no slappz

The Attack Watch -- Obama's Special Timepiece

2011-09-15T11:40:00.000-04:00

Presidents rarely wear jewelry. But they do wear watches, and Obama recently showed his newest timepiece to Americans. Its designers call it the Attack Watch, mainly because it records the time of every written and verbal attack on the president.

As you might imagine, the dials on this watch are spinning faster than the centrifuges enriching uranium for Iran's nuclear bomb. For the safety of the president's wrist, we hope the Attack Watch is properly insulated.

Unfortunately, the Attack Watch does not record attacks perpetrated by Islamic terrorists. Thus, had the Attack Watch existed a decade ago, it would not have registed the attack on 9/11.

Meanwhile, the Attack Watch is designed to conduct its own attacks. The attack feature will activate itself in the closing days of the 2012 presidential election. At that time it will spam websites supporting the Republican nominee with millions of e-mails slamming that person for either being a Texan or being a Mormon. Hitting hard on his place of origin and/or, if possible, religion. Liberals go for that.

Attack Watch, new Obama campaign site to ‘fight smears,’ becomes laughing stock of conservatives

As the 2012 presidential campaign heats up, President Obama’s campaign team has set up a new Web site, AttackWatch.com, to challenge negative statements about the president made by Republican presidential candidates and conservatives.

Obama for America national field director Jeremy Bird told ABC News that the site’s goal is to offer “resources to fight back” against attacks. Mostly, that means fact checking statements from the likes of GOP presidential contenders Mitt Romney and Rick Perry and conservative commentator Glenn Beck and offering evidence to the contrary. The site is designed in bold red and black colors, and uses statements like “support the truth” and “fight the smears.”

The response to the site has been less than stellar.

(Image via Twitter) On Twitter, where the Web site has an account to help Obama supporters submit evidence of “attacks” on the president using the hashtag #attackwatch, nearly every tweet about the site — mostly from conservatives — has ridiculed it.

“There's a new Twitter account making President Obama look like a creepy, authoritarian nutjob,” an Arizonan tweeted. “In less than 24 hours, Attack Watch has become the biggest campaign joke in modern history,” a contributor to conservative blog The Right Sphere wrote. The contributor linked to the following parody commercial for Attack Watch:

Tommy Christopher of Mediaite noted sarcastically of the site, “Great. Sounds like a terrific content-generating resource for right-wing bloggers, too. Everybody wins!”

While the initiative is reminiscent of a similar online effort launched during the 2008 campaign, called Fight the Smears, the intimidating design and language of the new site seems to be what’s causing a bigger ruckus.

Fight the Smears looked and felt far less scary, quoting Obama at the top of its page in a classic hope-change statement: “What you won’t hear from this campaign or this party is the kind of politics that uses religion as a wedge, and patriotism as a bludgeon — that sees our opponents not as competitors to challenge but enemies to demonize.”

Attack Watch, on the other hand, uses the shorter tagline, “Get the Truth. Fight the Smears.”

It’s safe to say that in its 24 hours of existence, Attack Watch has already backfired, becoming a tool for conservatives to use against Obama 2012. A tweet by conservative author Brad Thor summed up the critics’s argument: “Wow, not only are Obama & Co. incredibly thin-skinned, they're paranoid.”

Update, Wednesday, 5:11 p.m.

Obama 2012’s press office just returned an earlier request for comment. According to deputy press secretary Katie Hogan, 100,000 people signed up for the site in the first 24 hours.

“This site is a tool providing our supporters with the facts they need to fight back against lies and distortions about the President’s record,” Hogan said.

ETFs and MLPs, Handy for Do-It-Yourself Funds

2011-09-12T10:02:00.004-04:00

Create Your Own MLP Fund For Higher Returns

Buying small positions in several high yielding MLPs can be more profitable than investing in an MLP ETF or ETN. After adjusting for management fees, the net return of ETF and ETNs is considerably lower than the highest yielding MLPs. This chart lists some of the most popular MLP ETFs and ETNs with their management fee subtracted from the yield:

MLP ETF/ETN Mgmt. Fee Yield Yield minus Fee
Alerian MLP ETF (AMLP) 0.85% 6.4% 5.55%
Tortoise Energy Capital ETF (TYY) 0.95% 6.5% 5.55%
Cushing 30 MLP Index ETN (MLPN) 0.85% 7% 6.15%
UBS E-TRACS Alerian MLP ETN (MLPI) 0.85% 5.3% 4.45%

In addition to lower yields, MLP ETFs do not appear to offer the same level of safety as other sector ETFs. Tortoise (TYY) declined 70% from its 2007 high during the 08-09 recession. Aside from Alerian, the volume is considerably lower for MLP ETFs than MLPs themselves. ETNs have their own set of risks due to their unique credit structure.

The primary safety feature of ETFs is diversity. Buying several small positions rather than one or two large positions, creates security and protection should something unexpected befall an individual MLP.

MLP ETFs have their purpose. Investors sitting on cash looking to generate income while waiting for better market conditions can park their money in these ETFs and collect 6% while they wait. They do not have to worry about K-1 forms and tax issues. Tax-deferred accounts cannot invest in MLPs without going through ETFs.

However, for income-oriented investors who are willing to hold MLPs for many years, creating a personalized fund of higher yielding MLPs may be more profitable. The following chart is an example:

MLP Yield
Energy Transfer Partners (ETP) 8.16%
Boardwalk Pipeline Partners (BWP) 8.32%
Kinder Morgan Energy Partners (KMP) 6.68%
Buckeye Partners (BPL) 6.5%
Plains All American Pipeline (PAA) 6.6%
Dorchester Minerals (DMLP) 7.13%
Average Yield 7.23%

Saab Story

2011-09-09T07:35:00.005-04:00

What happens when costs exceed revenue? Here you have it. The Saab Story of a niche carmaker with unsustainable operations. However, does the unfavorable flow of costs and revenue mean the company is at the end of the line? Maybe not. What does the interest from China mean? It means that like many other products sold around the world today, the next generation of Saabs may come from China.

Saab, Denied Court Protection, Faces Bankruptcy

On Thursday, a Swedish district court rejected Saab’s bid for protection from its creditors, leaving the automaker with few options other than filing for bankruptcy. The company reportedly owes its suppliers 150 million euros ($210 million).

“The situation is fairly grim,” said Jack Nerad, an executive market analyst at Kelley Blue Book, in a telephone interview Thursday. “I don’t think we’re going to see an 11th-hour rescue. When Saab was orphaned by General Motors and no other car company came in to scoop it up, a lot of us became concerned about its future.”

Saab was previously controlled by G.M.

Victor Muller, the automaker’s chairman and chief executive, announced on Thursday that it would appeal the Vanersborg District Court ruling. In the interim, however, the two largest unions representing the company’s workers would probably file petitions demanding that the company enter bankruptcy.

Saab, with production essentially idled at its primary plant in Trollhattan, Sweden, since April, has 3,700 employees, and unpaid August salaries may be the issue that finally forces the company into bankruptcy.

“If the company itself does not find another solution or seek to put itself into bankruptcy, we could be forced to do so in the next few days,” said Stefan Lofven, head of the IF Metall North Alvsborg union, which representing 1,500 Saab employees, in a statement reported by Reuters. The union will decide within a few days whether to ask that Saab be declared bankrupt, added Leif Hakansson, a spokesman for the union.

Saab had said that a voluntary reorganization would not include its overseas affiliates, including Saab Cars North America, but bankruptcy would impact the ability of those divisions to do business.

Saab had hoped for a lifeline from Chinese automakers Pang Da Automobile Trade Company and Zhejiang Youngman Lotus Automobile, which together would have invested 245 million euros and taken majority ownership, but that option had not been approved by Chinese regulators. The Swedish court expressed skepticism that the deal could move ahead in a timely fashion.

“We regret that Saab Automobile is not going to get the time it needs until the funding from Pang Da and Youngman arrives,” Mr. Hakansson said in a statement.

Reacting to the court ruling, Mr. Muller said on Thursday that the company was now “completely unprotected” and asked stakeholders to “hold their horses.”

“We are not dead yet,” Mr. Muller had told a news conference on Wednesday after the submission of the application to the court. The same phrase was used by Timothy Colbeck, the chief operating officer of Saab Cars North America, at an owners convention last month in New Jersey. On Thursday, however, it was not clear what would keep the company alive.

Halliburton Hitting Paydirt

2011-09-07T13:47:00.003-04:00

Halliburton Shares Set To Strike Oil

Halliburton is an oilfield-services company that engages in well drilling, completion, production and evaluation. With a market cap of $38 billion, Halliburton is the second-largest oilfield-services company in the world and a dominant player within North America.

The stock has fallen dramatically in recent months, mainly because oil proces have dropped. Fortuntately for investors, Halliburton has little to do with the price of oil, and does not benefit from huge increases or decreases. Drillers don’t stop drilling just because the price of oil drops from painfully expensive to plain old expensive. The production and drilling of oil continues, and that’s where Halliburton operates.

Halliburton is more of a technology play than a play on oil prices. Demand for the company's services is driven by the need for more oil and is not directly a function of the price of oil, or at least it shouldn’t be. Simply put, it is there to help the oil companies drill and improve efficiency. Halliburton is very good at what it does, in recent years its engineering capabilities, innovations and advancement have increased total production 75% and led to a 50% reduction in pumping times. One of its biggest technological advancements, horizontal drilling, is now being implemented by companies all over the world.

In addition to this, recent booms in domestic drilling in North America have led to a surge of new orders and new business generating billions in revenue. Halliburton continues to be on the rise and growing vastly. This year it's on pace to hire 11,000 new employees in America alone! All-around business is booming, and we believe the stock is cheap and a great value. Below are 10 reasons Halliburton is bullish and 10 reasons why you should invest:

10 Reasons to be Bullish on Halliburton:

PEG = 0.59. Halliburton holds a PEG ratio of 0.59, making it a bullish indicator as the lower the company's PEG ratio, the more cheaply valued it is. Companies with PEG ratios under 1 are undervalued -- another reason we believe Halliburton is a strong investment.

P/S = 1.83. Halliburton holds a P/S ratio of 1.83, a good valuation and strong indicator. Value investors look for P/S ratios under 2 as they show great opportunity. Another thing to consider is the fact that low P/S Ratios and rising stock prices tend to be a good basis to invest in growth stocks that have suffered a setback, something that definitely suits Halliburton, as it has been unfairly hit with share prices falling as much as 30% over the past few months as many investors correlating the fall in the price of crude oil and Halliburton’s share price too much. Over the course of the past decade, Halliburton’s P/S ratio has been below-average, making it a good indicator of value.

ROE = 20.7%. Halliburton’s return on equity averaged out over the past three years is 20.7% (22.49% in 2011), a strong indicator going forward, especially considering the fact that Halliburton plans to grow and further reinvest money within.

ROA = 12.55%. Equally impressive, Halliburton continues to show effective upper-level management with strong return on both assets and equity.

Forward P/E = 9.5. Halliburton sports a cheapish forward P/E of 9.5. That represents a discount to rivals like Baker Hughes (BHI) (10.1), National Oilwell (NOV) (11.5), and Schlumberger (SLB) (14.0).

92% analyst buy rating. Halliburton is highly regarded among Wall Street analysts, with 95% projecting the stock to outperform the S&P 500 going forward.

82.50% held by institutions. Halliburton is held by forty-two hedge funds. HAL represents 4% of T. Boone Pickens BP Capital’s portfolio' Ken Griffin’s Citadel holds more than 2 million shares; Ken Heebner holds a $170 million position; Jim Cramer holds it in his charitable trust.

$5.9 billion total revenue. Net income for the 2nd quarter of 2011 was reported at $747 million, vs. $483 million in the 1st quarter prior year. Total revenue’s improved to $5.9 billion from $4.4 billion in the same quarter last year. Operating income increased to $1.2 billion from $762 million in the June quarter of 2010 on the improving pricing environment and higher equipment utilization.

$1.4 billion cash balance. Halliburton currently is cash-flow-positive with a cash balance of $1.4 billion. Like we always say, “Cash is King!”

Dividend yield = 0.9%. It’s not much, but something is better than nothing, and a near 1% dividend yield is not bad especially considering the fact that Halliburton is such a high-growth, speculative stock to begin with.

Demand for Halliburton’s specialized services will continue to grow in the booming Oil & Gas industry. As the economy improves, so will Halliburton's prospects; expect revenue streams to increase too. With strong analyst coverage, upbeat projections, and the fact that HAL is now trading at 12.8 times 2011 earnings, we project Halliburton’s shares to rise to $75 per share, a total yield of 81%. Just like Schlumberger, the oilfield services specialty stocks are ready to explode.

Obama's Dead Letter Office

2011-09-06T18:45:00.002-04:00

A downgrade of the US credit rating, unemployment stuck at 9.1%, and now this -- the pending failure of the Post Office. Imagine what it will mean for Obama's election hopes if 120,000 mailmen are laid off before November of 2012.

Postal Service Is Nearing Default as Losses Mount

Sunday September 4, 2011, 6:00 pm EDT

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.

The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs.

As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the agency’s predicament on Tuesday. So far, feuding Democrats and Republicans in Congress, still smarting from the brawl over the federal debt ceiling, have failed to agree on any solutions. It doesn’t help that many of the options for saving the postal service are politically unpalatable.

“The situation is dire,” said Thomas R. Carper, the Delaware Democrat who is chairman of the Senate subcommittee that oversees the postal service. “If we do nothing, if we don’t react in a smart, appropriate way, the postal service could literally close later this year. That’s not the kind of development we need to inject into a weak, uneven economic recovery.”

Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees’ future health care, won’t cause immediate disaster. But sometime early next year, the agency will run out of money to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly.

The causes of the crisis are well known and immensely difficult to overcome.

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

It’s difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.

Meanwhile, the agency has had a tough time cutting its costs to match the revenue drop, with a history of labor contracts offering good health and pension benefits, underused post offices, and laws that restrict its ability to make basic business decisions, like reducing the frequency of deliveries.

Congress is considering numerous emergency proposals — most notably, allowing the post office to recover billions of dollars that management says it overpaid to its employees’ pension funds. That fix would help the agency get through the short-term crisis, but would delay the day of reckoning on bigger issues.

Postal service officials say one reason for their high costs is that they are legally required to provide universal service, making deliveries to 150 million addresses nationwide each week. They add that a major factor for the post office’s $20 billion in losses over the past four years is a 2006 law requiring the postal service to pay an average of $5.5 billion annually for 10 years to finance retiree health costs for the next 75 years.

But the agency’s leaders acknowledge that they must find a way to increase revenue, something that will prove far harder than simply slicing costs.

In some countries, post offices double as banks or sell insurance or cellphones. In the United States, the postal service is barred from entering many areas. Still, the agency is considering ideas, like gaining the right to deliver wine and beer, allowing commercial advertisements on postal trucks and in post offices, doing more “last-mile” deliveries for FedEx and U.P.S. and offering special hand-delivery services for correspondence and transactions for which e-mail is not considered secure enough.

Mr. Donahoe’s hope is to cut $20 billion of the $75 billion in annual costs by 2015. To do that, he wants to close many post offices and slash the number of sorting facilities to 200 from 500 and trim the agency’s work force by 220,000 people, from its current 653,000. (A decade ago, the agency employed nearly 900,000.)

The postal service has the legal authority to close facilities, although community opposition can make the process difficult. To placate critics and cut costs, officials say they would seek to run some postal operations out of stores like Wal-Mart or to share space with other government offices.

Cutting the work force is more difficult. The agency’s labor contracts have long guaranteed no layoffs to the vast majority of its workers, and management agreed to a new no layoff-clause in a major union contract last May.

But now, faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.

The postal service is also asking Congress for permission to end Saturday delivery.

Given the vast range of stakeholders, getting consensus on a rescue plan will be difficult.

Senator Susan Collins of Maine, like many lawmakers from rural states, vigorously opposes ending Saturday delivery, which would trim only 2 percent from the agency’s budget. Ms. Collins, the ranking Republican on the committee overseeing the postal service, said the cutback would be tough on people in small towns who receive prescriptions and newspapers by mail.

“The postmaster general has focused on several approaches that I believe will be counterproductive,” she said. “They risk producing a death spiral where the postal service reduces service and drives away more customers.”

The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union, which represents 207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate our contract.”

Senators Carper and Collins do back several of the postal service’s main ideas to avoid default, including recovering around $60 billion that some actuaries say the agency has overpaid into two pension funds. Although the Obama administration is working closely with the senators to find a solution, it has signaled discomfort with the pension proposals, questioning whether the postal service really overpaid.

Meanwhile, Representative Darrell Issa, the California Republican who is chairman of the House Oversight Committee, says the pension proposals would amount to an unjustifiable bailout that would not solve the agency’s underlying problems. He is pushing a bill that would create an emergency oversight board that could order huge cost-cutting and void the postal service’s contracts — a proposal that not just the unions, but Senators Carper and Collins oppose.

Fredric V. Rolando, president of the National Association of Letter Carriers, warned of disaster if partisanship keeps Congress from acting.

“This is about one of America’s oldest institutions,” he said. “It survived the telegraph, it survived the telephone, and we have to do everything we can to preserve it and adapt.”

Dow 13,000 in Sight

2011-09-06T10:35:00.001-04:00

Dow 13,600, here we come

Eminent analyst forecasts 18% market advance over the next six months

Sam Eisenstadt is projecting a powerful rally

CHAPEL HILL, N.C. (MarketWatch) — Here’s some cheery news to usher investors into the long Labor Day weekend:

One of Wall Street’s most eminent analysts is forecasting an 18% return for the stock market over the next six months. If he’s right, the Dow Jones Industrial will be trading around 13,600 by next February, and the S&P 500 index will be above 1,420.

The analyst is none other than Sam Eisenstadt, the former research director at Value Line. Prior to his retirement in late 2009, Eisenstadt had spent 63 years at that firm. At the time, its flagship publication, the Value Line Investment Survey, was in first place for risk-adjusted performance over the three decades the Hulbert Financial Digest had been tracking advisory performance.

Though in retirement, and well past the age when most others have long since given up following the market’s daily gyrations, Eisenstadt remains as close a student of the stock market as ever.

One of his areas of focus is a complex econometric model that forecasts where the market will be in six months’ time. The inputs to his model are monthly readings of numerous economic and financial variables over the last six decades — back to 1952, in fact. While Eisenstadt stresses that no model is perfect, he reports that the model’s track record over the last six decades have been statistically quite significant.

(For the statistically minded among you, he reports an r-squared of 0.45 for its six-month forecasts since 1990.)

During the time that I have been reporting Eisenstadt’s forecasts on this website, they have for the most part acquitted themselves quite well:

•In December 2009, Eisenstadt forecasted a 20% return for calendar 2010. The Wilshire 5000 actually gained 17.2% for the year, after dividends. Not bad.

•In December 2010, Eisenstadt forecast an 11.9% return for the first half of 2011. The actual return of the Wilshire 5000 total-return index: 6.1%. Again, not bad.

•This past July, I reported that Eisenstadt’s model was forecasting a 5.7% return through the end of the year. Though four months remain in that forecast, the market since then has fallen 8%. The best you can say in this case is that the jury is still out.

In an email earlier this week, Eisenstadt reported that his model is sticking to its bullish guns — forecasting an 18% return over the next six months.

Eisenstadt conceded that such a return “sounds too good to be true.”

But, he added, he’s learned over the years “not to question the numbers [produced by his model] nor attempt to rationalize them.”

Eisenstadt’s forecast is consistent with the bullish conclusion I reported earlier this week from a contrarian analysis of advisory sentiment.

You might wonder, however, how his forecast can be squared with September’s reputation as being bad for the stock market. Note carefully, however, that even if this coming month turns out to be a disappointing one for equities, there will remain five more months after September for the market to live up to Eisenstadt’s forecast.

We can only hope that it’s on target.

Obama and his secret life as James T. Kirk, starship captain

2011-09-01T08:07:00.000-04:00

Obama, over and over, displays his mediocrity. Worse, he fears things that work -- the creation or jobs by opening more territory to oil and gas drillers -- and he supports failure by backing the flying-carpet, pseudo-science of today's solar technology. Instead of building and strengthening the nation by delivering easily attainable solutions, he relies on wishfulness and dreams that are decades from realization. But rather than funding the science that will -- eventually -- turn his dreams into reality, he has chosen to pretend that Star Trek is real, that we can travel at Warp Factor 10 and that there is a Tranporter room in Starship America. Obama and the Burden of Exceptionalism Post-'60s liberals, with the president as their standard bearer, seek to make a virtue of decline. By SHELBY STEELE If I've heard it once, I've heard it a hundred times: President Obama is destroying the country. Some say this destructiveness is intended; most say it is inadvertent, an outgrowth of inexperience, ideological wrong-headedness and an oddly undefined character. Indeed, on the matter of Mr. Obama's character, today's left now sounds like the right of three years ago. They have begun to see through the man and are surprised at how little is there. Yet there is something more than inexperience or lack of character that defines this presidency: Mr. Obama came of age in a bubble of post-'60s liberalism that conditioned him to be an adversary of American exceptionalism. In this liberalism America's exceptional status in the world follows from a bargain with the devil—an indulgence in militarism, racism, sexism, corporate greed, and environmental disregard as the means to a broad economic, military, and even cultural supremacy in the world. And therefore America's greatness is as much the fruit of evil as of a devotion to freedom. Mr. Obama did not explicitly run on an anti-exceptionalism platform. Yet once he was elected it became clear that his idea of how and where to apply presidential power was shaped precisely by this brand of liberalism. There was his devotion to big government, his passion for redistribution, and his scolding and scapegoating of Wall Street—as if his mandate was somehow to overcome, or at least subdue, American capitalism itself. Anti-exceptionalism has clearly shaped his "leading from behind" profile abroad—an offer of self-effacement to offset the presumed American evil of swaggering cowboyism. Once in office his "hope and change" campaign slogan came to look like the "hope" of overcoming American exceptionalism and "change" away from it. So, in Mr. Obama, America gained a president with ambivalence, if not some antipathy, toward the singular greatness of the nation he had been elected to lead. But then again, the American people did elect him. Clearly Americans were looking for a new kind of exceptionalism in him (a black president would show America to have achieved near perfect social mobility). But were they also looking for—in Mr. Obama—an assault on America's bedrock exceptionalism of military, economic and cultural pre-eminence? American exceptionalism is, among other things, the result of a difficult rigor: the use of individual initiative as the engine of development within a society that strives to ensure individual freedom through the rule of law. Over time a society like this will become great. This is how—despite all our flagrant shortcomings and self-betrayals—America evolved into an exceptional nation. Yet today America is fighting in a number of Muslim countries, and that number is as likely to rise as to fall. Our exceptionalism saddles us with overwhelming burdens. The entire world comes to our door when there is real trouble, and every day we spill blood and treasure in foreign lands—even as anti-Americanism plays around the world like a hit record. At home the values that made us exceptional have been smeared with derision. Individual initiative and individual responsibility—the very engines of our exceptionalism—now carry a stigma of hypocrisy. For centuries America made sure that no amount of initiative would lift minorities and women. So in liberal quarters today—where historical shames are made to define the present—these values are seen as little more than the cynical remnants of a bygone era. Talk of "merit" or "a competition of excellence" in the admissions office of any Ivy League university today, and then stand by for the howls of incredulous laughter. Our national exceptionalism both burdens and defames us, yet it remains our fate. We make others anxious, envious, resentful, admiring and sometimes hate-driven. There's a reason al Qaeda operatives targeted the U.S. on 9/11 and not, say, Buenos Aires. They wanted to enrich their act of evil with the gravitas of American exceptionalism. They wanted to steal our thunder. So we Americans cannot help but feel some ambivalence toward our singularity in the world—with its draining entanglements abroad, the selfless demands it makes on both our military and our taxpayers, and all the false charges of imperial hubris it incurs. Therefore it is not surprising that America developed a liberalism—a political left—that took issue with our exceptionalism. It is a left that has no more fervent mission than to recast our greatness as the product of racism, imperialism and unbridled capitalism. But this leaves the left mired in an absurdity: It seeks to trade the burdens of greatness for the relief of mediocrity. When greatness fades, when a nation contracts to a middling place in the world, then the world in fact no longer knocks on its door. (Think of England or France after empire.) To civilize America, to redeem the nation from its supposed avarice and hubris, the American left effectively makes a virtue of decline—as if we can redeem America only by making her indistinguishable from lesser nations. Since the '60s we have enfeebled our public education system even as our wealth has expanded. Moral and cultural relativism now obscure individual responsibility. We are uninspired in the wars we fight, calculating our withdrawal even before we begin—and then we fight with a self-conscious, almost bureaucratic minimalism that makes the wars interminable. America seems to be facing a pivotal moment: Do we move ahead by advancing or by receding—by reaffirming the values that made us exceptional or by letting go of those values, so that a creeping mediocrity begins to spare us the burdens of greatness? As a president, Barack Obama has been a force for mediocrity. He has banked more on the hopeless interventions of government than on the exceptionalism of the people. His greatest weakness as a president is a limp confidence in his countrymen. He is afraid to ask difficult things of them. Like me, he is black, and it was the government that in part saved us from the ignorances of the people. So the concept of the exceptionalism—the genius for freedom—of the American people may still be a stretch for him. But in fact he was elected to make that stretch. It should be held against him that he has failed to do so. Mr. Steele is a senior fellow at Stanford University's Hoover Institution. Among his books is "White Guilt" (Harper/Collins, 2007).

Taxes and the Tax Code -- what a mess

2011-08-22T11:26:00.003-04:00

Golub makes some excellent points:

My Response To Buffett And Obama

Before you ask for more tax money from me, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely

By HARVEY GOLUB

Over the years, I have paid a significant portion of my income to the various federal, state and local jurisdictions in which I have lived, and I deeply resent that President Obama has decided that I don't need all the money I've not paid in taxes over the years, or that I should leave less for my children and grandchildren and give more to him to spend as he thinks fit. I also resent that Warren Buffett and others who have created massive wealth for themselves think I'm "coddled" because they believe they should pay more in taxes. I certainly don't feel "coddled" because these various governments have not imposed a higher income tax. After all, I did earn it.

Now that I'm 72 years old, I can look forward to paying a significant portion of my accumulated wealth in estate taxes to the federal government and, depending on the state I live in at the time, to that state government as well. Of my current income this year, I expect to pay 80%-90% in federal income taxes, state income taxes, Social Security and Medicare taxes, and federal and state estate taxes. Isn't that enough?

Others could pay higher taxes if they choose. They could voluntarily write a check or they could advocate that their gifts to foundations should be made with after-tax dollars and not be deductible. They could also pay higher taxes if they were not allowed to set up foundations to avoid capital gains and estate taxes.

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent—effectively and efficiently—on purposes that support the general needs of the country. Before you call me greedy, make sure you operate fairly on both fronts.

Today, top earners—the 250,000 people who earn $1 million or more—pay 20% of all income taxes, and the 3% who earn more than $200,000 pay almost half. Almost half of all filers pay no income taxes at all. Clearly they earn less and should pay less. But they should pay something and have a stake in our government spending their money too.

In addition, the extraordinarily complex tax code is replete with favors to various interest groups and industries, favors granted by politicians seeking to retain power. Mortgage interest deductions support the private housing industry at the expense of renters. Generous fringe benefits are not taxed at all, in order to support union and government workers at the expense of people who buy their own insurance with after-tax dollars. Gifts to charities are deductible but gifts to grandchildren are not. That's just a short list, and all of it is unfair.

Governments have an obligation to spend our tax money on programs that work. They fail at this fundamental task. Do we really need dozens of retraining programs with no measure of performance or results? Do we really need to spend money on solar panels, windmills and battery-operated cars when we have ample energy supplies in this country? Do we really need all the regulations that put an estimated $2 trillion burden on our economy by raising the price of things we buy? Do we really need subsidies for domestic sugar farmers and ethanol producers?

Why do we require that public projects pay above-market labor costs? Why do we spend billions on trains that no one will ride? Why do we keep post offices open in places no one lives? Why do we subsidize small airports in communities close to larger ones? Why do we pay government workers above-market rates and outlandish benefits? Do we really need an energy department or an education department at all?

Here's my message: Before you "ask" for more tax money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely. Then you'll need less of my money.

Mr. Golub, a former chairman and CEO of American Express, currently serves on the executive committee of the American Enterprise Institute.

The High Cost of "Free" Solar Energy

2011-08-17T07:47:00.003-04:00

What will it take for people -- Obama -- to understand that all energy is free at the source? It's converting it into a useful form that's expensive. Solar is way up there when it comes to conversion costs. Is anyone in Washington paying attention?

Is the Obama administration going to bail out Evergreen Solar? Not likely. Is Obama himself going to learn a lesson about real-world energy facts? Not likely. Is Obama going to wake up to the punishing costs of his energy dreams? Not likely.

Is the administration embarrassed about the total failure of the green energy industry? How about the fact that green energy is not "clean" energy? Solar panels contain some toxic materials that will eventually need disposal. Then what?

Nevergreen Solar
Another political investment goes bust

In 2008, Reuters published one of those stories predicting that green power would be cost-competitive with fossil fuels in five years. Headline: "As Energy Costs Soar, U.S. Looks to Solar."

Among the prophets was Richard Feldt, then the CEO of Evergreen Solar, who said that "it's not far away" and called for more subsidies. On Monday, Evergreen filed for Chapter 11 bankruptcy.

In the grave-dancing department, let's note that failure is part of the risk-taking and creative destruction that drive growth, and that Evergreen got its start in 1994 with an innovation that reduced the costs of silicon panels. The bankruptcy is notable mainly because the Massachusetts-based manufacturer received so much taxpayer support.

Governor Deval Patrick took a $58 million stake in Evergreen in 2007 with direct subsidies and tax breaks in return for the company building a plant in the state. The goal was "to help Evergreen Solar grow and thrive right here in Massachusetts, and give us a head start toward building a clean energy economy," Mr. Patrick said at the time.

But in January, Evergreen, shedding cash, shut down the Devens plant and fired 800 workers, claiming it was at a competitive disadvantage because U.S. solar subsidies are lower than China's. In a letter to the Journal, the U.S. solar lobby in Washington said the solution was to follow "Chinese policy makers" and make "strategic investments to attract this rapidly growing industry."

Mr. Patrick's economic development secretary, Greg Bialecki, told the Boston Globe that Evergreen's collapse was "a cautionary lesson," but not about the distortions and waste that come with the political allocation of capital. "We knew that it would be challenging to do that kind of manufacturing in the United States. It also probably suggests that Massachusetts can't do it alone—in other words, we probably also need federal policy," he said.

So the Commonwealth subsidies weren't enough for Evergreen to succeed because the federal subsidies weren't enough, even though with the stimulus the Obama Energy Department has become one of the largest venture capital firms in the world. And the federal subsidies will only be enough if Washington emulates the Chinese model of a state-planned economy.

As Evergreen's bankruptcy shows, the real story is that the government-as-investor model isn't going to lead the U.S. back to prosperity.

Solar Energy -- Where are the Blue Skies?

2011-08-15T18:10:00.001-04:00

From the Department of This Isn't News:

Evergreen Solar files for bankruptcy, plans asset sale

Greg Turner and Jerry Kronenberg
August 15, 2011

Evergreen Solar Inc., the Massachusetts clean-energy company that received millions in state subsidies from the Patrick administration for an ill-fated Bay State factory, has filed for bankruptcy, listing $485.6 million in debt.

Evergreen, which closed its taxpayer-supported Devens factory in March and cut 800 jobs, has been trying to rework its debt for months. The cash-strapped company announced today has sought a reorganization in U.S. Bankruptcy Court in Delaware and reached a deal with certain note holders to restructure its debt and auction off assets.

The Massachusetts Republican Party called the Patrick administration’s $58 million financial aid package, which supported Evergreen’s $450 million factory, a “waste” of money.

“The bankruptcy of Evergreen Solar is another sad event for the Massachusetts company and highlights the folly of the Patrick-Murray Administration which has put government subsidies into their pet projects instead of offering broad based relief to all Bay State employers,” said Jennifer Nassour, head of the state GOP.

Greg Bialecki, Patrick’s economic development czar, defended the administration’s support for the once-promising Evergreen. The state is still trying to recoup about $4 million in cash from the Marlboro-based company.

“Not every company is going to be successful ... but we still believe the approach of providing business incentives to create and maintain manufacturing jobs in Massachusetts is an important strategy,” he said.

Evergreen — hurt by lower-cost competition in China and plummeting prices for solar panels — also said it will cut more jobs — 65 layoffs in the United States and Europe, mostly through the shutdown of its Midland, Mich., manufacturing facility. That would leave Evergreen with about 68 workers according to a head count listed in the bankruptcy filing.

To cut costs, Evergreen shifted some of its production to Wuhan, China, last year. That joint venture will remain operating subject to financing talks with Chinese investors.

In January, after Evergreen announced it would close the Devens factory, Patrick told the Herald he was disappointed in the job losses but did not regret making the investment.

“I think we did what we could have and should have,” he told the Herald.

In March, during a state Senate hearing that explored the value of tax incentives for Bay State businesses, Evergreen CEO Michael El-Hillow said the company had “earned” 85 percent of the taxpayer benefits it received because of the jobs it originally created.

Evergreen warned investors back in April that it was burning through cash because of slow sales, falling solar-panel prices and weak proceeds from the sale of Devens factory assets.

“Chapter 11 will provide Evergreen Solar with the ability to maximize returns for our stakeholders through the proposed sale process,” El-Hillow said in a statement. “Importantly, we expect to continue our technology development without interruption during Chapter 11 and the sale process.”

But Evergreen shareholders are expected to receive “no distributions” from the asset sales after creditors are repaid.

Shares of Evergreen, which are in danger of delisting from the Nasdaq Stock Market, plunged 57 percent today to 18 cents. The company launched in 1994 and went public in 2000.

Home Ownership -- Cuban Style

2011-08-15T17:42:00.001-04:00

One of these days, Alice. One of these days...

Is Cuba Going Capitalist? Its economic reforms are mostly an attempt to tax black market transactions.

By MARY ANASTASIA O'GRADY

Who says dictators don't have a sense of humor? Cuba's Castros have an undeniably comic side, as evidenced by the regime's announcement earlier this month that it plans to provide agricultural advice to 14 Venezuelan states. It sounds like a bad joke. Would you take technical assistance from a government that has turned the chicken into an endangered species in its own country?

This raises the question of how seriously we ought to take Raúl Castro's announcement that he is about to "reform" the Cuban economy. The American press seems convinced. "Cubans Set For Big Change: Right to Buy Homes," the New York Times screamed on its front page on Aug. 2. "Now open in Cuba; Business isn't exactly booming as free enterprise expands, but the slumbering entrepreneurial spirit is starting to stir," said the Los Angeles Times on Aug. 7.

It sounds like a capitalist revolution. But is it really time to get in on the ground floor in Cuba?

