We’re Spending Money Combating the Wrong Dangers

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By Washingtons Blog - March 26th, 2012, 1:30AM

The Government Spends Trillions On Unlikely Threats … But Won’t Spend a Billion Dollars to Prevent the Very Real Possibility of Global Nuclear Catastrophe

Studies show that people are worry about the wrong things.

We are terrified of things that will probably never happen, and underestimate the real dangers which face us.

As we noted last year, the extreme vulnerability of nuclear power plants to solar flares is a very real threat which we must address:

Nasa scientists are predicting that a solar storm will knock out most of the electrical power grid in many countries worldwide, perhaps for months. See this, this, this, this, this, this and this.

Indeed, the Earth’s magnetic field protects us from the sun’s most violent radiation, and yet the magnetic field fluctuates over time. As the Telegraph reported in 2008:

Large hole in magnetic field that protects Earth from sun’s rays … Recent satellite observations have revealed the largest breach yet seen in the magnetic field that protects Earth from most of the sun’s violent blasts.

I’m not predicting some 2012 Mayan catastrophe. [Indeed, I think the whole Mayan 2012 thing is fake.] I am simply warning that a large solar storm – as Nasa is predicting – could knock out power throughout much of the world, especially if the earth’s magnetic field happens to be weak at the time.

What would happen to nuclear power plants world wide if their power – and most of the surrounding modern infrastructure – is knocked out?

Nuclear power companies are notoriously cheap in trying to cut costs. If they are failing to harden their electrical components to protect against the predicted solar storm, they are asking for trouble … perhaps on a scale that dwarfs Fukushima. Because while Fukushima is the first nuclear accident to involve multiple reactors within the same complex, a large solar storm could cause accidents at multiple complexes in numerous countries.

If the nuclear power companies and governments continue to cut costs and take large gambles, the next nuclear accident could make Fukushima look tame.

I’m not saying this will happen in 2012, or 2013 (although Nasa appears to be hinting at this). But a large solar storm which knocks out electrical grids over wide portions of the planet will happen at some point in the future.

Don’t pretend it is unforeseeable. The nuclear power industry is on notice that it must spend the relatively small amounts of money necessary to prevent a widespread meltdown from the loss of power due to a solar storm.

***

Most current reactors are of a similarly outdated design as the Fukushima reactors, where the cooling systems require electricity to operate, and huge amounts of spent radioactive fuel are housed on-site, requiring continuous cooling to prevent radioactive release. [Designs which would automatically shut down - and cool down - in the event of an accident are ignored for political reasons.]

The head of the leading consulting firm on the effect of electromagnetic disruptions on our power grid – which was commissioned to study the issue by the U.S. federal government – stated that it would be relatively inexpensive to reduce the vulnerability of our power grid:

What we’re proposing is to add some fairly small and inexpensive resistors in the transformers’ ground connections. The addition of that little bit of resistance would significantly reduce the amount of the geomagnetically induced currents that flow into the grid.

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We think it’s do-able for $40,000 or less per resistor. That’s less than what you pay for insurance for a transformer.

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If you’re talking about the United States, there are about 5,000 transformers to consider this for. The Electromagnetic Pulse Commission recommended it in a report they sent to Congress last year. We’re talking about $150 million or so. It’s pretty small in the grand scheme of things.

Mechanical engineer Matthew Stein does a good job of reporting on this issue today:

There are nearly 450 nuclear reactors in the world, with hundreds more being planned or under construction…. Imagine what havoc it would wreak on our civilization and the planet’s ecosystems if we were to suddenly witness not just one or two nuclear meltdowns, but 400 or more! How likely is it that our world might experience an event that could ultimately cause hundreds of reactors to fail and melt down at approximately the same time? I venture to say that, unless we take significant protective measures, this apocalyptic scenario is not only possible, but probable.

