Table On-Topic Summary - 25-Aug-2002
A compilation of this board's financial/economic posts From 41012 to 41042

Post  41012  by  jbennett53       Reply
Hi clo, I am not sure if you caught the meaning of my post. What I have in any post on this subject intended to convey is that violence is almost always wrong and does nothing but create more. When we go in and "kick" someones ass it gives us the feeling that violence is the answer and since we have become so good at it that is the preferred method for dispute resolution. Were these police motivated by irrational enthusiasm or just doing their job saving the children? What did they "imagine" they would accomplish? Where did they learn such tactics? Is this what we wish our country to be? I feel that our government is encouraging our police to act this way.

Post  41013  by  Decomposed       OT: Table ON TOPIC SUMMARY Aug 24, 2002
Post  41014  by  clo       OT:jbennett, good morning. While I'm not a pacifis

Post  41015  by  jcl22192       Reply
WAMU (and probably others) was making negative amortization loans 15 years ago. And guess what-no big effect. It can be a very useful loan but that doesn't need to be said.

Post  41016  by  StockmanI7       OT: Jewish vs. Muslim reactions to terrorism

Post  41017  by  maniati       Reply
jcl: I know "negative amortization loans" are not new. I did not mean to suggest otherwise. I have seen countless examples of interest being capitalized - in all sorts of loans and finance plans. I just find it ironic that a bank would be pushing that sort of thing today, given the consumer debt load. Rates are so low already, if someone cannot afford them, what does that say? It's just another example of the moral hazard. As for "no big effect," well, I disagree. I don't attribute the S&L crisis of the late 80's and banking crisis of the early 90's specifically to negative amortization loans, however, the moral hazard problem, in general, did have something to do with it. Banks know that the government will protect the depositors, and that leaves the banks free to take chances - in some cases, reckless chances. As a result of the crises, there are more regulations in place to attempt to prevent a failure before it happens, because Congress decided the banks needed the "help." And the fact that not all banks ran into trouble in the early 90's proves that some did a better job of exercising judgment than others.

Post  41018  by  maniati       OT: Tampa: I'm still getting a chuckle out of your

Post  41019  by  jcl22192       Reply
Not to criticize but I feel you are generalizing way too much. First, banks are not pushing these loans, they are simply another choice. If an individual can earn more in using this loan, so be it. for the bank crisis-or Savings and Loan crisis, a good deal of it was due to the good ole boy system and Enron type greed on the part of administrators and of course a lack of oversight. FDIC sure helped, didn't it?
Don't assume that someone takes this loan because they cannot afford the other available loans. There are a myriad of reasons. I just picked up one of the loans we are talking about-a 5-1 COFI @ 5.2%, no points. It is a jumbo no doc (I mention this because if I wasn't so damn lazy and disorganized documentation would have lowered the rate). Convince me I can't earn 10-15% with the money I don't give the mortgage company.
I really don't know what a moral hazard means in relation to this type loan.

Post  41020  by  StockmanI7       OT: Maniati: Debating tactics.
Post  41021  by  Tampathom       OT: No Stockman, sadly, all I see in your respons
Post  41022  by  ferociousD       OT: clo-If nothing else

Post  41023  by  maldinero       Reply
Fuzzy Credit. Look before leaping…

Should you fear Negative Amortization?

Exploring Reverse Mortgages

Customer Service and Fair Lending

Post  41024  by  clo       OT: ferociousD, okay so your posts tend to be infl
Post  41025  by  pacemakernj       OT: Clo, I could not disagree more with TF's artic

Post  41026  by  ChurnemNBurnem       Reply
Gold as a global currency - something a lot of people neglect to consider is that gold is indeed a world currency like any other (as much as the major central banks may wish to reduce it to a mere industrial commodity in order to protect their fiat money-dilution systems). The USD/Gold exchange rate is as important a number to follow as the USD/JPY or EUR/USD. Just as capital tends to flow to where the real interest rate differential is the highest, and/or real economic growth is the strongest, so will will it tend to flow into assets that protect its value against the distortions of inflation, economic uncertainty and fiat currency devaluation.

Another thing to consider is the correlation between gold and crude oil prices. Although oil is a dollar denominated commodity, it has a definite correlation with both the dollar and gold. This makes sense since the oil sheiks don't want to lose income when paid in inflated US dollars. Nor are they crazy about being paid for oil in dollars that are weakening substantially against the other majors. Thus, when gold goes up in price (the US dollar goes down), so does the price of crude tend to go up.

Regarding your last question. Someone once explained the value of gold and silver as money over time with this example: a miner out in California at the turn of the nineteenth century, buys a mule for a one-ounce gold coin with a stamped face value of $10. That same mule today would cost at least $300. But you could buy that mule with that same $10 (face value) one-ounce gold coin (numismatic value excluded). If it were practical, the coin would have its face value re-stated to $300 (in essence re-valuing the currency). At any rate, the ounce of gold has maintained its purchasing value, even as the price of everything has climbed over time. One way that this commonly stated is that throughout the history of man and gold, an ounce of gold was generally worth approximately a decent, (not high fashion) suit of clothes.

