The Soft Parade


Musings of a realist

The US Stock markets are at all time highs! What do you want to buy?

Here are the rankings of the top 5 companies in the world by Market Capitalization - no surprise that they are all American companies, Which of these would you buy today?

1. Exxon - $408 Billion

451 Billion in Sales, 45 Billion in Income

2. Apple - $406 Billion

169 Billion in Sales, 40 Billion in Income

3. Google - $301 Billion

53 Billion in Sales, 11 Billion in Income

4. Microsoft - $291 Billion

76 Billion in Sales, 16 Billion in Income

5. Berkshire Hathaway - $277 Billion

162 Billion in Sales, 15 Billion in Income

It’s interesting to note that the only company that’s diversified is Berkshire Hathaway.

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What is Deflation?

Deflation happens, when you wake up in the morning, and feel like buying something - but think - “I’ll wait a bit to buy, because I think that the price will fall and I’ll be able to buy it cheaper in the future”.

I wonder how many of us are thinking this with regard to - housing, cars, clothing etc. etc.

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What is Inflation?

Inflation is something that touches everyone - people who have money, and people that don’t - it affects the old and the young alike - and it’s stealthy and creeps up on you.

I’m taking the "A Beginners guide to Irrational Behavior" course on Coursera and the professor, Dan Ariely had an interesting way to describe inflation - which he attributed to his Grandfather.

"Say you are seated at a theatre to watch a show, and suddenly everyone in the front row stands up to watch the show. This would lead to people in the second row to stand up to watch as well, and so on and so forth. Soon enough everyone in the theatre is forced to stand up to watch the show. They are all now watching the same thing - but are slightly more uncomfortable than in the past - and that is Inflation!"

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OIL and GAS in the USA

I came across this interesting interview of T. Boon Pickens at the American Trucking Associations Conference dedicated to exploring the use of Natural Gas as a fuel in the US trucking industry. Some of the points I found interesting are summarized below.

These insights are offered by T. Boon Pickens (TBP) for the most part.

TBP - We have known about the existence of Shale Gas since 1951; and he has seen fracking in action since 1952. It was just previously not possible to extract the shale gas; and the horizontal drilling of wells is what has made it possible.

TBP - According to a J.P. Morgan report there are 8,000 Trillion cubic feet of proven reserves in the US - and until a few years ago we were expecting to recover only 5-10% - however now they are estimating recovery in the 30-40% range. To be conservative TBP estimates that they will recover more at than 2,000 Trillion cubic feet.

TBP - The Marcellus Shale will be producing 100+ years from now.(KM - this extends from Upstate New York across the Appalachian Basin all the way to Western Pennsylvania and Ohio.

TBP - Just so that people have an idea of how much gas we are talking about - 3,000 Trillion Cubic Feet of Gas is equal to 2x the Saudi Oil Reserves.

TBP - Saudi Oil production seems to have peaked at 10 MM barrels/day, and they are going to be heading lower. KM - Saudi Production Numbers via the EIA

TBP - The US is the largest producer of Natural Gas in the World - our current consumption runs at 24 Trillion cubic feet / year - we are using it as a fuel for Transportation, Powerplants and for Industry.

TBP - We will run out of oil, before we will run out of Natural Gas

TBP - US oil usage is at about ~20 million barrels/day

TBP - Exxon Mobile derives 81% of it’s revenue from outside the USA.

TBP - US Oil production

2011 -> 5.8 Million barrels / day

2012 -> 6.8 million barrels /day

Today our imports are around 11 MM barrels /day

Chart of US oil imports, and from where we get them

TBP also talked about global oil & gas consumption

Global Oil usage is ~ 91 MM barrels / day

USA usage ~ 20 MM barrels / day

China usage -> ~ 10 MM (5 MM imported but covered via land ownership and state company ownership

Global oil usage is supposed to increase from 91 MM to 93 MM barrels/day. The largest increase in the oil consumption is going to come from India and China.

We should not count on the oversupply of OIL in the market.

Saudi Arabia needs an oil price of ~$94/barrel to meet it’s social commitments (These are payout commitments to it’s citizens - if it’s not able to meet them, then there will be unrest in the kingdom - hence they will do everything in their power to keep the price of oil about $94).

OPEC produces ~30 MM barrels of oil, which is about 1/3 of the daily global usage, so they can have a very significant effect on oil prices via their cartel.

Something that the general public does not know is that there are currently 1,300 operational oil rigs in the USA and US oil is about 20% cheaper than global oil price which is “Brent North Sea”. US oil is “West Texas Crude”.

Natural Gas on the other hand is 75% cheaper than in the rest of the world - the prices in different parts of the world are below:

Japan -> $18/MCF (Million Cubic Feet)

China -> $15/MCF

Europe -> $15/MCF

UK -> $12/MCF

US -> $4/MCF

TBP - Natural Gas is also about 30% cleaner than Oil, Coal etc.

TBP - There are plans to export US Natural Gas starting in 2015 from Louisiana; the cost of this gas including shipping will be ~$9.

(Source: youtube.com)

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