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In the past 152 years, Earth has been struck by roughly 100 solar storms, causing significant geomagnetic disturbances (GMD), two of which were powerful enough to rank as “extreme GMDs.” If an extreme GMD of such magnitude were to occur today, in all likelihood, it would initiate a chain of events leading to catastrophic failures at the vast majority of our world’s nuclear reactors, similar to but over 100 times worse than, the disasters at both Chernobyl and Fukushima.

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The good news is that relatively affordable equipment and processes could be installed to protect critical components in the electric power grid and its nuclear reactors, thereby averting this “end-of-the-world-as-we-know-it” scenario. The bad news is that even though panels of scientists and engineers have studied the problem, and the bipartisan Congressional electromagnetic pulse (EMP) commission has presented a list of specific recommendations to Congress, our leaders have yet to approve and implement any significant preventative measures.

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Unfortunately, the world’s nuclear power plants, as they are currently designed, are critically dependent upon maintaining connection to a functioning electrical grid, for all but relatively short periods of electrical blackouts, in order to keep their reactor cores continuously cooled so as to avoid catastrophic reactor core meltdowns and fires in storage ponds for spent fuel rods.

If an extreme GMD were to cause widespread grid collapse (which it most certainly will), in as little as one or two hours after each nuclear reactor facility’s backup generators either fail to start, or run out of fuel, the reactor cores will start to melt down. After a few days without electricity to run the cooling system pumps, the water bath covering the spent fuel rods stored in “spent-fuel ponds” will boil away, allowing the stored fuel rods to melt down and burn[2]. Since the Nuclear Regulatory Commission (NRC) currently mandates that only one week’s supply of backup generator fuel needs to be stored at each reactor site, it is likely that, after we witness the spectacular nighttime celestial light show from the next extreme GMD, we will have about one week in which to prepare ourselves for Armageddon.

To do nothing is to behave like ostriches with our heads in the sand, blindly believing that “everything will be okay” as our world drifts towards the next natural, inevitable super solar storm and resultant extreme GMD. Such a storm would end the industrialized world as we know it, creating almost incalculable suffering, death and environmental destruction on a scale not seen since the extinction of the dinosaurs some 65 million years ago.

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There are records from the 1850s to today of roughly 100 significant geomagnetic solar storms, two of which, in the last 25 years, were strong enough to cause millions of dollars worth of damage to key components that keep our modern grid powered.

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“The Carrington Event,” raged from August 28 to September 4, 1859. This extreme GMD induced currents so powerful that telegraph lines, towers and stations caught on fire at a number of locations around the world. Best estimates are that the Carrington Event was approximately 50 percent stronger than the 1921 storm.[5] Since we are headed into an active solar period much like the one preceding the Carrington Event, scientists are concerned that conditions could be ripe for the next extreme GMD.[6]

***

The federal government recently sponsored a detailed scientific study to better understand how much critical components of our national electrical power grid might be affected by either a naturally occurring GMD or a man-made EMP. Under the auspices of the EMP Commission and the Federal Emergency Management Agency (FEMA), and reviewed in depth by the Oak Ridge National Laboratory and the National Academy of Sciences, Metatech Corporation undertook extensive modeling and analysis of the potential effects of extreme geomagnetic storms on the US electrical power grid. Based upon a storm as intense as the 1921 storm, Metatech estimated that within the United States, induced voltage and current spikes, combined with harmonic anomalies, would severely damage or destroy over 350 EHV power transformers critical to the functioning of the US grid and possibly impact well over 2000 EHV transformers worldwide.[7]

EHV transformers are made to order and custom-designed for each installation, each weighing as much as 300 tons and costing well over $1 million. Given that there is currently a three-year waiting list for a single EHV transformer (due to recent demand from China and India, lead times grew from one to three years), and that the total global manufacturing capacity is roughly 100 EHV transformers per year when the world’s manufacturing centers are functioning properly, you can begin to grasp the implications of widespread transformer losses.

