Monday, September 29, 2008

Watch C-SPAN's streaming coverage here for the House Floor Debate on the bailout bill on Monday morning. Fascinating to see democracy at work in the strangest of ways.

Meanwhile, this Financial Week story explains how companies are getting so desperate for credit that they are reaching into their revolving credit lines for some liquidity. This is like dipping into your emergency funds to pay the credit card bill--a bad idea in many ways.

Friday, September 26, 2008

With Wall Street inches from a plunge off the commercial paper cliff, I went looking for some completely and totally unrelated yet interesting information. My mind needed a break from the potential severity of what's happening.

This is what I came up with. Interesting, eh?
Maybe we should just let the Russians kill sprawl.

An Interesting Medical "Breakthrough"...

...related to the 1918 Flu that killed 50 million worldwide. Sounds potentially useful.

Major Cell Phone/Cancer Risk Update...

...yesterday Congress held hearings on the topic of cell phone usage and a potential link to cancer. Please read this article and carefully follow this issue.

Young children should especially not be using cell phones. And adult should be using earpieces. This has the potential to become a critical issue. Consider this a Daily Sprawl preemptive notice. Please fully research this matter.

Thursday, September 25, 2008

More on Why the Bailout Plan... inherently flawed:
This is part of a disturbing pattern in the mainstream media as far as the plan is concerned. Despite the considerable diversity of opinion and political orientation among economists, the criticism of the plan among economists has been widespread, verging on unanimity (with Alan Blinder a notable outlier). Yet the press has treated the plan with vastly more deference than it deserves.
Read the useful Naked Capitalism article here.

Wednesday, September 24, 2008

Permanent Damage at GM...

The news coming out of Detroit is getting worse, and unlike in past years, there will be no full recovery. Analysts are betting that General Motors will be forced to take emergency financial measures this year that could hamper its competitiveness for a long time to come.
Read the whole Fortune article here.

The Next Big Story...

...this Washington Post article discusses what, in this era of bailouts upon bailouts, could well be a major flash point among Americans:
"I've been financially responsible with my own money. Why should I now be responsible for the fact that you were not?" he said.

This may be a Main Street bailout backlash in the making. The details of the financial crisis are still hard for most people to follow -- what with talk of exotic "derivatives" known as "credit-default swaps" and so on -- but the central fact of the matter hasn't been lost on anyone in this Northern Virginia community: The taxpayers are on the hook for the bad judgment of others.

And they say they don't like it. They didn't break it, but now they've bought it. Political leaders and financial titans say the bailout is necessary to save the economy, but on the ground, in such places as Manassas Park, people think that the bailout will reward the wrong people. There's a sense that too many folks bought houses they couldn't really afford, banks urged them on, common sense went on vacation, and now the grown-ups have to clean up the mess.

A Oil Interruption Contingency Plan...

...or, better stated, lack thereof:
However, if one, two or all of three vital chokepoints are hit by terrorists flying hijacked 747s or Iranian military action - the Abqaiq processing plant, the Ras Tanura terminal in Saudi Arabia, or the two-mile per sea lane Strait of Hormuz - as much as 40% of all seaborne oil will be stopped, as much as 18% of all global supply will be interrupted, and from 12 to 20% of the US supply will be cut off. Estimates are the US shortfall could be even higher. Repeat attacks could prolong the crisis for many months, which is exactly what either al-Qaida or Iranian terrorists have promised. Yet there is no plan.

THE BEST experts predict that if we suffer as much as 10% for any period of time, let alone 20%, it will be a neighbor-against-neighbor "Mad Max" scenario as food shortages swell and a storm of economic collapse surges across the country. Indeed, experts have been warning about this looming calamity for years. But the government and presidential candidates refuse to even consider the possibility or develop a contingency plan.

Yet our allies have developed oil contingency legislation and other administrative plans that will permit their nations to survive a stoppage. These measures include severe vehicle traffic reductions, enabling fast alternative fuel production and mass vehicle retrofitting, as well as rush public transit enhancement, and mandated changes in driving habits. Unquestionably, for America to survive such a catastrophe will require a very painful, multilayered program of immediate-term, short-term, mid-term and long-term fixes that will change our society and transform it off oil. The nation has no real alternative fuel or retrofitting infrastructure. But every lawmaker, mayor, governor and every candidate must develop such a plan - and now.
Read the entire JPost op-ed here.