If the unthinkable ever happens and the world goes back to a pure gold standard (no fiat paper currency aside perhaps from IOU's/certificates payable in gold) a few things would be clear. Since the smallest practical coin size is around 1/20th of an ounce, at $2,400/ounce, this implies the smallest gold coin would be worth around $120, so assuming a fairly stable 60/1 gold/silver ratio, this implies a silver price of $40/ounce - the smallest practical silver coin would then be a $2 piece. That implies we would need to have an accepted abasement perhaps using copper to create coins of smaller denominations. Bimetalism has had its abasement issues where it has been used in history. Of course, paper certificates could be issued, redeemable in either gold or silver, and issued only to the extent that gold/silver reserves are kept on deposit in banks. Sort of a checking system payable on demand in precious metals.

But you know the reason we were taken off the gold standard in the first place was because guys like Lyndon Johnson felt that the economy needed to expand faster than all the known gold and silver reserves could possibly allow (and the new wars (e.g. Vietnam) required the government printing presses run day and night). So we have always had to decide between monetary stability and economic growth. Guess which one won out?

Post  41027  by  pacemakernj       Reply
LK,Roof Deflation follow up:

A few months ago I wrote about how China was spreading deflation around the world. Well I thought you might find this interesting from our favorite economist S.Roach of MSDW. I knew I wasn't crazy.

"In the end, it's always about pricing at the margin. Courtesy of globalization, low cost foreign producers are playing an ever more important role in shaping the aggregate US price level. No such producer is having a greater impact than China-now America's third largest source of imports behind Canada and Mexico. In the first five months of 2002, Chinese products accounted for 9.3% of total goods imports into the US, a sharp increase from the 7.7% share in the first 5 months of 2001. Moreover, China is now experiencing a deepening of its own deflationary pressures; its overall CPI fell 0.9% year over year in July, continuing a deflationary trend that reemerged in November 2001. To the extent that the ever-cheaper Chinese imports are gaining market share in an increasingly open US economy, a significant portion of America's deflation could well be made in China... In other words, a post bubble, low inflation US economy is already in the throes of an unusually intense disinflationary shakeout. As a result, America is now closer the the brink of outright deflation than at any point in the past 48 years."

I have also said that the long bond will go to 3% by January. Reading this essay all but confirms my guess. Rates are going lower.

I cannot post the rest of the essay maybe either you or Roof can copy it but the numbers are starting to skew heavily to the downside.


Post  41028  by  ferociousD       OT: Liberal Lies!
Post  41029  by  ferociousD       OT: HUFFINGTON: Scandal Fatigue -- Putting The Cor
Post  41030  by  StockmanI7       OT: tampa,
Post  41031  by  Tampathom       OT: Wrong again Stock. The point of the article i

Post  41032  by  tinljhtkh       Reply
Remembering September 11th—an angelic view!

I don’t know how long it takes to make an angel, but I do know that we will see a gathering of them in 17 days the likes of which this generation has never seen! How we face up to them and our responsibilities to the future will, I think, go a long way toward determining what kind of society we will have, no only for ourselves, but for all future generations!

Are they all angels? In a way they are! They were innocent of any crime except being in the wrong place at the wrong time. And some became angels by climbing the steps to heaven without even knowing that they were doing so, just by doing their jobs. How long does it take to create an angel who died in “the line of duty?” Is that type of future angel created trying to save others who are later determined not to be worthy of their wings? Does the Maker simply give an exemption to the saviors and the saved alike because of all of the horrors that they experienced right before their angel training so suddenly began?

What will we owe these angels that we will face on September 11, 2002? There they will be, fresh back from angel training, ready to take their place along side so many others that have been created by the unintended horrors that have had to be faced through the years that America has existed!

When does a child lose the right to angelhood? If it is an innocent involved in a battle over how education should be done, and ends up ignorant, where does that leave it in the balance scale for classification in the for ever after? A post came through Table on August 19, that I thought deserved more attention that it got. So, here, in my very humble opinion, is its due!

Why should we worry about how we remember September 11th, particularly in our school systems! It would be very easy to pass this subject by! I have, at 53, been wrestling with how to remember September 11th for the last 11 months, and how it fits into my now so changed life!

I quite frankly don't know how I will remember September 11th, 2001 when September 11th, 2002 finally arrives! My perceptions continually change as the first anniversary approaches! I look back into my own past and remember kids washing my windows when I drove from Valley Forge, Pennsylvania onto Manhattan Island in late September 1982! I didn't ask them to do that but I gave them money anyway for their efforts. Did I do that because I appreciated their unsolicited effort, or because, as an out of towner, I was slightly afraid of them? I heard later, through the media, that they had been run off from their positions in an effort to improve New York City's image! I also still wonder what happened to them, and the "income" that they brought in? Had they ever been in school and, 20 years ago this September, what had they learned from the experience?

They day before I met the window washers, my first wife and I toured Gettysburg! I've been there since, but my first visit made the biggest impression on me! I noticed all of the monuments, most of them erected during the lifetime of those that fought and survived Little Roundtop and Pickets Charge! I remember the controversy over the large observation deck that dominated the site for many years. It was, I understand, finally dismantled not very many years ago! I never went up in it but I'm sure it gave a very panoramic view of the battlefield! Gettysburg is a large area, both in geography and in our collective memory! I wonder what the Gettysburg angels thought of it all?

There are many quotes reproduced here from the Ellen Sorokin--Washington Times article, but the main issue probably comes down to just a few lines!

