Illegal Water Reuse

In Israel you need dozens of official permits to reuse water except in your own home or factory, when it is your own business. There are plumbing regulations but except at the building permit design approval, they are unenforceable and no one will knock on the door to examine the plumbing. Not so in the USA. This is the reason water reuse is illegal in the USA and this the origin of the Greywater Guerrillas, a team focused on promoting and installing clandestine plumbing systems that recycle gray water — the effluent of sinks, showers and washing machines — to flush toilets or irrigate gardens.

Although gray water use is legal in California, systems that conform to the state’s complicated code tend to be very expensive, and Ms. Allen and her fellow guerrilla, Cleo Woelfle-Erskine, are out to persuade the world that water recycling can be a simple and affordable option, as well as being a morally essential one.

They are part of a larger movement centered in the West — especially in arid regions like Arizona, New Mexico and Southern California — that includes both groups that operate within the law and ones that skirt it. The goal is the reuse of home gray water as a way to live within the region’s ecological means. Using their own experience and contributions from others, they have just published a do-it-yourself guide to gray water systems that is also a manifesto for the movement, “Dam Nation: Dispatches From the Water Underground.”

In 1994, California became the first state to establish guidelines for gray water use — as most other states have since — and it has become a leader in building industrial-scale gray water systems. The town of Arcata, for example, has an extensive system that serves the entire population of 17,000, and even the state’s oil refineries have gray water systems.

But many gray water advocates say that California’s plumbing code — which stipulates things like pipe sizes, burial depths and soil tests based on rules established for septic systems — is prohibitively complicated for private homeowners interested in recycling gray water, and that its requirements are prohibitively expensive.

“The code is so overbuilt that I’m beginning to think it’s better to just have everyone do it bootleg,” said Steve Bilson, the founder of ReWater Systems, a company that has installed around 800 code-compliant gray water systems at a cost of about $7,000 each, and who worked as a consultant on California gray water legislation in the 1990s.

As a result, many homeowners have installed unpermitted, illegal plumbing, relying on techniques developed by covert researchers like the Greywater Guerrillas. (It is difficult to know how many, since these systems are not registered with any government or organization, but Ms. Allen said that based on her observations there are probably around 2,000 homes equipped with gray water systems, a few legal but most illegal, in the Bay Area alone.)

On a recent afternoon, Mr. Woelfle-Erskine stood in the backyard of the Haut House and explained how one of the half-dozen gray water systems there works. A pipe running from the house deposits shower and sink water into an elevated bathtub in the yard that is filled with gravel and reeds, and the roots of plants begin filtering and absorbing contaminants. The water then flows into a second, lower, tub, also containing a reedbed, before flowing into a still-lower tub of floating water hyacinths and small fish. We’ve had the water tested,” Mr. Woelfle-Erskine said, “and it’s clean — there’s just a little phosphorous left, which the plants in the garden actually like.” Through trial and error, Mr. Woelfle-Erskine and Ms. Allen have found what they say is the best way to spread wastewater into the gravel beds (through a screened milk crate) and which plants best clean the water while not growing so vigorously as to block pipes (cattails).

Although this Rube Goldberg setup, known as a constructed wetland, cost only about $100 to build, it represents a pinnacle of gray water system design, which is usually far more modest, according to Art Ludwig, an ecological systems designer in Santa Barbara. (Mr. Ludwig’s Web site, graywater.net, offers a practical introduction for do-it-yourselfers.) The vast majority of systems, Mr. Ludwig said, “cost less than a hundred bucks — it can be just a hose.” For example, a hose connects the sink to the toilet tank to create a gray-water toilet in one of the Haut House bathrooms.

In spite of the ad hoc nature of many illegal systems, Mr. Ludwig said, he has “never heard of a single case of health problems from using gray water, ever.” Similarly, Simon Eching, the chief of program development at California’s Department of Water Resources — the body that drafted the state’s gray water code — said he knew of no health issues arising from gray water use in California.

But Mr. Ludwig’s Web site also points out that there are a number of potential pitfalls. He strongly discourages ponds of exposed water like the one fed by the constructed wetland in Ms. Allen’s backyard, for example, because they can draw mosquitoes that carry disease. He cautions against crossing plumbing lines and contaminating clean water; using gray water in sprinkler systems or on fruits and vegetables that are eaten raw (it should only be used to irrigate roots); and allowing water contaminated by toxic cleansers, soiled diapers or contact with people who have infectious diseases to enter the gray water system.

Rendes Nemetek (Decent Germans)

When we moved to Budapest, my father found a job in the Water and Land Institute, that developed water resources all over Hungary. He travelled a lot to supervise test pumpings, which was difficult for the family but he made good money. During summer vacations, pale city children used to be sent to the countryside, where food was more abundant and life was healthier. Since we had no relatives in the countryside, I was sent to an Ethnic German family in Pilisborosjeno, a small village in a verdant valley of the Pilis hills. My father's assistant was the 15 - 16 years old son of this family, and my parents travelled to inspect the place and people if their precious only child could safely be put in their hands. They concluded that these were Rendes Nemetek, Decent Germans, Good Germans, and they gave extra money to the big boy to take special care of me.

It is so that I happened to spend two or three summer months with Ethnic Germans (in 1954 to 1956). They lived in a peasant house with two rooms, one was occupied by a big heavy family bed, and the other was the kitchen and living room. The parents gave me their bedroom and the family slept on benches in the warm kitchen. I hardly met the father, who left at 3 or 4 AM in the dark to his job (The son told me he was a firefighter, but now I suspect he did some heavy physical work). He never talked. The farm work was done by the wife and the daughter, a skinny blue-eyed girl of my age, with yellow copf (long braided hair, in Hungarian). We never looked directly to each other, and she always kept distance from me and ran to play with her friends, other German girls of the neighborhood. They giggled and examined me from afar.

The mother was always working, cooking moslek for the pigs, milking the cows, cooking for everybody, working a faraway small plot they rented in the Kopasz Hegy (the Bald Mountain). The maize plants of her weedy plot were pityful and nothing like the corn fields of my books. She explained that the soil was poor, it needed fertilizer but they had no money. I must have been a pest, a small commie comissar, and interrogated her about land property relations and why she was working a private plot ? They used to dress up on Sundays and their Christian holidays, which they didn't like to talk about (it was a time of harsh, atheist dictatorship, and my parents were party members) and they used to visit neighbors and relatives. They took me to an old woman's hut in the Cigany Sor (the gypsy neighborhood, in the dusty, faraway outskirts of the village). It was a compacted earth hut with hatchet roof, strikingly clean, painted with happy colors and with many flowers. They invited me to eat rabbit cooked in its blood, and they asked me if my religion permitted me it (I had no idea what they were talking about, but they seemed to know from before the war that rabbits are treyfl). Why were these nice people living with the outcast? I understood that Ethnic Germans had been expelled from their lands and homes, they were class enemies. I was 8 or 9 and had no inclination to think much on it, they treated me very well, they tried to fulfil the mandate of returning me to the capital fatter than I came (they gave me the best food, in fact, we rarely ate together), I was treated like a small prince, and they were visibly happy with my parents money. In the second year a friend of mine, Pityu Erdos, the redhead, came with me (his mother was a Party secretary), so fattening up big-city Jew-boys became something of a side-income for them. One night Pityu woke up in the night, stood up and pissed on me, wetting the over-sized family bed.