The loss of thousands of EHV transformers worldwide would cause a catastrophic grid collapse across much of the industrialized world. It will take years, at best, for the industrialized world to put itself back together after such an event, especially considering the fact that most of the manufacturing centers that make this equipment will also be grappling with widespread grid failure.

***

In the event of an extreme GMD-induced long-term grid collapse covering much of the globe, if just half of the world’s spent fuel ponds were to boil off their water and become radioactive, zirconium-fed infernos, the ensuing contamination could far exceed the cumulative effect of 400 Chernobyls.

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The Congressionally mandated EMP Commission has studied the threat of both EMP [i.e. an electromagnetic pulse set of by terrorists or adversaries in war] and extreme GMD events and made recommendations to the US Congress to implement protective devices and procedures to ensure the survival of the grid and other critical infrastructures in either event. John Kappenman, author of the Metatech study, estimates that it would cost about $1 billion to build special protective devices into the US grid to protect its EHV transformers from EMP or extreme GMD damage and to build stores of critical replacement parts should some of these items be damaged or destroyed. Kappenman estimates that it would cost significantly less than $1 billion to store at least a year’s worth of diesel fuel for backup generators at each US nuclear facility and to store sets of critical spare parts, such as backup generators, inside EMP-hardened steel containers to be available for quick change-out in the event that any of these items were damaged by an EMP or GMD.[12]

For the cost of a single B-2 bomber or a tiny fraction of the Troubled Asset Relief Program (TARP) bank bailout, we could invest in preventative measures to avert what might well become the end of life as we know it. There is no way to protect against all possible effects from an extreme GMD or an EMP attack, but we could implement measures to protect against the worst effects. Since 2008, Congress has narrowly failed to pass legislation that would implement at least some of the EMP Commission’s recommendations.[13]

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Citizens can do their part to push for legislation to move toward this goal and work inside our homes and communities to develop local resilience and self reliance, so that in the event of a long-term grid-down scenario, we might make the most of a bad situation. The same tools that are espoused by the Transition movement for developing local self-reliance and resilience to help cope with the twin effects of climate change and peak oil could also serve communities well in the event of an EMP attack or extreme GMD. If our country were to implement safeguards to protect our grid and nuclear power plants from EMP, it would also eliminate the primary incentive for a terrorist to launch an EMP attack. The sooner we take these actions, the less chance that an EMP attack will occur.

And see this.

A Surprisngly Sane Debate on Nuclear Energy

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By Barry Ritholtz - March 19th, 2012, 7:48PM

What happens when you get the chairman of the UK Atomic Energy Authority, the chief scientist of Greenpeace, an energy and environmental policy expert, and an environmental activist/politician in a room together to talk about nuclear energy?

You can listen to the whole (very, very interesting) conversation—part of the Science Question Time series—which was recorded last Thursday at the Institute of Physics in London.

Hat tip boingboing

Fukushima Witness on Burn: An Energy Journal

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By Barry Ritholtz - March 12th, 2012, 11:30PM

Source:
Nuclear Power After Fukushima,
BURN: An Energy Journal
BoingBoing, March 9, 2012

Doctor Teller’s Strange Loves, from the Hydrogen Bomb to Thorium Energy

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By Barry Ritholtz - March 7th, 2012, 7:00PM

From Motherboard TV:

Edward Teller, the father of the hydrogen bomb, had a thing for nuclear bombs. He wanted them bigger, smaller, faster, used in ways that no one had thought of before or since, and always more of them. He suffered no fools, and though he would be more villified than any other American scientist in the 20th century, he always dismissed his critics as lacking in common sense or patriotism. Amid Cold War paranoia and fears of the Soviet nuclear program, the stakes were simply too high: for the free world, building the most powerful weapon in history was a matter of life and horrible death.

