The issue is, though, at what point backstop technology comes into play. If you knew that then you would know the optimal target price given assumed/estimated elasticities over both the short and the long run.

TCO
13-09-2008, 11:59:30
Originally posted by Resource Consumer
Fair points.The issue is, though, at what point backstop technology comes into play. If you knew that then you would know the optimal target price given assumed/estimated elasticities over both the short and the long run.

I didn't know what "backstop technology" meant. So I googled it and got this paper:

http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012095.pdf

Which contains this definition:



A backstop technology is defined as a new technology producing a close substitute to an
exhaustible resource by using relatively abundant production inputs and rendering the reserves
of the exhaustible resource obsolete when the average cost of production of the close substitute
falls below the spot price of the exhaustible resource. (Dasgupta and Heal, 1978) For instance,
the technology of harnessing solar energy can be perceived as a backstop technology to oil,
coal and natural gas. Hence, the development of a backstop technology shortens the planning
horizon and, in turn, can accelerate the extraction and lower the spot prices of the exhaustible
resource.

The last sentence, I think, explains your point.

TCO
13-09-2008, 12:07:51
Originally posted by Resource Consumer
Fair points.The issue is, though, at what point backstop technology comes into play. If you knew that then you would know the optimal target price given assumed/estimated elasticities over both the short and the long run.

I think these are non-trivial. Outlook for future finds, future production techniques and China/India growth all have uncertainty.

Especially there is uncertainty related to a cartel that sometimes maintains discipline and sometimes doesn't. Or even just a single swinig player that sometimes is willing to control price on its own (by withholding supply, even when it's fellow cartel members cheat) and sometimes not.

But non-trivial as these may be, it makes sense that the markets will incorporate inferences as best they can. Just as inferences about a new backstop technology (say better solar) would affect long term (and hence current) prices, so would inferences about future cartel effectiveness.

KrazyHorse
13-09-2008, 13:05:38
Originally posted by TCO
So when the spot and long term future price both drop ~30%, why is that? Doesn't that implicate the outlook for the long term supply and demand changing?

Dude, the forward price of an asset cannot exceed e^rt*(spot price today) + storage costs...and cannot be lower than e^rt*(spot price today)

THIS is the arbitrage condition

This does not mean shit when predicting the spot price 5 years from now. There is no arbitrage between the two.

TCO
13-09-2008, 15:22:15
I'm not trying to make a point about specific instruments and the spread between them. Making a broader point when I talk about arbitrage, etc. That the entire price structure reflects the market's implied thinking about supply and demand all the way to well past any specific instrument.

Much like a stock price reflects a view on earnings out to infinity. (and often more than 50% of the value is in the "terminal value" (more than 5 years out.

When the whole price structure drops 30%, why is it dropping? It's dropping because of a long term view. (Similarly when it rises.) Not because of some "sudden" injection of supply or "sudden" decrease in demand.

So an anticipated increase in supply (or a substitute, or a cartel cracking or a decrease in demand or whatever) WILL have an impact on current pricing. Even if it's 10 years out!

--------------------------------------

Here's a thought experiment: Imagine a situation where we knew a portal would open up and a parallel earth would give us oil for free...in ten years. Imaging transport price is zero or small compared to today's oil price. (And we know tomorrow, that this situation will happen in ten years.) What happens to today's price? What happens to the stock price of companies that build deep off shore wells?

Alternate though experiment: same thing happens, but the parallel earth has exact demand of existing earth, for oil...while no supply of oil.

TCO
13-09-2008, 15:28:22
Oh...and could you please address the thing about saying that I think the market has 100% certainty? I don't mind you having fun with me, if that's what you're doing. But I get worried that you're not even following my comments (even textually, but more importantly in terms of ideas, particularly).

KrazyHorse
13-09-2008, 17:07:14
Originally posted by TCO
When the whole price structure drops 30%, why is it dropping? It's dropping because of a long term view. (Similarly when it rises.) Not because of some "sudden" injection of supply or "sudden" decrease in demand.

So an anticipated increase in supply (or a substitute, or a cartel cracking or a decrease in demand or whatever) WILL have an impact on current pricing. Even if it's 10 years out!

When uncertainty about future supply/demand is great enough then the price reflects current supply and demand more and more, and reflects future supply and demand less and less. This is because the risk associated with projected future profits from selling short/hoarding increases, and assuming risk-averse investment, weighs less in spot prices.

Also, you need to respond to me about the numbers. Drilling will yield ~3.2 billion bbls. Assume that this can all be gotten in 10 years starting 10 years from now. This means ~880 000 bbls/day

Current world demand is ~87 million bbls/day. By 2018 it'll be over 100 million bbls per day. This means that additional US supply will comprise less than 1% of global demand. Even short-run price elasticity of oil demand is >0.2. This means that there will be at most 1%/0.2 = 5% decrease in prices. Note that this is overly optimistic as it assumes that supply is totally inelastic.

