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Gasoline Prices

Saturday, August 30, 2003 | 07:18 AM

A few factual tidbits re: rising gas prices; (labor day weekend often marks the peak in gasoline prices for the year). Its a subject I find many people are surprisingly naive about:

First off, by nearly any way you can think of measuring or comparing it, gasoline is extraordinarily cheap in the United States.

Compared to consumer prices in Europe or Japan, we pay about 1/6 of the taxes on it; Taxes in Europe are why gasoline costs more than double the US -- Over $1 and change per liter -- what it does here.

In terms of adjusting for inflation, the price of gasoline has remained a bargain. You are paying far less than what you paid in inflation adjusted

The price has hardly gone up over the past two decades; Its fluctuated from about $1.75 per gallon -- the same price as 1980. In 1980, about $1.15 a gallon was for the actual fuel:

Click for larger image (popup)
Source: Oilnergy.com

The balance of what you pay are state and federal taxes, marketing and refining costs:

Click for larger image (popup)
Source: DOE

Compare the price of gasoline ($1.75/gal) with Coca Cola (~$2.50/gal). Gasoline first requires crude oil to be explored and found, than extracted form the ground, shipped to a refinery, refined, then distributed and ultimately pumped into your tank. Meanwhile, Coca Cola is essentially colored, sugared tap water.

Lastly, a note on the "branding" of gasoline -- most flavors are completely interchangeable; What is called branding is actually little more than marketing/advertising.

There are a few interesting exceptions: The 3 most prominent are Chevron, which uses a patented additive called Techron, (primarily a fuel injector cleaner); Some brands use an octane booster (ie, Sunoco, which sells a 94 plus octane). Lastly, BP/Amoco has their own proprietary formula for premium gas; Its unique, not pumped through pipelines, and only sold at Amoco stations. Many high performance car owners (I know) only put Amoco premium into their high horsepower (Ferrari, Porsche) engines.

Related Stories:
Startled Drivers Fill It Up, Up, Up
http://www.nytimes.com/2003/08/30/business/30FUEL.html

One Vehicle on the Road, Two Others in the Garage
http://www.nytimes.com/2003/08/30/business/30TRAF.html

States Embarrassing the Feds, part III

Friday, August 29, 2003 | 07:19 AM

in Current Affairs | Finance

The very able Jesse Eisinger of the WSJ this morning observes that the Feds have nobody to blame but themselves for Oklahoma stepping into the yawning vacuum that was the lack of Worldcon prosecution. In a piece titled "The Okies Take Over," Eisinger states:

Note to those Feds who cringe every time Oklahoma Attorney General Drew Edmondson denounces Bernie Ebbers and works on his klieg-light tan: You brought this on yourselves.

For this is the result of federal investigators -- at the SEC and the Justice Department -- not enforcing the nation's antifraud statutes to the fullest extent of the law.

At least lately, federal justice don't work too well. Cendant's Walter Forbes still hasn't been brought to trial; The Feds also let the statute of limitations expire against Sunbeam's Al Dunlap. Meanwhile, Ken Lay, Jeff Skilling, Richard Scrushy and Bernie Ebbers are still walking about free -- and very, very wealthy.

Apparently, crime does pay. Eisinger continues:

And so ambitious pikers from the states step in. The Feds should have learned their lesson from Eliot Spitzer and seen this coming. In the case of WorldCom (now called MCI), public frustration is palpable. The accounting fraud was revealed well over a year ago.

Now any possible case against Mr. Ebbers could be jeopardized, the Feds complain. It's true. We have national securities laws, national regulators and national authorities because the markets wouldn't function with 50 different sets of law (not to mention what Guam might say). That's all the more reason for the Feds not to give any local authority an opening to meddle.

The Feds complain about how difficult it is to prove accounting fraud. But it is their culture that sets them up for second-rate results. They love to settle. When the SEC settles, the guilty party neither admits nor denies wrongdoing. This isn't a bit of harmless Kabuki theater in which we all know the truth. Indictments and convictions for accounting fraud are exceptions, not the rule. Settlements are less significant than prosecutions that result in prison. Prison deters white-collar criminals. Household names need to be busted quickly and some need to head to jail.

Meanwhile, the States are doing what the Feds would or could not: Killing Worldcom/MCI. In another WSJ which also reveals the huge schism between the WSJ's reporters and her editorial writers, comes this rather empathetic view of the States flexing their muscles when the Feds refuses to do so: In the article, titled: "States Mull Civil Suits Charging Worldcom/MCI With Widespread Tax Fraud," Yochi Dreazen writes:

For MCI, it may be death by a thousand cuts.