"The National Education Association is suggesting to teachers that they be careful on the first anniversary of the September 11 attacks not to "suggest any group is responsible" for the terrorist hijackings that killed more than 3,000 people.” They best be careful; those are angels they’re dealing with now!

If some kids were washing my windows on Manhattan Island in 1982, others were also in school on that Tuesday in September 2001! Those who had to help them through the initial shock were teachers! Prepared or not, they had to deal with the day! Were those teachers the best response many children got when they looked for answers for all of the questions that came from that day? I remember who had to help me with the shock of John F. Kennedy's assassination on Friday, November 22, 1963! It was a teacher! I also remember how lonely I was, standing, at 14, in front of my high school after dismissal on that rainy Friday afternoon, while I waited for my brother to arrive from work to pick me up. That aloneness will live with me until the day I die!

Most of those “children of September” are probably still in those same school systems with those same teachers still trying to carry on just as before! Most have probably changed grades, but the same personalities are still running around acknowledging each other. They will also be doing this on September 11th. 2002!

From the Sorokin Article!

""America is very much together in terms of remembering September 11," said Jerald Newberry, executive director of the union's Health Information Network. "Americans see their schools as the place that will help their children make sense of these horrific events and move forward as better people.""

I don't suppose that I need to mention that if we can't even agree on school vouchers or much of anything else when it comes down to education these days, how can we be together on how to remember September 11 and those angels we will face? How many parents have brought their children home to be educated since September 2001? Will those even more isolated children remember where they were on September 11th, and realize that they're not the same physically or mentally anymore in a way that we might not even know until that day arrives? Children were more affected than the rest of us last September simply because of where they were when they saw what went on, and the immediacy of it all! Even including the 1986 Challenger explosion, this was the most horrific event most may ever see in their entire lifetimes! Challenger was so much more explainable, even if an angel was created who would never teach again!

Read this quote with me please! "The suggestions and lesson plans were developed by Brian Lippincott, affiliated with the Graduate School of Professional Psychology at the John F. Kennedy University in California. Critics argue the proposed lesson plans are a form of "cultural Marxism," in that the lessons defend all other cultures except Western civilization."

So, 39 years later, a man associated with a university named after someone who helped to define a place and time in so many of our lives--JFK--is accused of "Cultural Marxism". And this occurs over a decade after Marxism itself became irrelevant! Just who is taking possession of whose angels here as we approach the first milestone of an event that will be a defining point in all of our lives? We continue to pray that September 11th will be the high water mark of terrorist horrors, just as we hoped that Oklahoma City would be a few years before that! We could ask the same questions about angelhood and the qualifications for entry at Oklahoma City as we do in New York, except that few will argue that those killed in the daycare center probably got an immediate pass!

The National Education Association (NEA) is the flashpoint of all of this controversy, and they will supposedly have a website active by tomorrow to help teachers cope with September 11th as we first view it from the perspective of an annual observance!

""Mr. Newberry said that the site will feature speeches that will be read in New York City, including the "Gettysburg Address," the Declaration of Independence, Roosevelt's "Four Freedoms" speech and Martin Luther King's "I Have a Dream" speech.""

Now we, once again, have someone commemorating a contemporary horror taking possession of that Gettysburg Address! We need to remember that the address itself was given in November 1863, from the perspective that four months after the fact afforded its author--Abraham Lincoln! Lincoln was angry because the Union commander Meade did not pursue Robert E. Lee in order to destroy him on the battlefield before he was able to get his army away! Meade had seen the horrors of Gettysburg first hand. Although he would never know it, as many people were wounded or killed on that battlefield as would die in the entire Vietnam War! Lincoln is best remembered for that Gettysburg Address while George Gordon Meade is, at best, a footnote to everybody except those devoted to military history! Was anybody around Gettysburg to check for angels on July 4th 1864, or had they arrived back in time for Lincoln’s address that November! Did Meade possibly see some early arrivals right there on the battlefield in the days immediately after it ended as they dealt with the tremendous number of dead and dying?

Meade stared out at horrors far worse than September 11th would, except for television, ever provide! The only difference was that most of those in attendance chose to be there and had seen horrors before! Did that disqualify them for angelhood, or simply not count either way?

Here is another quote! ""Phyllis Schlafly, president of the conservative Eagle Forum, said schools should stick to teaching more important subjects such as math, English and science. "There is nothing that schools can add to what happened on September 11, that the children haven't already seen in the media," Mrs. Schlafly said. "They should stay off of it and teach what's true. They should leave it alone.""

How many times has Phyllis Schlafly attacked the media in her time? No disrespect intended here, but for someone in her position to say “teach what’s true” probably best describes the quandary we, as a nation, find ourselves in as we approach September 11. It also describes how divided we collectively are even as we think about how our various institutions are expected to deal with its long-term implications! The media presented to us, as factually as it could, on September 11th and far after, events that will so define the rest of our lives! Newsgathers were roundly criticized for the continual displays of images that were constantly pounded into our own and our children’s consciousness!

When Phyllis Schafly says “leave it alone” does she really mean that we would simply like for it to be forgotten, and the sooner the better? Or does she mean that the right interpretation hasn’t been instilled, and can’t ever be from an educator’s point of view? The educators, after all, had the first view! George W. Bush was sitting in a school classroom among students when he learned the full ramifications of what had happened! What do we do with the symbolism of that? Has he taken possession of “the better angels of our nature” since September 11th, and what has he done with them!