Tuesday, September 23, 2008

Good Advice from...

...Seventh Generation about steps toward making your house a healthier place for your children. A must read if you're looking to ditch the toxic lifestyle.

Time to Make a Stand...

...the current trillion dollar bailout plan proposed by the Treasury and Fed--while well-intended--will create a monumental burden on this country going forward.

Fortunately, Mish Shedlock has posted an efficient way to express your opposition.

Click here for details.

Floating Trains?

This article from discusses just that:
While we have been dreaming about floating trains, Europe has been methodically threading its cities together with a sophisticated high-speed rail network. The French TGV, a conventional train with earthbound steel wheels, broke the land-speed record last year, hitting 357 miles an hour on a test track. Asia, too, has invested in high-speed rail: the famous Japanese bullet trains have been in operation since the 1960s, and Beijing’s new high-speed line, which debuted for the Olympics, can go as fast as 220 miles an hour. Even Argentina is about to build a 440-mile-long high-speed rail line. What do we have? Well, we’ve got the Northeast Corridor, where Amtrak’s Acela Express can, on a good day—and only on two short stretches in Rhode Island and Massachusetts—reach 150 miles an hour. And, apparently, we’re gearing up to spend an estimated $12 billion linking our two most significant tourist destinations.

Monday, September 22, 2008

This NY Post article, if accurate, is scary on what almost (and might still) happen in the financial markets.

$500 Per Barrel?

That's what this Fortune column is considering:
"I find it ironic that here we have the biggest industry on earth, and I'm one of the few people to figure out that we have a major problem," he says, in his confident if not quite brash way. "And I did it all in my spare time. How stupid and tragic is that? I shouldn't be one of the only folks that actually has a handful of ideas of how we can keep from blowing each other up and get through this."
Read the entire and see why this is definitely not a good sign for McCain supporters on this topic.

More on Gas Shortages...

...the situation has eased somewhat here in Montgomery but it appears that other places (such as the Nashville area) continue to see significant shortages:
With an estimated 20 percent of the nation’s refinery capacity on hold due to Hurricane Ike, retailers located in the Southeast and Mid-Atlantic regions not affiliated with major gas bands are experiencing gas shortages.
Here's the entire article.

Thursday, September 18, 2008

Credit Default Swaps?

If you follow Daily Sprawl, you've probably seen the above term pop up in a variety of different articles. And, quite possibly, you've wondered what the heck it is and why is everyone talking about it?

Basically, a credit default swap is a form of insurance. The buyer of a financial debt instrument purchases the instrument to make money off of it as an investment (for instance, off the interest that the instrument pays or yields).

But, sometimes bonds or mortgages or other debt instruments go into default and lose their value. The result is that the investment is lost.


If the buyer of the debt instrument also purchased credit default insurance (that's a more accurate term than "swap"). If that happened, then the insurer against the default (e.g. the company that issued the credit default insurance) pays the buyer (e.g. the investor for whom the original debt investment became worthless).

The problem arises when the insurer sells more credit default insurance than it has the ability to pay. That's the problem these days.

This NYT column explains this important problem in more detail.

So Now The Taxpayers Own an Insurance Company...

Are you curious why the federal government reversed its earlier course and decided that it could not let insurance giant AIG fail?

If so, Time Magazine has the story (and, if not, then you should be because these are the most unique of times).

Wednesday, September 17, 2008

Welcome to the...

...Chevy Volt. Popular Mechanics has a good story on the unveiling of its production version--the one planned for public sales in 2010.

From the story, it is clear that the car is less sporty than the original concept version. But, it still looks good--a somewhat narcissistic yet important thing in the car-buying world.

Aside from that, Daily Sprawl is really curious about this vehicle. It will be a "plug-in" hybrid meaning that you will literally plug it into a normal electric outlet and charge it up. After 75 miles or so, the electric range gives out to a more conventional gas engine. But, that leads to a important question:

Who drives more than 75 miles per day?

If you don't then, according to GM's plans, you will rarely use the gas engine--driving almost exclusively on electric power.

Which, in turn, leads to the second important question:

Does our existing electric grid possess the capacity for the large amounts of new electricity needed to power these type plug-ins?