History may provide some guidance. This is not the first time we have been told that the communist economy, paralyzed since 1959, is on the verge of a reversal. In 1986, as Fidel Castro convened the III Communist Party Congress, the Miami Herald reported that "dramatic changes are sweeping Cuba," including, the story said, permits to own homes. It is true that the regime officially blessed "home ownership." But those houses could not be sold, only exchanged. And Cubans never actually had legal rights to them, as became apparent when the state discovered that enterprising Cubans were making money by trading houses for profit under the table. A wave of confiscations followed.

The end of Soviet aid provoked another crisis, and by 1994 the regime was again promising economic liberalization. There was some. Taxi businesses and in-home restaurants sprang up. But as soon as some Cubans began to acquire wealth, Castro got nervous, because he understands that economic power translates into political power. Prices for licenses went up sharply, making it so costly to operate in the formal economy that many start-ups disappeared again.

In 2008, three hurricanes and the global financial crisis took a sharp toll on tourism and nickel prices, two of the island's most important sources of hard currency. Food shortages became more acute and the existing housing stock, which was in ruins, shrank. Raúl decided it was time to talk again about reform.

It took a while but Cuba finally made it official earlier this year: 178 tasks have been legalized. By the beginning of next year the government has also promised to make the housing market legal. Property rights and private enterprise are keys to economic development and the idea that Cuba would allow both suggests that the revolution is breathing its last. Yet is this time any different?

There are no details about what it will mean when Cubans are allowed to "buy homes." But given the arbitrary power of the state, it is reasonable to question the certitude of the property right. The real reason the regime wants to formalize the housing market probably concerns the national purse.

Right now Cubans are allowed to trade houses but since it is rarely an even exchange, there are also dollars—provided by the exile community—that flow in the black market. Castro, being short of foreign exchange, most likely wants to get in the middle of this transaction so that he can take a cut.

The strapped government also is looking for ways to unload part of the state work force. To ensure that laid-off employees don't starve, it wants to give them business "opportunities." But in a paper delivered at the annual meeting of the Association for the Study of the Cuban Economy here 10 days ago, former International Monetary Fund economist and ASCE founder Joaquín Pujol noted that at the end of 2009, "there were already 143,000 licensed, self-employed, although thousands more worked for themselves illegally." He also pointed out that "171,000 new business licenses granted so far this year went to people who were already out of work, suggesting that the vast reforms may not be enough of a safety net for the half-million people who are expected to be soon out of a government job."

This problem is exacerbated by the fact that since not everyone has an entrepreneurial nature, job creation by the gifted few will be important. Yet an effective tax rate for micro-enterprises that "could reach and exceed 100%," according to Mr. Pujol, will discourage hiring. Mr. Pujol also noted that despite Cuba's investments in education, there is no private "knowledge intensive" work that is legal, ruling out growth in the sectors of the economy that offer the most potential.

Free prices, property rights and incentives for innovation would signal real change. But those things would also put the regime's grip at risk. So instead it is trying to formalize and tax black market transactions to create jobs for state workers and raise revenues. The idea that this is capitalism would be funny too, were it not so sad.

Buy Stocks says Warren Buffett -- He's right

2011-08-14T07:38:00.003-04:00

Warren Buffett believes there's a sale at the stock exchange. Who can doubt him? What changed after Standard & Poors lowered the credit rating of the US? What changed after the Fed promised to hold rates at near-zero level for the next two years? At the company level, nothing changed.

Perhaps prospects are slightly less promising in light of S&P's belief that US government debt will increase more than the government has estimated. But that's hardly a sufficient reason to send the market down 633 points one and up 420 points on another, for a net decline of 175 points for the full week. Buffett sees these moments, when the market drops, as great buying opportuntiies.

Buffett: The lower stocks go, the more I buy
August 11, 2011

Warren Buffett discusses the lowered outlook for Berkshire Hathaway debt, why some of his businesses aren't hiring, and why U.S. debt remains triple-A rated in his mind.

By Andy Serwer, managing editor

Warren Buffett sees buying opportunities

FORTUNE -- "There is no comparison between fear and greed," Warren Buffett is telling me over the phone from Omaha. "Fear is instant, pervasive and intense. Greed is slower. Fear hits," he exclaims. It's Tuesday August 9th, a little less than an hour after the Federal Reserve announced it would hold interest rates at close to zero for two more years and the stock market has gone into yet another major spasm—up at that moment between two hugely down days.

For us mere mortals, this summer's stock market meltdown has a grinding, Groundhog Day feel to it, as in: 'Oh no, not again…" But for Buffett it's invigorating.

Today he's his usual chipper self, saying he's "never been better." And why not? As Buffett reminds me, "The lower things go, the more I buy. We are in the business of buying," [both securities and, if he can find them, big companies.] (And no, he won't tell me what he's picking up on the cheap.)

Buffett always makes his job sound so easy, but of course it isn't. All you need is a multi-billion dollar war chest, nerves of titanium, and a brilliant, analytical mind. Not a very big group there.

I'm calling Buffett to ask him about his company's businesses, because as a diversified conglomerate or holding company, Berkshire Hathaway (BRKA) is a fairly reflective proxy of the overall economy. But first I had to ask him about S&P lowering the outlook for Berkshire Hathaway debt (which is rated AA+) from stable to negative in the wake of the credit down grade of U.S. Treasuries.

So what about it Mr. B?

"They said some time ago that if they changed the ratings on governments they would lower the outlook on certain insurance companies because they own a lot of governments. [Buffett reportedly said that Berkshire holds more than $40 billion of its cash in short term Treasuries.] So as a derivative move I understand it, but I don't agree with it because I don't agree with the Treasury downgrade. U.S. Treasuries are still triple-A in that there is no question that we will repay the interest and the principal. Every contract will be repaid. So our bonds are triple-A. Our currency, the dollar, is not triple-A. Our bonds are."

So what about the health of his businesses?

"Up until right now, all of our businesses have been coming back---even Europe isn't doing that badly---except for businesses relating to home construction which is on its rear end. [Importantly Buffett did say that if events continue like the last few weeks it will change things.] Business has been coming back steadily, even more than the mood of the public."

Of course, some of this talk may be Buffett trying to jawbone that public mood, but remember Buffett is a voracious consumer of his businesses' numbers and wouldn't be one to misrepresent them.

Two examples: A Berkshire subsidiary based in Israel, Iscar, which makes cutting tools for machines, is showing growth, "quarter after quarter," Buffett says, adding that this isn't because of market share gains. "It means that the machines are operating more."

Buffett has another company, TTI, which sells tiny electronic parts. "It's like selling jelly beans, but we sell billions of dollars of them and it is up."

And there's more too: "NetJets' miles flown by customers are up. Rolex watches -- we are the largest seller of Rolexes in the U.S. -- are up 27% this year," he says.

Ah, but is Berkshire hiring anyone? We hear so much about businesses being in good shape because they are so productive. Here things are mixed. Every business looks for productivity gains every year, Buffett notes.

Shaw, Berkshire's carpet manufacturer, let 400 people go over the last month or so, and is down some 6,000 employees overall, Buffett says. Shaw's business, of course, is closely tied to the beleaguered homebuilding business. "But when that business comes back, we will add thousands of employees some day."

On the flip side, Berkshire's giant railroad, Burlington Northern is adding some 3,500 jobs this year as business has picked up. And insurance company GEICO has added 700 jobs, "but we're gaining [market] share there," he says.

So the insurance business is good, I ask Buffett? Not exactly.

"Auto has been good, but catastrophes have been bad. International hit us in the first quarter, and domestic in the second." By that Buffett means the tragedy in Japan and earthquakes in New Zealand, in particular the second Christchurch quake which cased as much damage relative to New Zealand's GDP as ten Hurricane Katrina's.

"We set up a reserve of $40 million for death related losses in the first quarter, $5 million for New Zealand and $35 million for Japan. Natural catastrophes that produce life insurance losses of this order are very unusual," Buffett says.

The domestic debacles were the worst tornado season in history, which included the storms in Alabama and Joplin, Missouri. And Buffett says the elements continue to be most unkind: A freak hailstorm on Long Island, NY on August 1st, led to 15,000 claims worth $60 million, just in auto claims.

And so what does Buffett think about the Fed's move to hold rates low that has the market all in a tizzy that Tuesday? "I don't really think about things like that," he reminds me. I ask him if he sees anything in his data stream that is giving him cause to worry about another downturn. "Not yet, but it would take a little while to show up."

In the meantime, Buffett is looking to buy stocks -- oh, and apparently to sell Berkshire bonds too. Berkshire is reportedly taking advantage of record low rates and issuing bonds to raise dirt-cheap capital. For Buffett right now at least, this is not a time for fear. This is a time for action.

Oil Change for Obama

2011-08-08T08:53:00.002-04:00

It's simple. The oil industry can let go of any industry-specific tax breaks in exchange for permission to drill anywhere in the US. A change like that would give something to everyone, and the biggest bonus would go to the American people. Too bad Obama has no grasp of the obvious.

Here’s an Easy $100 Billion Cut

Published: August 7, 2011

If the Republicans are truly determined to slash the budget and end government waste, they will start with two obvious and long overdue cuts: ending the web of tax breaks enjoyed by the rolling-in-dough oil industry and terminating the ethanol subsidy. Together these cuts would save up to $100 billion over 10 years, without hurting the poor and middle class or slowing the economy.

If only. The oil industry’s well-paid defenders — lobbyists and lawmakers in unison — will surely scream “tax hike” and claim that ending $4 billion a year in sweetheart subsidies will decrease production and increase prices at the pump. All of which is nonsense.

In 2005, with oil nearing $60 a barrel, James Mulva, the head of ConocoPhillips, told the Senate that his industry did not need these breaks to keep exploring for oil. They need them even less when oil is $100 a barrel.

According to the Congressional Research Service, ending the subsidies would have no effect on gas prices and a trivial effect on profits. The Big Five — Exxon Mobil, BP, ConocoPhillips, Chevron and Shell — reported combined profits of $35.1 billion for just the second quarter. Yes, you read that right.

The ethanol subsidies are just as unnecessary. The big one is a 45-cents-per-gallon tax credit that costs between $5 billion and $6 billion a year and goes not to corn farmers, as commonly supposed, or to ethanol producers, but to the refineries that blend ethanol with conventional gasoline. Which is to say, the oil companies.

Tax credits might have been useful when ethanol was in its infancy. But making corn ethanol is now a commercially viable technology, and one that is further supported by a 2007 Congressional mandate that requires refiners to blend up to 15 billion gallons of corn ethanol every year. In this sense, the subsidy is a bribe to oil companies to get them to buy and blend a product they are already required by law to purchase.

President Obama has called three times for ending the oil subsidies, and in May the Senate voted 52 to 48 to do so, not enough to overcome a filibuster. In June, the Senate also approved an amendment to a bill that ultimately went nowhere that would have ended the ethanol subsidy.

The roadblock is the House Republicans’ blind opposition to anything that could be characterized as a tax increase. Also nonsense. These tax breaks are merely subsidies under another, politically convenient name. It is time to end both. There is no justification for putting the interests of one industry above those of the country.

I'm from the government. I'm here to hurt

2011-08-08T07:36:00.003-04:00

If there's one skill the government lacks, it's the skill to create jobs in the private sector. Yeah, sure, the government can create more government jobs. But that's the last thing we need. More burdens for taxpayers offering no visible benefit to the economy.

Five Ideas to Kick-Start Job Creation
Entrepreneurs don't want government money. They want the chance to invest their sweat equity

Now that the debt-ceiling gyrations are over, the Obama administration is "pivoting" to its biggest problem—jobs. Unemployment ticked down to 9.1% in July, but the real unemployment rate, including discouraged workers, is still 16.1%. The stock market is not pleased. Why? Because the president's calls for "patent reform" and an "infrastructure bank" won't move the needle. It's time to go big or be sent home.

Can we agree that throwing money at the problem doesn't work? The 2009-10 stimulus package wasted more than $800 billion. The Federal Reserve's frantic quantitative easing, QE1 and QE2, printed money and bought mortgage paper on the street, helping banks and financial institutions recapitalize, but it hardly created jobs—not lasting ones anyway. Sadly, the economy grew at a subpar 1.3% rate in the second quarter instead of the typical 5% rocket out of a recession. What's missing is not capital, it's opportunity.

As Otter famously said in "Animal House," this situation "absolutely requires a really futile and stupid gesture be done on somebody's part." Well, at least a gesture that might appear stupid and futile but in reality kick-starts whole new industries and massive job growth. And all it will take is the stroke of a pen. Here are some instant job creators:

• Free spectrum. AT&T is trying to buy T-Mobile to get hold of valuable spectrum for wireless. But there's loads of spectrum lying around that is not being used. Try this: Tune into channel 37 on your TV. Static? Bingo. Put this spectrum in the hands of entrepreneurs and you'll create a million new jobs, not to mention new devices and apps not thought possible in our bandwidth-starved world—phones that work in elevators and subways, remote auto and medical diagnostics, real-time ads on smart phones and other devices ("Hey, your friends ate here last week!"), and that's just in the first six months.

But how? Either allow spectrum to be sold by current owners, typically broadcasters inefficiently using this spectrum, or implement a "use it or lose" it rule. The Federal Communications Commission can declare that if a swath of spectrum is not being used for a real application, then they will open it up to the public, the same way that Wi-Fi is open to all—anyone can use it as long as they don't interfere with others. (AT&T and Verizon will fight this, but so what?)

This is also true of government-owned spectrum. If an entrepreneur can prove far greater potential usage, it should revert to the public. Chips are available today that can be tuned to virtually any new spectrum. Apps can be written in weeks. Venture capitalists and Wall Street would gladly provide access to capital. So what are we waiting for? Start making those "Free the Spectrum!" T-shirts.

• Disease diagnostics. Have the Department of Health and Human Services declare that Medicare will pay for any diagnostic test or device that can be proven to save money over five years—for example, detecting a cancer at Stage I when it's cheaper to treat versus at Stage IV, when it is expensive and often fatal. Some will prove worthy, others won't. But it's a self-correcting process—if a test or device doesn't save money, then reimbursements stop. That will help focus entrepreneurs' efforts, and the resulting innovation will both save money and create private-sector jobs.

• End the mail monopoly. The U.S. Postal Service, which posted a net loss of $3.1 billion in the third quarter alone (there is only so much junk mail and Hallmark cards to deliver anymore), is finally starting to rationalize small post offices, recently putting 4,000 of them on a list for possible closing. Accelerate this task by ending the USPS monopoly on first- and third-class mail. Entrepreneurs will jump into action. Online bill payment will become ubiquitous. UPS and FedEx and a host of new companies will create more productive forms of delivery. The Postal Service won't end, it will just slowly fade away.

• Frack this. The revolution in natural-gas extraction, driven by hydraulic fracturing, or "fracking" of America's huge shale deposits, has boosted shale gas to 25% of America's gas supplies from 1% in 2001. But environmentalists are pushing to close down this booming industry due to concerns over contamination of water supplies. Here's a solution: Declare all hydraulic fracturing legal with the caveat that drillers put up a bond equal to the potential cleanup cost of environmental damage. This will force large players to consolidate what is mostly a "wildcat" market. The big guys will be much more careful in their extraction techniques, knowing mistakes cause huge losses.

• Government platform. The hardest thing to do is interact with the government—the Department of Motor Vehicles being the most painful example. I have yet to see any government agency with an up-to-date user interface. But this is easy to change.

In the technology world, companies view themselves as platforms for others to build on, and they publish what they call application programming interfaces (APIs) so others can easily tap their ecosystem. All government agencies should be required to publish their own APIs by the end of the year. What will happen next is a sea of programmers will emerge to write iPhone apps and other code to integrate government functions into our everyday lives. And yes, this will eventually get rid of entire layers of inefficient government workers, but new companies nowhere near the Beltway will proliferate with virtual connections to the government.

• Rental society. Create a six-month foreclosure amnesty, i.e., initiate foreclosure proceedings on your underwater mortgage, and it doesn't show up on your permanent record. Foreclosure then becomes an individual's choice, not something mired in government red tape or stuck in a bank's back office. This would lead to millions of homes and condos hitting the market at fire-sale prices. This is exactly the price discovery that the finance sector both dreads and needs to move forward. Within weeks, we'd see the rise of Web-based rental agencies and real-estate auctions.

I understand the politics against all these opportunities and doubt any administration has the political will to enable so much change so quickly. But any one of these ideas, while a futile gesture on the surface, would sound like a starting gun for entrepreneurs and get them off to the races. They don't need money—they need somewhere to invest their sweat equity. And that's the only true job creator.

Call AAA to Rescue the Stranded Obama Administration

2011-08-07T07:57:00.004-04:00

The Obama Administration is trying to defend itself from S&P's downgrade by claiming that S&P based its analysis on the projection that US debt would total $22.1 TRILLION in 2021, rather than $20 TRILLION, as the administration predicts.

Given the overwhelming evidence of the administration's ability to make accurate predictions about the economy over one- and two-year horizons, there's no reason to think the same people can accurately predict the size of our national debt 10 years down the road -- when all of the predictors will be long gone from their government jobs.

What's ahead in the next 10 years? Who knows? More wars? Probably. Higher aggregate medical expenditures by Medicare and Medicaid? Absolutely. How much higher? If we extrapolate the trend of the last decade, then spending in 2021 will break the bank.

It's amusing that S&P was villified for giving AAA ratings to mortgage securities that later defaulted. It's amusing because S&P is one of a handful of organizations that have a special government designation. They are Nationally Recognized Statistical Ratings Organizations.

What entity issued the National Recognition? The US government did. Thus, the government has given S&P its stamp of approval.

That stamp of approval meant that no investors questioned the accuracy of the AAA ratings given to mortgage securities containing many sub-prime loans. That oversight was essential to the goal of the government, which was to increase home ownership among people who historically were less likely to own homes and build personal wealth.

Rather than stick with well understood lending practices that demanded borrowers have a decent credit rating, reasonable job prospects and a substantial downpayment, the government legislated changes that allowed borrowers to borrow 100% of the purchase price of a home with nothing more than their "promise" to repay the money.

Now the Obama administration is in offended-mode, and it's trying to malign the S&P decision to reduce our national credit rating to AA+. A classic case of shooting the messenger.

Amid Criticism on Downgrade of U.S., S.&P. Fires Back

By NELSON D. SCHWARTZ and ERIC DASH
Published: August 6, 2011

The day after Standard & Poor’s took the unprecedented step of stripping the United States government of its top credit rating, the ratings agency offered a full-throated defense of its decision, calling the bitter stand-off between President Obama and Congress over raising the debt ceiling a “debacle.” It warned that further downgrades may lie ahead.

In an unusual Saturday conference call with reporters, senior S.& P. officials insisted the ratings firm hadn’t overstepped its bounds by focusing on the political paralysis in Washington as much as fiscal policy in determining the new rating. “The debacle over the debt ceiling continued until almost the midnight hour,” said John B. Chambers, chairman of S.& P.’s sovereign ratings committee.

Another S.& P. official, David Beers, added that “fiscal policy, like other government policy, is fundamentally a political process.”

Initial reactions from Congressional leaders suggested that S.& P.’s action was unlikely to force consensus on the fundamental divide over spending and taxes. Politicians on both sides used the decision to bolster their own long-standing positions.

Officials at the White House and Treasury criticized S.& P.’s move as based on faulty budget accounting that did not factor in the just-enacted deal for increasing the debt limit.

Gene Sperling, the director of the White House national economic council, called the difference, totaling over $2 trillion, “breathtaking” and said that “the amateurism it displayed” suggested “an institution starting with a conclusion and shaping any arguments to fit it.”

Even as the ratings agency insisted on Saturday that its move shouldn’t have come as a shock, it reverberated around the world. Officials from China to Europe scrambled to assess the downgrade’s impact on the already troubled global economy, and political leaders in the United States sought to frame the issue in their favor.

Republican presidential candidates on Saturday seized on the downgrade as a new line of criticism against President Obama, suggesting that ultimate responsibility rests in the Oval Office.

“It happened on your watch, Mr. President,” Representative Michele Bachmann said, drawing applause at an afternoon rally in Iowa. “You were AWOL. You were missing in action.”

In a statement, the White House made no mention of the downgrade. “We must do better to make clear our nation’s will, capacity and commitment to work together to tackle our major fiscal and economic challenges,” the White House press secretary, Jay Carney, said.

The wrangling over S.& P.’s downgrade to AA+ from AAA stretched on for days. But interviews with both officials from the administration and S.& P. reveal sharply differing perceptions on whether a downgrade was imminent. The rating agency argued that their intentions had been plain for months if the government didn’t take strong action to curb the debt; administration officials claimed they were blindsided.

The drama, which would culminate late Friday and into the weekend, actually began to gather speed Wednesday, when S.& P. executives came to the Treasury Department to meet with a group of administration officials led by Mary J. Miller, the assistant secretary for financial markets.

At the meeting, the S.& P. executives walked the Treasury Department team through its analysis. Government debt was growing rapidly, they said, and the just-completed deal wasn’t going to do enough to slow it down, endangering the AAA rating.

As early as April, S.& P. had changed its credit outlook on the United States to negative. By July, S.& P. warned that if the government did not agree to a deficit reduction package of about $4 trillion, there was a one-in-two chance a downgrade.

Still Treasury officials claim they were taken by surprise on Wednesday. Just the day before, Ms. Miller and her team met at the Hay-Adams Hotel with a group of senior Wall Street executives who advise the Treasury on its borrowing. None of the members believed that the government’s credit rating would be lowered in the near-term.

On Thursday, the ratings agency informed the Treasury that its seven-person panel would meet Friday morning to assess the creditworthiness of the United States government.

Even then, one administration official said, “We didn’t think they would actually do it.”

At 8 a.m. Friday, S.& P. convened a global conference call of its sovereign rating committee including Mr. Beers, Mr. Chambers and others. By 10 a.m., they’d reached a majority decision — the United States no longer was entitled to its top rating. Mr. Beers would not say whether the verdict was unanimous.

Inside Treasury, meanwhile, John Bellows, an acting assistant secretary, flagged a concern over S.& P.’s methodology. In its analysis, S.& P. had projected the nation’s debt as a share of gross domestic product to reach 93 percent by 2021. That was around 8 percentage points higher than the figure administration officials believed the rating agency should have used — what they now call a $2.1 trillion error.

In a Treasury blog entry, Mr. Bellows wrote that the difference raised “fundamental questions about the credibility and integrity of S.& P.’s ratings action.”

Around 5:30 p.m., S.& P. officials called the group of Treasury officials. “You were right,” Mr. Chambers told them, but said he was prepared to proceed because the revisions didn’t meaningfully affect S.& P.’s conclusion.

In one final effort to prevent what was once unthinkable from becoming inevitable, the Treasury officials again pressed S.& P. to reconsider. At 8 p.m., the ratings agency sent them the final press release on the downgrade. By 8:20 p.m., the news was out.

“For those who follow the fiscal situation of the United States, this shouldn’t be news to anyone,” Mr. Chambers said.

Cuban Oil -- an oxymoron

2011-07-29T10:43:00.003-04:00

Cuba has many resources within its grasp. But it has no expertise. For all the reasons cited below, its oil-drilling venture will end in an operating failure. Moreover, even if Cuba extracts some oil from the Gulf waters, it's got no way to refine the oil into useful products. Oh well. It's business as usual for the half-baked socialist dreamers of Castro's failed revolution.

Drill, Bebé, Drill

Cuba is about to drill for offshore oil with “second-tier parts” because of the trade embargo. That’s not good news for U.S. beaches.

July 29, 2011

Sometime over the next three months, if all goes according to plan, Cuban workers on a Chinese-built, Spanish-owned rig will start drilling for oil in the mile-deep waters just off the north coast of Cuba, 70 miles from the Florida Keys.

If the drill hits a major oil deposit—and all geologic signs indicate it will—the discovery will unleash a cascade of developments with profound political, environmental, and economic consequences.

The Cuban government has long wanted to extract the rich reserves of oil and natural gas believed to lie off its shores. Estimates for oil range from 5 billion to 20 billion barrels, while the estimate for natural gas is 8.6 billion cubic feet. Unlocking that oil could jump-start a nascent Cuban offshore-oil industry—and free the island nation from its energy and political dependence on Venezuela, from which it imports 60 percent of its oil today.

A newfound independence from its socialist neighbor and its mercurial president, Hugo Chavez—coming at a time when the Cuban leadership is facing change with the eventual demise of Fidel Castro—is an appealing prospect to the United States.

But the potential of a closer relationship with Cuba comes with a terrifying specter: An oil blowout in Cuban waters could reprise the nightmare that was last year’s Gulf of Mexico oil spill, and send crude spewing to the beaches of Florida, Georgia, and South Carolina.

And the likelihood for such a disaster is very real, say oil industry experts, thanks in part to Washington’s 49-year-old embargo on Cuba.

Because of the embargo, U.S. companies cannot drill in Cuba, supply equipment to Cuba, have any say over safety regulations in Cuba, or even take part in helping control a blowout and spill in Cuba. As the island prepares to begin offshore drilling, it has signed contracts with oil companies from Brazil, India, Italy, Russia, and Spain—and is in talks to lease major portions of its coastal water to Chinese companies (continuing China’s pattern of pursuing oil exploration in countries where U.S. drillers aren’t welcome).

Under the embargo’s terms, the oil drilling and safety equipment used by those companies must be less than 10 percent U.S.-made. But all of the most technologically advanced equipment for drilling and preventing or stopping oil spills is made in the United States or by U.S. companies.

“There are not international suppliers of this level of equipment. They will have to buy copycat or second-tier parts,” Lee Hunter, president of the Houston-based International Association of Drilling Contractors, told National Journal.

Hunter and other experts say that, to date, it appears that the Cuban government, fearful of the devastation an oil spill could wreak on its economy, wants to use the lessons learned from the BP oil disaster to develop a rigorous safety and oversight program. But it will be nearly impossible for drillers in Cuba’s waters to legally use the safest equipment.

“The Cubans want to use good technology; they want to drill safely,” Hunter said. “But … their ability to drill safely is extremely compromised.”

Also deeply compromised is their ability to respond to a disaster should it occur. Even if oil from a Cuban spill laps at Florida’s shores, the U.S. agencies and oil companies that have all-too-hard-won expertise in wrestling a spill—the Coast Guard, the Federal Emergency Management Agency, and the Interior Department—would be banned from crossing into Cuban waters to help.

And experts say that the Cuban oil industry and government don’t yet have a fraction of the resources and expertise they would need to deal with such an event on their own.

State Department officials are well aware of the problem, and they are working with Hunter’s group, along with others, to find a way for U.S. companies to get into Cuban waters—if not to drill, at least to help out in case of a spill. One way this could happen is if the Treasury Department issues special advance licenses granting U.S. companies the ability to travel to Cuban waters to give aid in a disaster. Cuban officials are also cautiously indicating interest in cooperating with the U.S. on the plan, despite the embargo.

“This is something that could get Cuba and the U.S. sitting down and talking, finding points of agreement and cooperation,” said Jorge Piñón, a former president of Amoco Oil Latin America and a current visiting research fellow with Florida International University’s Cuban Research Institute.

It is also something that is likely to further ignite the fight over opening up more U.S. waters for drilling, pointed out Piñón and many others. Currently, most of the eastern portion of the U.S. Gulf of Mexico—which borders the water where the Chinese, Indians, and Russians would be operating off Cuba—is closed to drilling.

But defenders of the U.S. drilling ban will be hard-pressed to keep it in place, no matter the risks, if two things happen: if oil-producing rigs pop up in Cuban waters, and, in the coming years, in the surrounding waters of Mexico and even the Bahamas, which is now looking into starting offshore drilling.

NASA -- Out of Orbit

2011-07-10T19:57:00.002-04:00

For some reason that defies the truth, a lot of Americans believe the Space Program has delivered an abundance of scientific advances that have been converted into loads of cash by those positioned to exploit the knowledge gained from space flight.

Well, that's not exactly what happened, even though millions believe the myth. sure, advances were made and benefits were gotten. But everything that has come from the Space Program was coming along anyway, so the best you can say is the Space Program pushed things along a little faster.

Ex-Astronaut Story Musgrave Blasts NASA, Washington, Over Space Shuttle Program Failures

7/9/11

Houston, we have a problem ... with NASA.

As the space shuttle Atlantis orbits Earth in the final mission of NASA's 30-year reusable spacecraft legacy, at least one former astronaut -- and six-time shuttle voyager -- is lashing out at the space agency for what he deems as failures in the overall vision of the shuttle program.

"The shuttle did not turn out like we planned," Dr. Story Musgrave told The Huffington Post. "It was going to [fly] 66 times a year and it ended up with about five times a year. It was going to cost $10 million a flight, and two months ago, an independent study showed that it cost $1.2 billion a flight. It was massively fragile, difficult to operate and exceedingly dangerous."

Musgrave is a surgeon, mathematician, chemist, biophysicist, physiologist, computer scientist, artist and author of important scientific papers in the areas of aerospace medicine, physiology and clinical surgery.

His achievements include designing the spacesuit that was used by shuttle astronauts for space walks. Musgrave performed the first space shuttle space walk in 1983 on Challenger's maiden flight. Ten years later, he was the lead space walker during the first mission to repair the Hubble Space Telescope.

But with NASA closing shop on the shuttle program because of the huge ongoing expense, Musgrave is critical of how the powers-that-be made decisions.

"The downside is the [international] space station needs us, needs a shuttle to service it in a way that nothing else can," he said.

"I think what the real problem is: Why are we so poor in our vision and so poor in our project management that we come to a point where it's reasonable to phase out the current program and we have no idea what the next one is? Washington has to stop doing that."

"Washington is in total failure that this has happened," he added. "It is Washington's fault and they have to look in the mirror and have to see their failure. It's NASA, Washington, Congress and the administration -- they are in failure."

As an example of what he perceives as NASA's failure "to have any vision leadership or project management," Musgrave talked about NASA's Assured Crew Return Vehicle -- or escape module -- proposal for the International Space Station.

"That's the lifeboat. In 1974, when we saw that a space station was going to happen, we had a requirement to have a lifeboat to be able to get off the station in case of a fire or some other catastrophe. That was 1974. Where is our lifeboat? We don't have one because there's no leadership in Washington, there is no vision and they're unable to manage a project like that.

"It can be a totally manually flown thing without a computer -- it's so simply done, and we toyed with it for years. If you want to have the biggest example of failure in Washington to be able to do anything, where is the assured crew return vehicle?"

And despite his criticism of the space program leadership, Musgrave feels the public wants to keep going into space.

"The public does care. They're always there for you. They love space, but you've got to give them something. If you ask the average person: What's the space station doing for you? They simply don't know."

Musgrave is now a concept engineer for a company called Applied Minds in California, a professor of design at Art Center College of Design in Pasadena and a landscape architect in Orlando. Space agency and Washington leadership criticisms aside, he always feels honored for his accomplishments at NASA.

"I'm massively privileged to be part of the space program, and I never forget to say that."

Words From the Wise

2011-07-10T17:39:00.002-04:00

Two ‘geezers’ who are bullish

Commentary: Eisenstadt and Fosback both forecast higher market

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) — “The years teach much which the days never knew.”

I was reminded this week of Ralph Waldo Emerson’s classic comment about the wisdom of old age, having received the latest forecasts of two stock market veterans with more decades of investment experience than most of the rest of us have even been alive.

You might not agree with them, but their years of experience suggest we should at least pay close attention to their forecasts.

Interestingly, furthermore, both of them currently are bullish.

The first of these veteran advisers is Sam Eisenstadt, the former research director at Value Line who, prior to his retirement in December 2009, had spent 63 years at that firm — including playing a pivotal role in creating Value Line’s famed stock ranking system. At the time of his retirement, Value Line’s flagship publication, the Value Line Investment Survey, was in first place for risk-adjusted performance over the three decades the Hulbert Financial Digest had been tracking advisory performance.

Eisenstadt in retirement continues to closely follow the stock market, periodically updating his econometric model that spits out a six-month forecast for the S&P 500 index /quotes/zigman/3870025 SPX -0.70% . His latest forecast is for the S&P to be trading at the 1,430 level at the end of this year.

That is equivalent to a 5.7% return from current levels, or 11.7% on an annualized basis.

Eisenstadt bases his econometric model on monthly readings of numerous economic and financial variables over the last six decades — back to 1952, in fact.

While Eisenstadt stresses that no model is perfect, he reports that the model’s forecasts over the last six decades have been statistically significant.

Last December, you may recall, Eisenstadt was forecasting an 11.9% increase over the first half of this year. As fate would have it, the S&P rose just 5% for the year through June 30, though — given that some last December were forecasting a resumption of the bear market — coming this close has to be judged at least a partial success (if not more).

The other veteran whose latest forecast I received over the past week is Norman Fosback. Compared to Eisenstadt, of course, Fosback is a spring chicken, having been actively following the market for “just” 40 years — first as president of the Institute for Econometric Research, and in recent years, as editor of Fosback’s Fund Forecaster.

Though Fosback’s econometric model doesn’t issue six-month forecasts, it does make 12-month forecasts — and its bullishness is in the same order of magnitude as Eisenstadt’s model: Fosback is predicting a gain over the next 12 months of 17%, and a 61% return over the next five years.

The factors on which Fosback base this forecast include sentiment, valuations, and technical indicators . But the most bullish single factor, in Fosback’s opinion, is Fed policy: “The monetary evidence couldn’t be more powerfully bullish,” he writes.

This bullishness on the part of these two market veterans reminds me, in an ironic way, of the contrast between so-called “kids markets” and what fellow columnist Peter Brimelow has referred to as the “geezers markets.”

The concept of “kids markets” traces back to Adam Smith, the pseudonymous author in the late 1960s of the famous book “The Money Game.” A “kids market” is one in which the investors making the most money are those too young to remember the distant past — and whose investment approach is not affected by those memories.

“Geezers markets,” in contrast, are periods in which long-term experience translates into outperforming the kids.

If indeed the bull market still has a long way to go, for example, the “kids” could very well lose out because they have a very lively memory of the trauma of the 2007-2009 Great Recession and no recollection of prior decades.

And though it is too early to know whether we are indeed in a geezers market, it is striking that these two veterans are markedly more bullish than many of their younger brethren.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

Obama and his fellow dim bulbs

2011-07-08T21:36:00.002-04:00

Are they really so brazen that they'll force Americans to buy a product millions don't want? Yes. It seems the Obama administration is as brazen as that.

New Flare-Up in Light-Bulb Wars

Critics of Greater Federal Regulation Push a Fresh Challenge to 2007 Law

Associated Press

The light-bulb wars are back on.

Energy Secretary Steven Chu came out swinging Friday against a House bill that would repeal a 2007 federal law effectively outlawing older forms of incandescent bulbs—an effort at energy conservation that has inflamed a wide swath of Americans who don't care for the more expensive alternatives.

In a conference call with reporters, Mr. Chu said the more-efficient bulbs required would save consumers money over the life of the product, even if the up-front price is higher.

"We are taking away a choice that continues to let people waste their own money," he said.

