What's New Under the Sun ?

1. Russian oil production growth stops.
2. Industrial Eaton reports good earnings.
3. Home foreclosures up.
4. Stock buybacks result in buy high, sell low for banks.
5. BS made a profit in Q1.
6. Big deepwater oil find off Brazil.

None of this is "really" new, but shows how much perception is diverging from reality. And how little most people really think or understand dynamic trends.

1. Old oil fields are declining and thus making any further increase in the annual oil output worldwide almost impossible. Notice I said "annual output" - that's the flow from the "tank", not the capacity of the tank. People seem to be unable to comprehend a flow problem and confuse it with a capacity problem. Lack of further annual output growth mean that prices have to rise to a level to ration new demand , i. e., eliminate any increase in total demand. I think current prices are high enough, given time for adjustment.

2. This fact means the real economy is fine worldwide. Eaton is a big exporter, too.

3. Of course home foreclosures are up - foreclosures are the end of the flow - that word again - starting with subprime & Alt-A loans to speculators. They default quickly since they never really wanted the home in the first place. The loan eventually goes into foreclosure and the home gets sold. As my thinking is that defaults peak this spring, foreclosures must rise through summer. That the dynamics of the flow.

4. Nothing new here. This is the "dirty, little secret" of stock buybacks. Stock buybacks merely aid those wanting to sell a stock, not an investor. Hence stock buybacks are "anti-investor". Management buys back stock when times are good at high prices, then re-sell it when they need more capital . Smart, eh ? NOT! Management should pay down debt instead of buying back stock, and maintain stable dividend levels through downturns.

5. Bear, Stearns was not insolvent, having made a profit in Q1 as just reported. BS died of its own past sins, as the Street decided not to do business swith it anymore. And clearly JPM got a great deal if it can retain the good people. Even if not, the acquisition well under book means a good deal for JPM.

6. Where else can big oil finds be made ? Huge finds have already been made in the Gulf of Mexico. I own RIG and DO for this reason. And CVX was the firm that has lots of those deep water leases and made the finds, also with DVN to a lesser extent. These new finds will take years to produce significantly and the costs are large. Don't expect relief in oil prices from them. These will just limit further price increases in the future.

Yesterday I was disapointed by WB. I think management did a "kitchen sink" quarter and has lowballed projections. And they cut the dividend to force the large Golden West former shareholders to bear the pain as that was where the projected losses were to occur. Clearly management needs some changes. I an holding and bought some more for a trade related to my tax issues. I'll sell my early purchases in 30 days for a short term loss to offset a bit of my large gold & silver profits [28% federal plus 12% state tax] and thus save a lot of money on taxes. Then my long term WB holdings will have low basis and when I eventually sell, I'll have a low tax, long-term gains.

I also sold 1/2 of my DVN since that stock no longer looks cheap and seems a bit extended/parabolic on a weekly chart.

Word of the Day

[hold the flack - I sort of knew the meaning of these, but looked them up to be sure of the exact meaning]

"Phlegmatic" - adjective [$10] pronounced fleg' matik
Phlegmatic means stolidly calm; unexcitable, unemotional
Sentence: Imagine a phlegmatic Bunkerman sitting in front of his crappy Vista PC listening to Blabberg while the panic mongers screech, as he thinks about the "real" news and what the future economic trajectory is most likely to be. Well, that's the ideal.

"Stolid" - adjective [$10]
Stolid means 1. lacking or concealing emotion or animation; 2. not easily excited or moved.
Sentence: Investing the bulk of one's assets using the Krypto Fund strategy permits one to maintain a stolid, thoughtful frame of mind during times of economic stress.