Tough to say at this point. Issues such as whether power companies can diversify into renewable energy sources (tidal power and river current power being two of the best long-term prospects) remain unanswered.

One positive thing is that most of the plug-ins will likely be powered up during the nighttime hours--as their drivers sleep. This also happens to be one of the times of day with the least amount of stress on the grid.

So, the long and short is that the Volt has the potential to offer a powerful alternative if grid capacity can be expanded through advances in renewable power sources.

Stay tuned closely on this one...

Tuesday, September 16, 2008

Not Good

1,000 banks might fail by the time the dust settles?

It seems unbelievable but, then again, what in the last 9 months hasn't.
"What Happens if a Major Bank Fails?"

The column offers a good run down of the game plans for such a situation.

Monday, September 15, 2008

Gas Shortages for the Next Week...

...according to one Texas senator.


From the Times Online:
Like Zoom, XL cited the high price of oil as one of the main reasons for its collapse and Willie Walsh, chief executive of BA, said today that there are likely to be many more casualties of costly fuel and the economic slowdown this year.

Mr Walsh, who yesterday told staff that BA is cutting 1,400 senior management jobs to save £170 million, said today that there were a lot of “weak” airlines struggling to remain in business.

He said: “This is a difficult trading environment and some of the airlines that we have become used to will not survive.”
Still think that the recent dip in oil prices is the a panacea?

In reality, its a temporary correction on an otherwise upward course. Evidence of that will soon start coming in by October.

Heinberg has an interesting discussion up at the Post Carbon Institute website about this.

Good Night, Lehman...

...Fortune's online wing offers an interesting look at the scene near Lehman's HQ last night. Don't be surprised to see this scene--albeit at different scales and locations--become the symbolic coverage of this unwinding crisis...

Sunday, September 14, 2008

Gas Shortage Implications...

...the Oil Drum has posted an interesting article discussing the effects of the growing gas shortages resulting from Hurricane Ike:
Where is our gasoline and diesel supply headed? Even before Ike hit, quite a few areas of the US were starting to see gasoline shortages. The impact of Ike can only make shortages worse. Most likely, it will take refineries at least a week or two to get production back to normal levels after a storm of this type, considering the impacts of electrical outages and flooding. In this article, I will examine some of the issues that seem to be involved. Based on my analysis, fuel supply shortages are likely to last well into October, and are likely to get considerably worse before they get better.

A Sunday to Remember...

...well, it's about 8pm central time and word is that Merrill Lynch no longer exists as an independent company--having been bought today by Bank of America.

Lehman Brothers is also apparently out of options and will be forced to declare bankruptcy unless a last minute suitor appears.

Readers, these are fundamental changes and represent the most stark examples yet of the unraveling of the American sprawl-funded finance system. A system that fed itself on artificially cheap money and gave that fake money to all kinds of strip malls, subdivisions, and other land development schemes that stressed our infrastructure while making almost every investment unsafe.

It is not an exaggeration to say that today marks a fundamental turning point in U.S. finance history.

Click here for a website that is aggregating many of the articles covering this amazing series of events...

UPDATE: Mish's take. Probably the best site for following these startling happenings...

Friday, September 12, 2008

Hurricane Ike...

...will miss many oil platforms in the Gulf of Mexico but appears on a direct track to nail a large swath of oil refinieries.

This Knoxville News Sentinel story is an early indicator of the potential effects of Ike:
Refinery outages along the Gulf Coast in the wake of Hurricane Gustav have created severe shortages, causing retailers like Weigel's to scramble to keep their pumps flowing. And Hurricane Ike is bearing down on Texas, drawing a bead on North America's petroleum manufacturing capital of Houston and portending a worst-case scenario for dealers and consumers.

"Knoxville has been out of gas since Monday. We've been buying gas from Atlanta, North Carolina, Kentucky, anywhere we can get it," said Bill Weigel, head of the Weigel's chain of convenience stores in Knox, Blount, Sevier, Loudon, Anderson and Monroe counties.
Same story in places here in Montgomery. I stopped this morning at a station that was out of gas. Troubling.

Thursday, September 11, 2008

From the Faculty Lounge blog...

...gasoline pricing invades the retail world. Pretty clever if it works.

Tuesday, September 9, 2008

Automotive Leftovers...