To make his point, Teller pointed to his first-hand experience with tyranny, first under the Communists and then the Fascists, who raised hell across Hungary before he fled in the 1930s for America. His scars weren’t just psychic: a streetcar ran over Teller’s foot during his early years, leaving him hobbling for the rest of his life.

That only added to Teller’s “mad scientist” persona, one that would inspire Stanley Kubrick in the creation of Dr. Strangelove. Teller’s love for the bomb wasn’t the only thing that earned him suspicion and hatred from the scientific community: Teller falsely insisted that Stanislaw Ulam made no significant contribution to the development of the hydrogen bomb, and attacked the political integrity of Robert Oppenheimer, the father of the atomic bomb who was doubtful of the need for any larger weapons. Nobel Prize winning physicist Isidor I. Rabi once suggested that “It would have been a better world without Teller.”

But despite his love for the bomb and his petulant personality, Teller didn’t consider himself a war-mongerer. His zeal for nuclear – by 1951, he had urged the U.S. to run a dozen nuclear tests a year – didn’t stem from a desire to kill thousands: the hydrogen bomb would, he said, end all nuclear war forever. One thousand times more powerful than the atomic bomb dropped on Hiroshima, Teller’s bomb was perhaps the only invention designed to make its own use obsolete.

But in an era of terrorist non-state actors and “rogue” nations pursuing nuclear weapons of various kinds, that very idea is now considered obsolete. The debate over Teller’s legacy continues, however. His later years were characterized by a pursuit of other uses for nuclear weapons. He pushed the U.S. to launch Plowshare, a project that, laughably, aimed to build canals and harbors using nuclear weapons, and urged President Reagan to launch the controversial Strategic Defense Initiative, widely lampooned as “Star Wars,” that would have launched nuclear-powered laser weapons into orbit.

Teller dreamed of other uses too: he wanted to rocket bombs into the Moon for science, fly to Mars on nuclear rockets, and use fusion to create a limitless supply of nuclear energy – an endeavor that scientists are still pursuing today at Lawrence Livermore National Laboratory , the lab Teller helped start.

In his 90s, Teller worked with his former student, the engineer Ralph Moir, on one last project: designing a “safe” underground nuclear reactor that would run not on uranium but thorium, an element that can produce a nuclear reaction but which is all but unusable for making nuclear weapons.

I learned of the paper — published in 2005 in the journal Nuclear Technology — during an interview with Moir for the Motherboard documentary The Thorium Dream, about the growing movement of engineers and amateur scientists pushing for a thorium-based nuclear fuel cycle.

Moir, who had studied under Teller at Berkeley and worked at Livermore, said that his former professor was dedicated to safer, proliferation-resistant nuclear power out of concern for the climate and the need to wean Earth off fossil fuels. But, Moir said, even while he pushed for more peaceful uses of nuclear power, Teller was not concerned about his legacy as the father of the hydrogen bomb, even if he thought that title was in poor taste. To the end, he insisted that he and other scientists were not morally responsible for their inventions.

Even if that idea conflicted with Teller’s own political convictions about the need for the bomb, it underscored a central paradox in science to this day — and made him the complex icon of the 20th century’s largest and most infamous scientific pursuit.

Connections:

OIL, OIL, OIL!!!

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By David Kotok - March 3rd, 2012, 7:22PM

OIL, OIL, OIL!!!
David R. Kotok
March 3, 2012

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“Oil prices could soar to $440 a barrel if Strait of Hormuz closed.”  Tehran Times—five hours ago.

The worst part of writing this missive is that I remember every one of the events in the list below.  Maybe that is the best part, too.  At least I can still remember them.

We thank BCA Research (March 1 Special Report) for compiling this list of oil/energy shock events.  Every one of them led to a temporary spike in the oil price.  I will add personal comments on the older items in the list, since many readers may be younger than I am.  Note that in each case there was an oil-price spike, followed by some economic shock and then a period in which oil normalized to a supply/demand-balancing price.