The cows's stable was invitingly warm during the cool mountain nights. The place was open for travelling gypsies. They slept in a gallery over the cows, on the roughage. They came and went freely, and when there were of both genders they made an awful amount of noise at night. I was dead afraid of them but went to see them. They had a blueish letter and numbers tattooed in their forearms: like my Mother and aunts, they had been to Auschwitz. Somewhere in my mind was registered the strangeness of these Auschwitz-experienced gypsies sleeping in a German farmer's house (better than that in my eyes, with the docile, enormous cows, smelling of warm milk).

The big boy bought 50 gram szalonna (hog's grease), cut a forked twig and fried it on a fire. City boys, Jewish city boys, had never experienced marvelous things like that. He introduced me to the other village boys and we went to explore deep caves near the river. The caves had many rooms, and I reached only the second one, and shouted to get out, I was afraid that they were going to kill me. But they wanted only to be nice to the city boy.

Looking back, these decent German people in post war Hungary had very difficult lifes. But then, who didn't?

Desktop Fuel Cell Car for 100 $

It appears that I am not the first building a fuel cell demonstration kit. An internet store offers a variety of fuel cells for educational and recreational purposes, like this cute desktop car (priced less than 100 US$). Their fuel cells are based on hydrogen and methane, not on wastewater as mine, but that is not for lack of technical capability but, I presume, because no one will put a wastewater fueled clever mechanism on his office desk. Not being the first is NOT the end of a startup. Maybe it is even an advantage, having seen the concept's feasibility demonstrated. But I have to spend more effort in rethinking the concept.

Trouble in Mangrove Creeks

What are the chances of my Brent Oil Put Options to make me a profit? Some impressions from Ghazvinian's recent visit to the Niger Delta. It has 27 million people, one the highest population densities in the world. Thousands of miles of pipelines crisscross the mangrove creeks, broken up by gas flares that send roaring orange flames into the hot, humid air. Air-conditioned facilities sit cheek-by-jowl with fishing villages made of mud and straw, surrounded with wire and armed guards. Oil spills into the creeks and fishing communities are disrupted, dislocated, or plunged into violent conflict with one another over compensation payments. When the people of the Delta have tried to protest, they have been bought off, set against one another, or shot at. The rampant criminality, lawlessness, and youth unrest that have plagued the Delta as a result are perhaps technically troubles rather than active warfare. But to those who eke out a meager living in the sweltering, isolated fishing villages in the swamps and estuaries of the Delta, trapped among the security forces hired by oil companies, to the roving bands of ethnic militias determined to disrupt their operations, and to the special police units of the Nigerian state — all armed to the teeth — the distinction is an academic one. On a good day, they will push off into the morning mist in their hollowed-out wooden pirogues and return in the evening with a few sickly-looking croaker and catfish that they will dry in the sun for another day. Urhobo, Ijaw, Etche, Itsekiri, Ogoni, Edo, Efik—all have some sorry tale to tell. In 2005, the Ijaw community of Kula was in the news. Angry that Shell’s and Chevron’s promises of payoff had not been fulfilled, Kula villagers occupied the companies’ flowstations, shutting off 120,000 barrels of oil a day and they refused to leave until a new Memorandum of Understanding (MoU) was signed, with clear guarantees of compensation. Over the years, MoUs have become standard operating procedure for oil companies and local communities, they know that dealing with each other directly is infinitely preferable to leaving things to the Nigerian government. After several weeks of shut-down production in Kula in December 2004, the dispute was resolved (money was thrown at the chief), but tensions were still running high and the Kula people were threatening to make life hell for Shell and Chevron. These Ijaw live on top of steamy, spongelike mangrove swamps that rarely climb to more than three or four feet above sea level. They live precariously at the best of times, in huts that seem to hover over the water. “We are fighting for our rights,” one youngster said. Ijaws believe the god Egbesu protects them from the Nigerian military. “We wear charms and amulets that make us bulletproof.”

In 1993, seven cases of “pipeline vandalization” were recorded. By 2004, Nigeria was losing as much as 200,000 barrels of crude oil a day—nearly 10 percent of its output. The practice, known as “illegal bunkering”, involves tapping into a pipeline, filling plastic jerry cans with crude oil, and taking the oil away in speedboats to awaiting barges, which in turn sell the product to oceangoing tankers, who then sell it to refineries in neighboring countries, such as Ivory Coast. The problem of armed gangs in the Niger Delta has become very serious. A gang calling itself the Niger Delta People’s Volunteer Force (NDPVF) blasted its way into the international headlines when its leader, Dokubo Asari, declared “all-out war” on the Nigerian state and threatened to shut down the country’s crude oil production. The NDPVF demanded that all oil companies evacuate their personnel from the Delta, or prepare to engage in full-fledged armed combat. By August 2004, the NDPVF was clashing with a rival gang, the Niger Delta Vigilante, led by Ateke Tom, hired by Governor Odili to keep Asari in check. In September, aware that he had been abandoned by his patron in the State House, Asari told his followers that the battle was on. In the space of a few weeks, a criminal oil-stealing ring had transformed itself into a rebel movement claiming 2,000 fighters and bent on bringing oil production in the world’s seventh-largest producer to a standstill.

The reaction of the Nigerian government, the international oil companies, and the global petroleum markets was as predictable as it was swift. Shell immediately evacuated two hundred staff from Ijaw country. The price of oil spiked over $50 a barrel. The Nigerian government dispatched helicopter gunships to Port Harcourt to shell NDPVF positions in the outlying village of Tombia. President Obasanjo found himself under intense pressure from an oil-hungry United States to bring the matter to a quick resolution and, incredibly, invited Asari to the presidential palace at Aso Rock, just outside Abuja.

The meeting meant the near total unraveling of Nigerian state . Here was Olusegun Obasanjo, sixty-nine years of age, three-time president of his country, active at the highest levels of Nigerian politics since the early 1970s, and a Biafra War hero, being lectured by a boy who days before had been crawling through the creeks with a leaf tied to his forehead to ward against evil spirits. “I could crush you,” the president shouted at Asari. Between them sat a CIA official making sure everyone knew the score. Obasanjo ordered Asari to desist from armed struggle in exchange for blanket amnesty and an undisclosed sum of money (notionally described as payment for surrendered weapons). It was an extraordinary piece of capitulation on the part of the most powerful African head of state.