...the WSJ has an interesting op-ed today that concisely explains why the federal government absolutely should not issue the Big Three automakers below market (and federally guaranteed) loans in this crisis time:
And what about the precedent the government would set? If we bail out Detroit, where do we stop? The newspaper industry is in financial trouble because more readers and advertisers are turning to the Internet. Newspapers are good for democracy -- Thomas Jefferson said he would choose newspapers over government, after all -- so shouldn't they get low-interest government loans to help them adjust to the Internet? Of course not, and ditto for Detroit.

If Detroit's auto makers would apply more than knee-jerk analysis to what's being proposed, they would reject it quickly. No matter what their spin, including the patently absurd claim that government-guaranteed, below-market loans aren't a bailout, loan subsidies will paint them in the public mind as corporate welfare recipients that can't compete on their own. That can't be good for sales.

More fundamentally, the last thing these companies need just now is more debt. They are leveraged to the hilt, and risk climbing into a financial hole from which they'll never recover. Better to raise money by selling more assets (e.g., Ford's recent sale of Jaguar and Land Rover) or raising more equity -- even if new investors would require management changes or other measures.

Monday, September 8, 2008

Oil Price Changes...

...several readers have noted that oil prices have been "down" and wondered how that affects the Daily Sprawl projections.

For starters, the fact that $100 per barrel oil is considered "down"--while technically accurate--demonstrates the ease at which we accept such fundamental market changes.

Remember, roughly three years ago, gas was below $50 per barrel. In other words, it has doubled in one-third of a decade. The idea that $100 per barrel will provide relief from our sprawl-ending predictions neglects the reality that prices remain historically high for fundamental supply and demand reasons (as opposed to artificial shortages such as the 1970s OPEC actions).

On point, this Barron's article presents an interesting oil price discussion.

You have to register to read it so if you don't want to do that, this blog discusses some of the major points.

Sunday, September 7, 2008

Problems for the Auto Industry...

...continue to get worse according to this CNN Money article:
Thus, the automakers have deployed what one industry official describes as a "surge" of lobbyists and executives at both the Democratic and Republican Party's political conventions. The Big Three's hope is that if they can win speedy passage of the loan package, they can move more quickly to retool their plants to produce more smaller cars.

The $50 billion loan package, first proposed by the auto industry last month, has won the support of presidential candidates Barack Obama and John McCain as their campaigns eye key votes in Michigan and Ohio.

On Tuesday, White House Press Secretary Dana Perino signaled the outgoing Bush administration was open to approving the loans.
This is one of the worst examples of blowing good money on a very bad idea. The fact is that the U.S. government cannot keep bailing out corporations that a) have poorly management themselves into near failure and/or b) build a product or provide a service that is increasingly less viable in a post cheap energy era.

If the federal government ignores this fact, then mark Daily Sprawl's word--it will be the government itself that will require the bailout.

This could well be the beginning of the nastiest part of the current downward spiral.

Tuesday, September 2, 2008

Interesting Article on Commuting Costs...

...from the Orange County Register:
Before you rush out to an open house for a foreclosed house just off the 91 in the next county, please note the cost of commuting. It's been a factor – ignored by some house shoppers – that's critical in evaluating a value-priced house far from any employment centers.

I asked my trusty spreadsheet to transform gasoline prices and commuting distances into a number that a house shopper could love: how much real estate you could buy with borrowed money paid back with dollars otherwise spent at the pump. What I found was harsh, at least, to me.

To be fair, I used some broad assumptions that won't apply to many situations. But there's my rough guess of a commuter's profile: driver was commuting to the 5-55 intersection in Tustin; their car got 20 miles per gallon; and the math used assumed 6 percent, 30-year, fixed-rate financing. I was generous.

At $4 a gallon, with my commuting formula, gasoline costs alone (forgetting wear and tear, tolls, etc.) equal $23,818 in today's homebuying dollars driving 17 miles one-way from Corona; $53,240 with Riverside's 38 mile drive and $86,865 from Temecula (62 miles.) Compare those gas tabs to a Tustin-to-Lake Forest commute of 10 miles costing, in my homebuying dollars, just $14,010.
While the article was calculating commute distances in the Los Angeles area, those same numbers can be roughly used in many other areas with long commutes and high gas prices.

In other words, the numbers present a compelling case for short commutes whenever possible.