Category Archives: Energy

Re: Korea

Posted on by


[Skip to the end]

(an interoffice email)

>
> On Mon, Jun 9, 2008 at 5:05 AM, Sean wrote:
>
> Today Korea announced a plan to spend $10bb to counter the effects of
> rising oil prices. The $100bb will include tax rebates and subsidizing
> power providers. This is with GDP growing at 5.8% ( although expected
> to slow to the mid 4% range and CPI at 4.9% – the package is expected
> to add 0.2% to GDP.
>
> There is no political will in Asia to avoid measures that sustain demand
> for energy related products – subsidy cuts have been very small and the
> outcry loud enough to prevent further meaningful cuts. Inflation is
> ripping in Asia, the second round effects are unavoidable and its going
> to be imported to the US.
>
>

Thanks, looks like Japan cpi break evens have a long way to go!


[top]

Share

Bloomberg: Russian control of energy to Eurozone

Posted on by


[Skip to the end]

Medvedev May Seek to Assure Merkel on Russian Energy Supplies

by Lyubov Pronina and Brian Parkin

Enlarge Image/Details

(Bloomberg) Russian President Dmitry Medvedev may seek to assure Europe of Russia’s reliability as an energy supplier and allay German Chancellor Angela Merkel‘s human- rights concerns in a one-day visit to Berlin today.

Medvedev will meet Merkel and President Horst Kohler and address about 1,000 business executives and lawmakers in his first trip to Western Europe as Russia’s leader.

“Energy will be at the forefront of talks and they won’t be easy,” Yevgeny Volk, a Moscow-based analyst for the Heritage Foundation, a U.S. research group, said in a telephone interview. “Russia wants to increase its energy influence in Europe, while Western countries would like to get more guarantees from Russia that deliveries will not fail.”

Note there is no discussion about price. The euro negotiators want to ensure deliveries with an agreement that is necessarily unenforceable in any case. Russia does have 25,000 nuclear weapons, for example.

Russia, which supplies 25 percent of Europe’s energy, has clashed with Europe over concerns that it abuses its role as Europe’s main energy source to further its political agenda. It opposes further eastward expansion of the North Atlantic Treaty Organization, U.S. plans for a missile-defense shield in Europe and Kosovo’s secession from Serbia.

Looks to me that Russia is in full control, and is using its position to enhance its real terms of trade, something never even mentioned by the Eurozone.

Germany and the European Union have pressed for guarantees that Russia will follow a uniform policy for supplying oil and gas across the bloc, weakening its capacity to wield energy policy as an arm of diplomacy. Russia briefly cut off gas to Ukraine in 2006 in a pricing dispute.

As if quantity ‘guarantees’ would ‘weaken’ anything. Apart from being unenforceable, it all misses the point of price and relative value.

Good luck to the Eurozone!!!

[top]

Share

Mexico’s poor get food cash bonus

Posted on by

Right, this was also suggested in a prior email- the political response towards a food shortage would be cash distributions.
Assuming there actually is a world food shortage and the prices are indicative of a world market allocating by price, this doesn´t create any new food but simply adds upward pressure on prices, triggering an international inflation.

Politically, there is no other choice but to add to inflation like this to at least be seen to be doing something.

Mexico’s poor get food cash boost

The Mexican government is to give its poorest citizens a monthly cash payment of 120 pesos ($11.55; £5.85) to help them cope with rising food prices.

The news came a day after the country said it would cut tariffs on imported crops such as corn, wheat and rice.

In a further sign of the impact of rising food and fuel costs, inflation in Vietnam jumped to 25% in May, the highest rate for 10 years.
Average food costs have risen by 42.4% in a year, the Statistics Office said.

Growing demand
In Mexico, official figures show consumer prices rose by 4.55% – the fastest rate for three years – in the 12 months to 30 April, led by increases in the cost of tomatoes, chicken and cooking oil.