The oil companies returned to work and the price of crude returned to its previous level. The Ijaw felt Asari had been bought off by Obasanjo but in a sign of the profound deficit in true leadership among the peoples of the Delta, Asari became a liberation hero. Throughout 2005 and 2006, the situation continued to deteriorate. After Dokubo Asari’s arrest in 2005 the NDPVF was replaced by the Movement for the Emancipation of the Niger Delta (MEND). MEND incorporated former NDPVF fighters. The number of oil workers taken hostage in the Delta soon reached sixty. Instances of pipeline vandalism also increased. In December, armed men in speedboats dynamited a Shell pipeline in the Opobo Channel. In January 2006, a pipeline attack from the Brass Creek fields to the Forcados terminal forced Shell to cancel its delivery commitments to the end of February. Additional attacks in February extended the force majeure indefinitely. Throughout most of 2006, 800,000 barrels of oil a day—30 percent of Nigeria’s output—was shut in. Currently about half of Nigeria's oil is shut in and everybody is expecting the new government to work out the revenue sharing formula that will pacify the Delta.

Then Brent oil prices will collapse and my shorts start flourish.

The pic shows the Chief of Bonny Island.

Money is not all

There is also Heidi Klum. If you invite her to lunch, dont forget her favorites: "...Sauerkraut soup is tops. But I also love spinach, white bean soup and other homemade recipes. Not to be forgotten are potato dumplings and potato salad. For dessert, black licorice and hazelnut ice-cream are among my favorites."

Ibo Secret Societies

When working in Southeast Nigeria, I was initiated into one of the Ibo people's secret societies. It was night and I was sick with malaria and completely drunk with palm wine, but I remember the fear inspired in me by terrifying masked figures wielding sharp weapons near my face. It was frightening, I was sitting near the Chief but who could have helped me alone in that jungle. The nearest European or Government station was in the town of Warri, a big African town on the Niger Delta with an enormous market. I remember the old bridge, made a terrible noise when crossing it with the Chief's black Mercedes Benz. He had a driver with a terrible deep cut in his neck, he had been left for dead during the Biafra war. In Warri I had been much impressed by the hand made wrought iron agricultural machines, tools and machetes, very very interesting. These talented people were manufacturing complicated iron tools, they were far inside the Iron Age. I bought a lot and put it in a metal box, that never arrived home in Buenos Aires. I filled myself with soups and goat meat before the ceremony and I exceeded my optimum alcohol intake. The ceremony had little actual meaning for me, except that provided me safety, making everybody friendly and helpful towards me. I was even "assigned" a big albino girl as a "white" girlfriend suitable for me, and lived alone in a two story house owned by the Chief, but boy, was I stupid ...ay, stooopid! (some things never change). I certainly disappointed my hosts, I always do.

Some secret cults of Nigeria's Delta have become oil stealing gangs linked to national politicians, who are nurturing them for their political battles. Ibos were the first in Africa having joined Christianity en masse and built nice churches in the jungle. They learned English and worked for the Colonial Service. I was shocked to see that the old father of the Chief had a number tattooed in his arm, just like my Mother in Auschwitz. I inquired and the answer was that he had served in the Colonial Army and the English had tattooed him. Later he had worked as a prison guard and the free Nigerian Government continued to pay his pension. No doubt the Ibo people are the most intelligent and cultured of all Nigerians, and so, responsible for most of the Nigerian scams. The Ibos were very badly beaten in their fight for independence, so they stopped demanding independence and breaking up the Nigerian state. But a generation or two have passed and the power sharing arrangements that they enjoy is no more satisfactory. Secret societies, like in China's Boxer Rebellion, play a central role in this effort. We have yet to see the end of Port Harcourt and the Delta's turmoil.

Water is Worth 17%

The Israeli Standards Institute published a new standard for "Green Buildings" which is voluntary and is not prescriptive, leaving open to the designer imagination what makes a building "green". The main cathegory is energy saving, like exposition to south and so on. Water saving and recycling is worth 17% of the total qualification. I would like to specialize in Green Buildings water systems, but:

(a) I dont believe in it. I am not sincerely convinced that investing thousands of shekels in in-house purification of greywater for irrigation, or in one of my electricity generating wastewater fuel cells, is rational. The fact is that the Ministry of Health's Chief Engineer Shalom Goldberger forbid the operation of the wastewater based irrigation systems already installed in the Dead Sea hotels, where drinking water is very expensive or unavailable. And in my heart I agree with Gral. Eytan's decision, when he was my boss in Hezliya Municipality, that ordered me to disconnect the treated wastewater irrigation system for Park Dayan and the Kikar Shiva'a Kochavim, and made me to connect them to the city's regular water supply. For one thing, the Ministry of Health's regulations were impossible and also the reporting demands were expensive and time consuming.

(b) I have no time. I cannot keep up even with my regular projects.

On the other hand, I am one of the few Israeli engineers with experience in this area. Hi Heidi Honey!

Water in the Gulf

Dubai is planning to build the world’s largest power and desalination complex, capable of producing 9,000MW of electricity, at a cost of $15bn. The complex will be capable of producing power equal to New York City’s total installed generation capacity, and 600mn gallons a day of desalinated water, double Singapore’s daily water consumption. These people are thinking big.

The girl's name is Heidi Klum.

Sovereign Debt

The foreign debt was constantly being debated in Argentinian papers. El Fondo Monetario Internacional (IMF) was the vampire sucking dry Argentinian descamisados. I felt sympathy for the descamisados but also felt that debts should be paid. Later in life I worked and socialized with IMF and WB people, and they were most decent fellows. They were civil servants (empleados publicos), and extreemely happy to work with a generous international body. If they could avoid, they would never step out of air conditioned environment, and they spent no time in plotting against the working masses as they were always writing reports. They wouldnt touch a descamisado in flesh with a ten feet pole.

I was introduced to the pricing of Latin debt by my friend Eytan Mizrahi who was weighting Mexican bonds (20% p.e. interest in those times). Later followed him, but only to the limit of American and Austrian bonds, which are very safe but pay only 4%. Latin bonds pay 8% and more, but I dared them not. I was right, Argentina defaulted in 2001, and that was its fifth time since independence. Brazil had defaulted seven times, Mexico eight times, Turkey seven times, and Venezuela nine times - so far. Incidentally, if Venezuela is the modern day record holder, it is by no means the all-time leader. That distinction belongs to Spain, which has defaulted 13 times since the 1500s. Many other European countries, including France, Germany, Portugal, and Greece also were serial defaulters back in their days as emerging markets. Debt crises have been with us for a very long time.