The embattled long-distance carrier, reeling from the criminal indictments filed against it and several former executives by Oklahoma prosecutors Wednesday, may soon face civil lawsuits from other state attorneys general alleging widespread tax fraud. The first of the suits, which is being prepared by West Virginia Attorney General Darrell McGraw, may be filed within days, according to people familiar with the matter. At least one other state suit is expected by the middle of next month . . .

The new lawsuits would be another blow for WorldcomMCI, which is struggling to emerge from the long shadow cast by an $11 billion accounting fraud, the largest in U.S. history. The company recently agreed to a $750 million settlement with the Securities and Exchange Commission and had hoped to come out of bankruptcy later this year.

Instead, WorldcomMCI is running into a growing number of roadblocks erected by rivals like Verizon Communications Inc. that believe the company hasn't been punished enough and would enjoy an unfair competitive advantage if it emerged from bankruptcy debt-free. Verizon has relentlessly lobbied state and federal policy makers to come down hard on MCI. And Verizon has already helped persuade the federal government's contracting arm to suspend its dealings with MCI and bar the company from new government contracts.

Compare the Worldcom case with the Arthur Anderson/Enron debacle. A few things leap to mind: Arthur Anderson recieved the death penalty. But the vast majority of Anderson employees -- I would hazard to say most -- had nothing to do with Enron. This could have easily been compartmentalized, with the offending Anderson partner (and everyone who worked for him) excised like a tumor. Instead of removing the cancer, the patient was put to death.

I would note that the Anderson execs at the time played it wrong; They should have moved aggressively to cooperate, mea culpa-ed themselves for not finding out sooner, amd cordon off the rot ASAP. That could have saved the company.

Still, its hard to explain that kind of poor judgement on the Feds part; And, you cannot discuss Enron without noting that the comapnies and its execs were the President's single largest campaign contributors. It taints the entire issue, making it hard to remove a political component from the entire process.

Enron was put down like the mangy dog it was, but why no charges against the founders and leaders of this vast criminal conspiracy?

Worldcom, unlike Anderson, rotted from the head down. It was corrupted nearly all the way through; We're still learning about some of their fraud, like routing calls thru Canada and falsely dumping the bills on AT&T and Verizon. There seems to be no end to these miscreant's bad behavior.

Their punishment? They receive a huge contract to rewire Iraq's telecomm infrastructure . . .

Does that make any sense to you?

URLs:
The Okies Take Over
http://online.wsj.com/article/0,,SB106210514824844000,00.html

States Mull Civil Suits Charging Worldcom/MCI With Widespread Tax Fraud
http://online.wsj.com/article/0,,SB106211056488006100,00.html

States Embarrassing the Feds, part II

Thursday, August 28, 2003 | 05:29 PM

in Current Affairs | Finance | Politics

Houston Chronicle shut out of 2 more hearings By MARY FLOOD
Fastow transcript still denied release,

A federal judge held two more closed hearings in the criminal case against Andrew Fastow and two other former Enron executives on Tuesday and refused to unseal the transcript of a July 28 hearing he also held in secret.

U.S. District Judge Kenneth Hoyt said he might continue to close hearings if he thinks it necessary.

"There are matters that do not need to be discussed in public in ways that embarrasses or humiliates the government or the defense and particularly the court," he said.

I don't know who Judge Hoyt is, but he seems unqualified for the bench . . . At best, he's guilty of incredibly poor judgement -- not the shortcoming you want in a person who's job it is to exercise judgement . . .

Why the States are embarrassing the Feds

Thursday, August 28, 2003 | 08:04 AM

in Current Affairs

First, the handwringing. Solemn, serious soliloquies.

Then comes angst: “This will interfere with our methodical case building process.”

Next up, a discussion of State versus Federal jurisdiction.

Finally, some announcer will -- sigh -- talk about the local political ramifications of State Attorney Generals.

Overlooked in all of this will be the gradual decay of Federal Enforcement and Prosecutions at nearly every level, and for a bewildering variety of issues and transgressions.

What was once a feared and mighty arm of the government has become a vast bureaucracy overmatched by corporate legal departments. Opponents of enforcement have spent millions of dollars lobbying to have enforcement laws relaxed. Though mostly successful, on the occasions when they would run into trouble on that end, they shifted gears, lobbying successfully to have department budgets cut and headcounts reduced.

They even managed to get their own defense attorneys -- i.e., think Harvey Pitt as SEC Chairman -- appointed as the head of the watchdog agencies.