Another quote: "Suggested lesson plans compiled by the NEA recommend that teachers "address the issue of blame factually," noting: "Blaming is especially difficult in terrorist situations because someone is at fault. In this country, we still believe that all people are innocent until solid, reliable evidence from our legal authorities proves otherwise.""

All of the perpetrators are dead! Their side believes that they have already achieved angelhood! The government that they supposedly took their orders from is gone! Are those killed by accident in the fog of war in Afghanistan going to emerge from it as angels too? The survivors are held in detention in Cuba, subject to military trial! Are these, among many other events, to be left solely to the interpretation of the media as if none of them were ever a part of September 11th? The media has a short attention span and an even shorter institutional memory that is governed by economics like advertising. Advertisers have been very shy of September 11th, right from the start! Packaging angels is a very uncertain project!

The article states: ""another of the suggested NEA lesson plans — compiled together under the title "Remember September 11" and appearing on the teachers union health information network Web site — takes a decidedly blame-America approach, urging educators to "discuss historical instances of American intolerance," so that the American public avoids "repeating terrible mistakes.""

How tolerant are angels going to be of all of this, and whom will they tell?

Now we are talking intolerance and "repeating terrible mistakes while we might be getting ready to commit more of the same. This occurs as we try to find a place for an event comparable to Pearl Harbor or Dallas, just at a time when those who remember December 7th, 1941 are beginning to both pass their legacy of patriotism and actual remembrance as they too face the passage to angelhood. We look today at Gettysburg and all that it means from the distance that history provides as we watch other events central to our own lives being cast into the quickly forming mold of opinion that will, all to soon, harden into some sort of lasting interpretation. It is that vision that others will remember us by as they prepare to both cope with their own coming horrors and the angels that they will have to someday face after they emerge from training.

Another article statement: "Internment of Japanese Americans after Pearl Harbor and the backlash against Arab Americans during the Gulf War are obvious examples," the plan says. "Teachers can do lessons in class, but parents can also discuss the consequences of these events and encourage their children to suggest better choices that Americans can make this time.""

Now we have a part of the NEA handing this hot potato back to the parents of children, some of whom have no idea how they should cope with so many angels themselves. It reminds me of the constant argument that teachers cannot take the place of parents and a home environment even though they have been forced to do so on a mass basis for nearly a generation or more!

This seems an odd form of suggestion from an organization accused of the following statement: "A lot of what's stated in these lesson plans are lies," said William S. Lind, director of the Center for Cultural Conservatism for the Free Congress Foundation, a conservative policy think tank. "None of what is mentioned in these plans are facts. It's an ultimate sin to now defend Western culture. It does not matter today whether a student learns any facts or any skills. What matters now is the attitude they come away with when they graduate school.""

How many angels, on both sides, is that attitude going to create?

The "critics" also have other ideas about the separation of church and state! And I quote: "The critics also have trouble with schools teaching about Islam, specifically when teachers describe it as a "peaceful religion." Instead, they say, schools should warn children that the root of the problem lies in Islamic teaching.

"There is no such thing as peaceful Islam," Mr. Lind said. "It says that followers should make war on those who believe that Christ is the Messiah.""

The one indisputable truth of September 11th, other than John Walker Lind, "the American Taliban", is the fact that those who attacked us were Islamic! There are over a billion of them and if they all teach non peaceful means of achieving their ends, we will soon have much larger gatherings of angels on our hands!

And finally: "Our goal is to capture from the patriotism point of view some of the history of the United States where outstanding leaders have spoken to the issues of patriotism and freedom," Mr. Newberry said. "I think it would be difficult to find an American who doesn't agree with remembering September 11. I think these critics are in the minority.""

I have probably written as much about September 11th as anyone on Raging Bull, and I am still of an uncertain mind as to what its true meaning really is! I do know this: if we do not handle this first anniversary properly we will set the example for much of what is to come, and the angelhoods that may be created from all of those examples! Much of this post was done simply to raise questions in the readers’ mind. I know that we are all getting tired of thinking about the whole thing! Many of us have already put it all out of our minds and only want to get past the dreaded date and get on with our lives!

Our forebearors knew that there might be a Gettysburg. They knew that war in Europe was a distinct possibility both in 1915 and 1941! They knew that an American Revolution would not come without a price! We simply weren’t expecting anything like September 11th, and I’m not sure that a year is enough time to dismiss the enormous ramifications of its occurrence as lightly has we may be preparing to do! Particularly in view of the gathering that we are most certainly going to, each in our own very private way, going to have to face!

I hope that, after reading this, we all realize that, just as the debate over how to memorialize and commercialize “ground zero” resembles Gettysburg in some ways, the coming first anniversary is going to be far more complicated and emotional than we might have first thought. We are going to have to face things that we may find very difficult to do. Facing down, or living up to the expectations of angels can be a very trying thing!




Post  41033  by  StockmanI7       OT: Tampa, I must apologize for not following your

Post  41034  by  motordavid       Reply
Interesting Art.,from WSJ,
for anyone that drives....a good "arm wrestle" art., and,maybe a fix in search of a problem. BR,md

August 23, 2002

After a Long Debate, Ethanol
May Soon Fill More Gas Tanks


WENTWORTH, S.D. -- To estimate the value of the thick green carpet of corn covering his 2,000-acre farm, Ron Alverson, 50, used to flip open his newspaper to get the market price per bushel. For the value of corn he fed to his livestock, he looked up the prices for pork bellies and steers.

