Patrick’s Rants

Or - the other things that happen in the futures/commodities market.
Rush stated on his show:

“So once again, my friends, it falls to me, becomes my responsibility to give you a short course on speculators and speculation. We’ve done this a couple of times before, but let me try a different tack. What is speculation? What is the commodities market? It’s the futures market, by definition, speculating on what’s going to happen in the future, which means that people are betting on the price of whatever commodity in the future is going to be, be it soybeans, be it corn, be it oil. “

Right so far…

“Speculators are just bettors, and they make money both ways if they’re right. If they bet the price is going to go down and they sell their contract and it goes, they’ve made money. If they bet it’s going to go up and they buy a futures contract, they make money.”

Um… I think what he’s trying to say is that if you short or sell a contract and the price goes down you make money. Same if you are long or buy a contract and the price goes up you make money. But, if you are short and the price goes up you lose when you have to close out your contract. Same thing for the longs. If you buy and the price goes down you lose when you close your contract.

He goes on:

“But there’s nothing about futures or options that makes it any more attractive to bet that commodities will go up than to bet they will go down. If you guess wrong on the direction, you lose money. That’s all you need to know about speculation. When you speculate on the price of a commodity, what you’re doing is betting on whether the price will rise or whether it will fall. You’re not betting on whether you want it to rise or fall. This is the difference. Everybody thinks that the speculators are trying to drive the price up or trying to drive the price down, that’s not what they’re trying to do. They’re guessing. They’re betting. It may be educated guessing, educated betting, but they still are. You’re not betting that you want what you’re doing will cause the price to rise or fall, not whether you hope it will rise or fall. Your money is going to do nothing to cause the price of oil to rise or fall. It’s gonna base itself, all the results on the good old laws of supply and demand.”

Futures markets are a combination of futures contracts and options on those contracts. Suffice it to say that it gets complex. There are speculators in these markets but the biggest players are the suppliers and the consumers. In this market the suppliers are the oil drillers and pumpers, the consumers are the oil companies themselves. In some cases the oil companies can be the suppliers as well. An oil producer might want to be long or short depending on which way they think prices will go.

Let’s take a hypothetical oil producer - some guy in Kuwait for instance. He is trying to get the highest price for his oil that he can while trying to maintain a minimum dollar amount that he will get per barrel (bbl). So Kuwait guy decides to lock in a price of $80.00 bbl. He enters a contract to sell (shorts) one contract¹ at $80 bbl. We’re going to assume that he will hold his contract until expiration. If the price of oil is $90 bbl he loses because his contract is for $80 bbl and that’s all he gets. If the price goes down to $60 bbl, he gets $80 bbl; the price he locked in. Shell Oil decides that they don’t want to pay any more than $80 bbl at the same time as Kuwait guy decides to sell and they buy one contract at $80 bbl. We’ll assume they hold their contract until expiration as well. If the price goes to $90 bbl, up Shell Oil only pays $80 bbl because that’s the contract they bought. If the price falls to $70 bbl they still pay $80 bbl.

Enter the speculator or investor. When the guy in Kuwait decides to short but Shell Oil isn’t ready to buy the investor enters the contract. He buys the contract for $80 bbl. If the price starts to rise Shell might decide they want to lock in their price at $85 bbl and buy a contract. The speculator decides to sell at $85 bbl and that’s the contract that Shell ends up with. In this case the speculator made $5 bbl² the Kuwaiti producer makes nothing and Shell locks in their price at $85.

There are a couple of interesting things about commodities contracts. First the margin requirement - or amount of cash that you have to have in commodity trading account - is quite low when compared to stocks. It changes over time and by how much money you have outside of the account, but it can be as low as 10% of the contract amount and quite close to 100% depending upon the volatility of the market. If you have a contract and don’t close it out by buying when you are short or selling when you are long you are required to either deliver (if you are short) or receive (if you are long) and pay up if you happen to be long.

Where the speculators do can affect the price of oil (or other commodity) is if they believe that the price it too low and there is no one to short a contract (for each buy there is an equal and opposite sell). The shorts don’t get into the market until the price is too high. If there is no one to sell you a contract you can’t buy one. They don’t make the price go up or down.

Like I said, Rush got it partly right. I didn’t add the options on the commodities markets which adds that much more to the mix. If you want more, check out one of the many commodities brokers, such as Lind-Waldock

1. 1000 bbl
2. Times 1000 barrels = $5000.00

Everyone’s pointing the finger at everyone else. The oil companies blame the “speculators” for the high cost of oil and gasoline at the pumps. George Bush and John McCain want to drill offshore and in the arctic reserve saying that it’s the Democrats fault for the high prices.