Undermanned, underbudgeted and undermotivated, the federal agencies charged with enforcing securities laws, anti-trust laws and fraud prevention have simply been outgunned by the lawyers on the other side.

Of course NY State Attorney General Elliot Spitzer went after the corruption on Wall Street; The SEC, NYSE and NASD all turned a (mostly) blind eye to what was going on, and what is still going on. After all, who wants to interrrupt a rally?

Worldcom (perhaps Worldcon is a better name) was one of the biggest corporate frauds in the history of mankind. Before Oklahoma ran out of patience, indictments for the ringmasters were few and far between. Any first year law student could have figured out how to indict the people behind 12 billion dollars worth of fraudulently reported revenue. What on Earth is taking the Feds so long?

How is it possible that Ken Lay, CEO and creator of the force that was Enron, has yet to be indicted? This was the biggest scam of all times, the ultimate Ponzi scheme. Are we living in some episode of the Twilight zone? It's simply embarrassing.

They may have to move the trials of both Bernie Ebbers and Ken Lay to new Zealand, because that’s the only place where a conviction is not guaranteed.

Of course, that's if they ever get indicted . . .

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Update:
There's legal, and then there's shady: A new report, titled "Executive Excess" details the specific CEOs personally had the greeatest profits from layoffs, pension shortfalls, and tax dodges:

CEOs at companies with the largest layoffs, most underfunded pensions and biggest tax breaks were rewarded with bigger paychecks, according to a new report, “Executive Excess 2003: CEOs Win, Workers and Taxpayers Lose.”

Median CEO pay skyrocketed 44 percent from 2001 to 2002 at the 50 companies with the most announced layoffs in 2001, while overall CEO pay rose only 6 percent. These layoff leaders had median compensation of $5.1 million in 2002, compared with $3.7 million at the 365 large corporations surveyed by Business Week.

You can download the PDF "Executive Excess" Report here.

Pointer courtesy of Dave Callaway

Car Sales Slow Despite Spending on Incentives

Wednesday, August 27, 2003 | 10:53 AM

in Finance

The NYT reports that "Car Sales Slow Despite Spending on Incentives"

DETROIT, Aug. 26 — In another sign of how competitive the car market has become, auto companies spent a record amount on incentives in July, yet their vehicles sat unsold on dealers' lots for a record length of time.

Moreover, Ford Motor and the Chrysler Corporation lost market share in July, though the average incentives for Detroit's auto companies grew to the highest level ever, according to Edmunds.com, a company in Santa Monica, Calif., that offers consumers buying advice and tracks industry trends.

In figures scheduled to be released on Wednesday, Edmunds estimates that car companies spent an average $2,668 on rebates, interest-free loans, lease deals and other discounts last month, up $519 or nearly 25 percent from July a year ago. Edmunds bases its calculations on industry sales data and transactions at dealerships.

At the same time, Edmunds said the average time a vehicle spent in the showroom before being sold rose to 78 days in July. Put another way, that meant a vehicle that arrived on a dealer's lot on July 1 would not be sold until mid-September. That compared with 54 days at the beginning of 2003, and 60 days in July 2002.

Zero % financing amounted to channel stuffing; After nearly a year of those aggressive sales tactics, the auto sellers have exhausted all demand at the margins. There is now zero pent up demand for autos, and we are approaching zero pent up demand for homes . . .

August Market Reversals

Wednesday, August 27, 2003 | 10:25 AM

in Finance

Dorsey Wright credits Peter Eliades of Stock Market Cycles in compiling an overview of August Market turns:

While most people view the last 2 weeks of August as vacation weeks, over the last 16 years important turns have taken place then:

August 25, 1987 - the exact top prior to the crash..
August 23, 1988 - low has never been returned to..
August 24, 1995 - low has never been returned to..
August 19, 1998 - top preceding 18% plunge in 2 weeks..
August 31, 1998 - important market bottom..
August 31, 2000 - 2 days before all time high..
August 24, 2001 - end of rally ,market drops 22% in under a month..
August 22, 2002 - exact rally top, market drops 21% in under a month.

Four out of the last five years have seen a major turn in August . . .

BoA raises oil price forecast

Wednesday, August 27, 2003 | 09:36 AM

in Finance | Politics

Bank of America's energy analysts were busy this am; They raised their 2003-2004 oil price forecast to a 19% premium to the First Call consensus.

If BoA revised estimates are correct, this is potentially a significant drag on the economy. (Here's an Oil chart).

