Rough Costs: Gulf Spill vs. Exxon Valdez

 

Well, there are yet more numbers out there describing the Gulf oil “spew.” Now, the experts are mumbling numbers like 60,000 barrels/day of oil loosed upon the wave and shore. A bit of quick math (42 gal/barrel) says that we’re looking at something like 145 million gallons total so far, or 13 times that of the Exxon Valdez.

Of course, there are so many unknowns… We don’t really know how much oil has been lost; we don’t know what nearly a million gallons of dispersants are going to do to the area; we don’t know what happens to such a deep ecosystem given the 5,000′ depth of the blow-out; we don’t know how much crude will reach the shoreline and the wetlands… But even if we simply use the 1989 Exxon Valdez spill as a rough estimate, that was still a $4.5 billion cleanup–but Pricne William Sound is still feeling the effects. Using just that yardstick today ($654/gal), we’re looking at $95 billion, though that may in fact be just a fraction of the final amount.

And truth be told, the cleanup will no doubt reach a point of diminishing returns… For example (and this is just an example), BP might be able to remediate 75% of the damage at a cost of $40 billion, 80% at a cost of $50 billion, 83% at a cost of $75 billion, and 84% at a cost of $150 billion. Put another way, there will come a time when there just isn’t enough ecological bang for the (available) cleanup buck.

Obviously, that begs a nasty question… Just how many bucks does BP have? Try about $80 billion with their oil reserves. Uh oh. But as Reuters reported:

“The company generated cash of $7.7 billion from operating activities in the first quarter. Even after capital investment of $3.8 billion, it had $3.9 billion of free cash and the company says it has arranged significant credit lines…

“The upper end of analysts’ forecasts of total costs is around $30-$35 billion, with potential extra costs for lost fisheries business in years to come.

“Analysts say BP may not be able to cover such costs, and pay its dividend, out of cashflow alone, forcing additional borrowing.

However, the oil giant is believed to be able to do so without bringing its gearing levels above its targeted 20-30 percent range.”

My over-priced $.02 concerning the final cost of the cleanup? I’m guessing at best $50 billion—$100 billion if we’re lucky. (Who knows what it will amount to if the relief wells flop.) As the summer slogs by watch the shenanigans, follow the money, and watch out for PetroChina. Oh goody.

Alan Speakman

A Simple Solution for North Korea

Ah yes… Good ol’ North Korea – the country we’ve basically been at war with for the last 50+ years. That crazy, zany place where indoctrination and starvation of its citizens are almost at super-saturation, and its leader might best be described as a Charlie Manson on ‘Ludes. And as we approach this national holiday, N. Korea fires off its perfunctory missiles as a bluster and “warning”.

So here’s the problem(s) that we have with N. Korea…

• Its leadership is both loonier and dumber than an outhouse rat in August.
• In theory, it has the technology to fire missiles that could hit Hawaii, not to mention Japan.
• Seemingly, there ain’t much we can do about North Korea since our opening a can of whoop tush on them would flood China with refugees, and China would be none too happy with that. And given that China is holding a ton of our debt, it looks like we’re just going to have to shut up and eat our July Fourth hot dogs and hope that the Iranian ambassadors don’t try to crash the party. Except…

Except that we owe China ridiculous mountains of money. They don’t want to see us start printing dollars like fiends (welcome to the world of hyper-inflation), and at the same time they don’t want to see us go completely down the tubes. (As the bookies say, “Better a living deadbeat than a dead debtor.”) So we have some leverage there, in its own pathetic guise.

So how about we pivot on two simple facts. First, the Chinese and the Japanese really aren’t very fond of each other.  Their historical mistrust and animosity toward each other are, well, deep. Secondly, we have boomer (nuke) subs.

Suppose we were to perform a sort of coordinated “lend-lease” of a couple of those subs with the Japanese, with the understanding that while we technically own the subs, their operation and firepower would be a joint issue handled by both America and Japan. And should missiles find their way toward us or our allies… Ummm… That would make the Chinese sit up and take notice, and they’re the only ones who can really rearrange North Korea.

Everyone has talked about this situation, and I dare say that most believe that China and Japan are the power players… But we still have leverage. Let’s hope we have the guts to finally end this disaster and start a regime change. All it will take is a boomer or two putatively in the hands of the Japanese in the East China Sea.

Alan Speakman

The Hole Gets Deeper…

Sorry to be such a pest (and a pest and a pest), but someone has to do it… America is digging a hole it can’t get out of.

Getting nervous? So are the Chinese…

Bottom line? Well, it’s all very short and not so sweet… The markets may well rebound through 2010… But somewhere around 2012 our national debt to GDP ratio will hit about 5:1 to 6:1… After that, look out.

Alan Speakman

UPDATE: Concerning that 6:1 ratio…

2012… The Year America Blows Up

Straw upon straw, the camel’s back that is America continues to deflect. And 2012 looks to bear the final straw. How might this happen?