Here’s the truth. Gasoline stations make pennies per gallon on the sale of gasoline. If they don’t sell something else, they are slowly circling the drain. Credit card processing charges alone are killing them. It’s not the gas stations that are raising the price of gas.

Speculators are betting that the price of oil will go up or down. They don’t actually control the price, they merely bet on the direction. Anyone who knows anything about the commodities market knows that the so-called speculators do nothing to actually set the price - except to bet that the price will go one way or another.¹ The commodities market also helps to smooth out the price and you will find that the oil companies participate in the commodities markets to enhance their profits and even out their costs. The oil companies are reporting record profits². If it were truly the speculators - and only speculators - causing this price rise, then the oil companies would have the same profit margins as they did in the 90s. But that’s not the case is it?

The truth about the high price of oil is complex. It’s not going to be solved by drilling for more oil. It’s not going to be solved by lifting bans that protect wildlife, the coast, fishing industries, etc. The first reason is that while drilling might be safer today than it used to be it’s going to take a long time to get that oil into the pipeline and the risk to the environment is simply not worth it. Gas will be at $10.00 per gallon before we start to see oil begin trickling into the supply chain.

I’m going to be political here and blame the high cost of gasoline right at the Administration’s feet. I wrote about Dubya funding hydrogen research nearly two years ago. While funding for research that promises some possible returns 20 years from now, it does nothing to increase the supply or reduce the cost of oil today and will not work in today’s automobiles.³ So that’s strike one against Bush. The fact that he and Dick Cheney have heavy ties to the oil industry mean that even if this were a genuine initiative it’s highly suspect. Congress and Bush need to support research like that being done by Conoco Phillips and Tyson Foods⁴ which would create a renewable diesel fuel source⁵. That’s funding fuel that can be put into today’s cars.

Congress and Bush can modify the Farm Bill and fund subsidies for farms that produce ethanol feed crops. Without getting into all of the other politics of the farm bill, paying someone to leave their fields fallow to prop up food prices can be replaced by paying the farmers to redirect their output. The farmers get essentially the same result; prices remain steady and they are being paid to work instead of being paid to not work as the fallow payments encourage. Engines that can use ethanol in up to 85% concentrations exist today - the hang up is not having the premixed fuel. The other thing they can do is reduce or eliminate tariffs on imports for use in ethanol production (not to compete with food).

Cheney and Dubya need to release their energy summit meeting notes. It’s not top secret. If there’s nothing to contribute then why did they have the meetings? If all they did was toss some bones to the energy companies and Kenny Boy and twist a bogus energy crisis in California⁶ into a recall campaign against a Democratic governor, then we need to know that too. There is nothing top secret about electricity. And hey, if it’s OK for Dubya and company to listen in on my private phone conversations (and if I have nothing to hide I won’t mind will I?) then it’s damn sure OK for me to read what Kenny Boy and Dick had to say about my electric bill.

The credit crisis - as it’s being called - is a major contributor to the price of oil. Bankruptcy reform, a laissez faire attitude about the middle and lower class, and a hands off approach to the housing market all contribute. Pretending that we’re not in a recession doesn’t help. With our financial markets slowly melting down, the value of the dollar vs. other currencies is sliding. Oil is traded worldwide in US dollars. So when the Canadian dollar is twice the US dollar (when it used to be $.70 US) means that the price of oil hasn’t really changed. Consider if the dollar is only worth half of what it once was - the price of oil at $130 bbl is really equivalent to $75 a few years ago compared to the value of the dollar on the world market. (I’m simplifying this a little - well, maybe a lot, but you get the drift). None of this affects people in Dubya’s income bracket. They don’t care. You won’t see Dick bicycling to work any time soon so none of this will change.

Acknowledging that global warming is real, reducing energy dependence on the rest of the world through innovative technologies that don’t require a complete change in the type of cars that we drive (that type of change is ten+ years in the making according to Cringley) and doing things like adding more bike lanes will reduce our dependence on foreign oil. Riding your bike to work one day a week for a five day work week reduces your auto fuel bill by 20%. Asking US Citizens to sacrifice a little would reduce our dependence on foreign oil. Installing just a few more wind turbines and a couple more solar panels will help too. Actually funding research that will help today and tomorrow will help. Hell even giving new technologies the same breaks that are currently given to oil companies would even the playing field and eliminate the need for drilling over a short period of time.

1. I started writing this a few days ago and yesterday (2008/06/25), that big fat idiot blow hard Rush Limbaugh was telling his listeners the exact same thing, although I didn’t hear him remind listeners that oil companies participate in the commodities markets. If you dare, the link to that part of his show - where he got it partly right - is here. I’m posting a follow up with the other things that commodities markets do/how they operate.
2. Oil company record profits
3. Robert X. Cringley restates that in his column, It’s the Platform Stupid, presumably he has done the research that backs up his “platform” or type of car claim. He revisits the energy topic in What a Difference a Day Makes
5. The original fuel source for diesel engines is said to be peanut oil, a renewable source of diesel fuel.