These days Hugo Chavez (pic, with Fidel and Evo) declared that Venezuela is retiring from the IMF. By virtue of a clause in Venezuela's sovereign debt, technically this is a default and they will have to pay 400 million dollars to the bondholders (mainly FIBCO and Alliance). Latin debt is a very risky investment. On the other hand, Asian countries always pay their debts and enjoy very cheap credit.

The Baring Brothers's Gunships are on the Way

One of the big financial businesses of the 19th century was to buy discounted Latin American sovereign debt, and then enforce renegotiation or payment by use of gunships. Apparently, the system is back, but now it has strong opponents who deem it unacceptable and immoral to actually enforce poor and corrupt countries's contracts.

Zambia had asked to dismiss the claims against it by US investment company, Donegal International, which had sought to enforce payments of up to $55 million in respect of a debt which the company bought from Romania in 1999 for $3.2 million. A British high court judge ruled that Zambia must pay the investment firm that has been suing Zambia for $55 million off the back of $3.3 million debt. Oxfam, together with the Jubilee Debt Campaign, is calling on Michael Sheehan, the owner of Donegal to do the right thing, and not make Zambia pay up. The debt stems from a loan to Zambia by Romania in 1979 for the purchase of agricultural machinery. Zambia was unable to keep up the repayments and the two countries were on the verge of renegotiations when Donegal bought the debt for $4 million. Donegal International, which is registered in the British Virgin Islands and owned by US businessman Michael Sheehan, then negotiated a settlement with the country to repay the debt to the value of $15 million but the agreement included severe interest penalties if Zambia defaulted on payments under the settlement. Later, Donegal proceeded to sue Zambia for the full value of the debt plus interest and legal costs. Zambia’s assets in London had been frozen pending the case. The judge dismissed Zambia’s claims that Zambia’s agreement to the initial debt buy-out by Donegal International was secured through bribery and corruption. The Zambian legal team, led by UK Prime Minister’s brother, William Blair QC, had claimed that Donegal paid $2 million into former Zambian President Frederick Chiluba’s favourite charity in return for a favourable deal. Sheehan had denied that this payment was a bribe, saying that it was “a charitable donation” to “a low income housing initiative” in Zambia.

Gail Hurley, policy officer with the European Network on Debt and Development (Eurodad) said: “The ruling gives legitimacy to the most predatory and immoral banking practices. It is not acceptable for companies such as Donegal International to undermine poverty reduction efforts in one of the world’s most impoverished nations”. The International Monetary Fund, World Bank and Western creditors wrote off a large part of Zambia’s debt in 2006. Last year, the Norwegian government unilaterally cancelled $80 million worth of debt owed by five developing countries in acknowledgement that the debt was extended irresponsibly and without due regard for the developmental needs of the recipient countries.

What? Contracts and debts of developing countries are unenforceable? Anyone making business with them is at his own? And risking being accussed of exploiting the underage, the mentally incapacitated, the legally disabled? The logical next step is to consider these countries immature, uncapable to defend themselves and necessitated of international protection till they grow up and are responsible for their actions. Like the NATO protectorate in Kosovo. Or an adult guardianship by a great power, like when the League of Nations put Palestine under British Mandate. British Navy may have to patrol once more tropical oceans to fight illegal and/or immoral trade, like slavery, whores, drugs, uranium, toxic waste. Word order and decency will be, once again, the white man's burden. The green do-gooder will sell it to us like the end of exploitative globalization although it may seem suspiciously like colonialism of former times.

Source of Market Gains

At last I succeeded in buying some Brent Futures Put Options at 4.5$. The strike price is 70$ per barrel, but I need 65$ or lower to make a profit. Current price: 71.5 $. According to my Black&Sholes calculator, the 4.5$ price hides a volatility hypothesis of 40% but the real volatility is about 25%. With 25% volatility my put option is worth about 1.5$ and not 4.5$ which is the price I paid today (I paid more before). But I am building on that this 300% overpricing is a constant and I shall be able to sell at a profit. Japan is buying less oil than a year ago. Brent prices will start to decline acceleratedly around August and stay real low till my D-Day, Nov. 12, 2007. That is my bet.

In this year of study and learning, I have found three consistent and reliable sources of market profits:

(1) Naked Puts, like the Brent Puts I am collecting. People buy put options to hedge their main bets, and are ready to pay for them more than they are statistically worth.
(2) Dividend paying stocks. Their price keeps pace with inflation and the dividend is pure profit. The collective of these stocks has a natural upward drift, so anybody in the long side will profit in the long term. Long term bonds also tend to have an upward drift - however, I have bad experience with inflation.
(3) All kind of temporary distortions, which the market discovers and corrects eventually. A good computer program can discover these distorsions and make money by arbitraging them, but transaction costs and competition puts this source out of my reach and dont include among my sources of profit.
(4) Small illiquid stocks, that are not followed by the big boys and hide opportunities waiting to be exploited.

According to the experts, clever stock picking and so on barely beats the index. Foreign exchange and commodity trading are all zero sum games, which means that in the long term the player will reach a point where he is broke (I think it is called the casino trap or something like that).

In summary, a winning strategy should be: (1) speculating with naked puts (2) discovering opportunities by hard work in the small stock bush, (3) investing and holding for years good, dividend paying stocks.

God ("I am") Is Causing Me Losses

The Guardian, reporting from the Niger Delta, explains why my Brent Options are in trouble. It is General I Am, aka God. "Somewhere in the Niger delta, a score of fit young men grasp colonial-era British rifles, Kalashnikovs and a couple of heavy machine guns. One of the soldiers carries forward an old table and sets it down next to the river. The rest of the men fan out behind it as a short, stocky man in his forties sits down, leans across and introduces himself as General "I Am", the "general officer commanding the western flank of the Movement for the Emancipation of the Niger Delta" (Mend). The western flank, he explains, extends from the Chevron oil company's gas flare on the edge of the sea, past scores of villages and towns dotting the creeks and rivers that carve up the Nigerian coast, to a stronghold within striking distance of Warri, the main town in the area.
"This is our territory. The soldiers dare not come here now. They came and we defeated them," he says. "We are civilised people, educated people, and we do not want our children to be deprived as we have been deprived so other people can get rich from what is under our feet. The oil companies and government have had many years to treat us right. They have never done it. Now we are making them think."

The Nigerian government is losing £500m a month in oil revenue because the rebellion has forced Shell to stop half of its operation and other firms to cut back drilling, following the abduction of hundreds of workers in raids on pipelines and pumping stations.

Mend launched one of its most damaging attacks earlier this week when it blew up three pipelines belonging to an Italian company, Eni, halting the pumping of 150,000 barrels a day. The rebels have also reached as far as 60km (37 miles) out to sea to snatch oil workers from offshore platforms. This week, four Americans were seized at gunpoint from a barge off the coast, and about two dozen other oil workers were kidnapped from other installations. Eleven Filipinos and South Koreans were released after a few days in captivity, but at least 13 other foreign workers are still being held.