That is econ 101. Now when you discount the 5% decrease for a 10 year period across the lifetime of oil according to hotelling rule what do you get? That's right, far less than 5%.

TCO
13-09-2008, 18:19:28
Originally posted by KrazyHorse
When uncertainty about future supply/demand is great enough then the price reflects current supply and demand more and more, and reflects future supply and demand less and less. This is because the risk associated with projected future profits from selling short/hoarding increases, and assuming risk-averse investment, weighs less in spot prices.

Also, you need to respond to me about the numbers. Drilling will yield ~3.2 billion bbls. Assume that this can all be gotten in 10 years starting 10 years from now. This means ~880 000 bbls/day

Current world demand is ~87 million bbls/day. By 2018 it'll be over 100 million bbls per day. This means that additional US supply will comprise less than 1% of global demand. Even short-run price elasticity of oil demand is >0.2. This means that there will be at most 1%/0.2 = 5% decrease in prices. Note that this is overly optimistic as it assumes that supply is totally inelastic.

That is econ 101. Now when you discount the 5% decrease for a 10 year period across the lifetime of oil according to hotelling rule what do you get? That's right, far less than 5%.

1. The variability is a second order effect, Kitty. Changes in expected future price will still have an impact in a highly uncertain situation. For instance, imagine a situation where the future long term price was known as X, with zero variability, complete confidence. Now we change to knowing the price is 3X, but with variability such that it will be 2X half the time and 4X the other half the time.

2. I get the impact of a free competition increase in supply, Kitty. Go back and re-read. I'm not talking about them pricing that in. I'm talking about them pricing in cartel cracking.

3. Please comment on the certainty remark. Have I said the markets have 100% certainty?

TCO
13-09-2008, 18:24:20
Oh and getting into the numbers, does that represent all the extra oil from opening up ANWAR and off shore? Or just one of those two? And source for the numbers?

Dyl Ulenspiegel
13-09-2008, 19:35:57
Originally posted by TCO
I think the best way to think about substitution is with respect to price elasticity and switching of individual segments (when building up a curve manually with rectangles). Of course, this is a simple first effect way of looking at it. On a more complex level, the substitutes have their own supply and demand curves (even as functions of time...can think about them running out...or become more plentiful for instance). So to really solve this, need a computer and some solver program. However, the market can just integrate that in. For instance, on a simple level, if a bill starts going through Congress outlawing coal, then (if we agree that oil and coal are substitutes), price of oil will start climbing in expectation of future higher demand (because of more difficulty for segments to switch away in the future). Could imagine an inverse effect were it a subsidy (or even were it just R&D, to the extent that the market thinks R&D will work.)

Sorry if this is boring. This is first chapter of first year Econ 101. But that's how I try to think first. If you had some other implication, than please elaborate.

The only implication is that any modelling based on oil alone is too simplified to be meaningful. Especially when you include thought experiments on limited ressources or marginal production costs. Essentially what RC said.

If you applied a similar experiment at the pre-coal beginning of the industrial revolution for horse feed or wood: You or market participants might assume huge demand with economic growth and mechanisation - and both became pretty irrelevent as a source for energy pretty fast.

Dyl Ulenspiegel
13-09-2008, 19:38:58
Originally posted by RedFred
Well... talk anyway. ;)

I did not think it was possible to make a Canadian election thread even more boring.

Since you seem intent on delving into macroeconomic issues impacting the U.S., could you explain why Fannie Mae and Freddie Mac needed to be bailed out?

My theory is that it was because both organizations had silly names.

May I add two different ideas:

1. The US financial system is insolvent. A haircut to outstanding mortgage backed assets from F+F worsens the insolvency problem and, even worse, makes it more difficult to hide insolvency (if you wonder about all the crap like Super SIV, new fed windows etc: THeir purpose is to hide insolvency).

2. Without a bailout, Fannie and Freddie would merge to become Tripper Mac, which is unacceptable to Republicans.

TCO
13-09-2008, 20:15:48
Originally posted by Dyl Ulenspiegel
The only implication is that any modelling based on oil alone is too simplified to be meaningful. Especially when you include thought experiments on limited ressources or marginal production costs. Essentially what RC said.

If you applied a similar experiment at the pre-coal beginning of the industrial revolution for horse feed or wood: You or market participants might assume huge demand with economic growth and mechanisation - and both became pretty irrelevent as a source for energy pretty fast.

I'm not sure that I do your point justice, but if you are claiming that markets only react to changes in future state that are capable of analytical mathematical sense with zero uncertainty, then (than?) I have to disagree.

There are porabably a butt-zillion examples, but a trivial one that I saw personally was Torry Pines biotech stocks taking a nose dive in 1993 when pharma price controls in the US were floated as a possiblity by the Clinton admnistration. And then recovering substantially when it became evident that this would not get pushed any more. And these were stocks for companies with no product, with all kinds of uncertainty. And even the possiblity of legislation was uncertain. But the danger drove pricing of these stocks.