November 1956 – March 1957 Suez Crisis. This marked the first time Egypt attacked Israel and was decisively rebuffed.  Egyptian President Gamal Abdel Nasser triggered the event by nationalizing the Suez Canal, closing the canal and the  Straits of Tiran to Israeli shipping, blockading the Gulf of Aqaba,  and putting  the Israelis in a “no other choice but war” condition.  Britain and France reacted against Egypt.  Israeli forces rebuffed the Egyptian army, crossed Sinai, and reached the canal.  Nasser had fought against Israel during its 1948 War of Independence.  He had then led the overthrow of the previous Egyptian government in the early 1950s.  He consolidated power in 1955 and 1956.  Then he launched the attack.

Kotok comment: I remember the Suez crisis because it was a subject of intense discussion in my household.  As a teenager in a community where many had family in the Middle East, it was impossible to avoid daily conversation and attention to the national news.  Half a century later, I realize that the Middle East does not change much.  Only the characters change.  The story of strongman after strongman and war after war is an ongoing saga.

June-August 1967 Six-Day War.  Israel was attacked on all sides and in a fight for survival.  The result was a massive defeat for the attackers and the establishment of the Israeli armed forces as the dominant power in the region.  Syrian, Egyptian, and Jordanian forces were repelled.  Jordan fought bravely but lost to the military superiority of Israel.

Kotok comment: Jordan’s King Hussein changed his strategy after that war, which is why he did not participate in the next war against Israel.  The Jordanian-Israeli nonbelligerency continues to this day.  It gets strained at times; however, neither side wants war and both sides realize that war with each other is a losing proposition.

October 1973 – March 1974 Yom Kippur War and Arab Oil Embargo. On possible advice of the United States, Israel waited until it was attacked by Egypt and Syria.  Jordan did not participate in the attack and Israel did not attack Jordan.  That allowed Israel to fight a two-front war instead of a three-front war.  The attacking Egyptian and Syrian armies made a strategic blunder: they waited until the holiest day in the Jewish calendar to launch the war.  Businesses were closed and families had gathered for the holiday, and that allowed rapid mobilization.  Had the attack been on a mid-week business day, the outcome could have been different.  Israel again showed its determination when its back was to the wall and it had no choice but to fight.

Kotok comment:  Iran may ignore history at its peril.  Israeli leaders’ patience is not a sign of weakness.  My first visit to Israel and to the Syrian frontier was in 1974.  Images of war were fresh and remain indelible.  We were allowed to go to the cease-fire lines, to understand the battle of the Golan Heights and to see how close this war came to threatening the survival of the country.

November 1978 – April 1979 Iranian Revolution.  Jimmy Carter’s presidency was undermined by the images of American hostages in Tehran.  Oil and the Straits of Hormuz were the dominant themes.

Kotok comment:  The late 1970s showed how monetary policy could be easy enough to allow an oil-price shock to morph into a broader and more vicious inflation.  Oil gapped from 3 dollars a barrel to 12 in the Arab embargo period.  It reached $30 a barrel at the peak in 1980.  By 1979, inflation was headed to double digits.  It took decisive action by new Fed Chairman Paul Volcker to attack it.  Under Volcker (1980-1981) interest rates reached the highest levels in American history.  Volcker broke the inflation cycle and started a 30-year disinflationary trend that has lasted until today.  He positioned a platform for Fed Chairman Alan Greenspan to preside over 18 years of this trend.  Ben Bernanke is the inheritor of that platform.

October 1980 – January 1981 Iran-Iraq War.  Saddam Hussein showed his true colors.  The enmity between Iran and Iraq continues to this day.  Later in 1981, the Israeli air force destroyed the fledgling nuclear facility at Osirak, Iraq, weeks before it was to start operating.  Years of Iraqi-focused diplomacy by the US and the Western powers had failed.  Israel again found itself with a “no choice” decision.

The rest of this list is in the recent memory of most readers, so we will not add comments.  Observations about oil and markets come after the list.