Even the streets of the region's main city, Port Harcourt, are virtually a no-go area for foreigners, who are abducted in broad daylight and from bars at night. More than 250 have been taken in all, and the oil companies have stumped up large sums to get them back. Two were killed by the Nigerian army during a rescue attempt.

The militants' reputation among people in the region has grown as they have robbed banks, assaulted police stations, killed Nigerian soldiers and freed prisoners. They have also blown up some of the thousands of miles of pipelines running through the delta, and Shell's loading terminal for its huge oil tankers, forcing it to suspend the export of nearly 500,000 barrels a day.

The situation has deteriorated so badly in just a few months that the US, worried about the stability of its fifth largest source of oil, has sent old coastguard cutters to protect oil platforms and troops to train Nigerian forces in how to fight in the creeks. It has made little difference. Mend's campaign continues to grow, built on a foundation of anger, bitterness and, above all, a burning sense of injustice at decades of exploitation by western oil interests and Nigeria's self-enriching politicians and military leaders.

Hidden Signals of Market Waft

Victor Niederhoffer recently posted on his blog:

I have often thought that there are hidden signals in markets. My favorite signal is silver, which I call the omniscient market in that whenever something is good or bad it seems to hit the silver market first. Recently, I have been discovering the hidden signals in the Dow Jones, which seems to go the 50 and 100's during the day, much more than randomness would suggest. Another hidden signal is the movement in bond prices that always seem to predate a major move in stocks. Another one is the Israel market, which I have found quite useful in predicting where the US markets will waft.

Why could this be? Many Israeli stocks are traded on NASDAQ as well on TASE. There is 7 hour time difference between them. In general, Nasdaq and TASE move on tandem, Nasdaq leading and TASE following. It is common that TASE is bullish in the morning and then about 4 PM - when Nasdaq opens - it abruptly changes direction. People here also pay much attention to non-market transactions on New York as well other exchanges, trying to anticipate what is happening. It may well be that TASE players are much more alert and attentive and intelligent than players on other markets, giving the impression that TASE leads and the world follows. This only confirms me in my belief that Israeli investment houses are good and they may be the next sector to break out into the world, after Israeli hi tech and building contractors, and they are currently underpriced.

Why Put Options are so Expensive?

As shown on the graph, my Brent Future Put Option (70$) is now out of money (OTM). Even so, its price on TASE is 5$. Brent has to fall to 65$ just to break even and under 65$ to start making profit for me. Intuitively, and by B&S, 5$ is very expensive. Yet I sent a buy order and was not filled. Why? Bondarenko from Chicago U. wrote a paper on the subject. "Historical returns of the US equity put options are puzzling. Over the period from 08/1987 to 12/2000, put options on the S&P 500 futures appear to be grossly overpriced. For example, puts with one month to maturity have highly negative and statistically significant excess returns. The average excess return is -39% per month for at-the-money (ATM) puts and is -95% per month for deep out-of-the-money (OTM) puts. This implies that selling unhedged puts would have resulted in extraordinary paper profits over the sample period. Other striking findings about historical put returns are that:
• The Jensen’s alpha for ATM puts is -23% per month and highly significant. Also the Sharpe ratio, the Treynor’s measure, the M-squared measure indicate that put prices have been very high.
• For ATM puts to break even (i.e., to have the average excess return of zero), crashes of the magnitude experienced in October 1987 would have to occur 1.3 times per year.
• The economic impact of the put mispricing appears to be substantial. We estimate the cumulative wealth transfer from buyers to sellers of the S&P 500 futures options and find it to be astounding $18 bln over the studied period.
There is no arguing that selling naked puts could be very risky. For example, a short position in ATM put has a highly asymmetric payoff profile, with limited upside and essentially unlimited downside. Such a position makes a small profit most of the time, but takes a big loss once in a while. Furthermore, the position makes money in good states of the world and loses money in bad states. Because puts are negatively correlated with the market, it is not surprising that they are traded at negative risk premiums. Moreover, because of considerable leverage, the magnitude of those risk-premiums is expected to be large. While it is clear that option traders will only sell puts when properly rewarded for bearing substantial risks, it is much less clear what their normal risk compensation should be. Stated differently, is about 40% per month represents a “fair” return for a short position in ATM puts? Or, perhaps, it is too high. The answer to this question depends on the assumed equilibrium model, as different models predict different risk premiums. In this paper, we initially consider two candidate asset pricing models – CAPM and Rubinstein (1976) – and argue that historical put prices are far too high to be compatible with those canonical models. This does not immediately mean that option markets are irrational, for it is possible that there is another, nonstandard equilibrium model which could rationalize the empirical findings. We explore three natural explanations for the “overpriced puts” anomaly:

E1: Risk premium. According to this explanation, high prices of puts are expected and reflect normal risk premiums under some equilibrium model. Even though the standard models cannot explain the data, maybe there is another model which can. In this “true” model, investors strongly dislike negative returns of the S&P 500 Index and are willing to pay hefty premiums for portfolio insurance offered by puts.
E2: The Peso problem. According to this explanation, the sample under investigation is affected by the Peso problem. The Peso problem refers to a situation when a rare but influential event could have reasonably happened but did not happen in the sample.
E3: Biased beliefs. According to this explanation, investors’ subjective beliefs are mistaken. Similar to E2, this explanation states that the Index realized returns have not been anticipated by investors. Consider an example. Suppose that the true probability of a crash in a given year is 20%, but investors incorrectly believe that this probability is 40%. Since investors overstate probabilities of negative returns, puts (especially OTM puts) are too expensive

The paper does not offer a solution, but I think (a) there is an excessive, irrational fear of losing money that causes put options to be overpriced, because they offer protection against total loss of the principal investment. As Kahnemann established, people tend to fear more losing money they have than willing to risk it to win more. It is not symmetrical, in their minds. (b) Also mentioned by Bondarenko but not developed, is the hypothesis that the pricing of put options is done by the speculator within the framework of specific portfolios, so the "correct" market price could be in fact irrelevant for the individual portfolio manager. Take my case: people is speculating that oil futures will go up over 70$ but cover the bet by buying put options. And they are ready to pay more than rational price to have this protection, its cost is marginal for their overall play. The more I think about it more convinced I am that this is the correct answer to Prof. B.'s "Why...?"








How it works? Lets imagine an example: Speculator buys 100,000 $ Halliburton stock, an oil producing company, and hedges it with 10,000 $ worth of Oil 70$ Put Option. Total investment = 110,000 $

If oil over 90$: Halliburton= + 50,000 Option= -10,000 Net= + 40,000
If oil 50$: Halliburton= - 20,000 Option= +200,000 Net= + 180,000

In this scheme, the actual purchase price of the Put Option is not very significant, so the buyers will not spend much time nor energy in negotiationg a lower price. And if overpriced, means that the mass of investors is actually betting on HIGH oil prices. In fact, the market as a whole is always speculating for higher prices, because stocks produce dividends and the general historical direction has always been bullish.

