Category Archives: Business

Ike and Gus

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Hurricanes Ike and Gustav have disrupted the ebb and flow of hydrocarbons out of the US gulf coast. Lots of plant shut downs and supply chain interruptions for those in the petrochemical supply chain. It really plays havoc with just-in-time delivery of raw materials. The jabbering masses whining about gasoline prices are insulated from the real magnitude of what a hurricane and a banking catastrophy can do to their supply of hydrocarbyl necessities.  It’s like the food web, only you can’t eat it. It’s the petroleum web of commerce.

The banking fiasco is unlikely to directly harm the chemical industry other than spot problems due to the unavailability of cash to borrow for big projects. The bigger problem for the chemical industry lies on the demand side. If money isn’t available for consumers to borrow to energize the construction, automotive, machinery, and durable goods industries, the polymers and coatings supply chain will see a slow down. This will affect the specialty value-added companies as well as basic feedstock suppliers.

Pharma could be hurt if there is a big uptick in people who lose their insurance benefits to pay for the expensive namebrand pills. On the other hand, the generic drug business could gain from the slow down, based on the assumption that people will still demand drugs from someone.

In the end, the Wal-Mart to China cash conveyer will do just fine as shoppers downrate their expectations for the good life. So, what are lipstick sales looking like?

Views on the Subprime Mortgage Mess

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I have no real expertise in banking or real estate. Neither fields hold much interest for me. But I am interested in failure behaviour of large complex systems. There are a few posts out there that hold better than average insights on the current financial mess and I wanted to post links to them.

Jim Kunstler‘s blog, the full name of which is a bit too coarse to post here. None-the-less, Kunstler writes one of the best blogs out there on business topics.

Georgetown Law Faculty Blog has posted part of an article intended for the banking community. It is lifted from the American Banker which, sadly for me, requires a subscription. The theme supports my contention that business- banking included- should be treated as part of contemporary anthropology rather than an abstract exercise in arithmetic.

Business isn’t just an math exercise. There is a lot of anthropology to it. Unfortunately, anthropology isn’t on the curriculum of most MBA programs.  MBA’s worry me. They seem to be hustling the rest of us into an Orwellian future with methodologies taught by faculty members who are more interested in tidy formalisms than people. 

There are a lot of cocky bastards in business who are always certain, but frequently wrong. This banking mess is an example of what happens when they achieve a quorum. In fact, I think they have ascended to the level of mythical archetype.

Bush II and His Faith-Based Bailout

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Where is the Decider President? He sent his creepy surrogate, Dick “Rasputin” Cheney, slinking around to urge members of congress to support the bailout plan, but where is George?.  I suppose Bush II is lying low to avoid casting the long shadow of the GOP on this banking train wreck.

But it’s just so striking; in the run up to the largest business bailout in the history of the solar system, Secretary Paulson’s boss is strangely absent. No frank and heartfelt talk with the American people. All the Bush administration can do is to attempt to hustle congress into a mysterious plan. Take our plan on faith- we know what we are doing.

No details have been released to the citizens regarding how this number, $0.7 trillion, was arrived at. Is this large sum actually large enough? How does the country recoup this outlay?  Is the stated urgency related to the election?

Citizens must learn to save more cash and be smarter about the terms of the mortgage they sign. We must consider that our banking system is much like the municipal water system- it’s integrity must be scrupulously maintained and those who manage it must be held accountable for its operation.

Update:  Bush II will make an announcement to the nation this evening. I wonder if there will be any folksy anecdotes?

Drill Baby Drill!! The GOP Call to Arms.

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I recall sitting on the sofa watching the 2008 GOP convention and hearing the intoxicating refrain “Drill Baby Drill”. It was like the sensation of sitting in the dentist chair with my brainstem bathed in cool nitrous oxide vapors and face numbed with lidocaine.  I found myself tumbling head over heals in a mild, drooling, narco-twilight state while my twitching eyeballs attempted to focus on McCain.  My fellow citizens had drummed themselves into an enchanted war dance and gathered to hear Colonel Kurtz, but without the banana leaves.

Then I snapped out of it.  Drill baby drill. This was not just a work order or a requisition for drilling staff to please set up a few drilling rigs in the morning. This was an exhortation to rip those smirking tree huggers from their stations, pulp the trees to make a paper dunce cap for Pelosi, and call in the Air Force to oversee saturation drilling of the continental shelves, and do it pronto!

“Drill baby drill ” was a catch phrase along the lines of “Damn the torpedoes! ” or “somebody get a rope! ” Its conception and use was a masterful bit of applied propaganda- A figurative running of the liberals out of town on a rail.

But what was lost in the excitement were the pragmatics of oil production. You need to boost refinery capacity to increase the supply of refined fuels.  And, what oil company is going to attempt to flood the market in a bid to drive down oil prices? What oil company is going to step in and provide cheaper crude to US refiners so that they can, dutifully, distribute cheaper gasoline when the global market price is so high? Only the dumb ones. Do they think that Santa Claus runs Exxon?