The light-bulb issue has become a flash point in a broader debate about the expansion of federal regulation into areas of personal choice, such as what to eat, how to save for retirement and how much gasoline to use.

The controversy also spotlights a shift in the Republican party's stance.

A House vote on repealing the light-bulb efficiency standard, expected Monday, would reverse part of an energy bill President George W. Bush signed four years ago and that received widespread support in both houses of Congress.

Rep. Fred Upton (R., Mich.), who said in 2007 that the light-bulb mandate was a "common-sense, bipartisan approach ... to save energy as well as help foster the creation of new domestic manufacturing jobs," now wants to repeal the law. "It was never my goal for Washington to decide what type of light bulbs Americans should use," he said in a statement Friday.

It isn't clear that the latest flare-up will change anything for consumers, as the measure's prospects are dim in the Senate.

The 2007 law means cheap incandescent bulbs will become harder to find, and fluorescent, halogen and LED bulbs—as well as more-efficient incandescent bulbs—will take their place in stores. The new bulbs need less energy to produce a brighter light and last longer than conventional incandescent bulbs.

Supporters of the new standards say the more-efficient incandescent bulbs only cost about $1 more than older ones.

The bulb issue has become fodder for conservative critics of the federal government.

"The American people want less government intrusion into their lives, not more, and that includes staying out of their personal light-bulb choices," Minnesota congresswoman Michele Bachmann, now a presidential candidate, said in March.

Representatives of the lighting industry joined environmental groups in a letter to Congress Friday opposing the GOP bill. Kyle Pitsor, vice president of the National Electrical Manufacturers Association, said companies had made investments in anticipation of the new standards taking effect on schedule.

Jim Presswood, federal energy policy director at the Natural Resources Defense Council, said Friday there were several more-efficient bulbs on the market and such technology "wouldn't have been out there but for these standards."

But critics say the government shouldn't compel consumers to buy more expensive bulbs.

"I will concede over the life of the bulb...that you probably do save some money, but it takes a long time to save it," said Rep. Joe Barton (R., Texas), a sponsor of the bulb bill, in an interview.

Pipeline Dreams -- Obama Nightmares

2011-07-07T08:27:00.005-04:00

How dangerous to the economic health of America is the Obama administration? Very. Is there anyone in the administration who realizes the only result of its policies is the choking effect they've had on the economy? Apparently not.

Jobs in the Pipeline

The EPA tries to scuttle oil transport from Canada's tar sands

With 9.1% unemployment and gasoline prices in the stratosphere, President Obama must sometimes wish that some big corporation would suddenly show up and offer a shovel-ready, multibillion-dollar project to create 100,000 jobs and reduce U.S. reliance on oil from dictatorships.

Oh, wait. His Secretary of State has had that offer sitting on her desk since she was sworn in. The trouble is that the Administration can't approve it without upsetting its anti-fossil fuel constituency. And so the proposal sits.

In September 2008 TransCanada applied to build a new pipeline—the Keystone XL—to bring diluted bitumen from the oil-rich tar sands of Alberta to thirsty American refineries on the Gulf Coast. It is hardly a radical proposal. Canadian crude has been flowing to the U.S. for decades. Another Canadian company—Enbridge—operates the Clipper pipeline across the Canadian border to Chicago. In July 2010 TransCanada began operating its Keystone pipeline from Alberta to Cushing, Oklahoma, which is a major storage and pricing depot.

The Keystone XL would cut a slightly different path, through the American heartland to Port Arthur, Texas. Judging from its past experience and that of Enbridge, TransCanada expected that permitting would take roughly 23 months. Thirty-three months, two State Department studies and 208,000 public comments later, TransCanada is still waiting. On current trend, the company will be lucky to get its permit by January, or after 40 months. But even that is far from certain.

If Mr. Obama were drawing up a plan from scratch to boost union employment and deflate Iranian-ally Hugo Chávez of Venezuela, it might look like the Keystone XL. TransCanada estimates that building the pipeline will mean more than $20 billion—$13 billion from TransCanada itself—in investment and 13,000 new American jobs in construction and related manufacturing. The company also expects more than 118,000 "spin-off" jobs during the two years of construction.

TransCanada says it has signed building contracts with four major U.S. unions. It projects that construction will generate $600 million in new state and local tax revenue and that over its life the pipeline will generate another $5.2 billion in property taxes. The Energy Policy Research Foundation in Washington estimates that by linking to the XL, oil producers in North Dakota's Bakken region will enjoy efficiency gains of between $36.5 million and $146 million annually. Lower transport costs will mean savings for Gulf Coast refiners of $473 million annually if the pipeline meets conservative expectations of shipping 400,000 barrels per day.

Today those refineries are highly dependent on imports from Mexico and Venezuela, which have decreased output in recent years. TransCanada would help to provide Gulf Coast refiners with a more reliable source of supply from a U.S. ally.

None of this is lost on the State Department, which must approve the project because it crosses the U.S. border. Its first environmental impact statement, in April 2010, found that the XL would meet industry standards and not significantly affect the environment. Without the pipeline, State said, the U.S. would not be able to benefit from cost-efficient Western Canadian oil and "would remain dependent upon unstable foreign oil supplies."

Hillary Clinton indicated early on that she was inclined to allow it and so it seemed the company would get its permit after a 90-day comment period. But the Environmental Protection Agency raised a stink and State acquiesced to a "supplemental" statement, which took months to prepare. On June 6, at the end of another 90-day comment period, the EPA stamped the report "inadequate" and sent State a nine-page letter with objections, which, no surprise, would require years of further study.

You could be forgiven for thinking that this must have something to do with pipeline safety. But pipelines remain the statistically safest way to transport oil, pipeline accident rates have fallen sharply, and technology has improved reaction time to leaks and the ability to contain them.

Friday's Exxon pipeline leak of up to 1,000 barrels along the Yellowstone River in Montana is a case in point. Any spill is unfortunate, but Exxon says it has put 150 workers on clean-up duty, has asked local residents to identify further damage, and has flown in 90,000 feet of absorbent boom, 3,000 absorbent pads and 2,200 feet of containment boom. TransCanada points out that for river crossings the XL will be 25-feet underground versus Exxon's eight feet (laid 20 years ago) and will feature other state-of-the-art safety enhancements.

So why the EPA push back? Ask the Natural Resources Defense Council. "This is really a campaign against tar sands expansion rather than a single pipeline," Susan Casey-Lefkowitz, director of the council's international program, told the New York Times last month. The EPA's June 6 letter echoes that point. It complains at length about the "[green house gas]-intensive" tar sands and frets about what Canadians are doing to migratory birds.

U.S. greens loathe oil, and the tar sands has become the next Alaska in green mythology. We get that. But what about jobs and growth? The U.S. economy needs a stable and affordable energy supply and, according to Cambridge Energy Research Associates (CERA), Canada's tar sands oil from "wells to wheels" isn't any "dirtier" than Nigerian light or California or Middle East heavy crude.

The Keystone XL pipeline is another case in which the Obama Administration's ideology clashes with its professed goal of job creation. Why do jobs always lose?

Cuba -- A Nation of Closet Capitalists

2011-07-03T22:29:00.003-04:00

They Communists always end up going with capitalism. It's human nature.

Cuba tries to drag shadow economy into the light

Cuban economic reform aims to bring a world of secret businesses into the light

July 3, 2011

HAVANA (AP) -- Want some paprika-infused chorizo sausage? How about a bit of buffalo mozzarella? Or maybe you just need more cooking oil this month, or a homemade soft drink you can afford on paltry wages. Perhaps you are looking for something more precious, such as an imported air conditioner or some hand-rolled cigars at a fraction of the official price.

In a Marxist country where virtually all economic activity is regulated, and where supermarkets and ration shops run out of such basics as sugar, eggs and toilet paper, you can get nearly anything on Cuba's thriving black market -- if you have a "friend," or the right telephone number.

A raft of economic changes introduced over the past year by President Raul Castro, including the right to work for oneself in 178 approved jobs, has been billed as a wide new opening for entrepreneurship, on an island of 11 million people where the state employs more than four in five workers and controls virtually all means of production.

In reality, many of the new jobs, everything from food vendor to wedding photographer, manicurist to construction worker, have existed for years in the informal economy, and many of those seeking work licenses were already offering the same services under the table.

And while the black market in developed countries might be dominated by drugs, bootleg DVDs and prostitution, in Cuba it literally can cover anything. One man drives his car into Havana each day with links of handmade sausage stuffed under the passenger seat. A woman sells skintight spandex miniskirts and gaudy, patterned blouses from behind a flowery curtain in her ramshackle apartment.

Economists, and Cubans themselves, say nearly everyone on the island is in on it.

"Everyone with a job robs something," said Marki, a chain-smoking 44-year-old transportation specialist. "The guy who works in the sugar industry steals sugar so he can resell it. The women who work with textiles steal thread so they can make their own clothes."

Marki makes his living as a "mule," ferrying clothes from Europe to Havana for sale at three underground stores, and has spent time in jail for his activities. Like several of the people interviewed for this article, he agreed to speak on condition he not be further identified for fear he could get into trouble.

Merchandise flows into the informal market from overseas, but also from the river of goods that disappear in pockets, backpacks, even trucks from state-owned warehouses, factories, supermarkets and offices.

There are no official government statistics on how much is stolen each year, though petty thievery is routinely denounced in the official news media. On June 21, Communist party newspaper Granma reported that efforts to stop theft at state-run enterprises in the capital had "taken a step back" in recent months. It blamed managers for lax oversight after an initial surge of compliance with Castro's exhortations to stop the pilfering.

"Criminal and corrupt acts have gone up because of a lack of internal control," the paper said.

An extensive study by Canadian economist Archibald Ritter in 2005 examined the myriad ways Cubans augment salaries of just $20 a month through illegal trade -- everything from a woman selling stolen spaghetti door-to-door, to a bartender at a tourist hot spot replacing high-quality rum with his own moonshine, to a bicycle repairman selling spare parts out the back door. He and several others who study the Cuban economy said it was impossible to estimate the dollar value of the black market.

"You could probably say that 95 percent or more of the population participates in the underground economy in one way or another. It's tremendously widespread," Ritter, a professor at Carlton University in Ottawa, told AP. "Stealing from the state, for Cubans, is like taking firewood from the forest, or picking blueberries in the wild. It's considered public property that wouldn't otherwise be used productively, so one helps oneself."

Cubans even have a term for obtaining the things they need, legally or illegally: "resolver," which loosely translates as solving a problem. Over the decades it has lost its negative connotations and is now taken as a necessity of survival.

"Turning to the black market and informal sector for nearly everything is so common that it has become the norm, with little or no thought of legality or morality," said Ted Henken, a professor at New York's Baruch College who has spent years studying Cuba's economy. "When legal options are limited or nonexistent, then everyone breaks the law, and when everyone breaks the law, the law loses its legitimacy and essentially ceases to exist."

There is evidence, however, that Castro is persuading at least some black market operators to play by the rules and pay taxes.

In the past seven months, more than 220,000 Cubans have received licenses to work for themselves, joining about 100,000 who have legally worked independently since the 1990s. Of those, 68 percent were officially "unemployed" when they took out their license, 16 percent had a state job and another 16 percent were listed as "retired," according to statistics on the government website Cubadebate.

Many of these jobless and nominally retired people were likely making ends meet by working in the informal market, and even the former government workers were probably connected in one way or another.

"You have to find a way to survive," said Manuel Rodriguez, the former head of a Cienfuegos medical center for children with disabilities. Rodriguez said his monthly government ration card plus his and his wife's meager salaries only covered two weeks' worth of food. "I sat in the park one day and thought, 'What can I do?'"

He began bicycling around town on Sundays, renting out bootleg DVDs of the latest Hollywood films, which others had downloaded from the Internet. Rodriguez, who moved to Miami in 2009, defended his decision to turn to the black market to put food on the table.

"I wasn't hurting anyone," he said. "It's not pornography. It's not drugs."

In fact, the sale and rental of pirated DVDs now is one of the 178 jobs that can now be done legally in Cuba, which ignores U.S. intellectual property rights in response to Washington's 49-year economic embargo.

New license holders complain the taxes and social security payments can be well over 50 percent of sales, raw materials are hard to come by because there is no wholesale market, and government promises to provide bank credits and retail space have been slow to develop.

But many say they jumped at the chance to go legit anyway, tired of always looking over their shoulder.

"We started off illegally, years ago, but when they started to give out licenses we got one because it means peace of mind," said Odalis Losano, a 46-year-old single mother who obtained a license in December to sell lunches she prepares on her home stove. "Now we don't have to be afraid of the police or the inspectors."

Paradoxically, the expansion of a legal free market may be increasing the size of the black market, particularly for the goods and services the new entrepreneurs need to survive. Newly legalized pizzerias must have a steady supply of cheese, flour and tomato paste, self-employed construction workers must have building materials, manicurists must find nail polish.

One man profiting off the legitimate economic opening, albeit illegally, is Roberto, who uses stolen canisters of CO2 to make carbonated drinks for sale to the scores of downmarket private cafes opening up all over Havana. He charges just 7 pesos (28 cents) for a 1.5-liter bottle, a sixth of what a bottle of state-made cola costs in the supermarket.

"This business is not totally legal," he said. "I can't get a license for it because the state will not sell me the CO2. I need to get it on the black market."

And then there are the many activities that by their nature must remain hidden under Cuba's controlled system.

The Internet is strictly regulated in Cuba, so those who sell time on accounts that belong to doctors, professors and computer technicians do so on the sly. The government maintains a monopoly on that most quintessential of Cuban products, the cigar, so the hundreds of underground stogie-rolling factories will stay underground.

Likewise, the sale of gold is regulated, so those who melt it down for false teeth won't get licenses anytime soon.

"Even if they legalize this, it wouldn't be worth getting a license," said one practitioner, who spoke on condition of anonymity for fear of earning the ire of the state. He charges up to $40 per tooth, using gold melted down from jewelry and trinkets he buys from secret suppliers. "They would regulate it so much it would be impossible to get the gold and other materials I need. The authorities would bother me so much it would be worse than doing it in hiding."

Marki, the mule, said he would happily open an imported clothing boutique if the island's leaders ever scrapped Cuba's Marxist economy for capitalism. Until then, he said, he and many of his countrymen will carry on living and working on the margins of the law -- and no amount of fines, seizures or jail time will dissuade them.

"Half of Cuba lives off the black market," he said with a gruff smile. "And the other half depends on it. To me, it is unstoppable."

Melting Polar Ice Caps

2011-07-03T16:32:00.001-04:00

Warming Ocean Could Melt Ice Faster Than Thought

RANDOLPH E. SCHMID 07/03/11

WASHINGTON — Warming air from climate change isn't the only thing that will speed ice melting near the poles – so will the warming water beneath the ice, a new study points out.

Increased melting of ice in Greenland and parts of Antarctica has been reported as a consequence of global warming, potentially raising sea levels. But little attention has been paid to the impact of warmer water beneath the ice.

Now, Jianjun Yin of the University of Arizona and colleagues report the warming water could mean polar ice melting faster than had been expected. Their report was published Sunday in the journal Nature Geoscience.

While melting floating ice won't raise sea level, ice flowing into the sea from glaciers often reaches the bottom, and grounded ice melted by warm water around it can produce added water to the sea.

"Ocean warming is very important compared to atmospheric warming because water has a much larger heat capacity than air," Yin explained. "If you put an ice cube in a warm room, it will melt in several hours. But if you put an ice cube in a cup of warm water, it will disappear in just minutes."

In addition, Yin explained, if floating ice along the coastal areas melts it will allow the flow of glaciers to accelerate, bringing more ice into the seas.

"This mean that both Greenland and Antarctica are probably going to melt faster than the scientific community previously thought," co-author Jonathan T. Overpeck said in a statement.

Overpeck, co-director of the University of Arizona's Institute of the Environment, said: "This paper adds to the evidence that we could have sea level rise by the end of this century of around 1 meter and a good deal more in succeeding centuries."

The subsurface ocean along the Greenland coast could warm as much as 3.6 degrees Fahrenheit (2 Celsius) by 2100, the researchers reported. The warming along the coast of Antarctica would be somewhat less, they calculated, at 0.9 degree F (0.5 C).

Knee-deep in Polar Ice Water

2011-07-03T16:22:00.003-04:00

The best brains in the Global Warming industry now believe that a touch of warming over the next 90 years might cause glaciers in Greenland to melt faster than previously predicted. They say if that happens, the sea might rise one meter.

What would we do if the the level of the world's oceans and open seas rose a whole meter, a little more than a yard? I suppose after a lot of thinking and calculating, and worried head scratching, someone might say, "well, we could put all the buildings by the shore up on stilts. Yeah, we could do that."

Someone else might say, "well, we could just move back from the sea shore."

Another person might remind the others, "Well, New Orleans is below sea level, and so is Holland. Most of the time they manage."

Warming Ocean Could Melt Ice Faster Than Thought

RANDOLPH E. SCHMID 07/03/11

WASHINGTON — Warming air from climate change isn't the only thing that will speed ice melting near the poles – so will the warming water beneath the ice, a new study points out.

Increased melting of ice in Greenland and parts of Antarctica has been reported as a consequence of global warming, potentially raising sea levels. But little attention has been paid to the impact of warmer water beneath the ice.

Now, Jianjun Yin of the University of Arizona and colleagues report the warming water could mean polar ice melting faster than had been expected. Their report was published Sunday in the journal Nature Geoscience.

While melting floating ice won't raise sea level, ice flowing into the sea from glaciers often reaches the bottom, and grounded ice melted by warm water around it can produce added water to the sea.

"Ocean warming is very important compared to atmospheric warming because water has a much larger heat capacity than air," Yin explained. "If you put an ice cube in a warm room, it will melt in several hours. But if you put an ice cube in a cup of warm water, it will disappear in just minutes."

In addition, Yin explained, if floating ice along the coastal areas melts it will allow the flow of glaciers to accelerate, bringing more ice into the seas.

"This mean that both Greenland and Antarctica are probably going to melt faster than the scientific community previously thought," co-author Jonathan T. Overpeck said in a statement.

Overpeck, co-director of the University of Arizona's Institute of the Environment, said: "This paper adds to the evidence that we could have sea level rise by the end of this century of around 1 meter and a good deal more in succeeding centuries."

The subsurface ocean along the Greenland coast could warm as much as 3.6 degrees Fahrenheit (2 Celsius) by 2100, the researchers reported. The warming along the coast of Antarctica would be somewhat less, they calculated, at 0.9 degree F (0.5 C).

Oil on Fire

2011-07-03T14:04:00.004-04:00

Barron's says oil is headed for the sky. Hmmm. Well, maybe, briefly, but those spikes don't last long, and perhaps, possibly, maybe, if oil prices soar, maybe the president will wake up and unleash the domestic oil industry.

Maybe he'll allow drillers to drill all the easy places where reserves are abundant. The Arctic National Wildlife Refuge. Off the coast of California, throughout the Gulf of Mexico. And maybe he'll wake up to the benefits of making greater use of natural gas. Maybe he'll learn that subsidizing domestic ethanol production at the expense of everyone who buys food is a bad idea. Perhaps he will eliminate the subsidy and simultaneously eliminate the tariff on ethanol imported from Brazil.

Barron's Cover | SATURDAY, JULY 2, 2011

Get Ready for $150 Oil

By GENE EPSTEIN

After a decline this summer, crude's price is likely to rise sharply by next spring. It will hurt the economy, but it won't be a disaster.

The U.S. economy is never completely ready for higher oil prices, which is one reason they take a nasty economic toll when they arrive. But readiness can be enhanced by awareness of the likely outlook for petroleum prices–and the outlook today is relatively grim, although probably not disastrous.

Despite the recent 20% decline from April highs, new highs on crude, heating oil, diesel fuel, jet fuel and gasoline seem likely over the next 12 months. Following some further easing over the summer, the second leg of the long-term bull market in petroleum–the first occurred in 2007-08–probably will begin this fall.

As oil producers' spare capacity gradually declines to worrisome levels, the average monthly price could reach a record $150 per barrel by next spring, with spikes to $165 or $170. With this, $4.50-a-gallon gasoline will become the norm. That will put a huge dent in consumer wallets, while ramping up the desirability of fuel-efficient cars.

The continued short-term easing of oil prices should benefit the economy over the summer, only to exact a much larger payback later. The projected oil shock of spring 2012 will hurt the economic expansion, but not kill it, pruning about 1.5 percentage points from quarterly growth in real gross domestic product.

While painful, this forecast isn't quite as extreme as it might appear. Short-lived price spikes and troughs make for frenzied headlines in newspapers and on the Internet as well as for hysterical talking heads on radio and TV, but what matters for the economy are average prices over at least a few months. Barron's estimates that the effective price of crude was about $110 in this year's second quarter, which just ended. So a projected increase to $150 by the second quarter of next year assumes a rise of $40. Oil is likely to stay at $150 for several months, before the promise of greater supply brings a gradual easing.

The $110 price estimate comes from taking the midpoint between the market price on West Texas Intermediate oil traded on the New York Mercantile Exchange in New York and on Brent crude traded on the Intercontinental Exchange in London. While the recent unusual 10%-15% premium of Brent over WTI, which actually is of higher quality, has puzzled many analysts, those Barron's polled agree that the lower price on WTI is potentially misleading.

According to Credit-Suisse energy analyst Joachim Azria, the U.S. is mainly paying the West Texas Intermediate price, but the cost of gasoline and diesel and jet fuel reflects the higher Brent price. James Hamilton, an economics professor at the University of San Diego, has studied the effect of oil shocks on the economy. He suggests using a midpoint between Brent and WTI to capture the effective price. That's what we've done.

Still, even a $40 rise, to $150, by next spring differs by several country miles from the oil market's own implied price outlook. Last week, futures contracts for June 2012 delivery of WTI crude were trading around $99, while Brent crude for June 2012 delivery was commanding just $112.

Steve Briese, publisher of the Bullish Review of Commodity Insiders newsletter and Website, says that commercial hedgers–who deal in the underlying commodity and thus have lots of professional experience in these matters -- are "overwhelmingly bearish" and are putting their money where their convictions are. They currently have a record net short position on the Nymex futures and options market. Because history shows that the hedgers often have been right, Briese concludes that the "short profit potential is enormous."

While Barron'ssees some short-selling potential this summer, it's not "enormous." And with all due respect to the expertise of the commercial hedgers, even pros can be wrong. We think this is a great buying opportunity for bulls on petroleum.

Cornerstone Analytics oil analyst Michael Rothman, with more than 25 years' experience calling the market, foresees an extended price plateau of $170. In support of his view, Rothman cites a comment made by Nobuo Tanaka, executive director of the International Energy Agency, the Paris-based organization that represents oil-consuming nations. Tanaka spoke on June 23, when the IEA helped cause a selloff in the petroleum market by announcing that 60 million barrels were being released from strategic reserves held by the U.S. and 27 other countries. (For more on the effects of this move, see Commodities Corner column.)

The markets seemed quite impressed by this infusion, even though it amounted to just a little over two-thirds of the nearly 90 million barrels the world consumes each day. At that rate of daily off-take, the total emergency stocks held world-wide, 1.6 billion barrels, come to only about 18 days of supply. Far more important is the ability of producing nations to meet needs, month after month.

The ostensible reason for releasing the 60 million barrels was to help replace the loss of production from war-torn Libya. But Tanaka, who not surprisingly said that he had been in "close consultation" with "major producing countries," also linked the decision to concern about spare capacity within the Organization of Petroleum Exporting Countries, and especially from its largest producer, Saudi Arabia. While welcoming increased production from this source, he cautioned that it "will take time" to come on line.

Comments Rothman: "Read between the lines. This raises the specter that the Saudis might have a problem raising their output."

The Barron's projection assumes that the Saudis will ramp up output this month, and that prices will continue to ease as a result. Another oil bull, Morgan Stanley's commodity research head Hussein Allidina, sees this only furthering the decline of OPEC's spare capacity to "untenable levels," and especially in the land that Allidina dubs the "kingdom of spare capacity" -- Saudi Arabia.

While Allidina is more cautious than Rothman -- his most bullish scenario projects a Brent average price of about $140 through next year -- their broad concerns are similar. Author of a September 2009 report called "Crude-Oil Balances to Tighten Again by 2012," Allidina foresaw the process by which unused capacity would eventually be reduced to puny levels, sparking higher prices.

THERE ARE FOUR MAIN PLAYERS in the global oil drama.

On the demand side are the nations of the Organization for Economic Cooperation and Development, which includes the U.S., Canada, Japan, Australia, New Zealand and most of Europe. And there are the non-OECD nations, which include India and China, currently in a phase of rapid economic growth.

On the supply side is OPEC, which includes Libya, Iraq and Saudi Arabia, and non-OPEC nations, including Norway, Mexico and the former Soviet Union.

The dynamics of both the first (2007-08) leg of the bull market and the second leg, likely to begin this year, are essentially the same. The thirst for oil by non-OECD nations puts pressure on supply, and the increase in output from non-OPEC producers is inadequate to quench this demand.

Since 2000 -- despite the post-9/11 economic downturn, the global stock-market swoon of the early 2000s, the 2008 financial crisis and the 2008-2009 Great Recession -- global oil consumption has advanced by a yearly average of 1.1 million barrels per day, while non-OPEC output has risen by a yearly average of less than 0.6 million per day. In 2000, non-OECD demand amounted to 37.7%, or a little over a third, of the world's consumption; now, it amounts to 48.5%, or nearly half.

The upswing in demand is adding urgency to concern about the availability, or lack thereof, of spare capacity, technically defined as crude that can be produced on a sustained basis within 30 to 45 days. Perhaps the most important thing to know about spare capacity is that only the OPEC producers have any. The non-OPEC gang is probably already pumping out all it can.

The 2007-08 bull market in oil peaked with an average monthly price of a record $133.40, reached in July 2008, with a short-lived spike, to $147, on July 11. While that oil shock certainly worsened the Great Recession, which struck early in 2008, the economic contraction would have happened anyway, since its main cause was the bursting of the housing bubble.

The causality also went the other way, however. The recessions in the OECD countries, including the U.S., Germany and Japan, meant weakened demand for oil that placed some drag on the uptrend and eventually helped sink the price of petroleum.

The coming second leg of the bull market, in contrast, will be sustained by steady, if modest, economic growth in the OECD world. The consensus estimate from the economists surveyed for the Blue Chip Economic Indicators is for real gross domestic product growth of 3% in the U.S. over the next four quarters, moderate growth in Germany and the U.K. and a resumption of growth in earthquake-ravaged Japan by next year.

Even if Chinese economic expansion slows–a focus of some disagreement among prognosticators -- non-OECD demand should continue to expand faster than demand from OECD countries. Result: The squeeze on spare capacity will be greater than ever before.

WORRIES OVER SPARE CAPACITY have been exacerbated by the civil war in Libya, which has taken 1.5 million barrels a day out of the supply stream. On the other hand, the OPEC meeting that broke up early last month with no formal deal to increase quotas was of no great concern in itself, because OPEC members had been openly exceeding quotas already. More importantly, the Saudis signaled their willingness to boost output from nine million barrels a day to more than 10 million this summer.

Assuming that the Saudis can meet their commitment on a timely basis, OPEC's spare capacity will still continue to decline. Result: higher oil prices.

One reason the U.S. is less susceptible to an oil shock than it used to be is that, for every dollar of nominal GDP, it consumes less oil than it once did.

The top chart on this page -- in which the 2011-12 data are an average of WTI and Brent -- shows that the projected monthly average of $150 per barrel would be a record high, even though all historical prices are adjusted to 2011 dollars. For example, the actual monthly high of $39.50 through April-June 1980 comes to $93.50 in today's dollars, as the chart shows.

But the $150 price peak will not mean peak consumption in the U.S., when measured as a percentage of gross domestic product. As the bottom chart shows, spending on crude accounted for 9.5% of nominal GDP for a few months in 1980. That's substantially higher than the estimated 7% if oil hits $150, as we expect it to.

Why will the toll be lower? One big factor: Since 1980, an even larger share of America's gross domestic product comes from services rather than goods. Producing more services generally requires less energy than making more widgets does. Also, the use of oil in heating and in electricity-generation has greatly declined. In 1980, 56% of all crude purchased in this country powered vehicles (planes, cars, trucks, buses, farm equipment), while today, 70% is used for that purpose, according to the U.S. Energy Information Administration. In addition, the fuel efficiency of the U.S. ground fleet, measured in total vehicle-miles per gallon, is much higher now than it was 31 years ago.

However, given Americans' appetite for SUVs and for cars with six- and eight-cylinder engines, fuel efficiency leveled off in the late 1990s, and has made no progress since then. Underlying this splurge has been complacency over oil prices. As the price chart on this page shows, apart from the brief spike in 1991, post-1980 oil prices were pretty stable for more than 20 years, until the first leg of the bull market began in 2007.

Price punishment of the sort we anticipate next spring could restart serious progress in fuel efficiency. But with new auto sales running at about an 11 million annual rate and the American light-vehicle fleet now numbering about 250 million, significant improvement will take awhile.

The assumed 1.5 point drag on growth from the $40 price hike balances various factors. The main impact would be on the consumer. Because gasoline is a necessity for many people -- they have no alternative to driving to work -- and since it's tough to quickly reduce the amount consumed by very much, funds allocated to it must come from somewhere else. And that somewhere else could be savings or money that otherwise would be spent on clothes, restaurant meals, movies or iPads.

Estimating the consumption effect, Bank of America Merrill Lynch economist Neil Dutta calculates that every $10 price rise normally trims GDP growth by 0.25 of a percentage point, which means $40 lops off a full point. (Of course, the dynamic also goes the other way when prices fall, as will happen this summer, benefiting consumer spending and growth.)

Oil at $150 a barrel would, of course, hurt businesses, too. As the cost of jet fuel soars, airlines will boost fares. That could reduce passenger traffic, leading the companies to cut flights, reducing economic activity. And, as San Diego's Hamilton notes, there is the added risk that companies, anticipating shortfalls in consumer spending, will reduce hiring, causing a multiplier effect that could worsen a bad situation.

Morgan Stanley oil bull Allidina believes the 2012 Brent price that will ration demand is about $130 for his baseline forecast. Oil analyst Michael Rothman sees a two-tiered market: $130 would ration demand in OECD countries, but nothing less than $170 is required for "demand destruction" in non-OECD nations. And $170, as noted earlier, is Rothman's price target.

Barron's believes that non-OECD demand could be more price-sensitive than Rothman assumes. For one thing, a $150 price could motivate governments to delay projects like the building of new roads, which require a lot of oil. For another, there is the stark fact that non-OECD countries are poorer than OECD countries. While it makes some sense that their hunger for "black gold" will motivate them to pay even more for it than their richer counterparts, the lash of $150 crude will decrease their willingness to pay.

IS THE WORLD RUNNING OUT OF OIL?

Probably not. Libya can eventually bring 1.5 million barrels back on stream. There is huge potential from Iraq, even greater potential from Saudi Arabia itself -- and closer to home, more supply could come from ending the de facto moratorium on drilling in the Gulf, and from tapping Alaska's wildlife reserve.

Crude at $150 will likely encourage these and other sources of supply, bringing a gradual pullback. But none of this is like to help much by spring 2012. Get ready for higher oil prices.

Colon Cancer to Kill Chavez

2011-07-02T14:49:00.002-04:00

The medical care in Venezuela must really stink if the country's dictator bolts for Cuba for cancer treatment. No one has ever claimed Cuba's medical care is anything other than free. No one has ever claimed Cuban medical treatment is good. But when you're a dictator you can't let it get around that you've got colon cancer.

Nevertheless, word has leaked out, and now the world knows Chavez will never again run Veneuela. He'll probably die in Cuba while getting chemotherapy that doesn't work.

Chavez Says Cancer to ‘Strengthen’ Him

By Daniel Cancel - Jul 2, 2011

Venezuelan President Hugo Chavez, who recently revealed that he’s receiving treatment for cancer in Cuba, said that the illness will strengthen him and he’s optimistic he’ll return to full health.

Chavez, speaking in a live telephone call to a Cuban television program yesterday for the first time since June 12, said that Fidel Castro, the former Cuban president, detected his frail health. Castro pushed him to remove a cancerous tumor after an operation to drain a pelvic abscess.

“No one expected this illness but I’m optimistic and sure that I’ll emerge from it stronger,” he said. “If it weren’t for Fidel, who knows what labyrinth I’d be in right now.”

Until now, Chavez only had been shown in previously recorded videos and images. Chavez told Venezuelans in a nationally broadcast speech on June 30 that he was operated on twice in Cuba and that he won’t hurry his return during treatment.

The 56-year-old leader, who has run South America’s largest oil producer since 1999, has vowed to keep ruling from Cuba as long as it takes, though his political foes have called on Vice President Elias Jaua to assume his daily activities, citing articles in the constitution. Chavez had announced his intention before the illness to seek a third presidential term next year.

Peanut Butter, Lamb

Earlier yesterday, Venezuelan state television broadcast a 45-minute video from June 29 showing Chavez as his followers have grown accustomed to seeing him over the past decade: making national policy while telling jokes and humming military marches from his days as a paratrooper commander. Accompanying him was his brother, Barinas state Governor Adan Chavez, Foreign MinisterNicholas Maduro and Henry Rangel Silva, head of the nation’s military.

In a bid to project an image of normalcy after weeks of speculation over his health, Chavez told his allies that he’s recovering favorably and is running his nation’s affairs from abroad. He said Fidel Castro checks in on him almost daily, bringing peanut butter and small bits of lamb, while at night he’s reading Friedrich Nietzsche’s “Thus Spoke Zarathustra.”

“I’ve committed mistakes, fundamental mistakes as Nietzsche would say, and I apologize for it,” said Chavez. “Sometimes you get swept up in the passion and forget that you’re just made of flesh and bone and don’t take care of your health.”

Clout
Yields on the nation’s benchmark bond plunged yesterday as investors increased bets Chavez may give up a re-election bid, opening the door for a new government that could reverse policies fueling the fastest inflation in the world. Jaua would succeed Chavez if the president resigns or is declared unfit to govern.

With nobody in the government able to match Chavez’s clout with the poor, his hold on power may be challenged if he doesn’t return home soon, said Luis Vicente Leon, director of Caracas- based pollster Datanalisis.

The prospect of Chavez’s prolonged absence may further embolden the opposition, which was strengthened after winning the majority of votes in congressional elections last September. Support for Chavez fell to near the lowest in eight years in March as a 40 percent devaluation of the bolivar and the fastest inflation among 78 countries, tracked by Bloomberg, erode the purchasing power of his working-class base.

Cancer

“There is no chavismo without Chavez,” said Boris Segura, a Latin America strategist at Nomura Securities International Inc. in an interview yesterday in Caracas. “He hasn’t groomed a successor on purpose because this is a one-man project.”

The Venezuelan leader may have colon cancer that would require chemotherapy for at least six months to a year, Ramon Baeza, an oncologist with the IRAM cancer clinic in Santiago, Chile, said in a phone interview.