August 1990 – January 1991 Iraqi Invasion of Kuwait.  June-July 2001 Iraqi Oil Export Suspension.  December 2002 – March 2003 Venezuelan Strike.  March-December 2003 War in Iraq.  September 2005, Hurricanes Katrina and Rita.

BCA closed its list with this question about the future:  “2012:  Will there be ‘Closure of the Straits of Hormuz?’”

Take out the hurricanes and all the oil-price shocks have a common theme.  There is a strongman.  There is a shooting war or a threat of a shooting war.  Diplomacy and sanctions and negotiation have failed.  The final few days leading to the spike and the shock are impossible to forecast in advance.  Probabilities of outcomes are meaningless.  Tell me how anyone is to make a decision based on some geopolitical forecast of a 50-50 probability that Iran will mine the Straits of Hormuz.  Or alternatively, a 50% chance Israel will attack Iran’s nuclear facilities.

History also shows that oil prices have an upward trend during the period leading to the final spike.  In every case, the peak in price only came after something was seen as a terminal event or final action.  Subsequently, prices plummeted.

At Cumberland, we are overweight oil and energy in our ETF portfolios.  We can only guess at the geopolitical risk premium built into the oil price.  Last May we took the energy weight down to minimum.  This year it has been in overweight for months.  Energy stocks are now about one-eighth of the total market value, if you use the S&P 500 index as your guide.  At the peak of the oil shock in 1980, the energy component of the stock market was close to 25% of total market value.  Long-run forecasts with economic models argue for oil to be $175-200 per barrel by the end of this decade.

Add to that the failure of the United States to form a cohesive energy policy.  We consume nearly 19 million barrels of oil a day.  The world, including us,  consumes about 89 million each day.  We could be fully independent if we put our minds to it.  Our politics do not let us do that.  Shame on both parties in Washington for allowing us to be in this position.

For investors the issue is simple.  If you are strategically oriented, it is too soon to sell your oil and energy investments.  As to how to trade it on a day-by-day basis, we cannot be of much help.  There is a high correlation between the oil price per barrel and prices of oil stocks.  Track it closely.  If that correlation starts to fail, it may be warning you.