The operative conclusion of this long meditation (it took me the whole Shavuot holiday morning, except for a few refreshing interruptions to watch dressd-up religious families walk under my window toward synagogues) is: (a) In "real" terms, I bought the Kesem Brent Put Option too high, i.e. there is a high risk that its strike price will be over 70$ and I lose all my money, (b) Since the overpricing puzzle will not disappear, and oil prices are highly volatile, it is most probable that in a certain moment my options will be (over)priced by the market to the point that I can sell them with a profit. In other words, oil price is volatile and it is probable that till November 12, 2007 there will be a moment when it will be under 65$ when my option will be over $5 and I can sell it with profit. Observing Brent futures price graphs, it seems also probable that Brent has topped and it will go down. Gary said so. If Brent goes down (even for a few days) to 60$, I shall make a boochtah (a bundle...?) on my bet.

The pic shows the Antikythera Mecanism, a machine created by Greek astronomers. I would love to receive comments to learn where I am wrong.

Investment in FMS - 10% Loss per Day

Credit is available and cheap now, so I tripled my overdraft facility to buy financial instruments. Waiting my favourite Yemenite bankeress (bankeretrix?) to insert the information in her computer, I happened to carefully analyze a printout laying on her desk. A client of hers called Moty something had been re-arranging his portfolio in a wild, risky manner, and had and was making more money then me. I asked the abundant Hedjazi woman what Moty had been buying lately and she said PAMAS. I had never heard of PAMAS but if Moty thought it attractive, it must be so. I ordered tons of it and went home. But PAMAS has been sinking each day more so I looked it up. It appears that F.M.S. (In Hebrew this reads "Pamas") is a textile factory,specializing in body and vehicle armor. The world is full of terrorists and assassins, so it must provide a good living. Pity it is so secret that I have no way of knowing. Moty, I hope you know what you are doing! Because I dont.

Islamic Private Equity Fund to yield 25%

"The Islamic Private Equity Fund offers a unique Shariah compliant structure with a minimum internal rate of return of 25% per annum,” CEO Khaled Hassan Rashed said on the Qatar Economic Forum. The fund, open to institutional and individual investors with a minimum investment requirement of $3mn, is governed by an independent Shariah board comprising prominent scholars. In my opinion, a fund guaranteeing 25% annual yield is a Levantine fantasy, although a pious fantasy that promises to use the money in an ethical way. The camel (pic) is not involved in any flim flam business.

Update on my Brent Bet

Today and tomorrow Israeli markets are closed. Yesterday end of the day I send a buy order for Kesem Bent November Futures Option at 2100 shekel, but it was not fulfilled. In fact, Brent's price was over 70 $/barrel, so the option was "out of the money", but there were no transactions on TASE. I wanted to top my holdings to 1000 options, now that the price seems low (2100 = 5.25 $), but no one was selling or buying. Apparently, I am not the only one believing that in the end, this option will be very profitable. Update:

Oil surged more than a dollar to over $70 a barrel yesterday as unrest in Nigeria kept markets on edge for further supply disruptions from Africa’s top exporter.
London Brent jumped $1.07 to $70.49 by 1741 GMT after trading as high as $70.83 earlier. US crude gained 96¢ to $65.90. Unknown assailants broke into an unused Nigerian oil well operated by Total yesterday, causing a minor spill, a company spokesman said. There were no injuries nor any impact on oil output. Rising violence in Nigeria since February 2006 has cut a third of the Opec nation’s oil output and forced thousands of expatriates to evacuate.
“The uncertainty over Nigeria oil production and the continuing worries over US gasoline supply seem to be behind this latest rally on crude,” said Phil Flynn, analyst at Alaron Trading in Chicago. Sources at private security firms had earlier reported an attack on a Total oil facility in Nigeria using high explosives. The French company said no explosives were used.
Despite the extended Nigeria outage, Opec oil were satisfied that demand for crude oil was being met. “The market is very well supplied, in fact it is oversupplied,” said Opec President Mohamed al-Hamli, who is also oil minister for the UAE, yesterday. Opec is due to meet on September 11 to decide output policy. Prices also drew support as Iran, the world’s No4 oil exporter, pressed ahead with its atomic work. A senior Iranian official said on Saturday the country has started building its first domestically made atomic power plant – a move which could deepen Tehran’s standoff with the West over its nuclear programme.
Qatari Deputy Premier and Energy Minister HE Abdullah bin Hamad al-Attiyah seconded the Opec chief’s view. “We are convinced that the market is not short of supply,” he told reporters in Doha yesterday. Geopolitical risks in the Middle East and Africa, not lack of production, are pushing oil prices higher, he said.

Cheap Money

Chinese people are saving about 50% of their income and investing most of it in local industry. But enormous quantities of money find no investment opportunity in China itself and are being parked in US bonds. Some is fueling the Shenzhen and Shanghai stock exchange boom. This excess savings have pushed down interest rates all over the world and created an opening for private equity firms. These take out cheap loans and buy productive assets generating higher than the zero real interest rates paid for the loans. Blackstone (founded by Steven Schwarzman, see pic) is one of the most successful. Its concept is interesting, better that my taking out overdraft and buying Brent futures.

The Mongol Genocide

The extremely harsh living conditions of Northeast Asia (Siberia) have bred a collection of very small and poor tribes that in successive waves have taken over China and most of the rest of the world. They have a knack for war and for creating stable political structures (states). They have not disappeared, they ruled China till 1910 and have displaced Greeks in what is now Turkey. Bulgaria and Hungary are surviving European states founded by these Arctic families, although their genetic presence is minimal.

These are truly genocidal tribes, they have exterminated most peoples in contact with them. But a study of genetics reveals that the Mongol people itself was the subject of the most ruthless genocide of all. 35% of the Mongols are direct descendants of Genghis, an 11Th century leader. In other words, this man replaced a third of its own people. Some populations like the Afghan Hadara (The Ten Thousand) are 100% Genghis descendants. The highest frequency of haplotypes from the cluster of the Genghis Khan's descendants was found in Mongols (34.8%), Altaian Kazakhs (8.3%), Altaians (3.4%), Buryats (2.3%), Tyvans (1.9%), and Kalmyks (1.7%). All in all, about 8% of Central Asia's population is a direct descendant of Genghis (about 20 million individuals). "Natural" selection and evolution is operative on human populations, maybe faster today than ever.