Growing demand from fast-expanding countries such as India and China has been blamed for spiralling food prices, along with record fuel costs and the use of grain to produce bio-fuels.

Governments around the world are under pressure to intervene to help the poorest cope with the sharp food price rises.

There have been public demonstrations about food prices in a number of countries including Egypt and South Africa.

Mexico’s monthly cash payment, which will go to 26 million people in the Latin American country, equates to just over twice the national daily minimum wage of 50 pesos.

The government faced street protests last year when the price of tortillas doubled.

Rice restrictions
Vietnam has seen the price of rice, its staple food, jump 67.8% in the last 12 months, according to government figures.

One of Vietnam’s most important sources of imported rice, Cambodia, stopped exporting the grain in March.

It is one of a number of rice-producing countries, including India, Egypt and Indonesia, to have either banned or restricted exports in recent months to secure supply for domestic customers.

On Tuesday, Cambodia was set to resume exports of rice after its two-month ban ended.

Prime Minister Hun Sen said only rice that was not needed for domestic consumption could be sold for overseas consumption until the new harvesting season began in December.

Last year, that amounted to 1.6 million tons of milled rice.

Share

Energy crisis ‘solution’

Posted on by


[Skip to the end]

Interesting no one even mentions anything close to my proposal:

Lower the national speed limit to 30 mph for private ground transportation.

    That would:

    • Directly cut gasoline consumption as vehicles are far more fuel efficient at 30 mph than 60 mph.
    • Directly cut air and other pollutions.
    • Reduce long distance driving due to time constraints
    • Increase the demand for public transportation due to time savings issues
    • Reduce the needed safety features as you can’t hurt yourself all that much at 30 mph
    • Lead to much smaller cars and therefore better ‘packaging’ in the cities, reducing traffic and parking demands
    • Change relative real estate values currently distorted by relatively cheap fuel

    The reduction in consumption could be up to 5 million bpd in the US alone, which would:

    • Provide the net supply shock capable of reducing crude and refined product prices
    • Improve our real terms of trade and restore our quality of life
    • Increase national security by reducing dependence on foreign oil
    • Slow environmental degradation

    It’s a political choice- ration by price as we are currently doing, or use other methods, some of which we already do, such as fuel economy standards.

    This proposal simply adds the price of ‘time’ to burning gasoline for all private transportation, thereby making fuel efficient, cleaner, less resource intensive, alternative transportation more attractive.

    Feel free to try to make it happen if you agree!


    [top]

    Share

    Q&A for Warren B

    Posted on by


    [Skip to the end]

    Hi Warren,

    Do you think there is any chance that the Fed ever puts us into a steeply inverted curve, say something like 10% short rates with 6% long rates? Hard to imagine that happening with the housing market weak, but what do you think?

    Very high probability – I’d say 85% chance if, as I expect, crude stays here or goes higher. maybe a lot higher.

    Hiking causes inflation to accelerate via the cost structure of business, so when they start hiking, inflation accelerates. Guaranteed!

    Only a major supply response will break the inflation. Like pluggable hybrids in 5-10 years or cutting the national speed limit to 30mph, which is highly doubtful.


    [top]

    Share

    Bloomberg: ‘Silent Famine’ as Food Soars

    Posted on by

    Seems they still think it is about money.

    Probably an actual shortage at this point.

    The political response will be to give people more funds to buy food that does not exist and drive prices ever higher.

    `Silent Famine’ as Food Soars, WFP Warns

    by Jason Gale and Paul Gordon

    (Bloomberg) A “silent famine” risks emerging in some Asian countries where food prices including rice are escalating beyond the reach of the poorest people, the World Food Program warned.

    “There is food on the counters and on the shelves in stores but there is a certain population that cannot afford that food,” Paul Risley, a spokesman for the United Nations agency, said today. “There’s a risk of a silent famine.”

    Record prices for rice and wheat are ratcheting up the cost to aid agencies of providing relief, Risley said from Bangkok. UN Secretary-General Ban Ki-Moon said yesterday that rising food costs may hurt economic growth and threaten political security.