“It’s a common cancer in his age range,” said Baeza, who has no connection to the case and said he can’t give a medical opinion based on the information available. Chavez’s chances of recovery could be low depending on whether the abscess ruptured and if the cancer spread to the rest of the abdomen, he said.

The self-declared revolutionary socialist said yesterday that he’s received support from regional leaders, including cancer survivors Fernando Lugo of Paraguay and Brazil’s Dilma Rousseff.

Canceled Summit
Leaders of the opposition have criticized the government’s handling of the political crisis though have also gone to lengths to wish Chavez a speedy recovery.

“Chavez is still the head of state, but he can’t run the government’s daily affairs,” said Ramon Guillermo Aveledo, executive secretary of the Democratic Unity Table alliance. “The government isn’t functioning normally and they know it.”

Chavez, who canceled a July 5 summit with Latin American and Caribbean leaders on Margarita Island due to his health, said that he never had any intention of staying in Cuba so long and that his cancer was first detected at the tail end of a regional tour after he arrived on June 8.

“Truly, I was only going to spend two days here,” Chavez said in the live telephone call last night. “I feel as if I were in Venezuela amid my people. Long live Cuba, and long live Fidel.”

Oil -- the staff of life

2011-07-02T14:34:00.005-04:00

A nation's prosperity is tied to its access to low-cost energy. Having oil beneath its own territory is a great way to ensure some oil supplies. But a healthy world market will do just as well. The history of the world's leading nations and how they advanced shows the link between abundant energy and prosperity.

But Obama thinks it's possible to break the link and continue to enjoy the prosperity. As we can see, that largest burden on Americans is the big increase in the price of gasoline and other petroleum products. Next to that, the pain is coming from higher food prices, which are affected by energy prices.

Oil Oozes Through Your Life

WHEN whales were an important energy source back in the 18th and 19th centuries, whalers made sure to use every last part of each one, given how difficult they were to kill. The blubber was boiled into oil for heat and light; the bones refashioned into women’s corsets; the teeth sold for scrimshaw carvings; the sperm reserved for cosmetics and other uses. “Such a sweetener! Such a softener! Such a delicious molifier!” — as Herman Melville’s narrator puts it in “Moby Dick.”

Since petroleum replaced whale oil as a main fuel source more than a century ago, chemical companies and refineries have found a startling range of uses for it, from asphalt to vanilla flavoring in ice cream to pills from the drugstore. It has oozed into everyday life, so reducing dependency is a more complicated proposition than some might think.

“It just turns out to be a very abundant product that is easy to manipulate chemically, so you can turn it into many different products,” said Dr. Benny Freeman, past chairman of the American Chemical Society’s polymeric materials division.

Take a typical barrel of oil. About 46 percent of it is refined into gasoline, and another 40 percent or so is turned into jet and fuel oil. Only about 2 percent becomes petrochemicals like polyethylene and benzene for everyday products (with the rest going to other uses).

Yet that 2 percent has a pervasive reach, as suggested by the accompanying chart. “Oil, no pun intended, seeps into just about everything in the economy,” said David Garfield, a managing director at the consultancy AlixPartners. And though petrochemicals usually aren’t burned for fuel, they share in the environmental impact of petroleum when extracted and refined using energy-intensive methods.

When oil prices go up, as they have markedly in the past year, companies reassess how they transport items, try to cut down on energy costs, and look for alternatives to petroleum-based materials. For example, some are replacing the hard-to-open plastic clamshell packaging that many consumers find so annoying. But, said Michael Pishko, head of the department of chemical engineering at Texas A & M, there are only a few alternatives to petroleum-based chemicals (one is natural gas as a base for polyethylene). “Beyond that, it becomes very difficult to compete with petroleum, even petroleum at $100 a barrel,” Dr. Pishko said.

Michael Watts, a professor of geography and development studies at the University of California at Berkeley, agreed. “The complexity of these hydrocarbons is sort of remarkable,” he said. Even as a critic of oil dependency, he concedes that petroleum’s versatility is impressive: Not only does the American farm and grocery network rely on cheap fuel for low-cost shipping between the coasts, but food itself is grown using petroleum-based fertilizer. (Oil byproducts for food typically fall under federal regulation, although that doesn’t satisfy critics of petroleum-derived food colorings, for example.)

What will it take to wean us off oil? Professor Watts says the question forces scrutiny of “a very complicated set of connections in which what we’re confronting, because of this dependency, is not just, ‘Let’s develop a Prius.’ ”

Dead Chavez Walking

2011-07-01T07:37:00.002-04:00

As if we didn't know. Chavez has cancer and the only place he believes he can get treatment is Cuba. Okay. In other words, he's a good as dead. Will he be deposed in a coup? Now that he's left his country, how can he govern? Will a general seize power and tell him to stay in Cuba? Anyway, the days of Chavez are over.

Chavez cancer upends Venezuelan politics

Venezuelans stunned by Chavez cancer confirmation

CARACAS | Fri Jul 1, 2011 7:22am EDT

CARACAS (Reuters) - Venezuela's socialist leader Hugo Chavez acknowledged he had surgery for cancer, shaking the political system he has dominated for more than a decade and alarming supporters counting on him to win re-election in 2012.

The usually loquacious Chavez, 56, confirmed in a stern speech on Thursday that he had undergone surgery in Cuba to remove a cancerous tumor and was receiving more treatment. He said he needed to recover before returning to Venezuela to run his self-styled socialist revolution.

Supporters vowed they will continue his leftist drive, which has included nationalization of vast swathes of the economy, a broad diplomatic challenge to Washington's dominance of the region and a steady takeover of an oil industry that is a key supplier to the United States.

"We will live and we will conquer. Until my return!" Chavez ended Thursday night's emotion-charged address from Havana.

In poor Caracas shantytowns, where Chavez is still widely loved for using oil revenues to build new clinics and schools, supporters saluted him with fireworks. "He's alive! He's alive!" one group shouted in the poor Catia area after the speech.

Opposition leaders, seeking to rally around a unity candidate to be picked in February for the 2012 presidential vote, may take the news as a sign Chavez is weakened and less likely to win next year's vote after sweeping repeated elections since 1998.

"For the Republic, the best thing that can happen is for the president to recover and to take over full governance, so that the natural political process can evolve, which is to carry out elections next year," said Teodoro Petkoff, who runs the opposition newspaper Tal Cual.

The opposition was trying hard to avoid appearing gleeful at Chavez's ill health, though some detractors posted vitriolic messages on Twitter and other sites.

Financial markets will watch closely for precise details of his condition or a timeframe for when he could return to power. Venezuelan bonds have rallied on hopes his absence may spur changes in the country's state-dominated economy.

"It is impossible to deduce if he will or will not be in a physical state and the right mood to go into the 2012 campaign," said local analyst Luis-Vicente Leon.

VENEZUELA'S FUTURE

Known for eight-hour speeches and frequent camera appearances, Chavez left Venezuela in near silence and its government functioning at half-steam for almost three weeks after a June 10 operation to remove a pelvic abscess.

His continued convalescence raises questions about how he can still govern from Cuba, whether or not he can control his sometimes unruly coalition, and whether he will in fact be able to rule for another decade as he has often vowed.

Perhaps to answer fears of a power vacuum or succession fight, Chavez said he remained "at the helm" of government" in "permanent communication" with his Vice President Elias Jaua.

Chavez's ministers said the government would remain united and, in their joint appearance immediately after the president's address, pledged commitment to his socialist reforms even in his absence.

Supporters seemed shocked and at times in denial at the news of his cancer, which government supporters had until Thursday passed off as idle rumor spread by the opposition.

Chavez's combative rhetoric, Caribbean folksy charm and social programs from rural villages to shantytowns have allowed him to win almost all the elections his coalition has confronted, undermining the argument of critics who call him a dictator.

But he has alienated many with his authoritarian streak, reflected in his stranglehold on government and belligerent treatment of political opponents, and his aggressive nationalization of a wide range of industries.

His popularity has been weakened in recent years as he has struggled to keep up with bread-and-butter government tasks such as keeping electricity flowing, putting criminals in jail and providing housing for the poor.

Remaining in Cuba could further compromise advances in those areas, especially since state leaders are notoriously slow to make decisions without his direct involvement.

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Corn Con

2011-06-30T10:40:00.001-04:00

“Completely Wasteful”: Steven Rattner Slams Government Support for Corn Ethanol

Democrats and Republicans are locked in a death-grip over how to cut the deficit but agree the government must get its financial house in order. So you'd think there'd be bipartisan support to end the $6 billion annual subsidy for corn ethanol, which most experts agree is money poorly spent.

Former Car Czar Steven Rattner calls the corn ethanol subsidy "completely wasteful" and almost entirely about naked politics.

"Almost since Iowa — our biggest corn-producing state — grabbed the lead position in the presidential sweepstakes four decades ago, support for the biofuel has been nearly a prerequisite for politicians seeking the presidency," Rattner writes in a recent NYT op-ed entitled The Great Corn Con.

"Those hopefuls have seen no need for a foolish consistency. John McCain and John Kerry were against ethanol subsidies, then as candidates were for them. Having lost the presidency, Mr. McCain is now against them again. Al Gore was for ethanol before he was against it. This time, one hopeful is experimenting with counter-programming: as governor of corn-producing Minnesota, Tim Pawlenty pushed for subsidies before he embraced a 'straight talk' strategy."

In addition to $6 billion in direct government subsidies, Rattner notes the "real" cost to American consumers is much higher. Thanks to mandates requiring certain amounts of ethanol be blended into gasoline, about 40% of U.S. corn production is diverted toward ethanol. That, in turn, drives up the price of feed for cattle and pig, which puts upward pressure on food prices. In the past year, corn prices have doubled while the price of bacon is up 24%, Rattner notes.

Citing these "hidden costs" of mandates, the government's corn ethanol policies are a "much more pernicious force" then even most critics realize, he says.

All this despite studies suggesting corn ethanol is energy inefficient — meaning making a gallon the fuel consumes more energy than it produces.

"Of all the examples I've come across in my time both in Washington and watching Washington, this is one of the most remarkable, inexplicable, inexcusable [subsidies] I've come across," Rattner tells Dan and I in the accompanying video.

Last month, the Senate voted 73-27 to end the subsidy. But the vote was largely considered symbolic since the White House has basically taken a 'mend it, don't end it' approach, meaning Senators had cover to cast the "tough" vote.

Still, the Senate vote is "a signal of the fact the world is changing," Rattner says, holding out hope the political winds are finally shifting away from corn ethanol.

The New Egypt -- Saudi Arabia without the oil

2011-06-30T10:28:00.002-04:00

It's over. We know where the Egyptian revoluion is headed. Let's welcome the new Saudi Arabia to the fold of Islamic theocracies creating misery wherever they're found. It's really a telling measure of Obama's ability to bring change to the middle east when Egypt goes from bad to worse.

U.S. recognizes Muslim Brotherhood

6/30/11

The U.S. has decided to formally resume contact with Egypt’s Muslim Brotherhood group - which does not recognize Israel – in a move that could further alienate some Jewish voters already skeptical of President Barack Obama, it was reported.

One senior U.S. official said the Brotherhood’s rise in political prominence after the forced departure of former President Hosni Mubarak earlier this year makes the American contact necessary.

“The political landscape in Egypt has changed, and is changing… It is in our interests to engage with all of the parties that are competing for parliament or the presidency,” said the official, who confirmed the news to Reuters on condition of anonymity.

The Muslim Brotherhood - founded in 1928 to promote a conservative version of Islam in politics, culture and society – has previously had some communication with the U.S. through Brotherhood Members of Parliament who had been technically elected as independents. U.S. diplomats had been instructed only to deal with Brotherhood members in their role as Members of Parliament.

The decision to resume contact with the Muslim Brotherhood group may worry members of the Jewish community and Israeli officials, Reuters reported.

POLITICO’s Ben Smith wrote yesterday about the increasing anxiety of center-left Jewish Democrats who are losing faith in Obama, most recently because of the speech in which he called for the country’s 1967 borders to be the basis for peace talks, with “land swaps.”

Muslim Brotherhood spokesman Mohamed Saad el-Katatni told Reuters that no American contact with the group has yet been made, but he added: “We welcome such relationships with everyone because those relations will lead to clarifying our vision.”

In recent years, the Muslim Brotherhood has asserted that it renounces violence. The group is not considered a foreign terrorist organization by the United States – but organizations sympathetic to the Muslim Brotherhood, like Hamas, have not renounced violence against Israel.

Egypt will hold parliamentary elections in September, and the country’s military government has promised an election for president by the end of this year.

Obama's Bank Flees

2011-06-30T09:10:00.004-04:00

The most important assets a bank has are its people. But the assets that appear on a bank's balance sheet are the loans and other obligations its people assets bring in. There are no factories or machines used to produce assets. It's the money raised by banks that is behind the creation of those other assets.

What does this mean? It means bankers can work in an office in Singapore as easily as they can work in an office in Manhattan. Naturally, they'll choose an office located in a place that creates the fewest headaches for efficient and profitable operators. As many bankers know, the better place is outside the US. Apparently Obama cannot grasp the obvious. Instead of doing his best to make the US the magnet for every business in the world, he's encouraging our most profitable industries to pack up and leave, which they are.

And they will take their profits with them. For the US, that's a net loss. The bankers don't need large fields for factoris, they don't need rivers or oceans on which to transport goods. They don't need to fill rail cars or trucks with their products. They only need comfortable office space and good communications services. After they get those two basics, they want low taxes and minimal government intrusion. In the US they can find the first two requirements, but not the second two.

Wall St. jobs exodus

O's reforms spur 'exports'

June 30, 2011

Charles Gasparino

Why is Goldman Sachs pre paring to outsource traders, salespeople and investment bankers from here in America, where it has made untold billions over the years as Wall Street's premier trading firm, to places like Singapore and India?

The answer can be found largely in the 2,000-plus pages of last year's Dodd-Frank financial "reform" law -- which will eventually translate into some 40,000 pages of regulations. The financial industry is still frozen, waiting to find out how bad these regs will turn out; but what all the CEOs of the big banks know for sure is that it's about to get a lot more expensive to do business here.

The only real question is by how much more expensive. And the banks aren't sitting around to find out.

Of course, the slowdown that's crimping Wall Street profits is a factor in banks' frenzy to cut costs by eliminating US jobs while expanding in lower-cost places overseas. But they'd expect the business environment to get better eventually -- if the regulatory environment weren't sure to get worse.

Then-Sen. Chris Dodd, Rep. Barney Frank and President Obama all said that they pushed for regulatory reform to prevent another financial meltdown. But their legacy may well be the decimation of the US financial-services industry, which for all its bailouts, blunders and other ills pumped billions upon billions into the economy over the years, especially here in New York.

It's not just Goldman, which wants to expand a once-tiny Singapore office by hiring 1,000 executives while it contemplates a major job reduction at home. (Yesterday, Goldman told the labor department it's cutting at least 230 jobs.) Just about every major US bank is looking at outsourcing as a way to pay for the new costs of doing business as regulators hammer out new rules.

JP Morgan chief Jamie Dimon recently lambasted Fed Chairman Ben Bernanke, saying the prolonged uncertainty over the Dodd-Frank regulations is making it difficult for his bank to lend money to small businesses to help grow the economy. What he didn't say during his mini-tirade is how much his bank is committed to growing outside America to keep pace with competitors like Citigroup, Bank of America, Morgan Stanley and Goldman.

"Everyone is screaming that the money is now overseas," said veteran market analyst Richard Bove. "Well it's overseas in American banks. What we are seeing is an escape from US regulation."

The biggest irony is that Wall Street has long been the engine financing the New York welfare state -- yet it's being squeezed by lefty politicians who believe in expanding the national welfare state. The winners are places with well-educated, English-speaking workforces plus lower taxes and less regulation -- in Goldman's case, Singapore and India.

These same people also claim the mountain of new regs will prevent another banking collapse. But regulations didn't do the job in 2008 and won't in the future. Dodd-Frank fails to get at the root of the problem: Banks were bailed out so many times in the past, they came to expect it -- and so they took on ever-greater risks while chasing ever-greater profits, until some players' huge bad bets were enough to take everybody down.

Of course, the banks expected some response to that mindless risk-taking. But the monstrosity of Dodd-Frank is that it doesn't touch the real problem -- even as it squeezes profit margins and sends jobs overseas.

Hydraulic Fracturing -- Great for Jobs, Great for America

2011-06-27T06:35:00.003-04:00

The Facts About Fracking

The real risks of the shale gas revolution, and how to manage them

The U.S. is in the midst of an energy revolution, and we don't mean solar panels or wind turbines. A new gusher of natural gas from shale has the potential to transform U.S. energy production—that is, unless politicians, greens and the industry mess it up.

Only a decade ago Texas oil engineers hit upon the idea of combining two established technologies to release natural gas trapped in shale formations. Horizontal drilling—in which wells turn sideways after a certain depth—opens up big new production areas. Producers then use a 60-year-old technique called hydraulic fracturing—in which water, sand and chemicals are injected into the well at high pressure—to loosen the shale and release gas (and increasingly, oil).

***
The resulting boom is transforming America's energy landscape. As recently as 2000, shale gas was 1% of America's gas supplies; today it is 25%. Prior to the shale breakthrough, U.S. natural gas reserves were in decline, prices exceeded $15 per million British thermal units, and investors were building ports to import liquid natural gas. Today, proven reserves are the highest since 1971, prices have fallen close to $4 and ports are being retrofitted for LNG exports.

The shale boom is also reviving economically suffering parts of the country, while offering a new incentive for manufacturers to stay in the U.S. Pennsylvania's Department of Labor and Industry estimates fracking in the Marcellus shale formation, which stretches from upstate New York through West Virginia, has created 72,000 jobs in the Keystone State between the fourth quarter of 2009 and the first quarter of 2011.

The Bakken formation, along the Montana-North Dakota border, is thought to hold four billion barrels of oil (the biggest proven estimate outside Alaska), and the drilling boom helps explain North Dakota's unemployment rate of 3.2%, the nation's lowest.

All of this growth has inevitably attracted critics, notably environmentalists and their allies. They've launched a media and political assault on hydraulic fracturing, and their claims are raising public anxiety. So it's a useful moment to separate truth from fiction in the main allegations against the shale revolution.

• Fracking contaminates drinking water.
One claim is that fracking creates cracks in rock formations that allow chemicals to leach into sources of fresh water. The problem with this argument is that the average shale formation is thousands of feet underground, while the average drinking well or aquifer is a few hundred feet deep. Separating the two is solid rock. This geological reality explains why EPA administrator Lisa Jackson, a determined enemy of fossil fuels, recently told Congress that there have been no "proven cases where the fracking process itself has affected water."

A second charge, based on a Duke University study, claims that fracking has polluted drinking water with methane gas. Methane is naturally occurring and isn't by itself harmful in drinking water, though it can explode at high concentrations. Duke authors Rob Jackson and Avner Vengosh have written that their research shows "the average methane concentration to be 17 times higher in water wells located within a kilometer of active drilling sites."

They failed to note that researchers sampled a mere 68 wells across Pennsylvania and New York—where more than 20,000 water wells are drilled annually. They had no baseline data and thus no way of knowing if methane concentrations were high prior to drilling. They also acknowledged that methane was detected in 85% of the wells they tested, regardless of drilling operations, and that they'd found no trace of fracking fluids in any wells.

The Duke study did spotlight a long-known and more legitimate concern: the possibility of leaky well casings at the top of a drilling site, from which methane might migrate to water supplies. As the BP Gulf of Mexico spill attests, proper well construction and maintenance are major issues in any type of drilling, and they ought to be the focus of industry standards and attention. But the risks are not unique to fracking, which has provided no unusual evidence of contamination.

• Fracking releases toxic or radioactive chemicals.
The reality is that 99.5% of the fluid injected into fracture rock is water and sand. The chemicals range from the benign, such as citric acid (found in soda pop), to benzene. States like Wyoming and Pennsylvania require companies to publicly disclose their chemicals, Texas recently passed a similar law, and other states will follow.

Drillers must dispose of fracking fluids, and environmentalists charge that disposal sites also endanger drinking water, or that drillers deliberately discharge radioactive wastewater into streams. The latter accusation inspired the EPA to require that Pennsylvania test for radioactivity. States already have strict rules designed to keep waste water from groundwater, including liners in waste pits, and drillers are subject to stiff penalties for violations. Pennsylvania's tests showed radioactivity at or below normal levels.

• Fracking causes cancer.
In Dish, Texas, Mayor Calvin Tillman caused a furor this year by announcing that he was quitting to move his sons away from "toxic" gases — such as cancer-causing benzene — from the town's 60 gas wells. State health officials investigated and determined that toxin levels in the majority of Dish residents were "similar to those measured in the general U.S. population." Residents with higher levels of benzene in their blood were smokers. (Cigarette smoke contains benzene.)

• Fracking causes earthquakes.
It is possible that the deep underground injection of fracking fluids might cause seismic activity. But the same can be said of geothermal energy exploration, or projects to sequester carbon dioxide underground. Given the ubiquity of fracking without seismic impact, the risks would seem to be remote.

• Pollution from trucks.
Drillers use trucks to haul sand, cement and fluids, and those certainly increase traffic congestion and pollution. We think the trade-off between these effects and economic development are for states and localities to judge, keeping in mind that externalities decrease as drillers become more efficient.

• Shale exploration is unregulated.
Environmentalists claim fracking was "exempted" in 2005 from the federal Safe Water Drinking Act, thanks to industry lobbying. In truth, all U.S. companies must abide by federal water laws, and what the greens are really saying is that fracking should be singled out for special and unprecedented EPA oversight.

Most drilling operations — including fracking — have long been regulated by the states. Operators need permits to drill and are subject to inspections and reporting requirements. Many resource-rich states like Texas have detailed fracking rules, while states newer to drilling are developing these regulations.

As a regulatory model, consider Pennsylvania. Recently departed Governor Ed Rendell is a Democrat, and as the shale boom progressed he worked with industry and regulators to develop a flexible regulatory environment that could keep pace with a rapidly growing industry. As questions arose about well casings, for instance, Pennsylvania imposed new casing and performance requirements. The state has also increased fees for processing shale permits, which has allowed it to hire more inspectors and permitting staff.

New York, by contrast, has missed the shale play by imposing a moratorium on fracking. The new state Attorney General, Eric Schneiderman, recently sued the federal government to require an extensive environmental review of the entire Delaware River Basin. Meanwhile, the EPA is elbowing its way into the fracking debate, studying the impact on drinking water, animals and "environmental justice."

***
Amid this political scrutiny, the industry will have to take great drilling care while better making its public case. In this age of saturation media, a single serious example of water contamination could lead to a political panic that would jeopardize tens of billions of dollars of investment. The industry needs to establish best practices and blow the whistle on drillers that dodge the rules.

The question for the rest of us is whether we are serious about domestic energy production. All forms of energy have risks and environmental costs, not least wind (noise and dead birds and bats) and solar (vast expanses of land). Yet renewables are nowhere close to supplying enough energy, even with large subsidies, to maintain America's standard of living. The shale gas and oil boom is the result of U.S. business innovation and risk-taking. If we let the fear of undocumented pollution kill this boom, we will deserve our fate as a second-class industrial power.

Ted Turner -- A Big Chicken Little

2011-06-27T05:55:00.004-04:00

Whatever happened to the Scientific Method? When it comes to Globa Warming, it seems that a lot people think method of developing and validating scientific hypotheses is just hot air.

In short, Global Warming is a conclusion based on hypothesis that has never been tested. It's too complex to test. It's so complex we cannot identify and factor in all the components that are supposed to bring us to the Global Warming conclusion. In other words, the conclusion that Global Warming will destroy life on Earth is a guess. A wild one. And it's as valid as the recent Doomsday Rapture prediction. Or Y2K. Silliness. Utter silliness.

When it comes to predictions of mass death and global catastrophe, the predictors have a bad record. They're 0 for, well, you pick the number of predicted Doomsdays. I suppose the Global Warmists remind themselves that even a broken watch is right twice a day. But even that old bit of sophistry has failed them.

The Global Warming believer, Ted Turner, thinks the reason people fail to grasp the issue is due to its complexity. He's got it backwards. To validate a hypothesis predicting Global Warming means that scientists would have to correctly predict the outcome of every action -- every change -- occurring on Planet Earth for decades to come. It's impossible. We are incapable of such a feat. The Environment is too complex.

Ted Turner: Climate Change ‘Most Serious ... Problem Humanity Has Ever Faced’

June 24, 2011

Ted Turner and members of the board of UN Foundation. (Photo: UN Foundation)
(CNSNews.com) – Media mogul Ted Turner says climate change is “probably the most serious--and, in all fairness, the most complex--problem that humanity has ever faced.”

He added: “It is really easy to understand how some people don’t get it, because it’s so complex and complicated.”

Turner took part in a telephone news conference on Thursday, held by his United Nations Foundation on the island of Svalbard, one of the northernmost regions of Norway.

His comments came in response to a question posed by reporter Sunny Lewis of the Environment News Service about how to change the minds of climate change skeptics.

“A few climate skeptics and deniers seem to be holding up action to curb climate change,” Lewis said. “What can be done to convince and persuade these holdouts as to actually realize what so many scientists know and are telling us in urgent terms?”

Turner applauded the question.

“That’s a very good question," he said, "and if we knew the answer to it, we’d already have an energy policy in the United States. You know, my good friend Boone Piockens points out, and absolutely correctly, that the United States, in its history, has never had an energy policy including during the Arab oil shocks of the ‘70s, and we still don’t have (one), and we need to.

“The only thing I can think of, is we just have to keep working, just like we are doing now, and get as much publicity as we possible can for the issue, and increase the amount of the debate, and persuade people with both the evidence, which is overwhelmingly in favor of climate change being a serious problem, probably the most serious--and in all fairness--the most complex problem that humanity has ever faced,” Turner said.

Referring to climate change skeptics, Turner added: “It's really easy to understand how some people don’t get it because it’s so complex and complicated. But that doesn’t mean we have to do, all of us, do what we can to try to convince people to do the right thing and then motivate them to take the action.”

Turner is the founder and chairman of the United Nations Foundation, and presided over the organization’s semi-annual meeting, which took place June 19-25 in Oslo.

Bad News about Hugo Chavez is Good News

2011-06-26T07:47:00.005-04:00

As previously noted, Hugo Chavez went to Cuba for medical treatment that was supposed to remain a state secret. But, eventually, especially in these days of Facebook and social media, some truth leaks out. Chavez is in much worse shape than his flacks have admitted. Now he must truly worry about a coup. Perhaps he will remain in Cuba, a retiree living on a pension.

Report: Hugo Chávez in Critical Condition In Cuban Hospital

Adrian Carrasquillo

June 25, 2011

Hugo Chávez extended stay in a Cuban hospital is because he is in critical condition, according to a report in El Nuevo Herald.

The Venezuelan president, who was last seen in public June 9 and last heard from on June 12, on a phone call with Venezuelan state television, was said to have been treated for a pelvic abscess in Cuba.

During the call Chávez said that medical tests showed no sign of any "malignant" illness.

But according to the report in El Nuevo Herald, Chávez finds himself in "critical condition, not grave, but critical, in a complicated situation."

The Miami newspaper cited U.S. intelligence officials who wished to remain anonymous.

Chávez silence has led to chatter and speculation in Venezuela that the socialist leader is actually suffering from prostate cancer. Intelligence officials could not confirm a diagnosis of prostate cancer but Chávez family did go to Cuba in the last 72 hours, according to wire service EFE.

Chávez daughter Rosinés and his mother Marisabel Rodríguez "urgently" left the country and headed to Cuba in a Venezuelan air force plane.

Cuba's state media website, Cubadebate, released photos on June 17 that showed Chávez posing with Fidel and Raul Castro in his hospital room. Chávez smiled for the camera in a track suit, while a frail-looking Fidel clutched Chávez arm.

Before the report that Chávez was in critical condition, his brother sought to reassure Venezuela that he was recovering well.

"In response to all the rumors, I can give faith that the president is recovering in a satisfactory manner," Adan Chávez, who is a state governor, told state television Wednesday. "The president is a strong man."

Adan Chávez added that "it's not clear" when his younger brother would return home, but said the president is expected to leave Cuba within 10 to 12 days.

Possibly to stave off rumors of bad health, Chávez personal Twitter account went active on Friday, for the first time in 20 days.

"I'm here with you during the hard battles every day! Until victory always! We are winning! And we shall win!" he tweeted in Spanish.

Hugo Chavez Goes Doctor Shopping

2011-06-24T06:33:00.004-04:00

Are there no competent doctors in Caracas? Did they all flee to Havana? Hugo Chavez went to Cuba for surgery. Hmmm.

When do dictators seek medical treatment in countries other than their own? Hmmm. When they've got a problem too serious for the local doctors. Or, more likely, when they don't want anyone at home or elsewhere to know the truth about their condition.

As we all know, when it comes to medical care in Cuba, the treatment includes secrecy. Nobody knows what medical problems required Fidel to have abdominal surgery. And no one knows exactly how the surgeon botched the surgery, which left Fidel in a permanently weakened state. Anyway, it seems Chavez wants secrecy more than anything else. Why would he want secrecy? Maybe because he's got cancer. Maybe he's got a serious problem and he wants to keep the facts from his enemies, both internal and external.

He's probably worried about a coup. If Chavez were to admit he's in Cuba because he's receiving treatment for a serious condition, the folks back home might decide it's a good time to replace him.

Meanwhile, we can hope that Chavez receives the same quality of care that Fidel got. Following his surgery, Fidel was no longer able to control Cuba.

Chavez may return to Venezuela within 12 days

Jun 22, 2011

CARACAS, Venezuela (AP) - President Hugo Chavez is recuperating well from his surgery in Cuba and is expected to return to Venezuela within 12 days, one of his brothers said Wednesday.

Adan Chavez told state television that "it's not clear" exactly when his younger brother would return, but the leader expects to depart for Venezuela within 10 to 12 days.

"The president is recovering in a satisfactory manner," he said. "The president is a strong man."

Chavez underwent surgery in Cuba for a pelvic abscess June 10.

The condition is an accumulation of pus that can have various causes, including infection or surgical complications. Neither Chavez nor doctors treating him have disclosed what caused the abscess.

Venezuelan Vice President Elias Jaua said Chavez is attending to his day-to-day government duties while recuperating.

"He's signing documents for social security retirees and resources for the education ministry, reading reports," Jaua told Union Radio. "The president is following all current events in the country."

Chavez's absence and his relative silence has concerned some of his supporters.

The loquacious leader has communicated by telephone with program hosts on state television several times since the surgery, but Venezuelans are accustomed to the president's near daily speeches and television appearances that can last several hours.

Obama -- to him John Henry should have beaten the Machine

2011-06-22T07:27:00.003-04:00

What can you do when the president knows nothing about economics? He calls for Shovel-Ready projects, as though the US is a nation of ditch diggers. He allowed GM to hand off its pension and retiree healthcare expenses to the taxpayers with the promise that the post-bankruptcy GM will earn lots of money making Chevy Volts and other cars. At the same time, he does his best to choke off an expansion of the domestic oil industry.

The result is America's contribution to higher global oil prices. How can the president bail out GM while simultaneously punishing the buyers of GM products with higher operating costs? Is that the way to stimulate car sales? By doing everything possible to diminish the US energy industry? By putting an end to more energy jobs here and sending those jobs to oilfield workers in other countries? How dumb is this president?

Obama vs. ATMs: Why Technology Doesn't Destroy Jobs

Doing more with less is what economic growth is all about

The story goes that Milton Friedman was once taken to see a massive government project somewhere in Asia. Thousands of workers using shovels were building a canal. Friedman was puzzled. Why weren't there any excavators or any mechanized earth-moving equipment? A government official explained that using shovels created more jobs. Friedman's response: "Then why not use spoons instead of shovels?"

That story came to mind last week when President Obama linked technology to job losses. "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers," he said. "You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate."

The president calls this a structural issue—we usually call it progress. And it isn't exactly a new phenomenon. It's been going on for centuries, and its pace has accelerated over the past 50 years. Businesses relentlessly look for ways to replace workers with machines. The machines get better and smarter. We go from spoons to shovels to excavators, not the other way around.

Telephone switchboard operators lose jobs to automated switching. Toll collectors get replaced by E-ZPass. Auto workers get replaced by robots.

The magnitudes are stunning. As the Washington Post reported in 2007:

"The textile industry has been particularly aggressive in replacing people with machines. A half-century ago, a typical North Carolina textile worker operated five machines at once, each capable of running a thread through a loom at 100 times a minute. Now machines run six times as fast, and one worker oversees 100 of them."

That's a 120-fold increase in output per worker. When a worker is 120 times more productive, you usually don't need as many workers as you did before.

Or look at eggs. Today, a couple of workers can manage an egg-laying operation of almost a million chickens laying 240,000,000 eggs a year. How can two people pick up those eggs or feed those chickens or keep them healthy with medication? They can't. The hen house does the work—it's really smart. The two workers keep an eye on a highly mechanized, computerized process that would have been unimaginable 50 years ago.

But should we call this progress? In a sense it sounds like a deal with the devil. Replace workers with machines in the name of lower costs. Profits rise. Repeat. It's a wonder unemployment is only 9.1%. Shouldn't the economy put people ahead of profits?

Well, it does. The savings from higher productivity don't just go to the owners of the textile factory or the mega hen house who now have lower costs of doing business. Lower costs don't always mean higher profits. Or not for long. Those lower costs lead to lower prices as businesses compete with each other to appeal to consumers.

The result is a higher standard of living for consumers. The average worker has to work fewer and fewer hours to earn enough money to buy a dozen eggs or a pair of shoes or a flat-screen TV or a new car that's safer and gets better mileage than the cars of yesteryear. That higher standard of living comes from technology. It isn't just the rich who get cheaper TVs and cars, plus the convenience of using an ATM at midnight.

Somehow, new jobs get created to replace the old ones. Despite losing millions of jobs to technology and to trade, even in a recession we have more total jobs than we did when the steel and auto and telephone and food industries had a lot more workers and a lot fewer machines.

Why do new jobs get created? When it gets cheaper to make food and clothing, there are more resources and people available to create new products that didn't exist before. Fifty years ago, the computer industry was tiny. It was able to expand because we no longer had to have so many workers connecting telephone calls. So many job descriptions exist today that didn't even exist 15 or 20 years ago. That's only possible when technology makes workers more productive.

It's true, there are some structural issues in the labor market. New jobs are being created but not at the usual pace and not fast enough to soak up the unemployed. But President Obama is wrong to blame innovation.

A bigger problem is housing, where hundreds of thousands of workers have lost their jobs. The source of that problem isn't technology but an over-reaching housing policy and distorted finance. The solution is to let the housing market clear—let interest rates rise, stop subsidizing mortgages, and clean up the foreclosure mess. That would let housing starts return to something like normal.

