Archive for May, 2008

Oil is Tanking… but not for what you think.

This past Thursday, Oil inventories came in with an 8.8 M bbd draw. You could see that crude spiked and then started to drop all of a sudden… did something change in the fundamental picture?


This is where the discrepancy between what oil is fundamentally worth and what a contract is worth to a trader comes into play. This past week, NYMEX increased the margins you need to trade crude oil contracts, both regular and miNY contracts.

Margins for the crude oil, crude oil calendar swap, and crude oil financial futures contracts will go up to $7,250 from $6,500 for clearing members, to $7,975 from $7,150 for members and to $9,788 from $8,775 for customers, NYMEX said in a release.

Margins for the NYMEX miNY crude oil futures contract will rise to $3,625 from $3,250 for clearing members, to $3,988 from $3,575 for members and to $4,894 from $4,388 for customers. Margins for the NYMEX MACI index futures contract will increase to $1,450 from $1,300 for clearing members, to $1,595 from $1,430 for members and to $1,958 from $1,755 for customers.

This decreases the ability for some players to use as many contracts as they used to, as well as some players who can’t trade at all. This has reduced the demand of these contracts significantly, which explains the drop in price.

Hopefully this drop in the price of the contract will keep going as some speculators will have the fear of Vishnu put in them, which will cause a significant correction down to more fundamentally sound levels.

Thanks to Barry for reminding me of this.

The Monetization of Twitter Demographics

Howard Lindzon points out that the first adopters of Twitter are saying that there is no good way to monetize that app. That sort of talk always leads to nowhere. He argues:

They are early adapters for sure, but the data they create is mostly worthless.

He goes on to point out that breaking Twitter up into a niche (namely finance) would help stimulate monetization of the application. It’s a novel idea, really. The functionality has already been hacked together at StockTweets, a Twitter Channel.

Any ticker that the writer wishes to discuss will be prefixed with a ‘$’. So if I wanted to spill some haterade on Crocs, I’d say “$CROX : They make your feet stink.” The data is then aggregated and linked to the ticker so users can go back and browse various opinions.

Twitter in finance is a damn powerful tool. I swing trade occasionally, and it’s nice to have up to the minute information from people you can trust.

There are other niches that you can aggregate information from and monetize that data. I’m not going into detail here, but there are some possibilities that I’m mulling around. (BTW, I need a programmer that knows the Twitter API… contact me if you’re interested.)

A Solution to the Energy Crisis, Part 1

Phillip Greenspun comments on his blog the possibility of converting cars from gas to electric and the financial ramifications of an immediate changeover:

In practical terms, of course, it is a pipe dream. The sheer logistics of moving hundreds of millions of cars would not be something I would want to be tasked to; also, to have public policy aligned with this sort of movement is unrealistic.

A gradual move over from gas to electric is more realistic– and a move to higher MPG vehicles would be even better. The implementation of this idea in terms of public policy is the difficult part. We know we need to remove our energy dependence, but without the help of the federal government, the energy shift will not happen.

I have an idea to create economic incentives for the transportation industry when it comes to energy. Note: this is not my original idea.

Set a standard, say 30 MPG. Any car that gets better than 30 MPG, give it a 5,000 tax credit. Anything worse, give it a 5,000 tax debit. Formulas can be created to help stabilize the supply and demand of these cars. This creates a strong economic incentive for carmakers to put energy conservation at the top of their list. This solution is revenue neutral, which is a strong point for fiscal conservatives.

This idea will piss off the automakers, and I don’t care. They’ve had 30 years since the last great energy crisis to get their act together. We have (supposedly) the smartest engineers in the world, and there are several technically feasible solutions.

Another significant obstacle would be the problem of fleet vehicles and the industries that rely on inefficient vehicles. A conversion to natural gas would be a simple intermediate-term solution. In California, new fleet vehicles are starting to have the requirement of running on natural gas (a fuel we don’t have to import).

This is one step in the right direction.

Open for Business

It’s on like Donkey Kong.