    “In Asia, supply is not the main constraint, but the huge price increases are,” said Rajat Nag, managing director at the Asian Development Bank. “That has a very massive impact on the poor and we need to focus on the huge price increases.”

    `We’re Struggling’
    “We find we can’t buy as much rice as we thought we would be able to buy,” Risley said in an interview with Bloomberg Television. The agency feeds 28 million of the poorest Asians across 14 countries. “Because of the high prices right now, we’re struggling,” he said.

    Share

    NYT: Let them eat corn

    Posted on by

    Says it all about politics:

    Fuel Choices, Food Crises and Finger-Pointing

    by Andrew Martin

    Senator Charles E. Grassley, Republican of Iowa, called the recent criticism of ethanol by foreign officials “a big joke.” He questioned why they were not also blaming a drought in Australia that reduced the wheat crop and the growing demand for meat in China and India.

    “You make ethanol out of corn,” he said. “I bet if I set a bushel of corn in front of any of those delegates, not one of them would eat it.”

    Share

    Food

    Posted on by

    On the current food shortages and protests created by biofuels (as feared):

    The mainstream ‘Malthusian’ world is one where the population grows to the size of the food supply.

    Now we have a new twist on that theme.

    The monetary system burns up the food supply as fuel to the point where the marginal agent facing starvation has sufficient political influence to stop this process.

    The first phase is happening as politicians around the world are allocating more funds to people who can’t afford to eat.

    This only drives up the price further as markets continue to allocate by price, with no sign of a sufficient supply response to keep many from starvation.

    In fact, newly emerging nations are producing income distributions that allow their higher income groups to reduce the aggregate food supply by both consuming more fuel and also by increasing meat consumption.

    I expect a lot worse before it gets better.

    Share

    Stagflation

    Posted on by

    Yes, the below analysis has also been the Fed’s position, up until this week’s speeches.

    It’s been about a crude/food/$ negative supply shock, supported by Saudis/Russians acting as swing producer and biofuels linking crude prices to food prices.

    The fed has called the price hikes relative value stories that they don’t want turning into an inflation story. They feel they have room to cut rates as long as expectations stay well anchored, which includes wage demands but other things as well.

    Yellen the dove, along with the hawks, now saying inflation expectations are showing signs of elevating, and saying energy costs are being passed through to core inflation is a departure from previous Fed rhetoric and may signal they are at or near their limits regarding ff cuts (data dependent, of course).

    Also, Bernanke pushing Congress and the President to add to the deficit could also be a sign he is reaching his inflation tolerance regarding lowering the FF rate. The mainstream belief is that inflation is a function of monetary policy, not fiscal policy.

    Now with the ECB perhaps throwing in the towel on inflation as well, look at how the commodities are responding. ‘Cost push inflation’ is ripping, and the perception is the CB’s around the world will act to sustain demand, including pushing for larger fiscal deficits.

    Difficult to explain why so many have stagflation on the brain It is difficult to explain why so many folks still have stagflation or inflation on the brain just because wheat prices have soared to new highs. We have to distinguish between relative and absolute pricing. Not only that, but unlike the 1970s, the current ‘inflation’ backdrop is much more narrowly confined. The key is the labor market. And here we have a 4-quarter growth rate in unit labor costs of a mere 1% in 4Q (a three-year low), which compares to 4% heading into the 2001 downturn. In other words, as far as the labor market is concerned, inflation is less of a threat to the economy than it was at this same stage of the cycle seven years ago. In fact, heading into the 1990 recession, the trend in ULC was also 4% – the Fed sliced the funds rate from almost 10% to 3% that cycle, for crying out loud. In fact, scouring more than 50 years’ worth of data, at no time in the past has the year-to-year trend in unit labor costs been as low as it is today heading into an official recession. Make no mistake, deflation is going to emerge as the next major macro theme.

    ♥

    Share