We could be overweight oil and energy ETFs for quite a while.  On the other hand, we could see changes that would lead us to sell as early as next week.  Nobody said this was an easy business.

~~~

David R. Kotok, Chairman and Chief Investment Officer

Twitter: @CumberlandADV

The Strategic Petroleum Reserve and Oil Prices

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By James Bianco - February 29th, 2012, 2:30PM

Click to enlarge:

The Financial Times – Obama pressed to open emergency oil stocks

The Obama administration is coming under growing pressure to cool petrol prices by releasing emergency stocks of oil. However, critics say this would be the wrong response to the wrong problem at the wrong time. The oil price surge has increased speculation that the US and its allies could repeat the co-ordinated release of crude stockpiles they undertook last summer to compensate for lost supply from Libya. The move led to an 8 per cent price fall. On Friday, Timothy Geithner, US Treasury secretary, said there was “a case” for releasing crude from the US strategic petroleum reserve, or SPR, “in some circumstances” – a significant shift for an administration that had previously ruled out another release. What has triggered the change is the steady drumbeat of soaring petrol prices, with the US national average now $3.68 a gallon – a record February high. “Nothing terrifies a sitting president more than rising gasoline prices, which in President Obama’s case could imperil the economic recovery and torpedo his re-election prospects,” said Robert McNally, head of the Rapidan Group energy consultancy and a former White House official.

Comment

The chart above shows the SPR’s inventory level, highlighting the last four SPR sales.

Regarding the highlighted part above about last year’s release, see the chart below.  The last announcement of an SPR release occurred on June 24, 2011 encompassing a release of 60 million barrels globally, 30 million of which came from the U.S. SPR.

Overlaid on the SPR inventory levels is the price of nearby WTI futures.  WTI closed at $91.16 the day of the announcement.  It rose to $97.60 the week the release began (July 15, 2011) and dropped to $88.18 the week the release ended (September 16).  This is a drop of 3% from the announcement to the end of the release.  It is a drop of 8% to 10% during the release.

The U.S. consumes 19 million barrels of crude oil a day, so a 30 million barrel release is roughly 50 hours of consumption spread out over 30 days.  The world consumes 80 million barrels of crude oil a day, so a 60 million worldwide release is 18 hours of consumption spread out over 30 days.  We will leave it the reader to decide if the SPR release made a difference.

When gas prices rise, politicians are helpless to do anything over the short-term.  This is especially troublesome for politicians when an election is less than a year away.  SPR releases are ineffective at altering the price.  They do, however, give politicians cover to take credit for any down-tick or argue any up-tick would have been worse without the release.

Therefore, we expect an announcement of SPR release in the next several weeks.  We expect it to be met with plenty of fanfare and arguments that it will matter.  We expect it will again amount to hours of consumption and not make a difference.  Administration officials will disagree.

Read the rest of this entry »

Stockman: War Drums Are Driving Up Oil Prices

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By Washingtons Blog - February 28th, 2012, 5:30AM

Stockman: If We Want to Bring Oil Prices Down, We Should Stop Beating the War Drums

While Nouriel Roubini says that attacking Iran would lead to global recession (and see this), Ronald Reagan’s budget director – David Stockman – points out that even beating the drums of war is driving up oil prices and hurting our economy:

I think you can address this decisively by stop beating the war drums right now. And Obama could do that, and he could say the neocons are history.

The policy that they’re talking about right now is the same thing we heard in 2001, 2002, and 2003. And he needs to clearly say that we’re not going to attack Iran. We’re not going to permit Israel to attack Iran. They are not part of the axis of evil. They’re part of the axis of medieval.

In other words, these are backward people that aren’t going to threaten the western world, and we need to get into a serious process of negotiation. If we do that, the price of oil will drop $30 within a few months, and all the speculators who are on the wrong side of the ship would learn a good lesson.

But as long as the war drums continue to beat, as they are now, we’re going to see this kind of speculative fraud. It’s not real. It’s not supply and demand world today.

This is not Stockman’s first anti-war statement. Last year, Stockman – who has proved himself to be a true conservative – said:

We are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment,” David Stockman said in an exclusive interview.

“The Cold War is long over,” he continued. “The wars of occupation are almost over and were complete failures — Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security.”

Short of that, he suggested, the United States has “reached the point of no return” with its artificial creation of wealth, and will eventually face a sharp economic decline.

***

This is a profound disappointment that there’s not even a debate — a serious debate about dramatic change in our imperialist foreign policy and war-making establishment in this administration — allegedly the most left-wing administration that we’ve had in modern time.”

“I don’t have much hope that what needs to be done will be done until it’s finally forced on us by a world bond market crisis, which will happen sooner or later,” Stockman added.