Now he runs his pencil down the commodity page to the new indicator he reckons by: futures prices for unleaded gasoline. The booming market for ethanol, a gasoline additive made from corn, has changed his world.

"You see that field across the road?" he explains, pointing to a 40-acre plot near his house. "We'll make 18,000 gallons of ethanol out of that." He'll truck it a few miles down the road where he and 950 other farmers are part owners of a year-old ethanol plant, built amid the corn rows to pump out 49 million gallons a year. With the help of federal and state subsidies both to fund the plant and prop up the selling price, the farmers expect their conversion -- like dozens of others -- to soup up a local economy where hog barns stand empty and abandoned stores line the streets.

After 30 years of controversy over these subsidies, ethanol is on the verge of victory. The energy bill on Congress's front burner this fall is expected to include a federal mandate -- supported by the leadership in both houses and the White House -- that five billion gallons of ethanol a year be added to gasoline within 10 years, up from two billion today. The U.S. now consumes about 125 billion gallons of gas yearly. The measure also imposes a ban on ethanol's chief competitor, methyl tertiary butyl ether, or MTBE. Both products have been added to gasoline to clean up auto emissions in smog-prone cities since 1990, but MTBE has been found to pollute groundwater.

Even if the complex energy bill fails, the ethanol measure may have the support to pass separately, and test the promise of its boosters that it will shower hundreds of millions of dollars of economic benefits on farmers and farm communities. Another big winner would be Archer-Daniels-Midland Co., which has long lobbied to boost ethanol and continues to dominate the industry. It owns 35% of ethanol production capacity, according to a recent report by Congress's General Accounting Office, though new co-operatives such as Wentworth collectively now own even more.

The ethanol victory would have other consequences. The federal government subsidizes ethanol mostly by forgiving refiners a portion of their excise-tax payments to the nation's Highway Trust Fund. So the more ethanol is used, the less money is available to maintain roads and highways, according to another GAO study.

That will be felt even here in the land of ethanol. Leon Schochenmaier, director of planning and engineering for South Dakota's Department of Transportation, says the state's 7,839 miles of highways and small population makes it among the most sensitive to a drop in highway funds. The state expects a $16 million shortfall next year that will delay about 30 highway projects over the next five years -- though he hastens to add his department doesn't oppose ethanol.

Ethanol critics warn that food prices will go up as more corn winds up being burned in automobiles, rather than being processed into corn syrup or fed to livestock. The weather becomes a factor in gasoline prices; the current drought has raised the cost of ethanol to refiners by 24 cents in the past month. Motorists along the East and West coasts, where MTBE is widely used, may pay as much as 10 cents more for a gallon of gas because ethanol is more difficult for refiners to blend with gasoline and more expensive to ship into areas where little corn is grown.

"This thing amounts to a Marshall Plan for the Midwest," complains Stephen Brown, a lobbyist for Citgo Petroleum Corp., which opposes the ethanol mandate. A recent study done for the U.S. Department of Energy found that all the subsidies for ethanol, which vary from state to state, currently add up to about 25 cents a gallon. It costs refiners around $1.37 a gallon before the subsidies.

National Debate

All this is the latest turn in a long national debate about how hard to push ethanol as a homegrown fuel. During the 1970s and 1980s, Congress found what seemed to be a painless way to provide a federal subsidy for ethanol, exempting gasoline blended with 10% ethanol from 5.3 cents of the normal 18.4 cent federal excise tax that refiners (and eventually consumers) pay for a gallon of straight gasoline.

In 1990 amendments to the Clean Air Act, Congress went a step further, requiring petroleum refineries to add oxygen to gasoline to help clear the air in smog-prone cities. The mandate can be met by adding either MTBE or ethanol. Now, because of the environmental worries about MTBE, 18 states are phasing it out of use.

This spring, after months of behind-the-scenes negotiations, the oil industry's main lobbyist, the American Petroleum Institute, reached a deal with farmers. The industry, which opposed the use of more ethanol, would agree to a federal mandate that would expand the size of the ethanol industry by 2.5 times within 10 years, if Congress would get rid of the mandate to use oxygen and let it find other means to reduce harmful emissions.

That has formed a new alliance between farm states and oil states that shifts the political center of gravity toward ethanol. President Bush demonstrated this on April 29 with a carefully staged visit to the Dakota Ethanol plant here in Wentworth, saying ethanol support is "good public policy for America." He praised Senate Majority Leader Tom Daschle, the state's senior senator, for his work on the Senate energy bill. That bill is pending before a House-Senate energy conference committee. Though the House version didn't contain the ethanol provision, the support of House Speaker Dennis Hastert -- from another corn state, Illinois -- means it will probably be part of any merged bill.

That prospect frustrates ethanol's longtime foes, such as David Pimentel, a 76-year-old Cornell University scientist. He first calculated in 1979 that growing the corn, fertilizing it, harvesting it and making it into ethanol consumes more energy than it produces. "If it's so damned great, why do we need to subsidize it?" asks Mr. Pimentel, who recently republished his findings, calling the use of corn-based ethanol "subsidized food burning."