On a related note, check out this recent chart on Gasoline prices:

Source: Chart of the Day

A few worthwhile reads

Tuesday, August 26, 2003 | 04:25 PM

in Finance | Media

Some interesting articles out today:

Bloomberg European Share Rally Belies Economic Growth Slump

Aug. 25 (Bloomberg) -- Depending on which headlines you look at, Europe has two different economies right now. If you are reading the market reports, you could be forgiven for thinking that business in Europe is in great shape. Germany's benchmark DAX index has surged 22 percent this year and has gained about 60 percent since its lows in March. Spain's IBEX has added 19 percent this year, Sweden's OMX is up 20 percent, and Switzerland's SMI has increased 12 percent.

Looks like everything's rosy, right? Not exactly. Listen to the flow of economic statistics, and a very different story emerges.

Reuters Analysis: Is 'Perfect Storm' Brewing for Bush?

WASHINGTON - As the 2004 election nears, President Bush could face an international "perfect storm" -- more attacks in Iraq and Afghanistan, an overextended deployment of U.S. troops eager to come home, and blackening clouds over the Middle East, North Korea and Iran. The confluence of world events will test Bush's foreign policy leadership even as he must concentrate on the U.S. economy and other domestic issues that could determine whether he wins a second term.

Although most Americans still have a favorable opinion of the president, his job performance rating has slipped to 52 percent positive and 48 percent negative in a recent poll of 1,011 likely U.S. voters by Zogby International. This compares with a post-Sept. 11, 2001, peak rating of 82 percent positive.

STORM BREWING "A perfect storm (on security) is brewing for the rest of the year," said one military planner, referring to a catastrophic clash of three storms that menaced the U.S. Northeastern coast in 1991. In Iraq, a major lightning rod is the issue of troops -- whether the 139,000 U.S. military on the ground should be supplemented with more Americans or foreign forces.

CBS.Marketwatch A word of caution from Value Line

"the market, which was attractively valued six or nine months ago, now looks pricey, ... since much of the favorable news on the economy and earnings still lies in the future... The market has come too far too fast to continue along this road without some profit taking along the way. We would take a cautious investment posture now, as a result."

WSJ 'Small Is Beautiful' to Stock Funds

Mutual funds have been turning to smaller stocks to help generate better returns this year.

As the economy has begun to show signs of recovery, many fund managers investing in large-capitalization or midcap stocks have said goodbye to some of their bigger-company holdings that had given them shelter during the bear market. Instead, they sought companies whose market capitalizations -- or stock prices times the number of shares outstanding -- were smaller in search of stronger growth prospects.

Yahoo News Optimism Premature After Intel's Surprise Forecast

SAN FRANCISCO (Reuters) - Investors may have brought out the party hats a little too early after Intel Corp., the world's largest microchip maker, boosted its revenue target for the current quarter. Since its surprise announcement Friday morning, Intel executives have twice tried to dampen expectations for a strong recovery in technology spending. Taking the cue, investors have since cooled on technology stocks, especially shares of companies in the microchip industry. . .

The rally Intel sparked was short-lived. On Friday, stocks eventually fell back to mostly flat levels after a wave of optimism generated by Intel's announcement. Speaking in Taiwan on Monday, Intel Chief Executive Craig Barrett put the brakes on hopes that the company's higher revenue forecasts marked a turnaround in technology spending. "It's too early to suggest it is a total turnaround," Barrett told a news conference. His comments mirrored those of Andy Bryant, Intel's chief financial officer, who on Friday said the company might be among the last to declare an end to weaker business conditions. He similarly declined to call a recovery

WSJ: Are Productivity Gains Bad for US Workers?

Tuesday, August 26, 2003 | 11:57 AM

in Finance

David Wessel of the WSJ wrote:

"The argument is simple, convincing -- and wrong. Surging growth in productivity, the amount of stuff we make for each hour of work, is not the cause of our current economic malaise. Wishing for slower productivity growth so we can have more jobs is foolish.
-Productivity Gains: Never Bad, Even for American Workers

I’ve been meaning to address this issue since “Productivity Gains: Never Bad, Even for American Workers” came out. The prior extensive work I've done on this subject convinvces me that there are negatives for US workers; (See: The New “Productivity Paradox); The bigger issue is for policy makers such as the Fed:

In 1987, Nobel laureate Robert Solow famously observed: “You can see the computer age everywhere but in the productivity statistics.” Despite massive investment in IT infrastructure, productivity growth was nonexistent. At the time, this was known as the “Productivity Paradox.”

Since the mid-‘90s, the Productivity Paradox appeared to have been solved, as U.S. productivity growth surged. Since 1995, labor force productivity has been increasing at 2.25% per year, double the annual rate of the previous two decades. This “productivity feast,” as its been called by Fed Chairman Greenspan, is the largest increase in non-farm business output per hour in 30 years.