TCO
13-09-2008, 20:18:59
Fannie and Freddy should have been allowed to fail. Subordinated debt is subordinated for a reason. The decision not to let it happen and to let speculators and Goldman and banks and all that take their haircut was a political calculation. The true cost is higher by taking these assets and putting them on the books.

Allowing Fannie and Freddie to fail would have been a great way to let them die...and prevent repeats.

TCO
13-09-2008, 20:22:42
Sven Sture?

Dyl Ulenspiegel
13-09-2008, 21:11:21
Originally posted by TCO
I'm not sure that I do your point justice, but if you are claiming that markets only react to changes in future state that are capable of analytical mathematical sense with zero uncertainty, then (than?) I have to disagree.



Ok. I entered substitution just as KH assumed you were using certainties.

Maybe the issue is not whether markets react to certainty (they obviously don't have that), but whether markets fully account for their own however faulty expectations. I also doubt that for shorter intervals (you know, the voting machine vs the calculator), so runups and busts should not be surprising and are not necessarily related even to market expectations. Or, more precisely, prices also react ro expectations on prices, not just fundamentals.

TCO
13-09-2008, 21:27:41
Even if you posit some sort of momentum style moving around, markets will still react to learnings that change the fundamental outlook, on top of that.

Resource Consumer
14-09-2008, 08:27:33
Originally posted by TCO
I didn't know what "backstop technology" meant. So I googled it and got this paper:

http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012095.pdf

Which contains this definition:





The last sentence, I think, explains your point.

Actually, it misses it entirely.

TCO
14-09-2008, 11:46:47
So, what is it?

Resource Consumer
14-09-2008, 18:44:07
I give up.

Dyl Ulenspiegel
14-09-2008, 19:37:20
I give down.

JM^3
15-09-2008, 03:43:05
Originally posted by KrazyHorse
That 150 bln number is the estimated net worth of issuing leases. It goes to the US government! What they do with it is a political problem.

Estimated value of rents to the oil companies who do the extraction is 90 bln. Total extracted value of oil is 600 bln. The difference is the cost of extraction + time cost of money.

http://www.nytimes.com/2008/09/11/washington/11royalty.html?pagewanted=1&_r=1&em?

How much of it will be spend on blow and hookers?

JM

Oerdin
15-09-2008, 05:37:04
Originally posted by TCO
Fannie and Freddy should have been allowed to fail. Subordinated debt is subordinated for a reason. The decision not to let it happen and to let speculators and Goldman and banks and all that take their haircut was a political calculation. The true cost is higher by taking these assets and putting them on the books.

Allowing Fannie and Freddie to fail would have been a great way to let them die...and prevent repeats.

I recall listening to a an NPR report with the Finance Ministers of a great many countries who pretty much all agreed that would have resulted in the destruction of most of the world's financial systems. $5.5 trillion would be a massive blow setting off a new world wide depression.

Basically things have gotten so out of hand the government had no choice but to nationalize them and the real problem was the lack of regulatory over site. The Republican hands off philosophy always creates these problems and then things get so bad the government has to intervene to prevent the whole financial markets from crashing.

If we're forced to bail people out because not doing so would result in the unthinkable then we should at least regulate everything as much as possible to make a repeat less likely.

KrazyHorse
15-09-2008, 13:01:38
Originally posted by TCO
1. The variability is a second order effect, Kitty.

Second order effects become as big as first order effects (or more so!) when the variability is order 1.

KrazyHorse
15-09-2008, 13:04:58
I find it hilarious that you think that <1% supply increase for a period of 10 years starting 10 years from now drastically increases the probability of OPEC breaking up.

:lol:

TCO
15-09-2008, 21:22:03
I've given you something new to think about.

Dyl Ulenspiegel
16-09-2008, 11:53:42
Ah, new ideas, great new challanges for the mind.

Like these: http://www.bloomberg.com/apps/news?pid=20601109&sid=a7pClNzdJSVw&refer=home

Linda Burke, 57, a customer service consultant with AT&T Inc. in Atlanta, said she figured her retirement savings would take a hit and added that she was angry, though she wasn't sure at whom. ``If I knew more,'' she said, ``I could find someone to blame.''

.... Harris, 20, an unemployed warehouse worker who lives with his parents in Weehawken, New Jersey. .... he said, ``I mean, `Grand Theft Auto' did half a billion in seven days. So the economy's not that bad.''

King_Ghidra
16-09-2008, 14:04:56
i like it when people are described as unemployed [profession]

i am currently an unemployed galactic conqueror

KrazyHorse
16-09-2008, 15:17:39
I am an underemployed porn star.

Funko
16-09-2008, 15:52:07
ITYM underendowed.

KrazyHorse
16-09-2008, 20:50:58
Underachieving

Sir Penguin
17-09-2008, 03:13:09
Underaman.

SP

Funko
17-09-2008, 07:55:46
:lol:

SP FTW.