His widely quoted calculations have since been challenged by more-recent studies, including two by the U.S. government. They conclude that improvements in making ethanol and in growing higher-yield corn produce a net energy benefit.

Among the complainers, who include highway advocates, there is the feeling that the issue is already settled whatever the merits -- and ethanol has won. "You have the three most powerful people in Washington saying there is going to be a five-billion-gallon bill," notes Bill Fay, president of the American Highway Users Alliance, referring to Messrs. Bush, Daschle and Hastert. "That's going to mean game, set and match."

The industry was initially built on the lobbying clout of ADM and the political savvy of former Kansas senator Robert Dole. The company has generally ranked among the top 10 givers to Congress from the agribusiness sector. This election cycle it moved up to No. 4, from No. 8 in 2000. So far it has given $613,960.

But as farmers have combined to build their own plants, the political base has broadened to include most farm-state senators. "Everybody knows why ethanol has been championed," says Robert Litan, an economist who is vice president of the Brookings Institution in Washington. "You can't go to the Iowa primaries without supporting ethanol."

Now the cause is attracting others who see ethanol as a way to give the U.S. more independence from the oil-rich Middle East -- including oil firms. "From this, you get the makings of a first-rate coalition, even though from an economic point of view it makes no sense," Mr. Litan adds. "I don't know of any economic study that says this is worth it. It would make more sense to spend the money on energy conservation measures."

Along with ADM, seven other energy and agribusiness companies share more than half the ethanol market altogether. But farmer-owned co-operatives that sell directly to refiners have made growing inroads. They built 15 of the 16 plants completed in the last four years, and now control 44% of ethanol production, according to the Washington-based ethanol industry group Renewable Fuels Association.

That's the trend that tiny Wentworth, population 190, has overcome its skepticism to join. Wayne Backus, the lanky, usually grease-covered owner of a farm-equipment repair shop here, also functions as the town's fire chief and its economic development specialist. He saw the gasoline station across the four-block Main Street from his shop -- which used to accept eggs as payment for gas -- close down, along with Wentworth's lumber yard, its bank, two cafes, the hardware store and the local school. Finally, he decided it was time Wentworth had an ethanol plant.

Three years ago, he helped organize a committee of farmer-sponsors including Mr. Alverson, who went out and contacted farmers in the six surrounding counties. They persuaded 950 of them to invest an average of $16,000 and to deliver their corn to the plant.

Tough Sell

Local bankers were a tough sell. But by the time Mr. Alverson and his committee reached them, gasoline prices were soaring, corn prices were low and MTBE had been banned in California (with makers of rival additives crying foul over ADM campaign contributions to Gov. Grey Davis). "These things made the bankers look at it a little more favorably," he recalls.

The plant here -- built by Sioux Falls-based Broin Cos., which takes a minority stake, consumes up to 45 big trailer trucks full of corn every day. About a quarter of the plant's income comes from a byproduct sold as livestock feed. The plant, which has injected 38 relatively high-paying jobs into the community, also has raised local corn prices by as much as a dime a bushel. That helps farmers, whether they sell their corn to the ethanol plant or not. "Say you're a farmer with 600 acres of corn. That's another $9,000," explains Mr. Alverson.

But Faith Stratton, principal of Chester Area School, which serves Wentworth, says she hasn't yet seen any increase in the tax revenues that support her school. "They told us that it would take about five years," she said, for the income from the new ethanol plant to register in the form of higher property tax intake. "We need to see that effect," she adds, noting that money for school supplies is being cut for the fall term.

The economics haven't done anything to change the ethanol industry's strong appetite for government subsidies. Currently at least 20 states offer tax exemptions or other incentives for ethanol production. The champion appears to be Minnesota, a big corn state with an active legislature on the issue. "I don't think there's any need to make an apology for that," says Jim King, economic director for Windom, Minn., which has one of the state's 12 ethanol plants. He asserts the plant's payroll alone creates an additional $10 million of new spending in his area.

Democrats in both California and New York, where there is relatively little corn grown and where MTBE is heavily used, are outraged by the Senate energy bill's mandate, which requires refiners and consumers to pay for credits for ethanol use whether they actually use the additive or not. Meanwhile, states can allow refiners to use other methods to make their fuel burn cleaner in cities with smog problems. "This is a ridiculously expensive way to subsidize farmers," Sen. Dianne Feinstein, a California Democrat, complained on the Senate floor.

After years of artful lobbying and overlapping ethanol subsidies and mandates, even the experts appear confused over the true cost of a gallon of ethanol. According to the GAO study, the U.S. Treasury Department recently overestimated the amount of money in the Highway Trust Fund because it had not calculated the tax money being exempted for sales of ethanol-blended gasoline, calculations it called "very complex." Between 1998 and 2001, the GAO estimated, the subsidy removed $3.86 billion. The pending bill would remove more.

Write to John J. Fialka at john.fialka@wsj.com1,,SB1030066603362821355,00.html?mod=Page+One

Post  41035  by  oldCADuser       OT: Well I made it home last night. The Singapore

Post  41036  by  srudek       Reply
Graph of CPI-Corrected House Prices

This may not work, I'm trying to link to a yahoo photo album to provide one of the graphs I mentioned earlier...