• The interest alone on national deficit will no doubt grow by the predicted $2 trillion to $3 trillion per year. And in 2012 we’ll be $62 trillion in the hole. (If you want to be scared senseless, click here.) That will hit the magical 4:1 to 6:1 ratio between national debt and GDP. Granted I’m using European Iceland as a model, but that should at least be a ballpark indicator. And when we hit that ratio, look out.
• By 2012, beyond a hint of a shadow of a doubt, Iran will have a nuke that can reach the continental U.S… By then, people will have had just about enough of Obama’s naivete in trying to stop Iran’s drive for a nuke by playing footsie with Russia.
• By the time of the next presidential election, the citizenry will have fallen out of swoon with Obama… Grossly corrupt politcal cronies, wild spending, cuts in the military budget… All will take their toll.
• China will stop lending us money… Not looking good.

Somewhere around 2012, this perfect storm will mature…

Alan Speakman

Problem? Deficit… Solution? Lease California

Yeah, I’m joking, but not by much. Here’s the deal… Here are the pieces of the problem (or more accurately, the puzzle…)

• Piece 1: Right now, America is in the hole by roughly 53 trillion dollars. Our GDP (everything we as a nation make in a year) is around 13 trillion dollars. (To put that in perspective, imagine running an entire household with a $50k income, but owing $200k on your credit card, an ever-increasing debt, and no end in sight.)
• Piece 2: By 2040, we’ll hardly be able to pay for social security/Medicare/Medicaid alone…
• Piece 3: To a great degree, Californians hold traditional American values in contempt.

So what’s the solution to this dilemma? We lease California to the Chinese for a decade or two. The People’s Republic of California is already half way there; why not just finish the job? No doubt that China would buy into the deal – Hey! We can throw in the People’s Republic of Cambridge MA just to sweeten the pot. Let China (replete with its labor laws) take on the 8th largest economy in the world. That’s got to be worth a cool $55 trillion. We can even put a boomer or two in the Yellow Sea just to make sure the lease stays belly-down.

And when the lease finally runs out, California gets to vote on whether to extend the lease or to return home to the bosom of America. If they decide to stay with China, great! We get a few more trillion dollars, and the Chinese get more botoxed movie stars. On the other hand, if California votes to return, then (in theory) the Chinese will leave, and the barking moonbats like Nancy Peolsi and Barbara Boxer will return back to planet Earth, perhaps to cease their barking. Then maybe America will finally settle back down to sane government and fiscal responsibility.

Just an idea.

Alan Speakman

The Future of the American Automotive Industry

 

Well, the future of “Car America” ain’t looking so good, and here’s why: Despite what most Americans think, Japan and Europe aren’t the problem – China is. Consider the following:

• China cares about the environment about as much as we care about door knobs… probably less. Here’s a truly chilling account of the situation. And if you think a little pollution will get in the way of China’s growing auto industry, think again.
• Engineering students? Yeah, China churns out roughly 400,000 per year. America on the other hand produces apx. only 60,000 engineers/year.
• Does the Chinese government care about working conditions or tolerate real unions in China? Wow! That’s “unions” communist style.

Evidence of the coming tsunami?

• It’s no great secret that GM’s market share has dropped from 50% in the 1970 to 30% today, and there really is no end in sight.
• Americans should see a bad moon rising when Japan struggles in the automotive industry. No, China isn’t the cause of the problem… But it is waiting to take advantage of it.
• Just to give you a warm up, here’s a list of Chinese auto manufacturers: http://www.chinacarforums.com/chinese_car_manufacturers.html

Right now, if you buy clothes, tools, cameras, etc., when you read the label, you’re probably going to find the phrase, “Made in China”. What makes you think that five or ten years from now your new car will bear a different label?

And nobody in our government can connect the dots?

Alan Speakman

What Really Went Wrong With the Economy

On September 24th, 2008, President Bush began his explanation of what went wrong with the economy with the following…

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Well, Dubya cut right to the heart of the problem and no one even noticed. “For more than a decade, a massive amount of money flowed into the United States from investors abroad…”

Bush was absolutely right, but where did that money come from? Why is it that we’ve lost so many jobs to outsourcing in India? And why is it that we basically owe 1.7 trillion dollars to China and Japan for stuff like U.S. Treasury and agency bonds?

Throw out all the MBA mumbo jumbo, and face a very simple fact… People who live in places like India, Japan, and especially China (and that’s just the beginning of a very long list) obviously live (voluntarily or otherwise) by different cultural standards. And basically those standards involve a lower standard of living. They work longer hours for less money, and live much closer to the bone.

If this fact isn’t obvious, then you’ve been living in a cave. Their governments pay less for defense, education, health, etc., etc., etc. And to make matters even more ridiculous, when times are looking tight (or not) for other governments like Israel and North Korea, they just belly up to the ol’ U.S. bar and ask for a few on the house. No wonder foreign investors have “massive amount of money” to throw around.

When talking about this bailout, we need to reduce a needlessly long story to an appropriately short one. We don’t live like the rest in this global village.

Oh, this bailout may get us through the mess this time, but sooner or later, a very hard rain is going to fall…

For further reading, check out Financial Sense.

Alan Speakman