Therein lies the new Productivity Paradox: Productivity continues to increase year after year at 2.5%; At the same time, the labor force itself is growing at ~1.3% per year. Thus, Real GDP has to increase at 3.8% per year just for the economy not to hemorrhage any more jobs.

During the boom year, productivity increases got the credit for a myriad of positives: increased living standards, higher corporate profitability, boosted tax revenues, better funded pension plans. Now, we are confronting the dark side of productivity: Companies need less laborers to produce more goods and services; Less workers means less consumer spending, lowered tax receipts, weaker corporate profits . . ."

I think the WSJournal writer is focusing on the wrong issue -- its not whether productivity is good/bad for US workers; That argument merely "tilts at windmills;"

The relevant issue is "How high must GDP rise in order to stop losing jobs, and start creating them?"

At the present levels of labor pool growth (1.3% / year) and Productivity (2.5% / year), a 3.8% GDP merely stops losing jobs; A GDP rate in excess of 4% will slowly start creating jobs. It may take a 5% GDP (+/-) to robustly create jobs.

This is of greatest significance to the Fed, who typically tends to slam on the brakes at those GDP levels. In the present, post-bubble, excess capacity environment, the Fed should (even at the risk of inflation), not constrain the job creation ability of the economy by raising rates until we see significant improvement in the jobless rates.

URL: http://online.wsj.com/article/0,,SB106141948614575300,00.html

Baggadonuts Marks Intermediate Top

Tuesday, August 26, 2003 | 10:21 AM

in Finance | Media

I'm putting the finishing touches on a huge research piece on Contrary Indicators; It should be released some time after the Labor Day weekend.

I bring this up because a huge (external) contrary indicator just flashed on my screen: Friday night's Louis Rukeyser’s Wall Street Airdate: August 22, 2003. It was announced this past weekend that the coming (8/29/03), the main guest on "Louis Rukeyser’s Wall Street" will be Joseph Battipaglia, chief investment officer at Ryan Beck & Co.

Battipaglia, in case your memory is failing you, was the perma-Bull who remained staunchly upbeat on the market throughout most of the crash. Why is his appearence on Rukeyser a contrary indicator? This strategist's Bullishness is legendary; He was totally blindsided by the bear market. Throughout the crash (see links below) he remained shockingly Bullish. Look here, no one is right all the time, or even most of the time. But to maintain a resolute Bullishness in the face of a total crash suggests a model not particularly rigorous; Hey, even a broken watch is right twice a day . . .

Battipaglia's appearence on Rukeyser is only possible in an environment of giddy positivity. That calls for at least a mild correction.

Here are some links worth perusing on his prior calls.

THE BULLS JUST DON’T GET IT
http://www.nationalinvestor.com/mrkt%20com-5-31.htm

Leading the bulls in their case these days is perpetual shill Joe Battipaglia of Gruntal and Co., who probably spends more time than any other single guest on CNBC. A couple days ago (as I pen these words) he confidently predicted that not only was the Fed now done raising interest rates after their 50 basis point move of mid-month, but that the market would soon come roaring back, with year-end 2000 witnessing a Nasdaq at 5500--up a scant 70% from current depressed (?) levels--a Dow Jones Industrials at 12,500 and an S&P 500 at 1625.

"Resurgent Economy Will See Higher Rates"
Commentary: Resurgent economy will see higher rates
By Joseph V. Battipaglia, CBS MarketWatch.com 3-18-02
http://cbs.marketwatch.com/news/story.asp?guid=%7B9674A7A2%2D694A%2D4EA8%2DA84B%2DE767C72437B7%7D&siteid=mktw

"Our view has been, and still remains, that the U.S. economy will gather steam as the year progresses and inventory restocking commences. We believe that the real annualized fourth-quarter growth rate will be 3% and will help meaningfully lift the broad market -- not just the largest companies -- by year-end."

Wall Street Media Star
http://www.wharton.upenn.edu/alum_mag/issues/summer2000/feature_4.html

"An April Business Week story that took a somewhat disparaging view of Wall Street and the media's role in hyping the stock market cited his number of television appearances - 238 within the past year - second only to influential Goldman Sachs economist Abby Joseph Cohen's 259. Television, the article said, is fueling a trend toward media-savvy "celebrity" analysts and strategists who tend toward overly rosy views of the market and have the power to move markets, sometimes dramatically."

Source: http://www.wallstreetbaloney.com/wsb_ratings.asp?wsbrid=30