As  elementary students we received the Weekly Reader.  In the 1950s and 1960s the big news was that Afreican Nations were becoming indpendent. The centuries of ‘ colonialism’ of being ruled by foreign countries was coming to an end.  And so it did. But for most of Africa it has just been the same or worse despotism under local thugs rather than foreign ones. The latest invaders are the Chinese.

This is chronicled in the latest issue of Fast Company.    It is the longest article they have ever published. A reporter dutifully travels form country to country. Long story short, the Chinese show up with briefcases of money, pay off local ‘leaders,’ and then proceed to haul off copper, timber, you name it. There are no demands for human rights in exchange for investment, and the investment is liable to be a new parliament building, hardly a help to the $2 per day average citizen. It is a sad story, where is Bono when you need him?

So why are we buynig Chinese products which means the virtual rape of African countries?  Where is our leadership to address this question. Why not make our own baseball caps right here instead of in China? the answer is that we want low prices and business is weary of high taxes and onmipresent regulations, and so they gravitate to coutnries where there are no regulations.

Today in the WSJ one hedge fund manager pronounces that the worst is past.

Good reading for perspective, the housing bust reached a critical point in January, it has been in decline for the last few years.

This column in Fortune highlights why AAPL is worth more than 3x DELL.
The reason is not market share but return on sales and assets. Clearly Jobs figured out that cost cutting to corporations would sell more widgets but not profitably. So he stopped doing that.  Now let hte corporations come calling, and pay the price of admission I would gather.

India is quickly returning to its socialist roots.  Now India is considering banning futures trading in food products. This has already happened in rice and wheat. Okay budding capitalists, the prices are rising, so the logical result is

encourage more food production

ban trading in open markets where prices are there for everyone to see

All of you who took choice B are voting in favor of black markets, unofficial markets where prices and transactions are anything but transparent. The next worst thing would be for the government to decide it would set the price, that would really dry up supply.  We are getting closer to that with the Dems calling for expropriation of oil company profits. If that happens what will be the incentive for oil companies to find more oil? this sort of knee jerk short term reaction to news, especially in an election year is downright scary. The belief that prices and supply can simply be ordered brought us the wreck that became the Soviet Union and the entire Eastern Bloc of waiting lines and no supply.  It is one thing to have high prices, it is quite another to not have any supply.

A fund manager looks at how we got into this mess. It is always interesting to read analysis by someone who does not work for an investment firm or the govt, ie someone independent.

One of you asked me to explain how the price of oil or futures is determined.   Politicians  have done nothing to decrease our dependency on oil or find more of it or encourage alternate energy sources that actually produce energy, like nuclear. Rather many would simply tax oil company profits, remember we tried that in the 1980s, did it work, do we have more oil?  No, but I digress.

I direct you to the NYMEX.  That would be the New York Mercantile Exchange.  Here energy futures are traded every day by traders all over the world (read unscrupulous energy traders, there are of course no unscrupulous politicians who would seek political advantage from this). The hyperlink takes you to the NYMEX education forum for a genuinely accurate and longer explanation than I can give here. But

It works like this. Companies that must buy oil in the future, buy futures now to hedge against further price increases. If a utility or airline must buy oil in August, they might buy oil futures today for say $122 basis August.  If oil is above that come August, they have hedged their position by assuring themselves a price of $122. If it goes down they can buy the cash market, they will still have not paid more than $122.  Sellers do the same.  In a down market one might sell forward guaranteeing a minimum price for the commodity.  One sells at $122, if the price is lower the seller is still assured of getting, yes, $122 in August.

Trades are done by open outcry so the best bid and offer are paired at an agreed price. And every contract must settle to the actual real price at settlement, or the contract must be closed out before a specific date.

Yes there is more oil traded than produced, but all trades must still settle to the cash market.

IT is true that Exxon Mobil made a lot of money lately. It is also true that they are paying billions of dollars in taxes lately.  It is also true that their net profit percentage is below what most banks are making-or Revlon for that matter. But no one is griping about Revlon’s excess profits. And Exxon’s return on assets is about 8.3%, just above the all industry average of 7.5% or so. But do not expect the politicians to talk about that.  Now if you were in the oil business, would you price your product at what you expect to pay for the next barrel of oil you must purchase?  Of course you would! If the prices go down you will be stuck with high priced inventory. And of course the cost of exploration continues to go up. Understanding accounting helps one get through the political maze. 

Check out NYMEX or Trading Places last scene at the NYMEX.   It was actually filmed there and Akroyd’s explanation is right on accurate.  See my fascination with the movies once again has an education link!

There are several videos at this link, how would you like to do this every day for a living, talk about stress!

Chrysler is offering a guarantee against gasoline price increases.  Along wtih the purchase of certain vehicles, Chrysler will guarantee the buyer that the buyer will pay no more than $2.99 per gallon on 700 gallons of gasoline- for the next three years.   At 20 mpg that would take you 14,000 miles per year.

Now I have preached about futures, derivatives, and hedging.  How would Chrysler hedge against a possible further gasoline price hike the next three years ? Any posts on this one?

The old adage has it that one avoids poiltics and religion to get a point across. These tend to often be emotional issues, running counter to the audience emotion is a difficult sell.  However after reading the case studies in the grad class I am convinced that the students lack understanding of the sort of infighting and manuverying necessary to win a negotiation. So, regardless of your political views, consider the Obama Clinton impasse.  One is going to win Dem nomination and one is going to lose, which one?  How can Clinton come from behind in delegates to win?

Here is a view of what is being considered.   In any negotiation, when all else fails the rule book becomes very important. Note that she has 50% of the rules committee in this case.  The momentum seems to have slowed a bit for Obama but is it enough for Clinton to take the brass ring?  This article explores the intricacies and plotting involved. 

You never get what you deserve, you only get what you can negotiate.

This is the most concise explanation I have read about Toyota’s concept of Kaizen.   Kaizen is the process of incremental and continuous improvement.  As the article says, most companies give up quality programs becasue they do not see instant results, rather like a crash diet that would have one stay thin for life. And so Toyota continues to do the right thing in plan view of the Fords and GMs, it is now the biggest automaker on the planet, and perhaps the most admired.

Okay it’s a gorgeous Sunday afternoon,what to do? How about a trip to the Dallas Arboretum?  It is located on Garland on the east side of White Rock Lake.  It consists of 33 well manicured gardened acres. Today May 4 was in the low 70s, just perfect for taking in the sites so here we go.

This ‘sculpture’ is of the Texas Star, click on the photo to enlarge.

It would not be an exhibit without some Texas cattle, right?

140 yeas ago the Connestoga, today the Suburban. There is also a display of pioneer homes including one made of sod, hey, if Al Gore really wanted a low carbon footprint, and think of all the oil based paint he would save!

And then there are the flowers, everywhere.  A truly gorgeous ‘back yard’!

Jim Rogers says that most mergers do not work.  I agree. Now Wendys and Arbys are merging. Wendy’s has been wandering since Dave their founder died.  He brought it back from wandering in burger wars.  I prefer an Arby’s RB to a burger but clearly America does not. Breakfast, will this make MCD sweat?