The other challenge is simply confidence. Businesses aren't hiring because they're uneasy about the future. There's no easy way to instill confidence, but we know how to kill it—create uncertainty about taxes and regulations. Reducing that uncertainty would certainly help.

In the meanwhile, enjoy the ATM machine and the kiosk at the airport with a clear conscience. Doing more with less is the road to prosperity. When confidence returns, even more Americans will share in the bounty from innovation.

The Charge is Gone from Electric Cars

2011-06-21T21:50:00.003-04:00

Something we could have told you the day this car was presented to the world. Nobody's going to buy it. Just like the Chevy Volt, another electric car that lives on only because GM can afford to lose money on it.

Tesla Roadster reaches the end of the line

June 21, 2011

The Tesla Roadster has generated far more conversations than sales, but Tesla hopes to sell far more of the upcoming Model S sedan.

NEW YORK (CNNMoney) -- The road is coming to an end for the Tesla Roadster.

Automaker Tesla Motors (TSLA) will stop taking orders for the car in the U.S. in about two months as the carmaker focuses on its Model S electric sedan.

782Print Priced around $109,000 dollars, the two seat Tesla Roadster sports car was never intended to be a huge seller. Tesla reported sales of 1,650 Roadsters worldwide by the end of April, 2011. The car is sold in North America, Europe and Asia.

With its performance and relatively long driving range, the Tesla Roadster helped change the perception of electric cars from being little more than golf cars with doors to actual viable production vehicles.

The Roadster can go from zero to sixty miles per hours in under four seconds, according to Tesla, and can travel about 250 miles on a charge.

Former General Motors (GM, Fortune 500) vice chairman Bob Lutz has credited it with helping to spur GM's development of the Chevrolet Volt

Tesla's next big thing: Tesla's roadster production is coming to halt as the maker of battery-powered cars switches its focus to the upcoming Model S electric sedan.

The first sales of the Model S sedan are expected to begin around the middle of 2012.

At a starting price of about $58,000, the base model will have a driving range of 160 miles, Tesla said, but buyers will be able to pay more for versions with larger battery packs and longer driving ranges. The first ones sold will have an estimated driving range of 300 miles with a price tag closer to $80,000.

Model S will be able to seat up seven people when equipped with an optional third row of rear-facing seats. Tesla hopes to be able to sell as many as 20,000 of the cars by 2013.

Besides building its own cars, Tesla has a business partnership with Toyota Motor Co (TM). to produce a plug-in electric version of the Rav4 SUV and a deal with Daimler (DDAIF) to provide batteries for an electric version of the Smart ForTwo minicar.

The Model S sedan will be built in a California factory that was once used jointly by Toyota and GM.

The Italian Job

2011-06-21T09:08:00.003-04:00

The nations of Europe are seeing their economies fall like dominos. The day may arrive when the currency of Europe collapses. What about the US? Has the US seen enough to realize that following the European model of heavy spending on healthcare and other social programs is a bad idea?

Italy Will Fight Last Stand in Debt Crisis

Tuesday, 21 Jun 2011

For more than two years, we have witnessed the economic demise of several European countries. This soon led to the financial community systematically assessing the health of several peripheral southern European countries, tumbling investment grade ratings and spikes in required rates of return on government debt of these sovereigns. As the European Central Bank continues to dole out rescue packages, many are now looking for the next country to suffer a financial attack and wondering if the euro will even survive.

Some analysts feel that Spain is the last bastion for the euro’s survival. We do not. We believe that the final battle will be fought on the picturesque shores of Italy, resulting in Rome’s emergence as either hero or villain with respect to the survival of the euro.

Most European politicians dearly want the “run” on several of its “club” members to end and its rescues to restore confidence.

This is, unfortunately, a dream that is likely to be shattered as the next domino – Spain – suffers the scrutiny of intense solvency analysis.

Spain, which has almost twice the amount of government debt outstanding as Greece, has well known infirmities – namely an anaemic economy, an unemployment rate more than 20 percent, a devastating real estate debacle and a consequent banking crisis.

The need for a potential bail-out of Spain is not only possible, but likely and manageable even with the mounting aggregate debt assumption by the other, stronger euro partners, its central bank and the International Monetary Fund.

Thus, we turn to Italy. The country has far more sovereign debt outstanding, almost $2,000 billion, than any of the other problematic governments.

While ultimately the euro’s survival will come down to political realities we feel the euro’s financial market “battle” will come down to the plight of Italy.

Its debt, if added to the mounting EU and IMF’s responsibility, may simply be too much and the euro will then crumble. Our theory is rooted in the use of a new metric to estimate the financial health of sovereigns.

In addition to the standard sovereign risk “top-down” macroeconomic analytics, whose variables are consistently reported and debated, we believe that most nations can be evaluated by the health and robustness of their private sectors.

The metric we developed is simple and a more powerful version of the well known “Altman Z-Score”.

It involves the calculation of a company’s credit score distilled from three types of variables: 1. Fundamental firm performance and risk ratios, such as profitability, leverage and liquidity. 2. Stock market equity measures and 3. Capital market and economic statistics, such as corporate debt risk premiums and unemployment rates.

We applied our model to nine European countries, and the US, before the crisis was apparent in early 2009 and again in early 2010, and found that for the most part, the hierarchy of sovereign risk was observed.

The result of the Italian “battle” is not clear. We know that, despite its huge public debt, sluggish economy, ageing population and political uncertainties, Italy enjoys a wealthy consumer and corporate reservoir of capital and perhaps as much as 65 percent of its outstanding public debt is held by Italian private individuals and institutions.

In addition, Italy has several comparative advantages, namely tourism, fashion, some very strong companies and an improving banking sector, not to mention a dynamic but fragile small and medium-sized companies sector.

Still, our overall credit risk metric, while better than two years ago, places Italy among the riskiest private corporate sectors.

If the European stock market, and Italy’s especially, suffers another downturn, our risk measure will surely deepen and leave Italian government debt vulnerable to the same type of market attack the other peripherals endured, with the attendant increase in interest rates and credit insurance premiums.

Even today, despite low interest rates, the European Commission reports that Italy’s government interest payments as a percentage of gross domestic product are 4.8 percent, second only to Greece’s 6.7 percent and considerably higher than all other major European countries and the US (2.9 percent).

Even Portugal’s ratio is lower at 4.2 percent. So far, the credit default swap (CDS) insurance market and other market measures have shown some, but not excessive, concern about Italy, despite Moody’s warning on Friday that it could downgrade Italian debt amid fears about contagion from Greece.

Italy’s five-year implied probability of default based on CDS spreads is relatively average (13.4 percent, up from 9 percent about a month ago).

But it is just a matter of time until we see whether Italy becomes the euro’s hero or villain.

Just Words -- Book Review

2011-06-21T07:15:00.002-04:00

Leave it to a liberal bombasticator to claim that everyone with whom he disagrees is a liar. Keith Olbermann and Michael Moore come to mind, but they're just two of the more visible gasbags and blowhards.

Don't Blame Mary McCarthy

Oh, for the days of Lillian 'Pants on Fire' Hellman. Now accusations of lying often just mean: I disagree with you

At some point in the mid-1990s, academic authors in the humanities began to use the verb "complicate" when they didn't have anything useful to say. They were always talking about how some new consideration or alleged insight "complicates" our understanding of this or that. "Such a view of early Victorian culture," they'd say, "complicates our understanding of Tennyson's metrical romances."

Well all right, one thought, but could we get to the part where you uncomplicate it? But they never did. They felt that it was sufficient to point out that something was more "complicated" than was hitherto thought.

Alan Ackerman's "Just Words" falls firmly into that tradition. Mr. Ackerman, a professor of English at the University of Toronto, is typical of academics in the humanities in this regard: He feels that he has done his job by making his topic more confusing than it was—no need to clean up the mess. The book "challenges assumptions" and "raises questions" on page after page, but nowhere amid all the assumption-challenging and question-raising is there any sign of resolution.

On the face of it, the premise of "Just Words" is an interesting one. Its point of departure is Mary McCarthy's famous quip about Lillian Hellman: "Every word she writes is a lie, including 'and' and 'the.' " McCarthy, a grande dame of American letters, made the remark on "The Dick Cavett Show" in 1980. She had said the same thing in interviews before, but this time Hellman was watching, and she sued for libel.

By then Hellman was an elderly woman; she had made her mark first as a playwright in the 1930s, then in the early 1950s as a suspected communist or communist sympathizer who refused to answer questions before the U.S. House Un-American Activities Committee. Mr. Ackerman thinks that the lawsuit against Mary McCarthy, which dragged on until Hellman's death in 1984 and cost McCarthy enormous sums in legal fees, tells us something about a "crisis in American moral discourse" dating back to the 1930s.

There are at least two problems with Mr. Ackerman's idea. The first is that it's never clear what sort of "crisis"—or "failure of public conversation"—he is talking about. The nearest he comes to describing the "crisis" is this: The Hellman-McCarthy lawsuit "represents a clash between two models of language: one, as McCarthy saw it, that reports transparently on matters of fact, and one"—presumably as Hellman saw it—"that is self-consciously rhetorical and shaped by desire." Unless I'm mistaken, that's a highfalutin way of saying that the question of what constitutes truth in particular utterances is often disputable. I'm not convinced that we need a 300-page monograph to tell us that.

The second problem with Mr. Ackerman's idea is that, although McCarthy intended her remark to be witty rather than strictly true, it wasn't particularly witty and came awfully close to the truth.

Hellman was, in fact, a chronic liar. She wrote three memoirs: "An Unfinished Woman" (1969), Pentimento (1973) and "Scoundrel Time" (1976). Reviewer after reviewer during the 1970s and 1980s—including Irving Howe in Dissent, Hilton Kramer in the New York Times, Alfred Kazin in Esquire, Martha Gellhorn in the Paris Review and most devastatingly Samuel McCracken in Commentary—showed beyond any doubt that these books were full of outrageous omissions and flagrant departures from the historical record.

In the worst instance, a story in "Pentimento," Hellman claimed that she had gone to heroic lengths to aid a young American woman named Julia in supporting anti-Nazi conspirators in Germany. In due course it emerged that the real Julia was a woman named Muriel Gardiner and that Hellman, who had heard her story from someone else, had simply stolen it and put herself in the lead role.

I say all this is a problem for Mr. Ackerman's thesis because if there is any "crisis in American political discourse," it is the nonchalance with which eminent commentators and now even politicians make accusations of dishonesty. A "liar" is now someone who simply holds a contrary opinion or who supports a policy with which one strongly disagrees. But Lillian Hellman's lies were actually lies; she based the latter half of her literary career on intentional, egregious untruths about herself and others.

But there is at least one corrosive tendency in America's "public conversation" that is nicely illustrated by Mr. Ackerman's book—though unintentionally. Academics on the political left often spend so much time talking to one another, both literally and through their books and articles, that they develop a way of expressing themselves that fails even to recognize the existence of anything outside the small world of left-wing academia.

Mr. Ackerman writes of the "widely noted corruption of political language" by the Bush White House (the statement doesn't have to be supported, Mr. Ackerman seems to think, so "widely" was it "noted"). He uses the name Rush Limbaugh as shorthand for debased political discourse. Paul Johnson is a "conservative journalist," but Mike Barnicle, a liberal, is just a "journalist." And so on.

There is nothing astonishing about any of this, of course. But it is highly irritating, and one might have expected more from an author concerned with the "failure of public conversation in America."

What If Jews Had Followed the Palestinian Path?

2011-06-21T06:40:00.006-04:00

If there's one outcome of Islam, it's most visible in the failure of the so-called Palestinians. They set their course for destruction and self-defeat, and they are enduring their own self-inflicted misery with the help of muslims everywhere.

Postwar Jewish refugees left everything they had in Europe—no 'right of return' requested

It is doubtful that there has ever been a more miserable human refuse than Jewish survivors after World War II. Starving, emaciated, stateless—they were not welcomed back by countries where they had lived for generations as assimilated and educated citizens. Germany was no place to return to and in Kielce, Poland, 40 Jews who survived the Holocaust were killed in a pogrom one year after the war ended. The European Jew, circa 1945, quickly went from victim to international refugee disaster.

Yet within a very brief time, this epic calamity disappeared, so much so that few people today even remember the period. How did this happen in an era when Palestinian refugees have continued to be stateless for generations?

In 1945, there were hundreds of thousands of Jewish survivors living in DP Camps (displaced persons) across Europe. They were fed and clothed by Jewish and international relief organizations. Had the world's Jewish population played this situation as the Arabs and Palestinians have, everything would look very different today.

To begin with, the Jews would all still be living in these DP camps, only now the camps would have become squalid ghettos throughout Europe. The refugees would continue to be fed and clothed by a committee similar to UNRWA—the United Nations Relief and Works Agency for Palestine Refugees in the Near East (paid for mostly by the United States since 1948). Blessed with one of the world's highest birth rates, they would now number in the many millions. And 66 years later, new generations, fed on a mixture of hate and lies against the Europeans, would now seethe with anger.

Sometime in the early 1960s, the Jewish leadership of these refugee camps, having been trained in Moscow to wreak havoc on the West (as Yasser Arafat was) would have started to employ terrorism to shake down governments. Airplane hijackings in the 1970s would have been followed by passenger killings. There would have been attacks on high-profile targets as well—say, the German or Polish Olympic teams.

By the 1990s, the real mayhem would have begun. Raised on victimhood and used as cannon fodder by corrupt leaders, a generation of younger Jews would be blowing up buses, restaurants and themselves. The billions of dollars extorted from various governments would not have gone to the inhabitants of the camps. The money would be in the Swiss bank accounts of the refugees' famous and flamboyant leaders and their lackies.

So now it's the present, generations past the end of World War II, and the festering Jewish refugee problem throughout Europe has absolutely no end in sight. The worst part of this story would be the wasted lives of millions of human beings in the camps—inventions not invented, illnesses not cured, high-tech startups not started up, symphonies and books not written—a real cultural and spiritual desert.

None of this happened, of course. Instead, the Jewish refugees returned to their ancestral homeland. They left everything they had in Europe and turned their backs on the Continent—no "right of return" requested. They were welcomed by the 650,000 Jewish residents of Israel.

An additional 700,000 Jewish refugees flooded into the new state from Arab lands after they were summarily kicked out. Again losing everything after generations in one place; again welcomed in their new home.

In Israel, they did it all the hard way. They built a new country from scratch with roads, housing and schools. They created agricultural collectives to feed their people. They created a successful economy without domestic oil, and they built one of the world's most vibrant democracies in a region sadly devoid of free thought.

Yes, the Israelis did all this with the financial assistance of Jews around the world and others who helped get them on their feet so they could take care of themselves. These outsiders did not ignore them, or demean them, or use them as pawns in their own political schemes—as the Arab nations have done with the Palestinians.

I imagine the argument will be made that while the Jews may have achieved all this, they did not have their land stolen from them. This is, of course, a canard, another convenient lie. They did lose property all over Europe and the Mideast. And there was never an independent Palestine run by Palestinian Arabs. Ever. Jews and Arabs lived in this area controlled first by the Turks and then by the British. The U.N. offered the two-state solution that we hear so much about in 1947. The problem then, and now, is that it was accepted by only one party, Israel. No doubt, the situation of Arab residents of the Middle East back then may have been difficult, but it is incomprehensible that their lot was worse than that of the Jews at the end of World War II.

We don't hear about any of this because giving human beings hope and purpose doesn't make great copy. Squalor, victimhood and terror are always more exciting. Perhaps in the end, the greatest crime of the Jews was that they quietly created something from nothing. And in the process, they transformed themselves.

Golda Meir is credited with having said that if the Jews had not fought back against the Arab armies and had been destroyed in 1948, they would have received the most beautiful eulogies throughout the world. Instead, they chose to stand their ground and defend themselves. And in winning, they received the world's condemnation. Meir said she would take the condemnation over the eulogies.

Chu -- Hydrogen is Bad Gas

2011-06-18T09:20:00.003-04:00

For once an Obama cabinet member has reached a sane conclusion. Hydrogen is not the answer -- today. We all know hydrogen is the most common element in the Universe. But we also know that nearly all of it is bound into molecules. Thus, as a fuel source, hydrogen is million miles from being price competitive with oil.

When the economics become favorable, well, then America can revisit the technology. This is one case where the US can let Germany and other nations handle the research. If they can develop a competitive hydrogen technology, then we should gladly allow them to bring it to our domestic auto market. We do not need to be first.

Obama Hydrogen Fuel Failure Conceded by Chu Paring Budget

Jun 14, 2011

Energy Secretary Steven Chu, whose mandate includes getting more fuel-efficient cars on U.S. roads, is disregarding advisers in his own department and seeking to cut almost half the federal funding for hydrogen-powered autos.

A Nobel Prize-winning physicist who also researched advanced biofuels, Chu says hydrogen fuel-cell technology developed by carmakers such as General Motors Co. (GM), Daimler AG (DAI) and Toyota Motor Corp. (7203) isn’t yet practical. Auto companies and members of a government panel say he’s wrong and that they will be ready to market such cars by 2015.

“Secretary Chu has firmly set his mind against hydrogen as a passenger-car fuel,” Mary Nichols, chairwoman of California’s Air Resources Board, said in an interview with Bloomberg Government. Her agency’s regulations affect more drivers than any other state’s. “Frankly, his explanations don’t make sense to me. They are not based on the facts as we know them.”

The Obama administration’s fading support for hydrogen is a challenge for carmakers who say advanced gasoline engines, batteries, biofuels and fuel cells are all needed to curb U.S. oil consumption and carbon emissions. Chu’s proposed budget, which cuts funds for hydrogen stations, creates roadblocks for retail sales of fuel-cell cars, the companies say.

Chu is “hostile to hydrogen,” Robert Walker, a former member of the Energy Department’s Hydrogen and Fuel Cell Technical Advisory Committee, said in an interview. Walker, executive chairman of Wexler & Walker Public Policy Associates, a Washington lobbying firm, and a former Republican House member from Pennsylvania, resigned from the panel in April over the budget proposal.

‘More Likely’ Options

Chu, 63, has advocated battery cars and biofuels as options more likely to meet U.S. energy and environmental goals in the near term. Discounting hydrogen means the U.S. risks falling behind Japan, Germany and South Korea in the technology because those nations are moving ahead with plans for extensive fuel- station networks to serve buyers of the cars.

“The secretary believes that we should fund fuel-cell research and development as part of a diverse energy portfolio, including both stationary and mobile applications -- and we are,” said Stephanie Mueller, an Energy Department spokeswoman.

Chu, who said in 2009 that the Obama administration was “going to be moving away from hydrogen-fuel cells for vehicles,” declined a request for an interview.

$4 a Gallon

Consumer interest in alternative-fuel vehicles has grown this year as gasoline neared $4 a gallon. U.S. drivers bought about 275,000 gasoline-electric hybrids last year, led by Toyota’s Prius, and GM and Nissan Motor Co. are boosting sales of rechargeable Volt and Leaf vehicles.

“Fuel-cell technology is viable and ready for the mass market,” Chris Hostetter, Toyota’s U.S. group vice president for advanced planning, said in a May 10 interview at the opening of a hydrogen filling station in Torrance, California. “Building an extensive hydrogen refueling infrastructure is the critical next step in bringing these products to market.”

Automotive fuel cells are layers of platinum-coated plastic film sandwiched between metal plates that create electricity from the chemical reaction of hydrogen and oxygen. Vehicles use the same type of electric motors and controls as battery-only models, and neither emits tailpipe pollutants.

$10 Billion Bet

Toyota plans to sell a fuel-cell car in the U.S. and other markets by 2015 or sooner, Hostetter said. Japan’s largest automaker has said the model may sell for about $50,000, without elaborating.

Honda Motor Co. and Daimler offer a limited number of fuel- cell vehicles for lease in the U.S. Honda reported 17 leases last year, none yet this year. Daimler reports four leases through May this year. Automakers estimated the cost of fuel- cell vehicles was about $1 million each as recently as five years ago.

Globally, automakers have poured an estimated $10 billion into fuel-cell vehicle research, saying hydrogen provides range and rapid fueling that is comparable to gasoline and superior to plug-in electrics.

The Energy Department cut hydrogen funding to make way for biofuels, battery vehicles and increased fuel-efficiency standards, Steven Chalk, deputy assistant secretary for renewable energy, said in an interview.

‘Folks Are Frustrated’

“If folks are frustrated with that position, I understand that,” Chalk said. In a time of budget constraints, “we’re trying to focus on the things that are going to make the impact in the time frame that matters, which is in the next five years.”

The $100 million the department is requesting for hydrogen, down from $177 million provided in the 2010 fiscal year, “is still quite an investment, and we think we can be competitive,” he said.

President George W. Bush announced a $720 million research and development effort for hydrogen-powered cars in his 2003 State of the Union address. Congress in 2005 created the advisory committee that Walker ran, which tracks progress by fuel-cell manufacturers, automakers and energy companies pushing to commercialize hydrogen technology.

During his two years on the job, Chu hasn’t met with the committee, according to Walker and Chalk.

Chu told the Senate Appropriations energy and water development subcommittee on May 18 that hydrogen tanks for fuel- cell vehicles are inadequate and that the technology contributes to carbon emissions, linked to climate change, because natural gas is the main source of industrial hydrogen.

Carbon Emissions

Toyota, Honda, GM, Daimler and Hyundai Motor Co. (005380) all say the hydrogen tanks on fuel-cell vehicles they’re testing in California and elsewhere provide the same range of 250 miles (402 kilometers) to 400 miles as gasoline autos.

Vehicles powered by hydrogen made from natural gas produce at least 50 percent fewer carbon emissions than the cleanest gasoline autos, according to Energy Department estimates.

Natural gas “will have to be significantly more abundant and less costly,” to make hydrogen affordable, Chu said at the Senate hearing.

Natural gas prices have fallen 66 percent since July 3, 2008, when it reached $13.577 per million British thermal units. The price for July delivery declined to $4.646 per million BTUs yesterday on the New York Mercantile Exchange.

“Why is it that the secretary can’t look at the data, look at the facts, and arrive at the same conclusion that his own advisory committee has reached?” Robert Shaw, who is chairman of the 18-member advisory panel, said in an interview. Shaw is president of Arete Corp., a venture capital-fund manager based in Center Harbor, New Hampshire.

Taxpayer Funds

“It’s just not a good use of taxpayer funds,” Joseph Romm, a senior fellow at the Center for American Progress, said in an interview. Romm’s duties as an Energy Department official during the Clinton administration included supervising the hydrogen program.

Without an adequate refueling infrastructure, few consumers are going to buy hydrogen vehicles, he said. Without knowing whether the autos will be a success, there’s little incentive to build stations.

The U.S. has 58 hydrogen fueling stations, according to the Energy Department.

Germany, Japan

In 2009, Germany announced plans for 1,000 hydrogen stations. In January, Japan said it will have 100 hydrogen stations in place by 2015, and South Korea may have 50 by the end of next year and more than 100 by the end of the decade.

Electric vehicles can plug directly into wall outlets. They have the highest “bang for the buck,” Romm said.

Making hydrogen from natural gas costs $3 to $4 per kilogram, or the equivalent of a gallon of gasoline, Shaw said in a March letter to Chu, and fuel-cell vehicles are twice as efficient as gasoline autos.

Air Products & Chemicals Inc. (APD), the second-biggest U.S. industrial-gas producer, estimates it can sell hydrogen from natural gas for about $5 per kilogram, Ed Kiczek, the company’s senior business development manager, said in an interview.

The company, based in Allentown, Pennsylvania, plans to install hydrogen fuel pumps at 10 or more Southern California gasoline stations in the next two years, he said.

California expects automakers to sell at least 53,000 hydrogen vehicles in the state to comply with emissions rules in 2015 through 2017, Nichols, head of the state air board, said, citing her agency’s surveys of automakers. Those saying hydrogen vehicles won’t be ready haven’t been keeping pace with advances made by automakers, she said.

“The conventional view is always a few years out of date, unfortunately,” Nichols said. “There’s also just a wrong premise that these different fuels have to compete with other, and one has to be a winner. We need all of them.”

Group-on Behavior -- and the Madness of Crowds

2011-06-17T14:14:00.002-04:00

Groupon? What does it do? It sells discounts. Does it work? In a way I suppose it does. Those who buy Groupon discounts use them as a way to sample opportunities they would otherwise skip. Thus, like most bargain hunters, they are always on the hunt for bargains, and rarely pay retail.

Inasmuch as most of the promotional offers from those businesses hoping to benefit from Groupon are money-losers, it will eventually dawn on those businesses that they will always lose money when Groupon customers come through the door. It won't take the owners long to realize they've got to stop the losses due to the heavy discounting that Groupon requires.

Groupon: The Good, Bad and Ugly

June 17, 2011

Groupon has been taken behind the proverbial woodshed to be roughed up.

And deservedly so. The deal Web site's S-1 form released last week exposed many weaknesses, including a loss of over $400 million last year. After reading the registration statement, it's obvious the company is growing like a weed, yet has done so at a cost -- namely, huge marketing expenditures to acquire customers.

I've broken down my observations from the S-1 and my own experiences to make sense of whether the Groupon IPO may be a good investment. There were some surprises -- both good and bad -- that other analysts haven't picked up on. And there's some real ugliness.

The initial public offering is expected by the fall, following other hotly awaited IPOs including LinkedIn and Pandora.

The good -- 83 million subscribers:

Ignoring the fact that Groupon has been paying through the nose to acquire customers, we must still acknowledge one thing: It has a huge customer base. Whether the company can build a profitable business based on its existing model remains to be seen. Yet the company is taking steps to further leverage its impressive position.

Groupon Now, which lets consumers search for deals within a certain proximity to a specific location, is one step in the right direction. The recent acquisition of Pelago, the creator of the mobile app WHRRL, looks to be a smart move as well, as Groupon is attempting to add social interactivity a la FourSquare into its deal model. And the moves to partner up with companies such as Live Nation and Expedia to expand into the concert ticket and travel verticals make sense. I would imagine both of these moves should help Groupon expand revenue in the near future.

But what is Groupon worth? Is it worth the $20 billion-plus valuation being offered up as a potential value for the company? Let's look at Travelzoo as an example -- a company that has a business built on vendors providing up-front advertising expenditures. The company has formed a successful online travel business on the back of its now 20 million-plus subscribers. It recently reported record quarterly revenue of $37 million in the first quarter, equating to $7.80 per subscriber (on an annualized basis).

Travelzoo, which is now profitable, is valued at roughly 8 times trailing 12-month revenue, or $50 per subscriber. Could we relate the same sort of valuation to Groupon? First, the business models are slightly different. Travelzoo releases a Top 20 Deals email in which travel providers pay a specific fee to be included on the list. Yet, Travelzoo has recognized the potential of the local deals market, and has ramped up this portion of its business aggressively. But, more importantly, Travelzoo is profitable, with no debt. Groupon, on the other hand, could effectively be considered insolvent. As of the most recent quarter, the company owed $290 million in payables to merchants, with only $209 million in cash on hand.
But just for comparison sake, lets apply the $50 per subscriber valuation to Groupon, which gets us to $4 billion.

And, as far as the revenue valuation goes ... well, that's a bit more complicated. See, Groupon reports revenue on a gross basis, meaning that on financial statements, the reported revenue totals include revenue gained from each deal, even though a significant portion of this is passed on to the vendor.

Forget the reports of first-quarter revenue of $644 million. Instead, look at net revenue, which was $270 million. If we use the revenue metrics provided for the Boston and Chicago markets, which show more normal growth over recent quarters of around 30%, then we can assume that Groupon could earn nearly $1.67 billion in net revenue over the course of 2011. And at eight times revenue, this would equate to a valuation of around $13.3 billion. That valuation is optimistic, given that the company is still unprofitable, and that the balance sheet is ugly, to say the least. I'm sure once the IPO hits the market, these valuations won't matter, but I would say for any investor looking to capitalize on the growth in local deals, take a look at Travelzoo for a safer, longer-term investment.

The bad -- customer-acquisition costs are out of control:

Groupon is spending heavily to acquire customers. After laying out $240 million for all of 2010, Groupon spent $179 million in the first quarter of this year on marketing expenses. If we do some rough math, based on expenditures during the first quarter, and the increase in subscribers of over 33 million from the end of 2010 up until the end of the first quarter, Groupon spent $5.50 for each customer. In comparison, Travelzoo spends only $1.74 for new subscribers.

The average price of a Groupon sold in the first quarter was $23. Groupon makes an average gross profit on this deal of 42%, or $9.66 per deal. So these acquisition costs would be perfectly acceptable if Groupon sold a deal to each customer, but that's not the case, since only 20% of Groupon's subscribers have purchased a deal. If we look at the change in actual subscribers who purchased a deal during the first quarter, Groupon's acquisition costs come out to $26.60 per paying customer. If we assume that Groupon makes an average (gross) of $9.66 per deal, then in order to meet these costs, they would need these paying customers to purchase nearly three deals to break even.

Groupon is certainly banking on the future potential of these subscribers, and hoping to convert a higher percentage into paying customers. A recent survey of Internet users by Bank of America's Merrill Lynch found that only 37% of users subscribe to daily deal companies, and of those who are subscribers, 58% have purchased a deal. And 44% of the survey respondents expected to buy more deals over the upcoming year. Interestingly, 79% of subscribers to daily deal sites are Groupon members, followed by LivingSocial, at 45%.

The ugly -- the business model is flawed:

I've heard Groupon referred to as a "loan shark," and its service as mentioned as a "loss leader" for small businesses. Groupon, for example, sells a $50 certificate for $25, and provides the business owner with roughly $12.50. If an owner sells 1,000 so-called Groupons, it is, in essence, selling $50,000 worth of merchandise for $12,500.

For some businesses, this might work. For example, a local bed & breakfast during a slow season may have rooms that might normally go unbooked; a Groupon deal might be the perfect remedy to bring in business (albeit at a lower rate) that might have never been there to begin with.

Travel deals, however (for now), are a very small portion of Groupon's advertised deals. Most of Groupon's clients are restaurants and service providers. Many have probably heard the story of Jessie Burke and Posie's cafe. Posie's sold 900 Groupons for $6 each, offering $13 worth of food and beverages at the Portland, Ore., cafe. The deal turned out to be a disaster for Posie's, which had to take $8,000 out of personal savings to cover payroll and rent.

The problem is that many small-business owners are blinded by the bright lights of Groupon and the potential to drum up big-time sales, while ignoring the inherent costs in providing such a discount. A study by Utpal M. Dholakia titled, "How Effective are Groupon Promotions for Businesses?" surveyed past Groupon business owners to discover the level of satisfaction. When asked if they would run another Groupon promotion, 42% of respondents said no.

One restaurant owner from the Midwest had this to say about the experience with Groupon: "The return business has been non-existent. It was very harmful to our bottom line during the months we ran it. We still get people coming in to redeem their groupon even though the promo has been over for four months, and they are very upset they cannot get the full discount."

And this, in my opinion, is truly the major flaw in the daily deal model. When running a discount, a restaurant, spa or other small business runs a promotion thinking that the deal, while possibly leading to short-term losses, will in the end produce new customers. The unrecognized, or ignored, issue is that the majority of Groupon's subscribers are deal-seekers, people looking to get the next groupon so they can save money on their next night out, haircut, massage, etc. If I spend $25 to get $50 worth of Mexican food at Joe's Cantina, what are the odds I return and spend full price at Joe's next time if I can buy the same type of Groupon deal at Jesse's Cantina?

As for spas and salons, is there really any loyalty gained with these deals? One spa owner in the study by Dholakia wasn't impressed. "It is obvious that many Groupon users are only looking for deals ... not a business that they will return to many times. They buy the maximum number of deals allowed and then move on to another salon that has deals as well. The percentage of people actually looking for a new stylist was low and not many of them returned."

So how long can this cycle play out? Not long. As more business owners connect and wise up to the financial destruction caused by these deals, the less frequently they will be willing to partake in Groupon deals. And with new competitors coming online every day, the margins will only get smaller for Groupon as time goes on. Google Offers and Facebook Deals are by far the biggest threats at this point. Both have leverage in the form of subscribers, and both will be able to provide deals at a much lower price point.

If you are an investor considering partaking in the Groupon IPO, hopefully it's just to try and make a few bucks on a trade. While the company has quite a few things going for it, such as a wildly popular brand and huge subscriber base, the model has yet to prove itself over the long term.

Be careful, as the valuation for the company will likely be extreme and not representative of the actual fundamentals of the business. Take a lesson from LinkedIn, which is a good business but overvalued. The stock, which soared past $100, is now trading at less than $70. If you're looking to get in on a deal, consider Travelzoo, which is rapidly expanding its local deals business and has consistently grown profits.

Standard & Poors and Moodys -- Government Agencies

2011-06-17T11:26:00.003-04:00

What happens when agencies with the government seal of approval then extend their good name to give high ratings to securities of dubious value? Here's what happens. The analysts at S&P and Moodys who helped Wall Street firms by giving high rating to complex securities are rewarded with lucrative jobs at those Wall Street firms. Just like high ranking military officers who become lobbyists for defense contractors.

There are ten firms that are known as Nationally Recognized Statistical Ratings Organizations. Moodys and S&P are two, the best known two. Thus, when it comes to opinions on all the securities these firms evaluate, the government has stood behind them and their word. Big mistake. The government should treat this issue the same way it treats religion. There should be a separation between the Church of Wall Street and Government. Instead, the government has put a premium on the work of the 10 ratings firms. Thus, their words was not doubted and challenged when it should have been. Big mistake.

Raters Draw SEC Scrutiny

U.S. securities regulators are weighing civil fraud charges against some credit-rating companies for their role in developing the mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter.

The Securities and Exchange Commission's long-running probe into the deals has widened to the major credit-rating firms, including Standard & Poor's, the people said.

The leading ratings companies have been criticized by lawmakers as "key enablers" of the financial meltdown, helping to fuel the $1 trillion Wall Street mortgage-securities machine before the boom ended.

But the major ratings firms have largely avoided any regulatory crackdown and beaten back private lawsuits. Their business has rebounded as financial markets regained their footing.

Now, SEC officials are focusing on the question of whether the ratings companies committed fraud by failing to do enough research to be able to rate adequately the pools of subprime mortgages and other loans that underpinned the mortgage-bond deals, according to people familiar with the matter.

It is a common tactic for regulators to accuse financial firms of fraud for allegedly misrepresenting information to investors, either recklessly or intentionally, according to lawyers. In the case of the rating companies, the firms could face allegations from the SEC that they relied on incomplete or out-of-date information supplied to them on the pools of loans in the mortgage-bond deals or ignored clear signs of problems among subprime loans and so gave unduly high ratings to slices of the deals that were then sold to investors, say people familiar with the matter.

The SEC is looking closely at the conduct of Standard & Poor's, a unit of McGraw-Hill Cos., said people familiar with the matter. They said the agency is also reviewing the role played by Moody's Investors Service, owned by Moody's Corp., in relation to at least two mortgage-bond deals.

The inquiry may not lead to charges against any of the credit-rating firms.