Post  41037  by  srudek       Reply
jeffbas: market metrics
Jeff, I'm hoping the included links work. I'm addressing this to you since it bears back to our earliest discussion about the "Q" metric and whether the market was still overvalued. I think Shiller's 10-year moving average of earnings provides a much better metric than a simple PE; but where in the world are you supposed to find that for your average stock? Anyway, hopefully you find this of some interest. Mike Alexander is a published author who is attempting to show that long-wave (K-wave) theory has predictive value once you deflate to adjust for currency inflation (adjusting for currency inflation is something I believe is necessary to make any sort of sense of long term economic patterns).

P.S. the message just below this contains a link to the inflation corrected housing price graph I mentioned earlier. Note the inflection up in 1995; this corresponds, IMO, with the inflection you find in U.S. stock markets in 1995 -- when I think the bubble began in earnest. So we have some indication of bubblish asset inflation affecting houses, but note the adjusted price increase is very small, so far, compared to the 70's and 80's house price jumps.

From: "Mike Alexander"
Subject: How low must we go?
Date: Sun, 25 Aug 2002 12:03:15 -0400

This post examines three S&P500 valuation methods for what they have to say about the progress of the current secular bear market. The first method that used by Robert Shiller in his book Irrational Exuberance: the index price divided by the average index earnings over the previous 10 years. The second method is Tobin's Q, discussed in Smithers and Wright's book Valuing Wall Street: market capitalization divided by net worth. Finally I look at P/R, which I discussed in my book Stock Cycles: constant-dollar index price divided by the sum of constant-dollar index earnings minus dividends.
This figure shows a graph of Shiller's P/E for the secular bear market that began in March 2000 versus that for four previous secular bear markets: 1881-96, 1906-21, 1929-49 and 1966-82. Several things are evident. First is the value of P/E at the beginning of the current secular bear market was much higher than that at the beginning of the previous bear markets. Indeed, Shiller's P/E had reached a level higher than any of its previous value in the first quarter of 1997. It was this development that led to Chairman Greenspan's "Irrational Exuberance" warning in December 1996. Since its 2000 peak P/E has fallen dramatically, but it is still well above the levels it has seen at this stage in previous secular bear markets. The S&P500 would have to fall into the 400's for P/E to be within the historical range. Thus, advocates of this valuation method recommended exiting the stock market in 1997, and would caution against re-entry until after another 50% drop from current levels.
This figure shows a graph of Tobin's Q for the current secular bear market and three previous ones. Similar observations can be made. As with P/E the level of Q reached in 2000 was way above any of its previous levels, but not quite as extreme as with P/E. All-time high levels of Q were reached in the third quarter of 1997. Since its 2000 high, Q has also fallen dramatically. Like P/E it too is fairly high relative to its historical values in early stage secular bear markets. The S&P500 would have to fall to the 600's for Q to be in its historical range. Thus, advocates of Tobin's Q would have recommended exiting stocks in late 1997 or early 1998, and would caution against re-entry until after about a one-third drop from current levels.
This figure shows a graph of P/R for the current secular bear market and the four previous ones. Like P/E and Q, P/R in 2000 was higher than it had ever been. But the margin of excess was less. P/R only reached an all-time high in 1999. ( Since its 2000 high, P/R has fallen like the other two measures. Unlike the other two, P/R is currently not particularly high relative it its historical values in previous secular bear markets. It is not low either. Thus, although the index certainly could continue to fall, and P/R would remain within its historical norms, it does not have too. Thus, advocates of P/R would have recommended exiting stocks in 1999, and would not caution against re-entry during the recent declines.

The current market provides a good test of the three valuation methods. Suppose the July 23 low ends up being THE bottom? This would invalidate Shiller's P/E and probably also Tobin's Q as useful valuation tools. Only P/R would have given a valid reading of valuation.

On the other hand, suppose the S&P500 drops to an ultimate bottom below 550 without a deflationary depression. In this case, P/R valuation would be invalidated. Such a low level of P/R this early in a secular bear market has only occurred once, during the early 1930's. It is inconceivable that it happen again without an accompanying depression. Shiller's P/E says such a development is to be expected, no depression is needed. And Tobin's Q does not rule this out, only P/R does.

Suppose a subsequent decline takes the index to an ultimate bottom well below the July 23 close, but above 600? In this case, P/R would not be invalidated, but it would be Tobin's Q that did the best job. Shiller's P/E would still be invalidated.

Finally a drop below 400 without a depression would probably invalidate Q as a useful measure and move Shiller's P/E into top place as best valuation model of the three.

So here we have a real-life test of three theoretical valuation methods. We should obtain an answer within a year--two at most, I should think.

Mike Alexander, author of
Stock Cycles: Why stocks won't beat money markets over the next 20 years and
The Kondratiev Cycle: A generational interpretation

Post  41038  by  pmcw       Reply
sr, The page wouldn't open. If you can lead me to the numbers for housing, I have all the CPI numbers and I'll be glad to crunch the data myself.

Regards, pmcw

Post  41039  by  srudek       Reply
maniati & pmcw:

I just saw caught your exchange: pmcw: Context is everything. Sr and I initiated a debate over a post where, if I remember correctly, he said that a deflationary depression has to follow this bubble just as it has every bubble in history. My position is that a deflationary depression does not have to follow this bubble and that there have been recent bubbles where it did not.