The Working of the Hassidic Mind

Hassidic Judaism appeared in the 17th Century as a popular reaction to the cold, cerebral Litwak (Polish-Lituanian) Judaism. It appealed to the folk Jews of the Carpatian Mountains, with miracleworking rebbes, earcatching melodies and stories of magic talking animals. Budapest Jews rejected the backward Hassidic superstition. At most, there were Secular Zionist or Godless Communists. The Holocaust spared the mass of Budapest Jews, but the anti-intellectual mountain Jews were deported in their compact masses and almost all poisoned in the gas chambers of Auschwitz. So much for God's appreciation for their fanatic piety. However, sixty years after, Hassidism has emerged as the strongest stream in contemporary Judaism, while Budapest Jews, well, are unfindable. From Simple Jew I copy a sample of how their minds work, about the source of the Rebbe's authority. It certainly is magical thought, but I find it charming and seductive.

I have been asked on more than one occasion, by very different types of people, what basis there is in Judaism for the role played by the Chassidic Rebbe. I have answered this question differently to different people, but I always remember this question during the week of Bamidbar (In the Desert chapter of the Bible) – however, I am getting ahead of myself.

The Minchas Elazar (Chaim Elazar Shapira, the Rebbe of Munkacs, a shtetl in the Carpatian Mountains, nowadays Ukraina. It is unpolite to call a person by his name, he is refered to by the title of his main book) in his sefer Divrei Torah (7:81) provides one source: Yitzchok (Isaac).

Yitzchok asks Eisav (Esau) to bring him delicacies. Why? What does he usually eat? Can't Rivka (Rebecca) make him delicacies? Why suddenly should he need Eisav to do this now? What does this act have to do with the brochos (blessing) that he wants to bestow? Couldn't he provide the brochos without this strange request? And how is it that Yaakov can fulfill Eisav's mitzvah (commandment) and receive the brocha (blessing)?

The delicacies that Yitzchok requests are Eisav's pidyon (sacrifice, in the original sense). The Michas Elazar bases his answer on the Chida – that connecting it to a mitzva makes the brocha effective. (that is, the idea that a blessing becomes effective when connected to the fulfilment of God's commandment). Therefore, Yitzchok gives Eisav a mitzva of kibud av (the commandment of Honour your father) in order to empower the brochos and, of course, Yaakov does this as well since he is simply following his mothers instructions (kibud eim) (The commandment of honouring one's mother). So too, a Rebbe connects his brocha with the mitzva of tzedoka (charity) to make it effective.

But another source for the role of the Rebbe is found in Ramban's commentary on parshas Bamidbar. Towards the beginning of the Parsha, Ramban comments (Bamidbar 1:45, on the verse "These were the counted ones of the children of Israel" – about half way through): When counting the Jewish people…they were each brought before the greatest of all prophets (Moshe Rabbeinu) and his brother (Aharon HaKohein) – the holy unto G-d – and each individual provided his name, resulting in additional merit and life – since, through this, they placed themselves under the counsel of G-d's people and inscribed themselves in the house of Israel (a reference to Ezekiel 13:9) … and each gained merit through their being counted by Moshe and Aharon, as Moshe and Aharon looked upon them with a kind eye and intercede for mercy on their behalf so that Hashem, the G-d of their fathers, should bless them exceedingly, and not lessen their numbers. And the shekalim that they donate stand them in good stead as a kapara (redemption) for their souls.

So, the Ramban is saying, by coming before the Tzaddik (the Saint, i.e. the Rebbe) and giving him our name, this brings brocha and life based on the ahavas Yisroel (the love of Israel) of the Tzaddik and his ability to elicit mercy from above. Furthermore, through the pidyonos that we give, we achieve a kapara for ourselves. "This," the previous Klausenberger Rebbe often said, "Is the source for Rebberay (the Rebbe institution)."

Of course, the Klausenbeger Rebbe was also very critical of many Rebbes that may not be on that level, but we can console ourselves with R' Nachman of Breslov's comment, that there are Rebbes that are not at all worthy, but due to the emunas tzaddikim (the pure believe of their followers) of their chassidim, their brochos (blessings) are sustained.

The Night of the Eagle Man

One very cold winter I was doing my yearly month of miluim (reserve service) on a high ridge on the Lebanese Border. Thousands of Palestinian guerrillas were stationed in front of us (it was before the Hizbollah) and they tried to infiltrate Israel and cause mayhem in the Galilee. One Palestinian succeeded passing the border by glider before he was killed. Therefore, we had been positioned in a wadi (canyon)-like topographic depression which channeled a chilly, steady and usable northern wind stream during the night. It was presumed they would come by this way. I spent many a night trembling on the chilly, windy hills searching the black sky for the silent flight of the Palestinian bird man.

Other nights we spent on maarachot (traps) set to catch infiltrating bands of heavily armed guerillas. Our task was auxiliary, those who actually did the killing were the elite units of the tzanchanim (paratroopers) and the golani infantry. We had little contact with them, they impressed me as very young, serious and professional. One early morning walking on the border road back to my basis, I met a group of tall, young golanchiks, and I trembled as I crossed them, they were speaking in Arabic, I thought they were infiltrators in Israeli uniforms. But they were authentic golani soldiers, a unit that has many volunteers from the Arab villages of the Galilee, and Beduin, Caucasians and of course Druze conscripts. We were equipped with night vision glasses, but I never saw anything with them. I never actually shot my M-16 or MAG, but many a time felt the shock waves of the high pitched sing song of bullets passing me by. Golani soldiers used to spend several days in a stretch hiding in the bush on the Lebanese side, they received special rations of sweets and nuts. They invariably surprised and killed the Palestinians trying to come near the fence. They never had any casualty. Not one Palestinian fighter ever made it to Israel, not by land and not by air.

One of those long, cold nights on the hills, observing the dark sky, I realized the fantastic asymmetry of my "war". My enemy, a Palestinian teenager fired by the fantasy of coming to liberate his never seen, inexistent homeland. In his dreams he saw himself landing like a raptor in a land of fragrant orange trees and bucolic goat herds. He could have never imagined the strange reality of the busy, noisy, industrialized, metal and concrete land of contemporary Israel.

I imagined the feelings of the Eagle Man levitating toward me on the wings of the northern wind, his exalted state of mind, free from the Earth and its miseries, he was flying like a powerful eagle towards glory and victory. I put my self in his mind, I was the Eagle Man gliding effortlessly on the cold breeze in the silent obscurity of the river of air carrying me towards the faraway lights of the Hula Lake. But lonely and silent, unseen in the bush, there was J. eyeing him, waiting for him, ready for him. Death's Trap was already set and it was to be closed on him. The Eagle Man was already a dead man, he was a short announcement on Galey Tzahal (the Army radio): "the night Tzahal killed four infiltrators. No casualties to our forces." I wrote a poem on the Eagle Man dreaming of glory in the sky, feeling the extasis of power and victory. He was a dead man, a pathetic fantasy, a passing shade in the sky.

This scene came to my mind when reading Luttwak's note on the powerlessness of Middle Eastern peoples.