I thought GOP’ers were market savvy, laissez faire devotees swingin’ the big stick of Ronnie Reagan tough love? What has happened to these people?

Seems to me that oil in the ground is like money in the bank. Why are we so anxious to deplete North America of its supply??  What about pulling back on demand to counter the high prices? That is the one big stick that consumers have in the market.

China to Demand “IT Accreditation” from Foreign Manufacturers

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Yomiuri Shimbun, September 19, 2008. The Chinese government will soon oblige foreign companies to disclose source code in IT products for sale in China. Foreign manufacturers will be allowed to sell their IT-based products to the Chinese market only after an accreditation body examines the code and finds that it passes unspecified tests.

Products expected to be subject to examination include smart cards, digital copiers, and computer servers. China claims that this activity is needed to shut out viruses and stymie hackers. Companies that decline to cooperate can be barred from both sales and manufacture of the product in China.

I would suggest to China that they spend more of their energies keeping better track of melamine and lead.

Clowns to the Left of Me, Jokers to the Right

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Pity Larimer County in northern Colorado. We poor sods who live here find ourselves sandwiched between two unexploited deposits of natural mineral wealth. To the east of Fort Collins, near the hamlet of Nunn, is a fairly large uranium ore body. In the northwest, there may be an exploitable diamond deposit. Perhaps hundreds of Kimberlite pipes may be lying in the CO/WY region waiting to be exploited.

Diamonds have already been mined in northern Colorado, near the Wyoming border. The Kelsey Lake diamond mine closed in 2002 due to bankruptcy. The Kelsy Lake mine produced the 5th largest diamond ever found. The yield of the formation is reportedly 4 carats per 100 metric tons of ore.

Given that the Colorado Front Range has been substantially gentrified, the discovery of mineral wealth in the vicinity of hobby ranchers and McMansions will make for some interesting times for the county commissioners. Uranium and Diamonds. NIMBY.

Stealers Wheel Video 1972.

BASF Offers to Buy Ciba

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According to the on-line publication Chemical Engineering, German chemical giant BASF has made an offer to buy Ciba Holdings AG, headquartered in Basel, Switzerland. In the public takeover, BASF has offered CHF 50.00 for each nominal share of Ciba stock.  The agreed upon price represents a 32 % premium above the Sept. 12, 2008, closing price. The acquisition will help BASF strengthen its hold on specialty chemicals, particularly in the area of coatings.

Are B-Schools Paying Attention to this Fiasco?

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The dam burst of banking disasters and federal bail-outs of firms “too big to fail” has brought to light the fragility of our banking and investments system. Like a tropical depression that forms in the eastern Atlantic ocean and gradually feeds on the warm waters and moist air until it makes landfall as a rampaging storm, the combination of greed, financial deregulation, and enthusiastic liquidity on the part of the Fed has now spun up into a full fledged economic storm.

In an essay posted on CNN.com, Columbia Professor Joseph Stiglitz, among others, points to some causes of the present calamity on the banking and financial businesses. Stiglitz says-

“One can say the Fed failed twice, both as a regulator and in the conduct of monetary policy. Its flood of liquidity (money made available to borrow at low interest rates) and lax regulations led to a housing bubble. When the bubble broke, the excessively leveraged loans made on the basis of overvalued assets went sour.” 

“The new “innovations” simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises …”

The mess that taxpayers and investors are left with is the result of greed and recklessness on the part of elite “business leaders” in conjunction with Federal officials only too anxious to deregulate and discount. This is not a failure based on physical reality. It is a failure based on greed and poor judgement. It rests on a morally shallow and sadly misguided philosophy that mere acquisition of currency is reason enough for being and is the sole measure of success.

As a start, it is my hope that the Deans and faculty of our business schools can summon some kind of movement to reform their admissions standards and refine their ethics curricula.

Perhaps certain finance practitioners need to be trained and certified in a manner similar to actuarial professionals?  Seems to me that the people who launch financial instrument schemes with the potential to collapse an economy should be at least as well trained in risk management as an actuary.

A firm proposing a financial instrument for sale to the public should be required to prepare a mathematical model with macroeconomic inputs to model the potential for instability. The kind of discipline needed to do this modeling could help people refine the fund structure so it remains manageable in a broader range of economic conditions. This would also provide for a real transparency to regulating agencies and possibly even investors.  But most importantly, if you want to model it, then you have to understand it. And that is part of what has been lacking.

PGM Cu-Ni Strike Near Thunder Bay

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10 September, 2008. Anglo American has acquired a 12 % stake in the Australian mining firm Magma Metals Limited. Magma Metals had previously announced “spectacular” results August 11, 2008, in its exploratory drilling activities in the Current Lake intrusive complex north of Thunder Bay, Ontario, Canada.

Magma reports a 2.5 kilometer long strike zone with mineralization varying from 5.6 g/ton to 26.5 g/ton of Pt + Pd from one drill hole. The drilling revealed concentrations as high as several percent of Cu and Ni as well. Magma Metals reports that it has been undergoing a 24,000 meter drilling program to map the Thunder Bay claims.