Status of Conoco Phillips, Tyson Foods collaboration.

6. Enron, led by Ken Lay, is now know to have caused the energy shortages in California including rolling blackouts by manipulating supply, exploiting deregulation all while calling for more deregulation.

We went camping at Blueridge over the weekend. It’s generally quiet, out of the way and not too far to drive to. We’ve got a new trailer cargo rack that we used a couple of weeks ago at Dead Horse and it worked very well. We had to take care of some stuff at Juvenile Court and then we were ready to head out.
Everything was going well until we were almost to Happy Jack Lodge when i noticed an “exploding cloud” in the side view mirror. “We lost something,” I tell my wife. I started pulling over as a Forest Service truck pulled in behind us. My wife and I got out and walked to the rear of the van to look at the hitch storage. Part of the bungie style web had snapped, releasing several items from their snug space. I could smell the burnt plastic and aluminum from one of our folding chairs that had apparently been dragging behind us for a while.

The Forest Service guys walked toward us, “I was trying to flash my lights at you. This started about two miles back. Most of your stuff is there on the horizon.”
I’m pretty sure that I thanked them and they climbed back into the government truck and started it back up. (Saving gas while they talked to us)

At the top of the hill, visible in the late afternoon sun was one of our storage containers. The one that held the majority of our dry food as well as a couple of rolls of toilet paper - part of that white cloud that I had seen. We quickly yanked the remaining storage container from the back of the van, crammed things in on top of the kids. Re-secured the remaining items and drove to the scene of the “release”. We looked around and found a few items that we were able to recover immediately. A roll of toilet paper (30 feet or so was wrapped into the branches of a tree - we left that) a box of cookies, a jar of pickles that didn’t make it, strewn for hundreds of feet.

My wife starting walking back up the road while I drove slowly along trying to see anything else littering the sides of the road. M walked along crossing the road often to see if there was anything left. After somewhere around three or four miles we decided that we had everything that we were going to recover; somewhere around a quarter of the dry stuff. Also lost was a small folding table and a sleeping roll - my wife claims to have seen possible remnants of the table broken up along the road, but there was no sign of the sleeping roll. After taking stock of what we had left we decided to continue our mini vacation. (more…)

We spent the last few days (May 23 - May 26. I was slow posting this) at Dead Horse Ranch State Park camping, hiking and the kids even got into the water. We went down Friday evening. Since I had a few things I had to take care of, I left work around 11:00am and didn’t go back. I just couldn’t deal with a day of work after my morning (a future blog topic to be sure, but not something I’m ready to write about).

We got to the park around 7:00 pm or so and started setting up camp in the rain. The wind was trying to blow the tent over the whole time we were setting up and we were all pretty well drenched by the time we got just the tent up. I was in a foul mood and the weather wasn’t making it any better. I had water running down my legs, my decent jacket was soaked through although it should have stayed dry.

The tent sites were in an area titled, “NORVS” which my wife pointed out was NO RVs with inadequate spacing. If you like spending time next to your neighbors this is the campground to pick. Site spacing is small and spaces are not especially private. On the plus side there are showers, running water in the bathrooms and all of the roads are paved. For $5.00 you can buy a banana box full of 2×4 trimmings to use as firewood (there is no wood collecting allowed) from the volunteer hosts. For $11.00 per night* for non-electric spaces the rate wasn’t too bad.

Saturday rained off and on all day. We started a fire in the morning that managed to stay lit all day despite the on and off sprinkling. I had to show J how to get a fire started with just one (box of) match. Everything was so damp the fire just didn’t want to get started. We managed to cook our meals, nap and just hang out.

Sunday, the sun came up and dried things out. We took a couple of hikes and decided to look for water to swim in. There weren’t many places that the kids could get into the water - it’s more of a boating and fishing environment, but there was one place by the edge of the Verde River in the day use area that the kids were able to wade into for a while. They were happy.

Later we ran off to Super Wal-Mart in Cottonwood to grab a card game since I forgot to bring my games. We settled on UNO since we didn’t have that one yet. (That game has really changed since I played it as a kid. The cards are dumbed down so that anyone can understand them, with a little help.) We played a few hands while dinner was cooking and then stayed up watching the fire and talking until we decided to hit the hay.

Monday was not really eventful, we packed up and left.