A Standard & Poor's spokeswoman declined to comment. Michael Adler, a spokesman for Moody's, said: "Although Moody's is uncertain as to what The Wall Street Journal is referring, we would certainly cooperate with any requests we receive from the SEC."

The inquiry into the rating companies marks a broadening of the SEC's long-running investigation into the sales and marketing of the mortgage-bond deals by several major Wall Street's banks. Goldman Sachs Group Inc. was sued by the SEC last year in the first big case to come out of the inquiry. Goldman paid $550 million to settle the charges. The firm admitted making mistakes but didn't admit or deny wrongdoing.

A new wave of cases involving fraud allegations against banks and other financial firms related to the deals is expected shortly, say people familiar with the matter. They said the agency is aiming for a second wave of settlements in the fall, with a third and final group possible by the end of the year.

J.P. Morgan Chase & Co. is among the first banks in line for a settlement of charges expected by the SEC, people familiar with the matter said. The New York investment bank is expected within weeks to settle these allegations related to its sale of a $1.1 billion mortgage-bond investment, called Squared, as the housing market was collapsing in early 2007. J.P. Morgan and most of the other banks that are expected to face allegations of fraud in relation to mortgage-bond deals are expected to agree to pay about half or less than the $550 million Goldman paid to settle the SEC charges, according to people familiar with the matter.

J.P. Morgan and the SEC declined to comment.

Other financial firms in the SEC probe include Citigroup Inc., Morgan Stanley, Bank of America Corp.'s Merrill unit and UBS AG, according to people familiar with the matter. The companies declined to comment.

The widening of the SEC inquiry to credit-rating companies puts them back in the regulatory and legal spotlight. The firms played a crucial part in the creation of the mortgage-bond deals, known as collateralized debt obligations. CDOs are based on complex pools of mortgages and other loans, made up in part of risky subprime mortgages. The pools were sold in slices to investors.

The ratings firms assigned coveted triple-A ratings to many of these CDO slices in the run-up to the crisis, before doing mass downgrades when the housing market collapsed and the subprime mortgages soured.

To be sure, the credit-rating companies aren't responsible for the accuracy of the data supplied to them to rate securities. But they could be accused of ignoring obvious flaws in the data, such as it failing to reflect the deterioration of the mortgage market, according to lawyers.

The ratings companies also enjoy significant legal protections, which they have used to fend off some lawsuits. In May, the credit-rating firms notched a legal victory when a U.S. Court of Appeals ruled that they can't be held liable for their ratings of mortgage-backed securities. Their ratings, the judges wrote, were "merely opinions" and protected by the First Amendment, a defense the firms have often used in the past.

A rare example of a regulatory case against the companies is the lawsuits filed last year by Richard Blumenthal, the then-Connecticut attorney-general, against Standard & Poor's and Moody's. The suits, alleging the firms knowingly assigned tainted credit ratings to mortgage-bond deals, are being contested by both firms.

Moody's and Standard & Poor's have mostly avoided costly legal settlements since the financial crisis.

The credit-rating companies have also benefited from a law that was expected to improve their performance. The Credit Rating Agency Reform Act of 2006 bars the SEC from regulating the substance, criteria or methodologies used in the credit-rating models. The current investigation avoids these areas.

Ethanol -- Too Corny

2011-06-16T21:24:00.001-04:00

Senate Backs Repeal of Ethanol Tax Credit

WASHINGTON—The Senate voted Thursday to repeal a $6 billion tax credit for ethanol producers, a move that could signal the end of some federal subsidies as part of an eventual budget and debt-ceiling compromise.

A bipartisan group of senators—40 Democrats and 33 Republicans—joined together in a 73-27 vote to support an end to the subsidy. The subsidy gives refiners a 45-cent-a-gallon tax credit for blending ethanol into gasoline and has been a factor behind higher corn prices in recent years. Sen. Chuck Grassley (R., Iowa), a longtime supporter of the credit, objected to the measure.

The U.S. ethanol industry is protected by a tariff of 54 cents a gallon on imported ethanol and that, too, would end under the Senate measure.

The ethanol provision was added to unrelated legislation that would renew a program directing federal funding to deprived parts of the country to help local governments attract private investment. Even if approved by the Senate, the legislation isn't expected to be taken up by the House, possibly limiting the vote to symbolic significance.

The vote could prove important in the ongoing budget negotiations. By voting in favor of ending the subsidy, it opens Republicans up to the charge that they are supporting tax increases—ending the subsidy would result in higher taxes on ethanol producers. Republicans have rejected higher taxes as a component in any deal on the budget deficit and accumulated debt.

Democrats, led by Sen. Charles Schumer (D., N.Y.), argued this week that it would be impossible for Republicans to maintain that position after the vote this week. But Sen. Tom Coburn (R., Okla.) said he believed an end or reduction to the subsidy would form part of the final budget deal.

"It should send a good signal—if you had $6 billion that you had as an earmark in an appropriations bill that was going to the [ethanol] blenders and we took it away, nobody would've ever said anything about taxes," Mr. Coburn said.

An earlier vote on ending the ethanol subsidy failed on Tuesday, but that was largely because of Democratic anger at the manner in which the measure was brought to the floor.

The amendment was sponsored by Sen. Dianne Feinstein (D., Calif.) who has long pushed for an end to the tax credit.

Senators are now voting on a separate measure that would prevent federal funds from being used for ethanol storage facilities or blender pumps, another attempt at limiting federal support for production of the fuel alternative. That measure is backed by Sen. John McCain (R., Ariz.).

Drug Legalization -- They've Lost Their Minds

2011-06-11T11:11:00.003-04:00

Seems George Shultz and Paul Volcker are suffering dementia. There is no surer way to guarantee that America becomes a dytopian nightmare than by legalizing recreational drugs.

Is there anything more frightening than the US government forming a partnership with recreational drug makers? What could be worse than a paternship between companies that market addicting producs and a government desperate to maximize tax revenue? Have we learned nothing from our tobacco addiction?

What a nightmare.

A Real Debate About Drug Policy

George P. Shultz and Paul A. Volcker on why the 'war on drugs' has failed—and what to do next

By GEORGE P. SHULTZ And PAUL A. VOLCKER

"The global war on drugs has failed, with devastating consequences for individuals and societies around the world."

That is the opening sentence of a report issued last week by the Global Commission on Drug Policy. Both of us have signed on to this report. Why?

We believe that drug addiction is harmful to individuals, impairs health and has adverse societal effects. So we want an effective program to deal with this problem.

The question is: What is the best way to go about it? For 40 years now, our nation's approach has been to criminalize the entire process of producing, transporting, selling and using drugs, with the exception of tobacco and alcohol. Our judgment, shared by other members of the commission, is that this approach has not worked, just as our national experiment with the prohibition of alcohol failed. Drugs are still readily available, and crime rates remain high. But drug use in the U.S. is no lower than, and sometimes surpasses, drug use in countries with very different approaches to the problem.

At the same time, the costs of the drug war have become astronomical. Inmates arrested for consuming drugs and for possessing small quantities of them now crowd our prisons, where too often they learn how to become real criminals. The dollar costs are huge, but they pale in comparison to the lives being lost in our neighborhoods and throughout the world. The number of drug-related casualties in Mexico is on the same order as the number of U.S. lives lost in the Vietnam and Korean wars.

Throughout our hemisphere, governance and economic development have suffered because of drugs. It is no accident that the initiative for this global commission came from former presidents of Latin American nations. These countries, sometimes with American support, have made strong efforts to reduce drug supplies. But they have increasingly concluded that drug policies in the U.S. are making it more difficult for their people to enjoy security and prosperity.

The problem starts with the demand for drugs. As Milton Friedman put it forcibly over 20 years ago in the pages of this paper: "It is demand that must operate through repressed and illegal channels. Illegality creates obscene profits that finance the murderous tactics of the drug lords; illegality leads to the corruption of law enforcement officials."

We do not support the simple legalization of all drugs. What we do advocate is an open and honest debate on the subject. We want to find our way to a less costly and more effective method of discouraging drug use, cutting down the power of organized crime, providing better treatment and minimizing negative societal effects.

Other countries that have tried different approaches include Britain, the Netherlands, Switzerland, Portugal and Australia. What can we learn from these varied experiences, some more successful than others? What can we learn from our own experience in reducing sharply the smoking of cigarettes or in the handling of alcohol after the end of Prohibition?

Simple legalization is by no means the only or safest approach. One possibility is to decriminalize the individual use of drugs while maintaining laws against supplying them, thus allowing law-enforcement efforts to focus on the drug peddlers. Some of the money that is saved can be spent on treatment centers, which drug users are more likely to seek out if doing so does not expose them to the risk of arrest.

The situation that confronts us today is dangerous. After 40 years of concentrating on one approach that has been unsuccessful, we should be willing to take a look at other ways of working to solve this pressing problem. As the global commission concludes: "Break the taboo on debate and reform. The time for action is now."

—Mr. Shultz, former U.S. secretary of state, is a distinguished fellow at Stanford University's Hoover Institution. Mr. Volcker, former chairman of the Board of Governors of the Federal Reserve System, is professor emeritus of international economic policy at Princeton University.

Banking on Bankruptcy

2011-06-10T22:37:00.003-04:00

Bad news is good news when you know what you're doing.

Hipster Battles Hedge Funds

Nate Thoma stood up in a Delaware bankruptcy court last December in a sharkskin suit and delivered a 24-minute argument that changed the course of one of the largest bankruptcies in U.S. history.

The 33-year-old Washington Mutual investor, with no legal experience, delivered what people in the courtroom called an unusually eloquent speech, helping persuade the judge to investigate trading by some of the nation's biggest hedge funds and to reject a plan for the bank's exit from bankruptcy.

The net result was a settlement between small investors and the hedge funds, which included Appaloosa Management and Centerbridge Partners. That deal has paved the way for the bank to exit from bankruptcy and gives the little guys a chance of recovering some of their losses.

Mr. Thoma's court appearance added new drama to an already contentious case, which began when the U.S. government seized the bank in September 2008. The court-ordered probe riled hedge-fund managers, who said they did nothing wrong, and made Mr. Thoma a folk hero among Washington Mutual's legions of small investors.

Mr. Thoma, who had traveled from Queens, N.Y., to lodge his objections in person, came across as "intense and smart," though "somewhat lacking in experience in the legal arena," says Edgar Sargent, a lawyer representing Washington Mutual's shareholder committee.

Sitting in a Greek tavern in Astoria, N.Y., on a recent afternoon, sporting a hipster-perfect scruffy beard and dressed in a plaid shirt and jeans, Mr. Thoma recalls thinking Judge Mary Walrath would cut him off after a few minutes.

"But halfway through, I noticed she was paying attention," he says. "I realized she was going to let me go on, and I went for broke."

Mr. Thoma, who gave up computer programming to become a trader in 2005, estimates he probably made 10 times his money in Washington Mutual, in part because he bought up cheap securities that will get a payout.

Mr. Thoma spent as many as 10 hours a day analyzing various pieces of the Washington Mutual case before appearing in court, and presented 33 pages of documents. In her written opinion, Judge Walrath cited Mr. Thoma's arguments six times, though she pointed out that much of his evidence was inadmissible.

"Some things were wide of the mark," concedes Mr. Thoma. "But it's my first bankruptcy."

No wrongdoing by the hedge funds was proved by the investigation ordered by Judge Walrath. Appaloosa and Centerbridge, as well as Aurelius Capital Management and Owl Creek Management, were ordered to divulge trading records and answer questions from lawyers for common shareholders.

The funds declined to comment, as did Washington Mutual's attorney.

While Mr. Thoma's impact on the case could inspire other small investors, they probably won't get as loud a voice. Judge Walrath was particularly attentive to smaller shareholders during the Washington Mutual case, in part because of the number of individuals hurt when the bank was seized, according to people involved in the case.

Soft-spoken and with about $500,000 in investments, Mr. Thoma is an unlikely agent for change in the halls of American finance and an even more unwelcome adversary for the hedge funds involved. His actions infuriated the likes of David Tepper, head of Appaloosa. They also served as a call to arms for small investors in the case, many of whom lavished him with accolades on Yahoo message boards.

When Appaloosa responded to Mr. Thoma's claims with demands for research, correspondence and trading records, shareholders, many of them from Europe, rallied to Mr. Thoma's defense, flooding the Delaware court with more than 150 objections. "Apparently, I'm big in Switzerland," he says.

Mr. Thoma, who didn't finish college, says he taught himself to trade, much like he taught himself computer programming. He is also following in the footsteps of his grandfather, who actively traded and retired early on his stock-market investments.

"When I was little, he would show me stock charts, but it didn't register," Mr. Thoma says. "Years later, it occurred to me, 'I can do this.'"

His transformation from small-time investor to activist shareholder began following the seizure of Washington Mutual. Mr. Thoma's shareholding in the bank was wiped out. He spent weeks in front of his Scottrade account, trying to figure out how to recoup money he had lost.

"I started looking at the capital structure, and I saw an opportunity to make back my investment," Mr. Thoma said. He bought trust preferred securities, a hybrid of debt and equity, which rank above common and preferred shares. That enabled him to essentially jump ahead in line for any money distributed from the bank's estate.

It also put him in the same pool as Appaloosa, Aurelius, Centerbridge and Owl Creek, which were snapping up the same securities.

Those securities were quoted at around one cent in November 2008, when Mr. Thoma first started buying—they are now at 16 cents—but they rarely traded and were hard to buy through his online brokerage account.

In the following months, Mr. Thoma bought in lots of 500 or 1,000 units. But he noticed other investors were occasionally able to buy them in much larger amounts, at one point as many as six million units in a day.

"I was envious," he said. "They were like whales passing in the night."

Mr. Thoma suspected the buying was being made by hedge funds, which already owned the bank's bonds. Owning large chunks of both classes of securities would help them control the bankruptcy's course, he figured. While this practice is standard in most bankruptcies, in the case of Washington Mutual, the hedge funds' strategies affected thousands of retail investors, who still owned the bank's securities.

In his December objection, Mr. Thoma said he thought it was unfair that hedge funds were able to eventually negotiate on behalf of trust preferred holders, seeing as they were also bondholders and involved in settlement talks. He questioned whether they were acting in all of the preferred holders' best interests.

Judge Walrath listened, and ordered the probe into the buying.

Mr. Thoma says he is still obsessed with the case, and his wife has banned Washington Mutual from household conversations.

But this battle is likely to be his last. He says that despite his success, his experience has left him disillusioned.

"The thrill is gone," he says. "It's such a big game, [individuals] just can't compete. I'm picking up freelance Web work again."

David Mamet -- Conservative Playwright

2011-06-10T10:47:00.003-04:00

The road to self-discovery -- what a trip!

The Secret Knowledge
By David Mamet
Sentinel, 241 pages, $27.95

Enter Stage Right

In a celebrated 2008 essay for the Village Voice, David Mamet made the startling announcement that he was "no longer a brain-dead liberal." I think it only fair to mention here that I rejoiced.

Mr. Mamet is a terrific playwright, maybe even a great one ("American Buffalo," "Glengarry Glen Ross") and a screenwriter of the first rank ("The Verdict," "The Untouchables"). That a writer of such talent and stature had become a conservative seemed to me to promise some relief from the soporific political conformity of the American arts.

So I rejoiced—and I also sympathized. Breaking free of leftism while working in show business is like escaping from "The Matrix" only to find oneself in "Invasion of the Body Snatchers."

You wake to a risky but bracing new reality of individual liberty, limited government and free markets and are instantly beset by zombified statist dreamers determined either to make you rejoin their ranks or to destroy you. Mr. Mamet reports that a certain prominent left-leaning newspaper actually panned his first openly conservative play not once but twice for good measure. (Libertarian humorist Greg Gutfeld has introduced a "Mamet Attack Clock" on his late-night cable show to measure just how fast critics will now downgrade their opinions of the playwright's work.)

Under such circumstances, it is natural that Mr. Mamet would develop the urge to cry out, like Kevin McCarthy in the famous last scene of "Body Snatchers": "Listen to me! Please listen!" From that urge, no doubt, arises Mr. Mamet's new work of nonfiction, "The Secret Knowledge." It is his attempt to explain and disseminate the thinking behind his conversion to the right.

"Liberalism is a religion," he writes. "It affords a feeling of spiritual rectitude at little or no cost. Central to this religion is the assertion that evil does not exist, all conflict being attributed to a lack of understanding between the opposed. Well and good, but this does not accord with the experience of anyone."

There are inherent difficulties with a predominantly creative writer taking on what is effectively a work of political science. Those who are familiar with Mr. Mamet's previous nonfiction books — which are primarily about the theater and Hollywood — may rightly approach with caution. In trenchant works such as "On Directing Film" (1992), "True and False" (1999), and last year's brief handbook, "Theatre" (2010), Mr. Mamet often makes blunt, startling, dogmatic assertions that do not necessarily hold water as universal truths.

This mode of argument, though, is standard operating procedure among artists of all kinds when pronouncing on their respective crafts. Their manifestoes and declarations are understood not as axioms but as personal attempts to fashion an artistic response to the controversies of the age.

When, for instance, in "True and False," Mr. Mamet says that an actor can't explore the inner life of his character because "there is no character. There are only lines upon a page," the claim does not render Method acting obsolete. It is just Mr. Mamet insisting on the primacy of the text and spelling out the theoretical underpinnings of the deadpan, staccato, rough and hilarious style of dialogue known as Mamet-speak. It is Mamet creating Mamet.

But that explanation won't wash in politics. The blessings of liberty are not the stylistic and artistic preferences of an age. Either human life is ennobled by the dangers and rewards of freedom or we are better off when governments baby-proof reality and shepherd us to the good. It is one way or the other, and history and reason must be brought to bear in order to determine which.

This means that Mr. Mamet the political theorist must essentially reiterate the work of those more expert than he: Thomas Sowell, Friedrich Hayek, Milton Friedman and other architects of modern conservative thought.

Since these brilliant men are frequently ignored or underrated by mainstream critics, it is no bad thing to have a writer as concise and engrossing as Mr. Mamet offer us a sort of digest of their most salient observations on the depredations of the ruling class. And in fact, "The Secret Knowledge," written in Mr. Mamet's tough and funny style, is entertainingly informative.

But the book only really becomes indispensable when it is personal and specific to Mr. Mamet's experience. Take, for instance, this delightful exchange between the playwright and an ideologue in a class he was teaching, who feels that as many plays as possible should strive to demonstrate the humanity of homosexuals.

"Are gay people people too?" I asked the student, and he said that of course they were. "Are they aware of that fact?" I asked him. And he responded similarly. "Then why," I asked, "as they are aware of the fact, would they find its repetition on stage entertaining?"

"Ah, but," he said, "the straight people should see it."

"Ah, but," I said, "the straight people don't care. They may reward themselves for the ability to be bored by a play with a Good Message, but they, just like the gay people, come to the theater to be entertained. Your enlightenment is insufficient to capture the audience's attention for two hours."

This one piece of advice alone, if heeded, could revolutionize both Broadway and Hollywood for the good, and the reader might wish that there were more such wisdom in this book. "Theatre" is packed with such stuff and will, I think, do far more to advance both conservatism and show business.

That said, "The Secret Knowledge" remains a sharp-tongued and heartfelt primer on modern American conservatism. And for those who have already read Thomas Sowell and Friedrich Hayek and the rest, it might make an amusingly irritating present for a liberal friend.

Energy and Economies in Motion

2011-06-08T12:23:00.003-04:00

Is anyone surprised by the news that nations seeing a big increase in energy consumption are also recording economic growth? Shouldn't be any surprise. The two go together like a horse and carriage.

Meanwhile, the latest report says China is now consuming more oil than the US. That's a reason to worry, a little. But China does have a population of 1.3 BILLION people, a full BILLION more than the US. Thus, with roughly four times the population of the US, the only surprise should be over the fact that China's oil consumtion is only a tiny bit higher than ours.

Developing countries lead surge in energy demand

Report: developing world powers biggest jump in global energy demand since 1973

Wednesday June 8, 2011

LONDON (AP) -- Global energy consumption rose in 2010 at the fastest pace since 1973, as fast-growing developing nations led a strong rebound from recession, according to a survey released Wednesday.

The overall 5.6 percent rise in consumption saw gains in all regions and all categories of energy, BP PLC said in its 60th annual Statistical Review of World Energy.

Consumption in the world's richest countries grew by 3.5 percent, the most since 1984, bringing it back to the level of a decade ago, BP said. Consumption in developing countries -- particularly resource-hungry ones in Asia and South America -- logged a 7.5 percent increase.

"By year-end, economic activity for the world as a whole exceeded pre-crisis levels driven by the so-called developing world," said Christof Ruehl, chief economist for BP.

Last year's surge was led by China, which increased its energy consumption by 11.2 percent, according to BP.

That moved China ahead of the United States as the world's biggest consumer of energy, accounting for 20.3 percent of global demand compared with 19 percent for the U.S., the report said.

The International Energy Agency reported in July that China had become the world's biggest energy consumer, though Chinese officials insisted their country still lagged behind the United States.

China was by far the world's largest consumer of coal, taking 48 percent. The United States had the biggest thirst for oil with 21 percent of global demand, double China's consumption.

We've Got Gas

2011-06-06T07:25:00.003-04:00

Why is government blind to the benefits of natural gas? It's cost-competitive; it's proven; it's abundant; it can displace oil; and it's domestic. Is it perfect? No. But no alternative is. But it's less bad than other hydrocarbons.

Moreover, there are already cars, trucks and buses that are built to run on natural gas. The Post Office runs its vehicles on natural gas. What's lacking? A large number of refueling sites. However, if we're serious about easing our use of oil, then taking a half-step to natural gas is one obvious choice. Outfitting existing gas stations to refuel Natural Gas Vehicles is a lot easier than creating facilities to recharge batteries of electric cars.

Furthermore, vehicles that run on natural gas get mileage that compares to the mileage of gasoline-powered vehicles. Whereas electric vehicles, such as the Chevy Volt, travel, at best, 40 miles on a single charge.

What is keeping the government from getting behind this domestic energy source that displaces oil and puts Americans to work?

Natural Gas Entering 'Golden Age'

VIENNA—Natural gas could be entering a "golden age" and represent a much larger portion of the global energy mix, but the fuel is still a fossil fuel and doesn't represent a panacea for climate change, the International Energy Agency said Monday.

The IEA, which represents the governments of consuming countries, said natural gas could rise by more than 50% from 2010 levels and account for more than a quarter of global energy demand by 2035. The estimates follow a recent surge of shale gas production in the U.S., which has significantly altered the energy picture in recent years in the U.S.

But the IEA cautioned that while an increased use of natural gas could boost energy security, it shouldn't overwhelm other energy forms that could be better in addressing climate change. IEA Executive Director Nobuo Tanaka expressed concern that governments over react against nuclear energy following the recent Japan crisis.

"While natural gas is the 'cleanest' fossil fuel, it is still a fossil fuel," Mr. Tanaka said. "Its increased use could muscle out low-carbon fuels, such as renewables and nuclear—particularly in the wake of the incident at Fukushima and the likelihood of a reduced role for nuclear in some countries. An expansion of gas use alone is no panacea for climate change."

Pakistan -- the New Afghanistan

2011-06-04T12:09:00.004-04:00

Good news. It's open season on al-Qaeda leaders, no matter where they are. More interesting, however, is Obama's war against Pakistan. We've invaded the country, killing lots of bad guys, including bin Laden. So far, the US has carried the ball.

What's Pakistan doing to fight the al-Qaeda forces and other "enemy" forces? Very little. Why should they? It seems the leaders of Pakistan have an agenda that might not appeal to many Americans.

What side are the power elites of Pakistan on? Clearly not our side. They don't object too strenuously when the US kills people in Pakistan. At the same time, they fail to find and kill the bad guys, which suggests their behavior is mere posturing. They pretend to object while American forces fly drones and SEAL Team 6 kills high-value targets, and they'll handle things this way until the US departs.

Then the truth about Pakistan will come out. Maybe India will step in.

Ilyas Kashmiri Dead: Al Qaeda Commander Killed In Pakistan In U.S. Drone Strike, Official Says

06/ 4/11

DERA ISMAIL KHAN, Pakistan — A top al-Qaida commander and possible replacement for Osama bin Laden was killed in an American drone-fired missile strike close to the Afghan border, the militant group he heads and a Pakistani intelligence official said Saturday.

Ilyas Kashmiri's death is another blow to al-Qaida just over a month after bin Laden was killed by American commandos in a northwest Pakistani army town. Described by U.S. officials as al-Qaida's military operations chief in Pakistan, he was one of five most-wanted militant leaders in the country, accused in a string of bloody attacks, including the 2008 Mumbai massacre.

His death was not confirmed publicly by the United States or Pakistani officials. Verifying who has been killed in the drone strikes is difficult. Initial reports have turned out to be wrong in the past, or are never formally denied or confirmed by authorities here or in the United States.

But a fax from the militant group he was heading – Harakat-ul-Jihad al-Islami's feared "313 Brigade" – confirmed Kashmiri was "martyred" in the strike at 11:15 p.m. Friday in South Waziristan tribal region. It vowed revenge against America.

The Pakistani official also said Kashmiri was among nine militants killed in the strike. He spoke on condition of anonymity in line with his agency's policy.

Kashmiri's name was on a list of militants that the United States and Pakistan recently agreed to jointly target, officials have said. The successful strike could help repair ties between the two countries that were badly damaged by the unilateral American raid, especially if Islamabad helped provide intelligence leading up to the attack.

The 47-year-old Pakistani, said to be blind in one eye and missing a finger, was one of the country's most accomplished – and vicious – militants. He was so close to al-Qaida's central command that he had been mentioned as a contender for replacing bin Laden.

Indian officials have alleged he was involved in the 2008 Mumbai siege that killed more than 160 people. He has also been named a defendant in an American court over a planned attack on a Danish newspaper that published cartoons depicting the Prophet Muhammad in 2005.

Kashmiri has most recently been linked to last month's 18-hour assault on a naval base in Karachi. He is also accused of masterminding several bloody raids on Pakistan police and intelligence buildings in 2009 and 2010, as well as a failed assassination attempt against then-President Pervez Musharraf in 2003.

The U.S Department of State says he organized a 2006 suicide bombing against the U.S. consulate in Karachi that killed four people, including an American diplomat.

In September 2009, officials said Kashmiri was believed to have been killed in a drone strike. The report turned out to be wrong. The United States does not acknowledge firing the missiles, though its officials have confirmed the death of high-value targets before.

May Car Sales -- 481 Chevy Volts

2011-06-02T17:51:00.003-04:00

Even with gas over $4 a gallon and the expectation it will head to $5, almost no one wants a Chevy Volt, the electric Edsel. What a surprise. Consumers find nothing appealing about a $41,000 electric golf cart that goes 40 miles on a single battery charge. Of course it only goes 40 miles on flat terrain. Throw in some hills while traveling on a hot rainy night when you need the wipers, the air conditioner, the lights and you're blasting the stereo, well, then you'll go less than 40 miles on that single charge.

Electric Boogaloo: Nissan Leaf tallies 1,141 May sales to Chevy Volt's 481

Once again, General Motors is burying the monthly sales totals for the Chevy Volt. In a press release headlined "May U.S. Retail Sales Rise 9 Percent on Demand for Fuel-Efficient Vehicles," the Volt's sales numbers are not disclosed. Instead, the total – 481 – is in the detailed PDF of the Chevrolet brand sales totals and shows the car is suffering from another month-to-month drop; GM sold 493 in April.

Last month, GM told us that drop in Volt sales compared to March's 608 units was due, in part, to the company sending 300 Volts to dealers to use as demo vehicles. We await word on what the reason for the drop is this time.

On the other hand, Nissan is proudly proclaiming that it sold 1,142 units of the Nissan Leaf in May, a huge increase over the 573 sold in April. Overall, Leaf sales have now totaled 2,167 deliveries this year. For comparison, GM has sold 2,184 Volts in 2011.

If this trend continues, it won't be long before we hear Nissan touting a new tagline for the Leaf: the best-selling plug-in car in America.

So, these numbers give us more fodder for the comment grill. What's going on with GM's all-conquering halo car? Is the price too high? Is it just that the true early adopters are more interested in a pure EV than something with a gas engine? What's your take?

Tony Weiner is no Soprano

2011-06-01T21:32:00.005-04:00

Watch as a political career goes up in smoke. Possibly a marriage too. Life at Tony's place is going to suffer for quite a while, maybe forever.

Rep. Weiner Doesn’t Say With Certainty Lewd Twitter Photo Wasn’t Of Himself

N.Y. Dem Doing Damage Control; Political Pundit: This Could Be End For Him

June 1, 2011

NEW YORK (CBSNewYork) — New York Congressman Anthony Weiner refused on Wednesday to deny that he’s the one in the lewd photo sent to a college student.

It’s the $64,000 question in the so-called “Weinergate” Twitter scandal.

“Was that a picture of you?” CBS 2’s Marcia Kramer asked the six-term Democrat.

“The picture” in question is the one of a man’s bulging underwear that was sent from the congressman’s Twitter account to a pretty coed. Weiner wouldn’t say Wednesday with certainty whether it was him or wasn’t him.

“Well, we’re going to try to find out exactly what happened. My system was hacked into the photograph does not look familiar to me but before I say anything I want to make sure that it wasn’t manipulated, that something wasn’t dropped in to my account,” Rep. Weiner said.

The congressman continued to bob and dodge, even after comedian Jon Stewart hinted that he was in a unique position to judge whether the bulging briefs belonged to his friend, Weiner.

When told that most people would know whether a picture is of them or not, Weiner quipped, “Jon Stewart might have had it right last night, that it didn’t look like me for embarrassing reasons.”

It was the recently married Weiner, who wants to be the New York City’s next mayor, doing big time damage control.

“This was a hoax. It was committed on me. It was relatively easy to do making fun of my name,” Weiner said.

Weiner had a lot to repair after stonewalling reporters’ questions for days and using his trademark temper as a tool.

“I’m going to have to ask that we follow some rules here and one of them is going to be you ask the questions, I do the answers. Does that seem reasonable?” Weiner said.

But when pushed to give an answer, Weiner cranked up the intensity a bit.

“That would be perfectly reasonable, perfectly reasonable. You do the questions. I do the answers. That jackass interrupts me,” Weiner said.

The outburst was reminiscent of a heated discussion on the House floor last summer between Weiner and Congressman Peter King over a health bill for 9/11 responders.

“I will not yield to the gentleman!” Weiner screamed.

The political implications, dodging questions of the picture and refusing to explain why he follows a bevy of women like these on Twitter could affect his future political ambitions.

“It’s a culture of gossip and entertainment and Anthony Weiner has now found himself as the butt of gossip and entertainment,” political consultant Hank Sheinkopf said.

“For the time being it casts pallor on whether he can be a reasonable candidate for mayor, too many questions. Ultimately, people will forgive Twitter but they won’t forgive not coming clean.”

Sheinkopf said the longer the Twitter scandal goes on, the bigger the damage.

“This could be the end of a career but who knows?” Sheinkopf said.

The congressman said he has hired the Washington DC law firm of Baker Hostettler to sort the whole thing out and help him decide his next step. He also said his new wife is four-square behind him.

High Energy Partnerships -- Dividends

2011-05-31T11:39:00.003-04:00

6 Mid-Cap Oil & Gas MLPs Currently Offering Yields Above 6%

Why Mid-Cap MLPs?

Master Limited Partnerships (MLPs) are a growing asset class. There are a few giants in the business. However, these middle-sized MLPs may be preferable because they offer better potential for growth. Simply put, a $3 billion company goes up by 33% if another billion enters it, while a $10 billion company would only go up 10% in that situation. Howver, it works the same way when funds depart. Thus, there is risk.

There has been significant growth in interest for this asset class. This growth is most notably from individuals at or near retirement age who are looking for higher yield options in a low yield world. These partnerships have appreciated with the oil markets, and may be overvalued in the short term. Nonetheless, as more money comes into the MLP asset class in search of income, it is likely that M&A activity will begin to heat up within the industry. Such M&A activity tends to benefit the smaller market participants, as they are acquired by the larger participants.

Another reason that mid-cap MLPs may outperform the larger ones is their lack of recognition. Fewer analysts follow them. As MLPs become more accepted and ownership becomes more common, the checken-and-agg effect of growing analyst coverage will most likely lead to more trading, which, mixed with rising energy prices, is likely to lead to higher share prices for these already high-yielding securities.

Six Mid-Cap MLPs That Currently Yield over 6%

Boardwalk Pipeline Partners LP (BWP)

Yield: 7%

Market Capitalization: $5.62 billion

Debt: $3.27 billion

Buckeye Partners LP (BPL)

Yield: 6.3%

Market Capitalization: $5.83 billion

Debt: $2.64 billion

Enbridge Energy Partners LP (EEP)

Yield: 6.7%

Market Capitalization: $7.9 billion

Debt: $5.25 billion

Nustar Energy LP (NS)

Yield: 6.9%

Market Capitalization: $4.1 billion

Debt: $2.4 billion

Plains All American Pipeline LP (PAA)

Yield: 6.3%

Market Capitalization: $9.25 billion

Debt: $5.59 billion

Regency Energy Partners LP (RGNC)

Yield: 7%

Market Capitalization: $3.5 billion

Debt: $1.22 billion

Many of these names, like the larger MLPs, have appreciated considerably over the past year. Due to this appreciation, it may be wise to prepare a list of those with characteristics you like and watch them for a better entry price. Of course, if you had chosen that course of action six months ago, you probably would have missed out on some decent growth and/or distributions.

MLPs and Taxation

MLPs are partnerships, so they do not pay corporate income taxes, on either a state or federal basis. They are fairly similar in this regard to the once great Canadian Royalty Trusts (Canroys) that Canada recently eliminated, forcing restructuring. Additionally, the investing limited partner might be able to record a pro-rated share of any depreciation to reduce tax liability. However, this theoretical advantage does not exist where the MLP is held in a tax-deferred account, such as an IRA. Nonetheless, they are often effectively used in IRAs for their high yield characteristic alone.

The tax liability of the MLP is passed on to its holders. Each investor receives a K-1 statement that details their share of the partnership's net income. That income is then taxed at the investor's individual tax rate. The MLP may also make cash distributions that are not taxed received, but reduce the cost of partnership shares/units and create a tax liability that is deferred until the MLP is sold.

An ETF and Why CEFs are an Issue

I would also like to mention that the ALPS Alerian MLP ETF (AMLP) is an ETF that provides exposure to a basket of MLPs that is supposed to correspond to and track the Alarian MLP Infrastructure Index. The annual expense ratio is listed as 0.85%, which is slightly above average for an indexing ETF, but this option may be preferable to individuals that desire diverse exposure to the asset class, or to those that do not feel confident picking and choosing individual names within the asset class.