***

That’s why we’re just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe.”

How Much Does Solar Cost?

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By Barry Ritholtz - February 25th, 2012, 5:30AM

Home Solar Power Discounts – One Block Off the Grid

Rising Gasoline Prices Point to Consumer Spending Risk

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By Barry Ritholtz - February 24th, 2012, 12:00PM

Bloomberg Briefing, edited by Richard Yamarone, is fast becoming oe of my favorite Bloomberg publications for terminal subscribers.

They had an excellent set of charts along with a valid issue concerning rising gasoline prices recently. Here is a brief excerpt:

“The 7 percent rise in the price of gasoline combined with future wholesale prices pointing to another 4 percent rise pose additional downside risks to an already difficult outlook for the consumer.

The increase in gasoline prices comes at a time when consumer confidence, modest improvement in the labor market and easing inflation appear to have bolstered overall investor confidence. That confidence is one reason for the 24 percent increase in the Standard and Poor’s 500 index {SPX INDEX<GO>} since October. Household spending is on track to support a weak 1-to-1.5 percent expansion in the current quarter, even after a solid increase of 0.7 percent in retail sales, excluding the volatile autos, gasoline and building materials categories. An ill-timed increase in consumer gasoline prices carries with it the risk of pushing the economy back towards stall speed in the first half of 2012.

Rising gasoline prices tend to curb spending on discretionary service items like dining out, entertainment and consumer electronics, which given the weak pace of spending does not bode well for growth this quarter.

Yamarone does the back of the envelope calculation: If gas prices rise to $4 per gallon, it is $908 per year in additional energy costs (assuming they drive the same miles, a big if). At $4.50 per gallon (about $122/barrel) the cost would reach $1,283. That is about the amount of money the tax holiday is worth — about $1000 into the pockets of taxpayers.

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˜˜˜

Source:
Rising Gasoline Prices Point to Consumer Spending Risk
Bloomberg BRIEF, February 21, 2012

Prices At The Pump On The Rise

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By James Bianco - February 23rd, 2012, 11:30AM

Click to enlarge:

The Chicago Tribune – Gas price spike pumping up fears

Potential increase to record highs could slow economy, analysts say
The unseasonably warm weather isn’t the only sign of an early spring. Roiled by the specter of Iranian oil cutoffs, gas prices are rising at a record pace, crossing the $4-a-gallon threshold in some parts of the country, and threatening to break an all-time high, experts say. Fears of $5 per gallon gasoline are in the back of some motorists’ minds, jeopardizing the nascent economic recovery and fueling campaign rhetoric during a presidential election year. “Everybody was worried about Europe as being the precipitating factor to sort of throw the world into a slowdown,” said Tom Kloza, chief oil analyst at Oil Price Information Service. “Higher oil prices could do that too.”

Bloomberg.com – Rising Gas Prices: Not Demand Driven

The national average for gas prices is above $3.50. Yet demand in the U.S. is at its lowest point since 1997. So what’s driving this run-up?
Strangely, the current run-up in prices comes despite sinking demand in the U.S. “Petrol demand is as low as it’s been since April 1997,” says Tom Kloza, chief oil analyst for the Oil Price Information Service. “People are properly puzzled by the fact that we’re using less gas than we have in years, yet we’re paying more.” Kloza believes much of the increase is due to speculative money that’s flowed into gasoline futures contracts since the beginning of the year, mostly from hedge funds and large money managers. “We’ve seen about $11 billion of speculative money come in on the long side of gas futures,” he says. “Each of the last three weeks we’ve seen a record net long position being taken.” Refineries have also been getting squeezed by higher crude prices over the past several months, forcing some of them to shut down rather than operate at a loss, says Stevens. “The price that refineries have been paying for crude was roughly flat, while the price they were getting for gasoline was lower than what they needed to make their crack spread,” he says. A crack spread refers to oil refineries’ profit margins and is roughly the difference between what they pay for crude oil, and what they make by “cracking” crude into petroleum products such as refined gasoline. As the U.S. refining capacity has decreased, prices have begun to rise.

Comment

As the first story and chart above show, the nationwide average of gas prices is on the rise again.  Seasonally February typically brings some of the year’s lowest prices.  However, the current national average of $3.57/gallon is the highest ever for February.  This is why so many are predicting even higher prices this spring/summer.

Last week we noted that the supply of gasoline was plunging, as highlighted in the second story above.  The chart below shows the current level is at an 11-year low, yet gas prices are the highest ever for February.  Last week we pondered if this, together with the drop in vehicle miles driven, was an economic indicator pointing to a possible slowdown in the economy.

My colleague, Howard Simons, has a different take on this (Subscription only).  Either way, gas prices, gasoline supplied (and demand) and miles driven are becoming relevant again.


Source:Bianco Research

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