*Subject to seasonal adjustment. AZ Parks Fee Schedule

I tried to send the following feedback on the Coconino County GIS web site:

I recently attempted to use the beta version of GIS maps and discovered that despite the fact that Firefox is nearing a 20% market share this government site is not ready to serve me or the other users of web browsers other than Internet Explorer. I have used the existing site with Firefox with no problems. I, as many Firefox users, feel that Internet Explorer is an inferior browser that leaves users exposed to malicious programmers whereas Firefox allows users to install extensions and add-ons (such as NoScript) to protect themselves from mass attacks that turn ordinary web sites into malicious hosts.

I was further frustrated to find that although there is a request for feedback on the beta, there is no direct link from the map page to the feedback form. Instead I had to directly enter the coconino.az.gov/gis.aspx address into my browser in order to find the feedback form; there does not appear to be a direct link back to the department web pages from within the map-gis.coconino.az.gov (I tend to directly enter this address in my browser)

I would appreciate the courtesy of a reply to my email address included above.

Of course I probably won’t get a reply, instead it doesn’t appear that the email even got sent. It’s some bogus javascript that didn’t seem to perform the actions in the function when I clicked the Send button.
It’s frustrating when the agencies that are tasked with providing services to citizens choose to support a convicted monopolist. Microsoft is struggling to maintain its market position by forcing through an ISO vote attempting to create a new document standard being called OOXML (Office Open XML) (which is becoming increasingly contested by the member nations) a 6000 page specification that does nothing to make Microsoft Office any more open.

It’s time for our local government to focus on platform neutral implementations of existing standards instead of relying on proprietary extensions and broken features in support of a company whose only goal is to try to maintain its grip on its failing monopoly. If Microsoft is still considered a monopoly then part of its punishment should be that the government does not support its ongoing business model. If Microsoft is not to be considered a monopoly then the government should rightly support the growing number of users who use something other than Microsoft and Internet Explorer.

I walked into the Dispatch office yesterday just before my shift and realized that I had to get out and drive. Two of us had decided that since I wanted to go camping this coming weekend that I could come in early (4:00am) on Friday, #1 would take the day off and #2 could close up. If it had been anyone else on the floor they would have agreed to closing, but this is #2. She argued that she could come in and open since I had opened the last two times that #1 was out. That’s because the last that #2 was allowed to open she showed up after 5:00 am (late), left greasy takeout containers on top of the computer (kitchen grease on the CPU anyone?) and generally annoyed people. The truth is, #2 doesn’t get and we’re not gonna fight it anymore. I’m leaving on Saturday morning instead of tomorrow afternoon.

Just when I think it’s done, there is a forecast for more snow. Per weather.com,

SNOWFALL ACCUMULATIONS OF 2 TO 6 INCHES CAN BE EXPECTED ABOVE 7000 FEET WITH 6 TO 12 INCHES ABOVE 7500 FEET AND 12 TO 18 INCHES ABOVE 8000 FEET. LOCALLY HEAVIER AMOUNTS ARE POSSIBLE AT THE HIGHEST ELEVATIONS OF NORTHERN ARIZONA.

And I’m supposed to go camping this weekend.

K12LTSP 64 bit dvd

If you’ve been following what the recording industry cartel has been doing to people (running roughshod over the legal system, extorting funds from paralyzed individuals, dead people, grandmothers and little children) you will - no doubt - enjoy this sliver of hope and sanity offered by a judge in Florida.
Recording Industry vs. The People

(Updated 5/6/08)
Our “coupons” for DTV convertor boxes arrived on Saturday. My wife immediately went out and bought one at the local Radio Shack. It was the base model of course, but what more did we need? What more indeed.

Here’s the thing. Since we live in Flagstaff we are on a “translator” or a type of repeater antenna for stations that are in the valley - Phoenix. Translators are not required to switch over in the same time frame as the station itself, so while the station may be broadcasting in DTV format, they are under no apparent requirement to convert for those of us in outlying areas.

We get several stations off air here:

• 2: the local NBC affiliate
• 13: a Spanish language station, also local
• 14: translated from PBS 8
• 28: translated from “My 45″ the wholly-owned Fox baby station where they air the stuff that’s too racy for Fox itself
• 30: rinky dink local station that’s kinda fun once in a while
• 39 & 48: translated from 10, Phoenix based Fox 10 affiliate
• 50: translated from 5, Phoenix based CBS affiliate
• 52: translated from 15, Phoenix based ABC affiliate
• 54: translated from 3, Phoenix based independent

And there’s a religious channel in there as well, but I always deprogram it so I can’t say which channel it is.

After plugging in the DTV converter box we got two channels; local 2 and the spanish language station. I decided to hop onto the web sites of the TV stations to find out when I could see the new digital stations. Here are the results of poking around on each station’s web site. (more…)