There are also some newer MLP Closed End Fund (CEF) options that many may prefer because they are designed to produce a 1099 rather than a K-1. These CEFs are usually preferred by individuals that want to hold MLP exposure in an IRA or those that just don’t want to file a K-1. While there may be some reasons to hold such a CEF, their corporate structure essentially counters the tax pass-through characteristic of the investment plus expenses. If that was a good idea, why wouldn't these businesses structure themselves as corporations?

Sunstroke hits Solar Energy

2011-05-30T14:12:00.002-04:00

The impossible claims have been made. They've said it. Cheap solar power is just around the corner. But that's where it's always been.

GE Sees Solar Cheaper Than Fossil Power in Five Years

Solar power may be cheaper than electricity generated by fossil fuels and nuclear reactors within three to five years because of innovations, said Mark M. Little, the global research director for General Electric Co. (GE)

“If we can get solar at 15 cents a kilowatt-hour or lower, which I’m hopeful that we will do, you’re going to have a lot of people that are going to want to have solar at home,” Little said yesterday in an interview in Bloomberg’s Washington office. The 2009 average U.S. retail rate per kilowatt-hour for electricity ranges from 6.1 cents in Wyoming to 18.1 cents in Connecticut, according to Energy Information Administration data released in April.

GE, based in Fairfield, Connecticut, announced in April that it had boosted the efficiency of thin-film solar panels to a record 12.8 percent.

Improving efficiency, or the amount of sunlight converted to electricity, would help reduce the costs without relying on subsidies.

The company said in April that the factory will have about 400 employees and make enough panels each year to power about 80,000 homes.

Solar-panel makers from Arizona to Shanghai are expanding factories to add more cost savings that analysts say will sustain the industry’s expansion. Installations may increase by as much as 50 percent in 2011, worth about $140 billion, as cheaper panels and thin film make developers less dependent on government subsidies, Bloomberg New Energy Finance forecast.

Solar Costs Dive

The cost of solar cells, the main component in standard panels, has fallen 21 percent so far this year, and the cost of solar power is now about the same as the rate utilities charge for conventional power in the sunniest parts of California, Italy and Turkey, the London-based research company said.

Most solar panels use silicon-based photovoltaic cells to transform sunlight into electricity. The thin-film versions, made of glass or other material coated with cadmium telluride or copper indium gallium selenide alloys, account for about 15 percent of the $28 billion in worldwide solar-panel sales.

First Solar Inc. (FSLR), based in Tempe, Arizona, is the world’s largest producer of thin-film panels, with $2.6 billion in yearly revenue.

Smart Grid

Little also said the U.S. transition to a full smart grid will take “many, many years” to develop.

A complete smart grid would consist of millions of next- generation meters installed in businesses and homes, appliances that adjust their energy use when prices change, and advanced software to help utilities control electricity flows, he said.

“I think it’s going to be a long time before we can realize the full potential of the smart grid,” he said. “But it is coming.”

GE this year plans to introduce the “Nucleus,” a device that will let consumers track their household electricity use with personal computers and smart phones. The company also is investing in its appliance and lighting unit, including $432 million for U.S. refrigeration and design centers announced in October.

Utilities need to have incentives to put in place devices that save energy, and Congress needs to provide greater certainty on tax policy surrounding renewable energy, Little said.

First Connecticut Bancorp -- Stock Conversion

2011-05-30T12:12:00.004-04:00

First Connecticut Bancorp is going public. It's converting from mutual ownership to stockholder ownership and it appear the conversion is occurring at a considerable discount from book value. In other words, this conversion may well be an excellent deal for depositors who want to become owners.

First CT Bancorp will sell up to 17.2 million shares at $10 each when it goes public in either June or July.

Keefe, Bruyette & Woods is handling the conversion. The phone number for the conversion center is (877) 860-2086.

If the maximum number of shares are sold, the Price-to-Book Value Ratio will be 73.2%.

Meanwhile, the Price-to-Core Earnings Multiple (based on trailing 12 months earnings) will be 73.6.

Thus, based on Price-to-Book, the deal is attractive. But based on the Price/Earnings Ratio, it's much less attractive.

Bottom line: this deal deserves close analysis. The stock may well jump from $10 to $13 when trading begins.

Oil -- More Domestic Oil is the Answer

2011-05-29T12:02:00.003-04:00

We can drill for oil in Texas, and we can use the hydraulic fracturing process to extract it from the rocks it's in. Or we can go for the easy stuff in the Artic National Wildlife Refuge, off the coast of California and in a lot of other places that are now officially off-limits to drillers.

Why is the nation determined to bankrupt itself while enriching the people who want to provoke our collapse? Crazy.

Shale Boom in Texas Could Increase U.S. Oil Output

May 27, 2011

CATARINA, Tex. — Until last year, the 17-mile stretch of road between this forsaken South Texas village and the county seat of Carrizo Springs was a patchwork of derelict gasoline stations and rusting warehouses.

Now the region is in the hottest new oil play in the country, with giant oil terminals and sprawling RV parks replacing fields of mesquite. More than a dozen companies plan to drill up to 3,000 wells around here in the next 12 months.

The Texas field, known as the Eagle Ford, is just one of about 20 new onshore oil fields that advocates say could collectively increase the nation’s oil output by 25 percent within a decade — without the dangers of drilling in the deep waters of the Gulf of Mexico or the delicate coastal areas off Alaska.

There is only one catch: the oil from the Eagle Ford and similar fields of tightly packed rock can be extracted only by using hydraulic fracturing, a method that uses a high-pressure mix of water, sand and hazardous chemicals to blast through the rocks to release the oil inside.

The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas. As evidence mounts that fracking poses risks to water supplies, the federal government and regulators in various states are considering tighter regulations on it.

The oil industry says any environmental concerns are far outweighed by the economic benefits of pumping previously inaccessible oil from fields that could collectively hold two or three times as much oil as Prudhoe Bay, the Alaskan field that was the last great onshore discovery. The companies estimate that the boom will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas.

“It’s the one thing we have seen in our adult lives that could take us away from imported oil,” said Aubrey McClendon, chief executive of Chesapeake Energy, one of the most aggressive drillers. “What if we have found three of the world’s biggest oil fields in the last three years right here in the U.S.? How transformative could that be for the U.S. economy?”

The oil rush is already transforming this impoverished area of Texas near the Mexican border, doubling real estate values in the last year and filling restaurants and hotels.

“That’s oil money,” said Bert Bell, a truck company manager, pointing to the new pickup truck he bought for his wife after making $525,000 leasing mineral rights around his family’s mobile home. “Oil money just makes life easier.”

Based on the industry’s plans, shale and other “tight rock” fields that now produce about half a million barrels of oil a day will produce up to three million barrels daily by 2020, according to IHS CERA, an energy research firm. Oil companies are investing an estimated $25 billion this year to drill 5,000 new oil wells in tight rock fields, according to Raoul LeBlanc, a senior director at PFC Energy, a consulting firm.

“This is very big and it’s coming on very fast,” said Daniel Yergin, the chairman of IHS CERA. “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

In the most developed shale field, the Bakken field in North Dakota, production has leaped to 400,000 barrels a day today from a trickle four years ago. Experts say it could produce as much as a million barrels a day by the end of the decade.

The Eagle Ford, where the first well was drilled only three years ago, is already producing more than 100,000 barrels a day and could reach 420,000 by 2015, almost as much as Ecuador, according to Bentek Energy, a consultancy.

The shale oil boom comes as production from Prudhoe Bay is declining and drilling in the Gulf of Mexico is being more closely scrutinized after last year’s Deepwater Horizon disaster.

What makes the new fields more remarkable is that they were thought to be virtually valueless only five years ago. “Everyone said the oil molecules are too large to flow in commercial quantities through these low-quality rocks,” said Mark G. Papa, chief executive of EOG Resources.

EOG began quietly buying the rights to thousands of acres in the Bakken and Eagle Ford after an EOG engineer concluded that the techniques used to extract natural gas from shale — fracking, combined with drilling horizontally through layers of rocks — could be used for oil. Chesapeake and a few other independents quickly followed. Now the biggest multinational oil companies, as well as Chinese and Norwegian firms, are investing billions of dollars in the fields.

The new drilling makes economic sense as long as oil prices remain above $60 a barrel, according to oil companies. At current oil prices of about $100 a barrel, shale wells can typically turn a profit within eight months — three times faster than many traditional wells.

But water remains a key issue. In addition to possible contamination of surface and underground water from fracking fluids, the sheer volume of water required poses challenges, especially in South Texas, which faces a severe drought and rapidly diminishing water levels in the local aquifer.

At the rate wells are being drilled, “there’s definitely going to be a problem,” said Bay Laxson, a local water official.

Dave Thompson, regional production superintendent for the oil company SM Energy said the industry knew that water issues were “an Achilles heel.” He said his company was building a system to reuse water in the field.

But unlike Pennsylvania and New York, where fracking for natural gas has produced organized opposition, the oil industry has been mostly welcomed in western and southern states.

Thanks to the drilling boom, the recession bypassed North Dakota entirely. Here in Dimmit County, Tex., the unemployment rate has fallen in half, and sales tax receipts are up 70 percent so far this year, allowing the county to hire more police officers and buy sanitation and road repair equipment.

“In my lifetime, this is the biggest thing I’ve ever seen,” said Jose Gonzalez, 78, a retired teacher and son of migrant farm workers, who leased mineral rights to Chesapeake for $27,000 and sold another plot for $100,000 to a company building an RV park for oil workers. “You can see I’m happy.”

LinkedIn? How About TakenIn?

2011-05-22T13:47:00.002-04:00

It's more than likely Warren Buffett would declare that LinkedIn is worth only a few dollars a share. Based on it's revenue and profit figures, what other conclusion is there? The company's prospects may suggest that revenue and net income will rise, but not at the speed of light, with is what the current stock price calls for. Thus, it's reasonable to assume the shares are headed for collapse as soon as it's possible to short them.

How to Cash in on LinkedIn

Friday, May 20, 2011

Start your own IPO and award yourself millions in options

— Quit your job.

You heard me. Quit your job, move to Silicon Valley, and start a venture to compete with LinkedIn (LNKD - News).

News from the initial public offering shows Wall Street is handing out free money again for dot-coms, and who knows how long it's going to last?

LinkedIn more than doubled on its stock-market debut, rising from $45 a share to $105 by early afternoon. That values the company at $10 billion.

That's equivalent to $130 for each of this company's 75 million monthly users. Hmmm. How long before a competitor offers the members, oh, $120 each to move? It won't even cost a penny. The new company can give the new members $120 ... in stock!

You think I'm kidding, but somewhere in an old email I still have a record of all the stock I "owned" in a free Web service that started up in London during the last dot-com bubble. The more I used it, the more "stock" I got. The IPO was going to make everyone rich.

LinkedIn, despite the hype, is primarily a service for hosting résumés. You can call it "networking" and "social media" and whatever you like, but half the company's revenues come from recruiters looking to trawl through all the résumés on the site.

How exciting is that? Last quarter, those revenues from recruiters came to $46.3 million.

That's 21 cents per LinkedIn user per month. Yes, you can see why this stock is being valued at $10 billion, can't you?

Another $28 million came from advertising. That's another 12 cents per user per month. Wow.

Online advertising. What a great business model.

This week's reaction to the LinkedIn IPO suggests the new dot-com mania may have some way to run. There's still a lot of skepticism about the Web out there, and that's bullish. Lots of people who "just don't get it." The new economy. The new world. Web 2.0. Web 3.0. It's not about earnings; it's about eyeballs!

Bubbles typically don't burst till the last bear turns bullish. The collapse of the last dot-com bubble was signaled weeks in advance, when the IPOs stopped popping on their debuts.

Cash in while you can. Resume-site.com? Resume-world.com? Resumeszone.com? GoDaddy says these domain names are all free, for just $12 a month. Or pick some goofy name out of a hat. But make sure to get out in time.

Be as shameless as you want. In the months leading up to the IPO, LinkedIn insiders awarded themselves millions of stock options at prices as low as $19.63 a share. They have now made $300 million just on the options they've awarded themselves this year!

And the great game continues. A public stock basically gives them their own currency with which to pay themselves. What a deal! The fine print of the LinkedIn prospectus shows management plans to issue millions more in stock and options to insiders — massively diluting current shareholders.

Meanwhile, if you are an investor in this IPO, please do the math.

LinkedIn is now valued at $10 billion. That's 660 times last year's net income of $15 million.

Apple (AAPL - News), by way of comparison, is at 16 times earnings.

Surely no one would invest in a high-risk stock like LinkedIn unless they expected strong capital gains (there are no dividends, naturally). But if you are hoping LinkedIn will rise by, say, 20% a year from here, be aware of what that would mean: In 10 years' time, it would be valued at $62 billion. (And that ignores potential dilution from new stock and options.)

If by then the stock were trading on a more reasonable multiple of, say, 20 times earnings, net income would have to be $3.1 billion.

How do you get from $15 million to $3.1 billion in 10 years? You grow earnings by 70% a year, every year, for a decade.

The chances of this happening? You make the call.

Enhanced Interrogation Techniques -- They Work

2011-05-21T07:23:00.004-04:00

Thanks to WikiLeaks, word is getting around that waterboarding works. It gets the reticent types to speak, and apparently they have a lot to say. This is not something Obama wants to hear and he certainly does not want voters to consider what it means.

After becoming president, he ended the interrogation practices of the Bush administration that were key to leading SEAL Team 6 to bin Laden in Pakistan, where he had been hiding for at least five years. Since Obama's inauguration, US intelligence efforts have failed to locate additional al-Qadea leaders. That's the result when our intelligence officers use the Obama strategy of asking nicely.

WikiLeaks bolsters argument for ‘enhanced’ interrogation tactics
Cables show U.S. collected details of plots, terrorists

By Rowan Scarborough

The Washington Times
May 19, 2011

WikiLeaks founder Julian Assange’s ongoing release of the Guantanamo Bay prison files, and large numbers of classified State Department cables, attempts to expose what he calls American corruption.

But supporters of the George W. Bush administration’s global war on terrorism say the nearly 800 Guantanamo files show that “enhanced” interrogations of hundreds of captured operatives at secret overseas prisons and at the Cuban prison amounted to one of the most successful intelligence operations in history.

Before the interrogations, the U.S. knew little about al Qaeda in the immediate aftermath of the Sept. 11, 2001, terrorist attacks. Years later, the CIA and military had accumulated a large database of ongoing plots and the identities of terrorists, the WikiLeaks files show.

“The WikiLeaks documents provide still additional evidence that intelligence gained from CIA detainees not only helped lead us to Osama bin Laden, it helped us disrupt a number of follow-on attacks that had been set in motion after 9/11,” said Marc Thiessen, a former Bush speechwriter.

“Without this program, we would not have gone nearly 10 years without another catastrophic attack on the homeland. This is quite possibly the most important, and most successful, intelligence program in modern times. But instead of medals, the people behind this program have been given subpoenas.”

He was referring to Attorney General Eric H. Holder Jr.’s launch of a criminal investigation of CIA officers who conducted the “enhanced” interrogations, some of which the Obama administration has dubbed “torture.”

The killing of Osama bin Laden underscores the value of the vast intelligence database. The treasure trove of information includes the identities of terrorists operating abroad, plots to kill civilians and details on how al Qaeda used a network of couriers for clandestine communication.

Public disclosure of the interrogation windfall began in April by the anti-secrecy website WikiLeaks, which obtained hundreds of classified U.S. reports on detainees written by Joint Task Force Guantanamo, the military unit in charge of the prison at U.S. Naval Base Guantanamo Bay, Cuba.

As of Thursday, WikiLeaks had released 765 of 779 Gitmo files.

The files show that prisoner Abu Farajal al-Libi, al Qaeda’s No. 3 and a close aide to bin Laden, first disclosed the terrorist master’s special courier to the CIA. It was the agency’s ability to find and track the messenger that ultimately led a team of Navy SEALs to bin Laden’s compound in Abbottabad, Pakistan, where he was killed early on May 2.

Supporters of sending terrorist suspects to Guantanamo Bay — which the Obama administration has vowed to shutter, though its initial deadline has come and gone — for trials at military commissions say the prison provided a single collection point to assess and cross-check intelligence on an enemy the United States knew little about.

“We learned a tremendous amount about the operation, not only in Afghanistan but the organizational structure and how they were operating outside the immediate combat area, for example in Europe,” said retired Brig. Gen. Thomas L. Hemingway, the Pentagon’s top legal adviser to the commissions’ office during Guantanamo’s early days.

Gen. Hemingway recalled a case when the military command in Afghanistan was looking for a senior Taliban commander. Interrogators found a detainee who knew the suspect. The detainee drew a diagram of his compound. Aerial surveillance located the home and led to the commander’s capture.

“There was a lot of actionable intelligence that was developed down there for a long time,” Gen. Hemingway said.

Hunt for bin Laden

In the hunt for bin Laden, the files show al-Libi provided critical information. The CIA used so-called enhanced-interrogation techniques on al-Libi but did not subject him to waterboarding — the most controversial of techniques, which also included stress positions, slapping, shaking and dousing captives with cold water.

“In July 2003, [al Libi] received a letter from [bin Laden‘s] designated courier, Maulawi Abd al-Khaliq Jan, requesting detainee take on the responsibility of collecting donations, organizing travel and distributing funds to families in Pakistan,” the document stated.

“[Bin Laden] stated detainee would be the official messenger between [bin Laden] and others in Pakistan. In mid-2003, detainee moved his family to Abbottabad, PK, and worked between Abbottabad and Peshawar.”

U.S. officials said the name provided to interrogators was false. But the intelligence added to the other bits of data that helped the U.S. learn how bin Laden planned to direct al Qaeda from Pakistan, the real name of his special courier and the connection of the group to Abbottabad, where the courier moved around 2006.

The courier, who eventually led the U.S. to the compound unwittingly, was killed in the raid. The Obama administration has not identified that person’s name.

Other plots

An earlier declassified CIA report on Sept. 11 mastermind Khalid Shaikh Mohammed reveals that he disclosed the identities of several operatives and the status of a number of planned attacks.

One plan called for commandeering commercial airliners at London’s Heathrow Airport. Authorities broke up the plot.

Mohammed was one of three al Qaeda leaders waterboarded by the CIA. The Bush administration called it part of “enhanced” interrogations. The Obama administration has labeled it “torture.”

The leaked detainee files show that other ranking al Qaeda operatives provided a first-ever look inside the al Qaeda killing machine:

• Ramzi Bin al-Shibh revealed how operatives gained visas to enter the West, often by gaining acceptance to an educational institute. If they were denied visas at U.S. embassies in the Middle East, they would try to gain entrance to Europe and apply from there.

• A terrorist identified as Hambali, the leader of the al Qaeda-funded Islamiyah network in South Asia, provided extensive information on his terrorist contacts in Indonesia. Responsible for the 2002 Bali bombing that killed more than 200, Hambali disclosed the existence of the “Infraq Fisabillah” fund used to finance travel by terrorists to and from Pakistan for training.

• Abu Zubaydah, another high-ranking bin Laden aide, provided a wealth of information on al Qaeda’s ability to forge documents used to gain access to the West. Zubaydah, for example, forged medical files to show that a terrorist had been tortured. The supposed victims then used the phony medical history to gain political asylum in Europe or the United States.

“Detainee has intimate knowledge of al Qaeda’s use of a document committee for forging documents such as identification cards, visas, and passports,” the Zubaydah file states, adding, “Detainee has provided a wealth of information on terrorist organizations. He has provided intelligence on their operations and leadership. Detainee continues to be a valuable source of intelligence for operations still occurring today.”

• Mohammed Abdah al-Nashiri, another close bin Laden aide, operated a separate al Qaeda operation in Yemen that received aid from Yemeni security forces. The revelation showed that, as in Pakistan, a U.S. ally supposedly working with the West actually was helping the enemy.

One of three al Qaeda captives waterboarded, Nashiri provided the names of a number of operatives still in the field.

Broad consensus

It is not just Bush administration supporters who say interrogations of terrorist suspects at Gitmo and other venues worked.

Asked on NBC News whether enhanced interrogations, including waterboarding, produced information that helped find bin Laden, CIA Director Leon E. Panetta said: “In the intelligence business, you work from a lot of sources of information, and that was true here.”

Mr. Panetta said: “We had a multiple series of sources that provided information with regards to the situation. Clearly, some of it came from detainees and the interrogation of detainees, but we also had information from other sources as well.”

Asked whether he would deny that waterboarding produced critical information on bin Laden, Mr. Panetta answered said he would not.

“No, I think some of the detainees clearly were, you know, they used these enhanced interrogation techniques against some of these detainees,” he said.

“But I’m also saying that, you know, the debate about whether we would have gotten the same information through other approaches I think is always going be an open question.”

Mr. Panetta opposed Mr. Holder’s decision to open a criminal investigation into the CIA interrogators.

The debate over the use of “enhanced” interrogation techniques has raged on Capitol Hill since Mr. Bush initiated the tactics, the most famous of which was waterboarding, and said Geneva Convention rules apply only to signing parties and thus not to stateless terrorists in the wake of the Sept. 11 attacks.

Even though leaders from both parties were briefed on the practices as early as 2002, leading Democrats derided their use as reports of secret prisons emerged around 2006.

In 2007, Mr. Bush signed an executive order prohibiting cruel and inhumane treatment, humiliation or denigration of prisoners’ religious beliefs. After taking office in 2009, Mr. Obama dubbed some of the techniques torture, closed the secret prison system and said the administration would abide by the Geneva Conventions.

Obama Energy Plan -- Pay More, Get Less

2011-05-20T14:53:00.002-04:00

What should we do about energy? Simple. The government should permit drilling everywhere there's oil and gas. That will at least keep Americans working in high-paying jobs. At the same time, the government should encourage car companies to build more hybrids. They work.

A lot of gasoline is wasted by cars and trucks idling at red lights, stop signs and at other times when they are not moving or moving slowly. Electric vehicles use NO electricity when stopped. Thus, hybrids, which run on electric power at low speeds can actually increase the efficiency of motor vehicles. After all, a car with a gasoline engine idling at a stop light is getting zero miles per gallon. ZERO miles per gallon. Can't get worse than that. Whether the car is a Hummer or a Saturn, it's getting zero miles per gallon.

Next, the government should encourage automakers to build cars powered by natural gas -- methane. There are already lots of fleet vehicles using this fuel. It works. The fuel is abundant and domestic. The vehicles are in production. What they lack are re-fueling stations. However, cities with natural gas taxis have some traditional gas stations that have added natural gas to their product line. Also, the Post Office operates a lot of natural gas vehicles. Thus there are already sites at which they fill up.

Next the government must grant permits for the construction of new nuclear power plants. We must also build new coal-fired plants and gas-fired plants.

If we had a sane energy policy, it would be far easier to fund research into improving the efficiency of solar panels as well as to develop cleaner coal-fired plants. But the nation cannot survive on less energy. We will always need more. Every year our aggregate energy consumption will rise.

Four More Dollars?
The Obama administration wants energy to be scarcer and costlier

The U.S. Treasury reports that the federal government ran up $870 billion in red ink in the first seven months of this fiscal year. That is $70 billion, or 9%, higher than at the same point in fiscal 2010, which ended up with a record $1.3 trillion deficit.

America's energy policy is as bad as our fiscal policy. The federal government is focused on producing not more energy but less of it, on making costs higher rather than lower, and on expanding regulation.

Start with nuclear power. It's pollution-free and an excellent source of energy. We have 104 nuclear plants in America today, but only one more is expected to become operative in the next few years, the first in two decades.

As for oil production, our government is limiting it, and over the years domestic drilling has been declining. In 1970 the U.S. produced 3.5 billion barrels; by 2010 that figure was down to two billion. The federal government has prohibited oil and natural gas drilling on 83% of federally owned land and increased the importation of foreign oil. In 1970 only 500 million barrels were imported; last year it was 3.3 billion barrels. That means that in 1970 U.S. oil production was 88% of consumption, and today it is only 37%.

Drilling for oil in the Gulf of Mexico has been restricted, especially since the explosion of the Deepwater Horizon rig last year. The Obama administration first put in place a drilling ban, then a virtual moratorium on issuing new Gulf permits. Then with the uproar over high gas prices, President Obama announced last week a desire to open up the process to more exploration and drilling. But the basic belief of our current administration and the environmental left has been to restrict our exploration and extraction of the 163 billion barrels of crude oil that the Congressional Research Service says are off our coasts and on our land.

Take the case of the oil in Alaska: the amount of oil we produce there now has decreased from 2.0 billion barrels a day in the mid-1980s to about 600 million today. There is more oil off the coast of Alaska, but for the last five years the federal government has not given approval for drilling in the Beaufort and Chukchi seas. What Mr. Obama said last week may now permit such drilling—a bright spot if so. Meanwhile, House Republicans have proposed a bill hopefully called the Reverse President Obama's Offshore Moratorium Act.

As for other energy technology, the National Center for Policy Analysis's Sterling Burnett this month published an excellent analysis of America's energy needs and costs (available here). Today solar power is close to our fastest-growing renewable energy source. Its production grew 15.5% in 2009, but it still accounts for less then 0.5% of global electric power output. And it isn't cheap: subsidized solar energy costs between $220 and $300 a megawatt hour, compared with $110 for electricity nationwide.

That breaks down to $63.10 a megawatt hour for natural gas, $113.90 for nuclear power, $136.20 for modern coal-fired plants, and $210.70 for solar photovoltaic power. According to the Heritage Foundation the subsidies we pay are $23 per megawatt hour for solar and wind, compared with $1.59 for nuclear power, 44 cents for conventional coal, and 25 cents for natural gas. We must start becoming competitive, without large subsidies, to reduce the current distortion in our energy markets.

The good news is that it is estimated that there are 50 trillion cubic feet of natural gas recoverable from fracking just in the Marcellus shale region of Ohio, West Virginia, Pennsylvania and New York. There are concerns about the impact on the environment and drinking water, and they need to be addressed, but the natural gas access is important to our energy needs.

We should also end the 45-cent-a-gallon subsidy of ethanol, which yields one-third less energy per gallon than gasoline. The cost of ethanol subsidies total about $6 billion per year. Sens. Tom Coburn of Oklahoma and Dianne Feinstein of California have introduced a recent bill to do away with the subsidies, along with a 2.5% tariff and 54-cent duty on imported ethanol.

To put it all in the perspective of the environmentalists and the current administration, consider the statement of Energy Secretary Steven Chu in The Wall Street Journal: "Somehow we have to figure out how to boost the prices of gasoline to the levels in Europe." The current gasoline price is about $8.50 a gallon in England and $8.80 in France and Germany.

Sound and significant energy resources are vitally important to our economy and our people. Energy should be reasonably priced, plentiful and be managed by its producing industries. Market prices are better than government subsidies and regulation. The government (and the green lobby) should get out of the way so that we can develop the new technologies we will need over the long term.

Truckin' -- with Natural Gas

2011-05-17T12:01:00.003-04:00

What are we waiting for? There are already Post Office vehicles, buses, taxicabs and indoor shop vehicles that run on Natural Gas. The technical problems affecting the vehicles themselves were solved a long time ago.

What's missing? Refueling Stations and the willingness of manufacturers to build Natural Gas Vehicles.

Electric cars are stuck with the problem of batteries. They are lousy sources of energy. But natural gas and gasoline are close enough in most ways that they are true substitutes for each other. Except there are few places where operators can find refueling sites. However, the Post Office could change that by opening natural gas filling stations on some of their properties.

Going Natural is an excellent idea for supplying America with energy for the next few decades.

Natural-Gas Trucks Face Long Haul

Backers of Alternative Energy Seek a Shift for Diesel-Hogging Rigs, But Subsidies Remain a Hurdle

By JEFFREY BALL

An 18-wheeler can burn as much fuel in a year as 40 cars. What if it burned domestic natural gas instead of imported oil?

That is hardly as arresting a vision of America's energy future as electric cars, whose power could conceivably could come from the wind or the sun. But a growing chorus of fans, including President Obama, says natural gas might deliver more bang for the buck—and they want taxpayers to spend billions of dollars to subsidize the shift.

The typical semi-trailer truck guzzles 20,000 gallons of diesel annually and uses the same roads day after day. So switching trucks to natural gas from diesel, which comes from oil, could make a big dent in U.S. petroleum use. And it wouldn't require building nearly as many new fueling stations as switching America's roughly 240 million cars and light trucks to something other than oil.

Like all roads to a potential alternative-energy tomorrow, however, this one is strewn with potholes.

A world in which most 18-wheelers run on natural gas instead of diesel is "going to be pretty slow in coming," said Bill Graves, president of the American Trucking Association.

For years, environmentalists have lobbied for taxpayer subsidies for natural-gas cars and trucks, arguing the fuel burns cleaner than gasoline or diesel. They have had limited success—notably in smoggy Southern California—getting regulators to prod bus and trash-truck operators, owned or contracted largely by municipalities, to make the change. Often, buyers of these natural-gas trucks have received government subsidies that have helped defray the higher purchase price.

Exact figures for the number of natural-gas vehicles on the road are hard to come by. But James Harger, chief marketing officer of Clean Energy Fuels Corp., an installer of natural-gas fueling stations that is partly owned by billionaire investor T. Boone Pickens, estimates 15% of U.S. buses and trash trucks run on natural gas.

Now, Mr. Obama, some 190 Republicans and Democrats in Congress, the natural-gas industry and major trucking firms are promoting a federal bill to broaden that transformation.

In part, their argument is about energy security: Recent discoveries of massive natural-gas troves from Texas to Pennsylvania mean the country is newly awash in the fuel.

It is also about money: The new supplies have sent U.S. natural-gas prices to historic lows, just as Mideast unrest and developing-world demand have sent diesel prices skyrocketing, to an average of about $4.12 a gallon. Where natural gas is available at U.S. pumps today as a motor fuel, it typically costs about two-thirds the price of diesel after adjusting prices for the different energy contents of the two fuels.

If America could affordably manufacture natural-gas trucks and build enough fueling stations to keep them on the road, the economy could shave billions of dollars a year in imported-fuel bills, backers of the technology say. But that is a big if.

Trucks configured to burn natural gas cost more than trucks that run on diesel. They need modified engines and bigger and stronger fuel tanks. How much more they cost differs wildly depending on the type of truck.

A trash truck that costs $200,000 outfitted for diesel costs only another $10,000—or 5% more— equipped for natural gas, said Kevin Walbridge, executive vice president of operations at trash-hauler Republic Services Inc. That price premium has fallen as trash-truck manufacturers have cranked out steadily larger volumes.

Today, only about 4% of Republic's 14,700 trucks nationwide run on natural gas. The company expects to increase purchases of natural-gas trucks, depending on whether the federal government hands out more tax breaks. If the pending federal bill of incentives doesn't pass, a Republic spokesman said, "we will buy a much smaller number of natural-gas vehicles."

Long-haul trucks present a bigger challenge. In the U.S., they consume about 10 times as much diesel as trash trucks and buses combined. The biggest guzzlers are 18-wheelers, which average six miles per gallon. Some 225,000 were sold in the U.S. last year, but many analysts expect that number to soar to 400,000 this year, as the economy improves.

United Parcel Service Inc., which runs one of the country's biggest truck fleets, pays about $95,000 for an average long-haul "tractor"—the front part of the 18-wheeler, housing the engine and driver. It recently ordered 48 natural-gas versions at a cost of $195,000 apiece—about double the cost of a diesel model, said Mike Britt, UPS's director of engineering and maintenance.

Fewer than 1,000 natural-gas 18-wheeler tractors have been sold in the U.S., industry experts say. They are "just about being hand-built, much like a Rolls Royce," Mr. Britt said. Ramping up assembly lines to build them at volume, he thinks, could "lower the price dramatically."

UPS bought its natural-gas trucks only after getting $4 million in federal stimulus money to help defray the cost, Mr. Britt said. At current fuel prices, the trucks should easily pay for themselves in less than the 10 years UPS expects to drive them, he says. But UPS typically expects equipment to pay off within three years.

As a result, UPS won't buy more natural-gas trucks unless the government forks over additional subsidies, said Mr. Britt. The shipper supports the pending federal bill.

Under the bill, a company like UPS that spent an extra $100,000 to buy a natural-gas truck would get an $80,000 tax credit.

Federal officials haven't yet officially estimated the bill's cost. But Mr. Pickens, who has spent several years barnstorming the country and talking with federal legislators to drum up support of a subsidized shift to natural-gas trucks, puts the taxpayer price tag at about $5 billion over five years, for about 140,000 trucks and the necessary fueling stations.

Mr. Pickens and his wife own 41% of Clean Energy Fuels, the installer of natural-gas-vehicle fueling stations. Mr. Pickens says his motive is more patriotic than personal. The bill's potential cost to taxpayers is "peanuts," he said, a small price to pay for what he argues would be the increased U.S. energy security that would come from shifting trucks to a domestic fuel. The government should provide five years of subsidies, he says, "and then get the hell out of it. It flies by then, or it's a bad idea."

The chemical industry, which uses huge amounts of natural gas and thus want the price to stay low, is lobbying against the bill. It worries that shifting large numbers of trucks to natural gas would increase demand for the fuel enough to push up the price that chemical companies have to pay for it. Backers of natural-gas trucks "want the government to give them a leg up," says Owen Kean, of the American Chemistry Council, an industry group.

The experience of other countries suggests natural-gas vehicles sputter without long-running government aid.

Following the 1970s oil crisis, New Zealand tweaked taxes to make gasoline and diesel pricier than natural gas at the pump, said Brett Jarman, executive director of NGV Global, the natural-gas-vehicle industry's international trade group. By the mid-1980s, about 100,000, or 10%, of the country's cars ran on natural gas —at the time, the world's largest fleet, he said.

But a new government slashed oil taxes, and natural gas lost its price advantage. Today, only about 200 natural-gas vehicles are on New Zealand's roads, said Mr. Jarman.

If countries subsidize alternative fuels but then yank that largesse, he said, "you end up with a lot of wasted money."

Helicopter Hell

2011-05-10T17:58:00.003-04:00

Bin Laden Caught: But Another Black Hawk Down On Critical Mission

May. 10 2011

The biggest American casualty from the raid on Osama bin Laden's compound last week was a multi-million dollar secret helicopter that dropped 30 to 40 feet in the air onto the hard ground.

It took a while for all the details to emerge, but it appears the crash happened for one really surprising reason: The air on ground was much hotter than anticipated. That, combined with the high walls of the compound, created an air vortex that sucked the air right out from under the chopper. A mission that should have started with the U.S. Navy Seals rappelling into the yard instead began with a hard thud.

The fact that a helicopter failed during the mission was one of the least surprising details of the raid.

Part of the problem is perception, says Dr. Ira Blumen, an emergency medicine doctor at the University of Chicago who has researched accidents with medical transport helicopters. The military tends to use Black Hawks and Chinooks to transport large groups of people, so when there's an accident, it gets attention.

"Any time you have a helicopter accident, it's big news," he says. "It's more dramatic than a car accident ... And the higher profile the mission, the higher profile there will be when there's an accident."

Maybe too many people are familiar with the 2001 movie, "Black Hawk Down," which depicted a Black Hawk helicopter taken down by RPG's over Somalia.