What I actually said, way back when, was:

Please substantiate your statement with specific, historical examples. Note I didn’t say “depression must follow a bubble”, I said “The natural outcome of a HUGE stock bubble is a huge DEFLATIONARY Depression -- we SHOULD be in a Great Depression as the reasonable price for the stupidity of the 90's.”

I already covered Japan at the end of the 80’s – don’t use that as an example; Japan has suffered mightily – they might have been better off with a Depression and, besides, their problems are still unfolding with, possibly, a lot left to come. I’m honestly not trying to be cagey, but note I deliberately used the words “HUGE” and “natural”. 1968 was big not HUGE – you didn’t have the rampant, society-wide dementia you have in a HUGE bubble. Nothing since 1920 in countries with Central Banks has been “natural”.

On the whole, I think pmcw's summary of the discussion from memory is good, but I've had to correct him before in that I DID NOT SAY a depression MUST follow . . . . So, I thought I'd speak up. (I say enough dumb things on my own, without being misquoted to appear even dumber! ;-)

Adding to pmcw's summary, as I recall he came up with two counterexamples, 1968/72 and the gold market, as proof that I was mistaken in my statement that "the natural outcome of a HUGE stock bubble is a huge DEFLATIONARY Depression."

I responded that the gold "bubble" was not a good counterexample as it was way too small to be a valid comp. I also said I didn't consider the 1968/72 market "bubble" as a good comp, either, as it wasn't associated with the kind of mass mania you see in great Bubbles. However, 1968/72 had been bothering me as a possible counterexample until I ran across an inflation adjusted, long term graph which clearly showed that 68/72 was not a real Bubble, at all, in that it ramped up rather steadily for 15 years and then ramped down for 15 years; no asmptotic "spike" as in '29, Nikkei, or 2000.

This is a link back into the heart of the debate, if you care to review it:

On the whole, many good things came from it, imo, although loose ends remain. I'd like to get it resolved if a Bubble comparable to 2000 has EVER failed to produce an severe, deflation resulting in a "depression". I'd also like to see if we might reach some consensus definition of "Bubble".

Post  41040  by  oldCADuser       OT: As a follow-up, that old film I ordered arrive

Post  41041  by  Briguy       Reply

Allright, forget about the amount of money for a minute. Some say $800 billion, others $750 billion, and yet others say only $50 billion. Who cares! Whatever the amount is, it is alot and it certainly won't help if the Saudi's pull out. So my question is, do you think they will pull out? I do!

This is a BEAR TRAP people. This rally will fizzle soon. The market has rallied a bit because it is pricing in a cut by Greenspan. Unfortunately, I don't think he will cut rates any further, which will certainly dissappoint many!

I certainly don't expect anyone to follow my advice, but I can tell you this- If I were you, and if I were sitting on any gains, I would take your profits and run. That is what the big boys are doing.

Post  41042  by  pmcw       Reply
I'm lost as to your motivations for continuing this line of dialog. The following quote from your original post is what left me with the impression you were of the opinion that we would have to have a deflationary depression before escaping the undertow of the 2000 bubble:

"There has NEVER in human history been a bubble to compare with this one and, with the possible exception of Japan (which has not played out fully yet, so let's not be too quick to proclaim victory for the Keynesians) NO economy has EVER escaped paying the Depression price for an asset bubble of this scope."

To this I made only two points:

1) The bubble of 2000 was extraordinarily narrow to the point of being sharp. I provided proof that the broad market bubble was smaller than even the "non-bubble" of 1973 (I even said that it was not a 1968 / 1972 bubble). See note one below for details on the comparison. I even illustrated that the majority of the bubble involved less than 1% of the total market and that in the peak bubble years more stocks went down than went up. Heck, even by your graphs, the 2000 NASDAQ bubble was nothing when compared to 1929, the South Seas bubble or the Tulip Bulb bubble. I'm not sure how you can discount the precious metals bubble of the 1970's since gold went from $35 to over $800 and back to under $300 while silver went from under $5 to nearly $50 and back. This bubble wasn't small and you can't say it didn't involve a wide cross section of people. Heck, granny was melting down family silver at the peak and pennies were actually worth about the same in copper as they were in denomination.

2) I also made the point that I don't feel that depression is an absolute milestone cast in our future path. You even stated that you agreed with this point after a day or so. I did say we have reasonable chance and that I characterized it as about 50/50, but I still don't feel it is absolute.

Unless you disagree with one or both of these points, let's move on to other issues.

BTW, since you linked back to that post it reminded me, Tice is down 30% since he started his fund through the end of July 2002. During roughly the same period, I'm up by over 100%. From my perspective, the race is far from over, but he's got nearly a lap and a half of catching up to do before I consider him a threat.

Note One: The S&P500 took 37 months to double (from Feb97 until Mar00) and 28 months to collapse back to the starting level (Mar00 until July02). Total round trip was 65 months. In the early 1970's, the S&P500 took only 31 months to double (from May 1970 until Jan1973) and then only 22 months to collapse back to the starting point (Jan1973 until Oct1974). Total round trip was 53 months - one year shorter than 1973. This illustration clearly shows both the rise and fall of the broad market in the early 1970's was faster than it was in the late 1990's. Please also keep in mind that it paid a 5%'ish dividend during all these 53 months. The common thread for both markets (there were plenty of differences too) was inefficient investment of capital.

Regards, pmcw