Or maybe there really are too many helicopter crashes.

Congress is wondering what's up, too. They ordered the Department of Defense to look into helicopter failures in combat and figure out how to curtail crashes. Since 2001, 496 people have died in military helicopter accidents, according to a Department of Defense presentation given last October at the International Helicopter Safety Symposium.

Helicopter crashes are the third leading cause of death in the Iraq war, behind IED explosions and direct fire attacks. Surprisingly, the majority of those fatal helicopter accidents don't happen during combat. More than 80% of accidents happen because of weather conditions like dust storms, brownouts caused by sand kicked up while a helicopter is trying to land, wire strikes, engine failure, and something the military calls "controlled flight into terrain." In other words, pilots fly right into hills or mountains they aren't aware are there.

A spokesman for Sikorsky, which makes the Black Hawk, said the company wouldn't comment. Congress is not looking into Black Hawks alone -- the problem occurs across all the helicopters the military uses.

Despite what seems like chilling numbers, helicopter crashes have actually declined significantly since the Vietnam War, when 3,065 people died in helicopter crashes. That's thanks to one thing: The availability of night vision technology. In Vietnam, most surveillance missions occurred during the day, when it was easier for enemy combatants to see what they were shooting at. Today, a lot of those missions are done at night.

Operating a helicopter is possibly one of the most complex tasks a pilot can do, Blumen says. They have to fly horizontally, vertically, and make pinpoint landings in narrow, improvised spots. "There are more moving parts in a helicopter than in any other vehicle, except perhaps the Space Shuttle," he says. "It's more complex, and the potential for things to go wrong is higher. In other words, the very nature of a helicopter and the reason it is such a valuable vehicle--its ability to get in and out of tight spots without requiring a runway--makes it even more vulnerable to breakdown or shoot-down.

Nevertheless, Congress is pushing the military to cut the accident rate to .05 mishaps per 100,000 flight hours. The rate currently stands at 2.1 mishaps per 100,000 hours. The Department of Defense has to deliver a report to Congress in December outlining how it will cut the crash rate.

There are some technological fixes that could help. Terrain Avoidance Warning Systems alert pilots when they are too close to a solid object, kind of like the beeping backup warning systems that come in many cars these days. Those systems are already on a lot of helicopters that ferry VIPs around war zones, but don't work all that well for pilots on patrol or in combat. It certainly wouldn't have helped out the pilot dropping into Osama bin Laden's compound: He had to be in the treetops to get the job done.

Sikorsky, the maker of the Black Hawk helicopter, has teamed up with Honeywell and Sierra Nevada Corp. to develop technologies that can help pilots navigate even when they can't see. They've installed a "Sandblaster" system on a Black Hawk as a test project, and so far the system is getting good reviews. Sikorski is a unit of United Technologies, a technology conglomerate that also operates businesses including Otis elevators, Carrier cooling systems and Pratt and Whitney engines.

Pilots can pre-program their landing spot, and then on approach they push a button that brings the aircraft from flight to hover mode. Three-dimensional radar penetrates the sand and dust to detect the terrain and objects within the landing zone. Another program pulls the data together to create a "synthetic" picture of the landing zone.

Bottom Line

Too many Black Hawk crashes are attributed to events other than combat. While the job of helicopters is to go in to hard-to-reach areas under all kinds of weather and environmental conditions, far too many are failing, and claiming the lives of servicemen. Congress wants to know why, and it wants the incidence of failure to be reduced.

Schooling the Teachers' Union

2011-05-10T07:52:00.000-04:00

Scenes From the New York Education Wars
When I was chancellor, I was told confrontation was bad. Not so...

By JOEL KLEIN

Teachers are extremely effective messengers to parents, community groups, faith-based groups and elected officials—and their unions know how to deploy them well. Happy unions can give a politician massive clout, and unhappy unions—well, just ask Eva Moskowitz, a Democrat who headed the New York City Council Education Committee when I became schools chancellor in 2002.

Smart, savvy, ambitious, often a pain in my neck and atypically fearless for a politician, Ms. Moskowitz was widely expected to be elected Manhattan borough president in 2005. Until, that is, she held hearings on the city teachers-union contract, an extraordinary document, running for hundreds of pages, governing who can teach what and when, who can be assigned to hall-monitor or lunchroom duty and who can't, who has to be given time off to do union work during the school day, and so on.

The contract defied parody. So when Ms. Moskowitz exposed its ridiculousness, the United Federation of Teachers (UFT), then headed by Randi Weingarten, made sure that Ms. Moskowitz's run for borough president came up short. After that, other elected officials would say to me, "I agree with you, but I ain't gonna get Eva'd."

Politicians—especially Democratic politicians—generally do what the unions want. The unions, in turn, are very clear about what that is: They want happy members, so that those who run the unions get re-elected, and they want more members, so their power, money and influence grow. The effect of all this? As Albert Shanker, the late, iconic head of the UFT, once pointedly said, "When schoolchildren start paying union dues, that's when I'll start representing the interests of schoolchildren."

Union power is why it's virtually impossible to fire a teacher for non-performance. In New York City, which has some 55,000 tenured teachers, we were able to fire only half a dozen or so for incompetence in a given year, even though we devoted significant resources to this effort.

The extent of the problem is difficult to overstate. Take "rubber rooms," where teachers were kept—while doing no work—pending resolution of disciplinary charges against them, mostly for malfeasance, like physical abuse or embezzlement, but also for incompetence. The teachers got paid regardless. Before we stopped this charade—by returning many of the teachers to the classroom, unfortunately—it cost the city about $35 million a year. (Still costing more than $100 million annually are the more than 1,000 teachers who get full pay to perform substitute or administrative duties because no principal wants to hire them full-time.)

Then there were the several teachers accused of sexual misconduct—at least one was found guilty—whom union-approved arbitrators refused to terminate. The city was required to put them back in the classroom, but we refused to do so. Of course, the union has never sued to have the teachers reinstated. It just makes sure these deadbeats stay on the payroll with full pay and a lifetime pension.

It's little surprise, then, that American kids don't get the education they deserve. When I demanded reform as chancellor, I was regularly told by friends and foes alike that impatience is immature, challenging the educational establishment is a losing strategy, collaboration is necessary, and controversy is bad. It was bad advice, typical of the status-quo thinking that dominates American education.

Consider the common refrain that "We'll never fix education until we fix poverty." This lets school systems off the hook. Of course money, a stable family and strong values typically make it easier to educate a child. But we now know that, keeping those things constant, certain schools can get dramatically different outcomes with the same kids.

Take Texas and California. The two states have very similar demographics, yet Texas outperforms California on all four national tests—across demographic groups—despite spending less money per pupil. The gap amounts to about a year's worth of learning. That's big.

At individual schools, differences can be breathtaking. One charter in New York City, Harlem Success Academy 1 (founded by Ms. Moskowitz after she left politics), has students who are demographically almost identical to those in nearby schools, yet it gets entirely different results.

Eighty-eight percent of Harlem Success students are proficient in reading and 95% are proficient in math. Six nearby schools have an average of 31% and 39% proficiency in those subjects, respectively. More than 90% of Harlem Success fourth-graders scored at the highest level on New York State's most recent science tests, while only 43% of fourth-graders citywide did so. Harlem Success's black students outperformed white students at more than 700 schools across the state. Overall, the charter now performs at the same level as the gifted-and-talented schools in New York City, all of which have demanding admissions requirements. Harlem Success, by contrast, selects its students, mostly poor and minority, by random lottery.

Critics try to discredit these differences. Writing last year in the New York Review of Books, the historian Diane Ravitch argued that schools like Harlem Success aren't the answer because, as a group, charter schools don't outperform traditional public schools. Yet even Ms. Ravitch had to acknowledge that some charter schools get "amazing results." If that's the case, shouldn't we be asking why they get much better results—and focusing on how to replicate them?

A full-scale transition from a government-run monopoly to a competitive marketplace won't happen quickly, but that's no reason not to begin introducing more competition. In the lower grades, we should make sure that every student has at least one alternative—and preferably several—to her neighborhood school.

We pursued that goal in New York City by opening more than 100 charter schools in high-poverty communities. Almost 80,000 families chose these new schools—though we had space for only 40,000; the rest are on waiting lists. Traditional schools and the unions have been screaming bloody murder, which is a good sign: It means that the monopolists are beginning to feel the effects of competition. And at the middle-school and high-school levels, where students are more mobile, we can create community-based choice systems or even citywide ones. New York City high school students now have citywide choice (with some geographic priority), and schools know they have to compete for students.

Despite the tough politics involved, change is possible. In New York City, it took a mayor willing to assume control over the system and risk significant political capital. It also took time: Mayor Bloomberg and I had more than eight years together, while most urban superintendents serve for about three and a half.

Most of all, it required building political support. Toward the end of my tenure, reformers were fighting to lift the state-imposed cap on the number of charter schools allowed to open. The teachers unions opposed our effort precisely because our expansion of charter schools had been so successful. In fact, six months earlier, they had helped defeat a similar effort.

But this time, families with kids in charter schools and their community allies were prepared to help us fight. Philanthropic and business interests raised millions to support the mobilization effort, run ads and hire lobbyists. We prevailed, and the state legislature raised the cap substantially.

As Shanker put it in a surprisingly candid speech in 1993: "We are at the point that the auto industry was at a few years ago. They could see they were losing market share every year and still not believe that it really had anything to do with the quality of the product. . . . I think we will get—and deserve—the end of public education through some sort of privatization scheme if we don't behave differently. Unfortunately, very few people really believe that yet. They talk about it, and they don't like it, but they're not ready to change and stop doing the things that brought us to this point."

Mr. Klein, the CEO of News Corporation's educational division, was chancellor of New York City public schools from 2002 through 2010. This article is adapted from the current issue of The Atlantic.

Shopping for School Choice

2011-05-06T09:42:00.004-04:00

Syms, once a famous clothing store in NY City, advertised itself by repeating the following statement: An Educated Consumer Is Our Best Customer. As all Americans know, education counts. What's more, when it comes to education, almost every parent knows something about the quality of the nearest public school, especially if the parent has a child attending the school.

Why, I wonder, is there such agony over public school education? Why is there such relentless effort put into spreading the notion that only the state can handle the education of the population. Why do people accept public schools as they are when private schools have been doing a better job of educating kids since, since, forever?

Our higher education system is a combination of state and private colleges and universities. There are some excellent state schools. But is there any doubt that the best colleges and universities are the private institutions? Still, there's no call to close the public institutions. Why? Because they compete on price.

In fact, when the student is attending a state university in his home state, the student pays far less than an out-of-state student. In other words, the student receives a voucher. Thus we know voucher programs work well at the college level, which means we can conclude they would work just as well for those in K-12 public schools.

If Supermarkets Were Like Public Schools

What if groceries were paid for by taxes, and you were assigned a store based on where you live

By DONALD J. BOUDREAUX

Teachers unions and their political allies argue that market forces can't supply quality education. According to them, only our existing system—politicized and monopolistic—will do the trick. Yet Americans would find that approach ludicrous if applied to other vital goods or services.

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—"for free"—from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes.

Of course, the quality of public supermarkets would play a major role in families' choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people—entitled in principle to excellent supermarkets—would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn't organize themselves efficiently to meet customers' demands.

Responding to these failures, thoughtful souls would call for "supermarket choice" fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers' poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

In the face of calls for supermarket choice, supermarket-workers unions would use their significant resources for lobbying—in favor of public-supermarkets' monopoly power and against any suggestion that market forces are appropriate for delivering something as essential as groceries. Some indignant public-supermarket defenders would even rail against the insensitivity of referring to grocery shoppers as "customers," on the grounds that the relationship between the public servants who supply life-giving groceries and the citizens who need those groceries is not so crass as to be discussed in terms of commerce.

Recognizing that the erosion of their monopoly would stop the gravy train that pays their members handsome salaries without requiring them to satisfy paying customers, unions would ensure that any grass-roots effort to introduce supermarket choice meets fierce political opposition.

In reality, of course, groceries and many other staples of daily life are distributed with extraordinary effectiveness by competitive markets responding to consumer choice. The same could be true of education—the unions' self-serving protestations notwithstanding.

When You Absolutely Have to Know -- Waterboard

2011-05-02T15:38:00.000-04:00

Would Bush Have Washed Bin Laden's Body?

John Brennan in an ongoing press conference at the White House was quite insistent that all "Islamic precepts" were respected and adhered to in the burial at sea of Osma bin Laden. The first priority of the Obama adminstration was the Islamic burial of the man Obama claimed was "not a leader of the Muslim world"

Bush disposed of remains of Iraqi terrorist leader Abu Musab al-Zarqawi by burying him in a secret location. Did our soldiers wash al-Zarqawi's body? I am going to puke.

I think tis is outrageous and sick. Such respect we give, not only to a mass murderer of Americans in the name of Islam, but deference to the very ideology that has fueled this war on America.

"There is a requirement in Islamic law that an individual must be buried with 24 hours." John Brennan

The corpse was taken to the aircraft carrier USS Carl Vinson, officials told ABC News. The burial at sea was done in accordance with Muslim law -- a Muslim seaman conducted the process, said the prayers, and bin Laden's body was wrapped in the appropriate way.

"We are ensuring that it is handled in accordance with Islamic practice and tradition," an administration official said. "This is something that we take very seriously. And so therefore this is being handled in an appropriate manner."

It is rare, but when a body must be buried at sea, there are rules, according to Al Islam online.

The body should be lowered into the water, "in a vessel of clay or a weight tied to its feet," and as far as possible, it should "not be lowered at a point where it is eaten up immediately by sea predators."

Tradition dictates that the body is washed by Muslim men and a funeral prayer is said, then it is buried as soon as possible, usually within 24 hours. The body is wrapped in a shroud of white cloth and the face is moved toward mecca. The remains are always buried in the earth.

According to Brennan, there wasn't time to get bin Laden to another country and adhere to Islamic law so he was giving a bural at sea. There were Islamic clerics there - this all according to John Brennan,.

This was the priority of the Obama adminstration.

(Reuters) – Al Qaeda leader Osama bin Laden was buried at sea from the deck of a U.S. aircraft carrier in the north Arabian Sea after being washed according to Islamic custom and receiving a religious funeral, a U.S. defense official said on Monday.
"Preparations for at-sea burial began at 1:10 a.m. EST and were completed at 2 a.m. EST," the official said. "Traditional procedures for Islamic burial were followed."

"The deceased's body was washed and then placed in a white sheet. The body was placed in a weighted bag. a military officer read prepared religious remarks which were translated into Arabic by a native speaker. After the words were complete, the body was place on a prepared flat board, tipped up, whereupon the deceased's body eased into the sea," the official said.

Obama -- Invisible Man

2011-04-30T12:40:00.003-04:00

First Obama said his administration would be transparent. Everything would be in sight. Easy to read. Easy to see. However, those promises were never fulfilled. Now everything is opaque and the people around the president are proving they are local versions of Baghdad Bob, Saddam's chief cheerleader who ranted on the radio in early 2003 that Saddam's forces were destroying the US military while, in fact, Saddam's forces were brutally crushed by our military.

Obama has destroyed all the hope his supporters had. The grand plans have been reduced to minor alterations, except those that stop America from actually prospering where opportunity is loudly knocking on the door. Where is that? In the Oil & Gas Industry, which is ready to tap vast US reserves that are in easy reach. By tapping them, at least will can pay Americans to provide a larger percentage of the energy we need.

Chronicle responds after Obama Administration punishes reporter for using multimedia, then claims they didn't

Update: In a pants-on-fire moment, the White House press office today denied anyone there had issued threats to remove Carla Marinucci and possibly other Hearst reporters from the press pool covering the President in the Bay Area.

Chronicle editor Ward Bushee called the press office on its fib:

Sadly, we expected the White House to respond in this manner based on our experiences yesterday. It is not a truthful response. It follows a day of off-the-record exchanges with key people in the White House communications office who told us they would remove our reporter, then threatened retaliation to Chronicle and Hearst reporters if we reported on the ban, and then recanted to say our reporter might not be removed after all.

The Chronicle's report is accurate.

If the White House has indeed decided not to ban our reporter, we would like an on-the-record notice that she will remain the San Francisco print pool reporter.

I was on some of those calls and can confirm Ward's statement.

Messy ball now firmly in White House court.

The hip, transparent and social media-loving Obama administration is showing its analog roots. And maybe even some hypocrisy highlights.

White House officials have banished one of the best political reporters in the country from the approved pool of journalists covering presidential visits to the Bay Area for using now-standard multimedia tools to gather the news.

The Chronicle's Carla Marinucci - who, like many contemporary reporters, has a phone with video capabilities on her at all times -shot some protesters interrupting an Obama fundraiser at the St. Regis Hotel.

She was part of a "print pool" - a limited number of journalists at an event who represent their bigger hoard colleagues - which White House press officials still refer to quaintly as "pen and pad" reporting.

But that's a pretty Flintstones concept of journalism for an administration that presents itself as the Jetsons. Video is every bit a part of any journalist's tool kit these days as a functioning pen that doesn't leak through your pocket.

In fact, Carla and her reporting colleague, Joe Garofoli, founded something called "Shaky Hand Productions" - the semi-pro, sometimes vertiginous use of a Flip or phone camera by Hearst reporters to catch more impromptu or urgent moments during last year's California gubernatorial race that might otherwise be missed by TV.

The name has become its own brand; often politicians even ask if anyone from Shaky Hand will show at their event. For Carla, Joe and reporters at other Hearst newsrooms where Shaky Hand has taken hold, this was an appropriate dive into use of other media by traditional journalists catering to audiences who expect their news delivered in all modes and manners.

That's the world we live in and the President of the United States claims to be one of its biggest advocates.

Just the day before Carla's Stone Age infraction, Mr. Obama was at Facebook seated next to its founder, Mark Zuckerberg, and may as well have been wearing an "I'm With Mark" t-shirt for all the mutual admiration going back and forth.

"The main reason we wanted to do this is," Obama said of his appearance, "first of all, because more and more people, especially young people, are getting their information through different media. And historically, part of what makes for a healthy democracy, what is good politics, is when you've got citizens who are informed, who are engaged."

Informed, in other words, through social and other digital media where videos of news are posted.

The President and his staffers deftly used social media like Twitter and Facebook in his election campaign and continue to extol the virtues and value. Except, apparently, when it comes to the press.

So what's up with the White House? We can't say because neither Press Secretary Jay Carney nor anyone from his staff would speak on the record.

Other sources confirmed that Carla was vanquished, including Chronicle editor Ward Bushee, who said he was "informed that Carla was removed as a pool reporter." Which shouldn't be a secret in any case because it's a fact that affects the newsgathering of our largest regional paper (and sfgate)and how local citizens get their information.

What's worse: more than a few journalists familiar with this story are aware of some implied threats from the White House of additional and wider punishment if Carla's spanking became public. Really? That's a heavy hand usually reserved for places other than the land of the free.

But bravery is a challenge, in particular for White House correspondents, most of whom are seasoned and capable journalists. They live a little bit in a gilded cage where they have access to the most powerful man in the world but must obey the rules whether they make sense or not.

CBS News reporter, Mark Knoller, has publicly protested the limited press access to Obama fundraisers, calling the policy "inconsistent." "It's no way to do business," wrote Politico's Julie Mason, "especially [for] a candidate who prides himself on transparency."

A 2009 blog by the White House Director of New Media states that "President Obama is committed to making his administration the most open and transparent in history."

Not last week.

Mason referred to the San Francisco St. Regis protest as "a highly newsworthy event" where "reporters had to rely on written pool reports..."

Except, thanks to Carla's quick action with her camera, they didn't.

I get that all powerful people and institutions want to control their image and their message. That's part of their job, to create a mythology that allows them to continue being powerful.

But part of the press' job is to do the opposite, to strip away the cloaks and veneers. By banning her, and by not acknowledging how contemporary media works, the White House did not just put Carla in a cage but more like one of those stifling pens reserved for calves on their way to being veal.

Carla cannot do her job to the best of her ability if she can't use all the tools available to her as a journalist. The public still sees the videos posted by protesters and other St. Regis attendees, because the technology is ubiquitous. But the Obama Administration apparently wants to give the distinct advantage to citizen witnesses at the expense of professionals.

Why? Well, they won't tell us.

Some White House reporters are grumbling almost as much as the Administration about Carla's "breaking the rules." I can understand how they'd be irritated. If you didn't get the video because you understood you weren't supposed to, why should someone else get it who isn't following the longstanding civilized table manners?

The White House Press Correspondents' Association pool reporting guidelines warn about "no hoarding" of information and also say, "pool reports must be filed before any online story or blog." While uploading her video probably was the best way to file her report, Carla may have technically busted the letter of that law.

But the guidelines also say, "Print poolers can snap pictures or take video. They are not obliged to share these pictures...but can make them available if they so choose."

Then what guidelines is the White House applying here? Again, we don't know.

What the Administration should have done is to use this incident to precipitate a reasonable conversation about changing their 1950's policies into rules more suited to 2011. Dwight Eisenhower was the last President who let some new media air into the room when he lifted the ban on cameras at press conferences in 1952.

"We've come full circle here," Tom Rosenstiel, director of the Pew Foundation's Project for Excellence in Journalism told me today. "A newspaper reporter is being punished because she took pictures with a moving camera. We live in a world where there are no longer distinctions. The White House is trying to live by 20th century distinctions."

The President's practice not just with transparency but in other dealings with the press has not been tracking his words, despite the cool glamour and easy conversation that makes him seem so much more open than the last guy.

It was his administration that decided to go after New York Times reporter James Risen to get at his source in a book he wrote about the CIA. For us here in SF who went through the BALCO case and other fisticuffs with the George W. Bush Attorney General's prosecutors, this is deja vu.

Late today, there were hints that the White House might be backing off the Carla Fatwa.

Barack Obama sold himself successfully as a fresh wind for the 21st century. In important matters of communication, technology, openness and the press, it's not too late for him to demonstrate that.

Oil and Obama -- The Two Don't Mix

2011-04-28T11:12:00.003-04:00

The Gas Price Freakout

Ready-made energy incoherence as a gallon climbs towards $4

Man-at-the-pump angst is harming President Obama politically almost as much as gas prices surging toward $4 are hurting the middle class economically, which explains the energy panic that Washington began in earnest this week. The 2011 debate isn't likely to be any more instructive than its 2000, 2005, 2006 or 2008 vintages, but maybe this time politicians can keep things in the general vicinity of planet earth.

They're off to a lousy start. Mr. Obama usually begins his gas price narrative, now a campaign trail staple, by explaining that there aren't easy solutions. That's true—there's not a lot the political class can do to change gas prices in the short run—but then the President goes on to mention that there happens to be one easy solution: raising taxes on the oil and gas industry. This is also his stock answer on the budget deficit, world hunger and everything else.

In a letter to Congressional leaders Tuesday, Mr. Obama called for repealing some $4 billion a year in "subsidies" in the tax code, and even Speaker John Boehner chimed in that oil companies "ought to be paying their fair share." No doubt the reporting of first-quarter profits this week will be a demagogic moment, but really? The junk economic theory is that increasing the U.S. costs of investor-owned oil producers—which together hold a mere 6% of world reserves—is supposed to lower the price of a global commodity.

Oh, and Mr. Obama wants to devote the proceeds to even more spending on "clean energy." The problem here is that some renewables (ethanol) increase the cost of driving, while the others (wind, solar) are irrelevant in transportation. We trust anyone not recharging his federally subsidized $109,000 electric sportscar at his personal windmill is blinking in amazement.

One of the main so-called subsidies that Mr. Obama wants to eliminate is for the expensing of intangible drilling costs, which has been part of the tax code since its inception. This immediate deduction—rather than amortizing the costs of development over a longer period—provides the capital and cash flow necessary in an industry where the risks are huge and returns are realized over many years, if not decades.

The rest of the items on Mr. Obama's list are tax credits offered to all manufacturers, not just oil and gas. Mr. Boehner's full comments at least revealed the right instincts—namely, proposing to eliminate such carve-outs in return for a lower corporate tax rate as in the Republican budget. The same reform should apply to clean (as well as all other) energy concerns too.

The liberal drive to tax Big Oil is rooted in an ideological commitment to higher energy prices, not consumer relief. The U.S. Energy Information Administration reports that the effective U.S. corporate tax rate for the oil majors was 26.3% in 2009, not counting royalties, excise taxes or bonus bids for leases. The effective rate typically tracks production and rises and falls with the price of oil. In 2008, it was 42.3%.

U.S. gas prices last peaked in 2008, largely due to a dollar plunge and global demand, before crashing along with the economy. Now prices are rebounding, with political unrest in the Middle East and North Africa tacking on a premium beyond the market fundamentals of rising demand as the world economy grows. Then there's the Ben Bernanke premium. The most important step the government could take to stabilize if not lower oil prices is to correct the Federal Reserve's weak dollar policy, which has sent commodity prices soaring across the board.

Failing that, what matters is overall energy policy, where the Administration isn't any better. Leave aside the vast, energy-rich regions of the country that are off limits to development or even modern seismic testing, especially along the outer continental shelf. The Environmental Protection Agency's bid to regulate carbon has created new political uncertainty, while the agency has immobilized Shell's plans to drill in the Arctic Ocean by withholding the necessary permits.

Mr. Obama is also taking cover on the grassiest knoll of energy politics, suggesting last week that "illegal activity by traders and speculators" is responsible for the oil run-up. This gambit is known as shooting the price discovery messenger. Yet the President directed the Justice Department to launch a criminal investigation, and Attorney General Eric Holder said this week he had already uncovered "a couple of things that are disturbing." That must be some crack squad.

But if they're honest, they'll agree with the Commodity Futures Trading Commission, which at George W. Bush's direction launched an exhaustive investigation in 2008. The agency concluded that speculators—otherwise known as traders—were putting downward pressure on prices. The liquidity they provide helps to smooth volatility. In any event, the Federal Trade Commission already polices the gasoline markets for manipulation and anticompetitive practices, including a unit that since 2002 has monitored retail and wholesale data nationwide on a daily basis.

Rising gas prices are stealing the gains of middle-income voters, so this is an important debate to have. Too bad Mr. Obama's Washington can't seem to escape the energy incoherence — phantom speculators, easy villains — of his predecessors.

Oil -- Not From Our Backyard

2011-04-27T07:02:00.005-04:00

Should we be surprised? Obama wants oil producers to increase their production. A sensible person should be forgiven for thinnking Obama was referring to American oil producers that pay Americans for finding, pumping, refining and selling oil.

Instead, our feckless leader was imploring the Islamic oil nations that despise freedom, equality, plurality, capitalism and democracy to increase THEIR output to offset shortfalls caused by the revolts and revolutions in North Africa and the middle east that have begun to impinge on supplies. The actual decline in Libyan production and the fear that has affected the international oil market has driven oil prices to their high levels since 2008.

Rather than giving American oil companies the green light to expand domestic operations and thereby protect American consumers, Obama has offered the Islamic oil nations another opportunity to expand their influence over our economy. Inasmuch as he seems to have no credibility among muslims, his stature can only sink further as he effectively begs the Islamic nations to help the US.

Meanwhile, the chief issue affecting prices is FEAR. Not actual supply constraints. Sadly, Obama's approach ensures that Islamic oil producers will increase their capacity for generating oil-market fear. He is truly a moron.

Obama Says He Wants Oil Producers to Boost Output

Apr 26, 2011

WASHINGTON -- As the high cost of gasoline takes a toll on politics and pocket books, President Barack Obama said Tuesday he is calling on major oil producers such as Saudi Arabia to increase their oil supplies to help stabilize prices, warning starkly that lack of relief would harm the global economy.

"We are in a lot of conversations with the major oil producers like Saudi Arabia to let them know that it's not going to be good for them if our economy is hobbled because of high oil prices," Obama told a Detroit TV station.

President Obama is calling on an increase in oil production to help stabilize prices.

His remarks signaled a broad new appeal in the face of skyrocketing gasoline prices in the United States and they came as he reiterated a call for Congress to repeal oil industry tax breaks.

In interviews Tuesday with WXYZ in Detroit and in WKTR in Hampton Roads, Va., Obama said the message to major oil producers like Saudi Arabia is that an economy that buckles because of high oil prices won't grow and won't be good for them or for the U.S.

Obama acknowledged disruptions in oil production because of the war in Libya. But he said others can make up the difference and "we're pushing them to do so." Libya supplied less than 2 percent of world demand. Saudi Arabia and other OPEC countries already are covering some of that shortage by boosting production.

The president's effort to compel more overseas production echoed calls by President George W. Bush in 2008 urging Saudi Arabia to increase supplies during that year's spike in gasoline prices. The Saudis rebuffed Bush's efforts.

Obama said he has stressed the self-interest of oil producing nations, arguing that "if we're not growing, they're not going to be making money either.

"And so they need to increase supplies," he told WKTR.

Gas pump prices have climbed for 35 consecutive days. The national average rose by a penny to hit $3.87 a gallon on Tuesday, more than a dollar than a year ago. The price already has exceeded $4 a gallon in some regions of the country.

In a letter to congressional leaders Tuesday, Obama urged them to take steps to repeal oil industry tax breaks, reiterating a call he made in his 2012 budget proposal earlier this year. The White House conceded that plan would do nothing in the short term to lower gasoline prices.

The president wrote a day after House Speaker John Boehner, R-Ohio, said he was willing to "take a look at" repealing the multibillion-dollar tax subsidies enjoyed by the major oil companies. Boehner aides on Tuesday sought to clarify Boehner's stance, stressing that he was not advocating repeal of the tax breaks.

"He has said all along that he is opposed to raising taxes," Boehner spokesman Kevin Smith said. "That's his position."

Rising gas prices have become a political weight for the White House, with polls showing that as the cost rises at the pump, the president's approval ratings have slipped. Obama increasingly has sought to display action on oil, even as he acknowledges that there is no immediate way to stem costs.

"High oil and gasoline prices are weighing on the minds and pocketbooks of every American family," Obama wrote. But he also added that "there is no silver bullet to address rising gas prices in the short term."

Obama's proposal, spelled out in his past two budget plans, would eliminate a number of tax breaks for oil companies that would generate an estimated $4 billion a year in additional revenue.

The tax breaks - some in place since the 1920s - have survived multiple attempts to repeal them in the face of heavy oil industry lobbying.

The Republican response to the president's letter was dismissive.

Another Boehner spokesman, Brendan Buck, said Obama's suggestions "would simply raise taxes and increase the price at the pump." And Senate Republican leader Mitch McConnell said: "The president's latest call to raise taxes on U.S. energy is as predictable as it is counterproductive."

Obama's letter was addressed to Boehner, McConnell, House Democratic leader Nancy Pelosi, and Senate Majority Leader Harry Reid.

Blaming the subsidies on "outdated tax laws," Obama said money obtained from repealing the breaks should be spent on clean energy initiatives to reduce dependence on foreign oil.

On Monday, Boehner told ABC News that the government is low on revenues and that oil companies "ought to be paying their fair share."

"We certainly ought to take a look at it," Boehner said about repealing tax subsidies for major oil companies. "We're at a time when the federal government's short on revenues. We need to control spending but we need to have revenues to keep the government moving."

But Boehner made no commitment to repealing the subsidies. "I want to know what impact this is going to have on job creation in America," he told ABC.

Obama, in his letter, said he was "heartened" by Boehner's remarks. "Our political system has for too long avoided and ignored this important step, and I hope we can come together in a bipartisan manner to get it done."

White House spokesman Jay Carney dismissed suggestions that Obama's letter was motivated by the potential effect of rising gas prices on the president's political prospects.

"I don't think when somebody sticks the credit card in the pump or pays a cashier the cash for a tank of gas that they're thinking about an election in 2012," he said.

Trump, Obama's Best Ally

2011-04-26T10:34:00.003-04:00

Obama’s Trump Card

The damage the Donald can do

The boomlet for Donald Trump as a Republican nominee for president of the United States ought to be a wake-up call for Republican candidates and Republican party leaders alike.

Why has Trump surged ahead of other Republican candidates and potential candidates in the polls? It is not likely that his resurrection of the issue of Barack Obama’s birth certificate has aroused all this support.

The birth-certificate issue does more political damage to Obama’s critics than to the president himself, because it enables the media to paint those critics as kooks. Nor are Donald Trump’s political positions such as to create a stampede to his cause.

Radio-talk-show host Mark Levin has rebroadcast Trump’s varied and mutually contradictory statements on political issues and personalities over the years. It was a devastating revelation of Trump’s “versatility of convictions,” to use a phrase coined long ago by Thorstein Veblen.

So then what is Donald Trump’s appeal? And why should it concern Republican leaders in general?

Trump has what so many other Republicans are so painfully lacking: the ability and the willingness to articulate arguments clearly, forcefully, and in plain English. Too many Republicans talk like the actor of whom a critic once said, “he played the king like he was afraid that someone else was going to play the ace.”

What electrified so many Republicans about Sarah Palin in the 2008 election campaign was that her speeches offered such a contrast to the usual mealy-mouthed talk common among other Republican candidates, including Sen. John McCain. Whether you agreed or disagreed with her position on the issues, you didn’t have to wave your hand in front of her eyes to see if she was awake.

Donald Trump is dangerous in at least two senses. If, by some tragic miracle, he should become the Republicans’ candidate for president in 2012, that would be the closest thing to an iron-clad guarantee of a second term in the White House for Barack Obama.

That would be a huge setback for the Republicans — and, far more important — a historic catastrophe for this country.

What seems more likely is that Donald Trump as a candidate for the Republican nomination would use his superior articulation skills — not to mention brash irresponsibility — to trash all the other Republican candidates for that nomination, leaving them damaged goods in the eyes of the public, and therefore less able to gather the votes needed to prevent the reelection of Obama.

Why Republicans seem not to understand the crucial importance of putting the same time and attention into articulating their positions as the Democrats do is one of the enduring mysteries of American politics.

It was obvious that the Democrats coordinated their talking points and catch-phrases — “social justice,” “tax cuts for the rich,” etc. — even before the overheard and recorded statements of Sen. Chuck Schumer about Democrats’ plans to repeatedly use the word “extreme” to characterize Republicans.

But how many Republican catch phrases can you remember? Republican rhetoric tends to range from low key to no key.

Nor is there much evidence that Republicans have asked themselves how the left wing of the Democratic party gained such ascendancy in recent years, in a country where millions more people identify themselves as conservative than as liberals.

In short, there is little or no evidence that most Republicans see any need to fundamentally change their approach to the public. But if they think that they can rely on Obama’s declining popularity to win the 2012 election, they may be in for a rude shock. Worse yet, the whole future of this country and of Western civilization will be in jeopardy — in a world where the likes of Iran and North Korea become nuclear powers while we engage in empty talk at the U.N.

Barack Obama’s declining support in public-opinion polls makes some conservatives feel that his reelection hopes are doomed. But Donald Trump can be Barack Obama’s secret weapon in his fight to remain in the White House. The Donald can be his Trump card.