"In the 1960s, it was Nasser's Egypt that was mistaken for a real military power just because it had received many aircraft, tanks and guns from the Soviet Union, and had many army divisions and air squadrons. In May 1967, on the eve of war, many agreed with the prediction of Field Marshal Montgomery, then revisiting the El Alamein battlefield, that the Egyptians would defeat the Israelis forthwith; even the more cautious never anticipated that the former would be utterly defeated by the latter in just a few days. In 1973, with much more drama, it still took only three weeks to reach the same outcome.

In 1990 it was the turn of Iraq to be hugely overestimated as a military power. Saddam Hussein had more equipment than Nasser ever accumulated, and could boast of having defeated much more populous Iran after eight years of war. In the months before the Gulf war, there was much anxious speculation about the size of the Iraqi army—again, the divisions and regiments were dutifully counted as if they were German divisions on the eve of D-day, with a separate count of the "elite" Republican Guards, not to mention the "super-elite" Special Republican Guards—and it was feared that Iraq's bombproof aircraft shelters and deep bunkers would survive any air attack.

That much of this was believed at some level we know from the magnitude of the coalition armies that were laboriously assembled, including 575,000 US troops, 43,000 British, 14,663 French and 4,500 Canadian, and which incidentally constituted the sacrilegious infidel presence on Arabian soil that set off Osama bin Laden on his quest for revenge. In the event, two weeks of precision bombing were enough to paralyse Saddam's entire war machine, which scarcely tried to resist the ponderous ground offensive when it came. At no point did the Iraqi air force try to fight, and all those tanks that were painstakingly counted served mostly for target practice. A real army would have continued to resist for weeks or months in the dug-in positions in Kuwait, even without air cover, but Saddam's army was the usual middle eastern façade without fighting substance."

Thinking on my Brent Bet

In an effort to leverage my bet on lower oil prices, I increased my overdraft (which costs me only 5% p.a.) and purchased Kesem Optzia Neft Put 20 which pays the difference between 70 $ per barrel and the Brent Nov 17 futures price on the ILO exchange. Since current price has rised to 69.7 $ the market value of my options went down 10% to 22 shekel (6 $) implying a Brent November price of 63 $. This situation is consequence of virulent Ijaw legitimate revenue sharing demands (aka blackmail). I hope that an understanding will be concluded soon, the pipelines repaired and the hostages liberated. And Brent prices return to their former levels. In the long term, oil will be dirt cheap again, since it is an intrinsically cyclical commodity and Saudi Arabia is losing its market regulating power.

(1) High prices have provoked a flood of investments in oil production: Brazil, Angola, and the Caspian will escalate production around 2010.
(2) Conventional oil supply may decline but tar sands in Canada, Venezuelan heavy oils, and shale oil in the USA will make up all the decline. $6 to $8 billion a year are invested in Canadian tar. Once the investment is made, it will be worth producing the oil at $10 to $15 a barrel.
(3) Technology will reduce demand as hybrid vehicles and biofuels become common.
(4) Oil purchases by China and India will decrease because their internal demand is subsidized. Take away the subsidies and demand falls. Imports are at international prices and subsidies are unsustainable as their economies grow. Oil is also subsidised in Venezuela and the Middle East except in Israel. In Iran, gasoline is sold at 9c per litre and demand is rocketing. Demand is growing only where oil products are subsidized, in the rest of the world it is dead.
(5) The "greens" internalized the fear of God in the American and European public. The USA started to work on energy independence and it should never be forgotten that these are "can do" people, when they focus on something, they can put a man on the moon.
(6) If OPEC’s current plans for investment come to fruition, it will have more excess capacity.
(7) Iraq has the potential to become a second Saudi Arabia. Baghdad is mayhem, but oil producing areas around Basra and Mosul are quiet. Iraq produces 2 m barrels today, it soon will produce 5 m.

The world is in flux. All this activity is fast changing the oil market and lowering prices. A crisis will only accelerate the change. My problem is where all this will stand on November 2007.

Megan's Blog

I like Megan's Archives Blog. She is a water engineer collegue of mine, has nice skin and figure, but the fact that she is 30 and wants a husband and babies weights on her mind. I advised her to start applying The Rules. A sample from her comments section:

Anonymous said...

My visiting individual blogs ebbs and flows over time.

My current forecast is that I will keep reading here until this becomes a pregnancy/baby blog, and then I will drift away.

Megan said...

Dude, I am so dropping the blog when I find someone.

1. The point of this blog is to get me laid. Once that's taken care of regular, why would I keep it up?

2. The other thing the blog does is give me a place to talk about the things on my mind. When I have someone to tell all this stuff to, I won't have to impose on imaginary people.

3. I'll want to spend time with him, not on a screen.

I really do not expect to write a relationship/pregnancy/baby blog. 'Course, I didn't expect to like blogging as much as I do, but still. I expect to suddenly inform people that they have a few days to collect whatever posts they want and shut the place down. Y'all will have to visit me in real life if you want to keep the conversation going.

She is still writing her blog.

Chinese Stock Market Mania

Six months ago I sensed that the Chinese people proclivity to save and craze for fortune games would be channeled into the Shanghai and Shenzhen stock markets. I remembered in Kaifeng the enormous halls with hundreds of hypnotized Chinese sitting in rows and rows of wooden benches, watching the stock exchange board and monitors. That in the morning, during work time, in a nominally Communist dictatorship. I started talking to the neighbors, soon guards appeared and asked me to pay for sitting there, but I have this rule of mine never give money to strangers, (and less in a strange city), so they threw me out without ceremony. So in January 2007 I purchased a few thousand djoobot (greenery of the local variety) worth of Kesem China Index and followed with increasing self-congratulation the phenomenal rise of Chinese stock prices. I was right, as I always am: when 1,500 million Chinese met that devilish capitalist invention of the stock exchange, they all fell in love with it.

Two days ago Chinese B stocks jumped 9% in a day, but my Index holdings "jumped" only 1%. Something is wrong! I sensed and consulted my Yemenite investment advisoress. She consulted her data bank and said it was in fact linked to the Hang Seng stock exchange, that is, Hong Kong's somnolent exchange's thirty largest stocks. Of course she was wrong once again, because the fund is indexed to the FTSE XINHUA China 25 Index, which consists 25 of the largest and most liquid Chinese stocks (Red Chip and H shares) listed and trading on the Hong Kong Stock Exchange (HKSE. If I could make such a mistake, and I (like anybody else) know myself to be far above average, then the perfect market theory must be wrong. One has to make a lot of research just to discover what each paper is and how it works. People makes gross mistakes all the time, hundred million imperfect people does not make a perfect market. My Chinese index holdings rised only 12% in these six months and not 50% as they should. The pic is me at the Ming Emperor's Tomb, near Beijing.

With Majnoon in Samaria

I got another small job in Ariel, the Capital of (Much) Conquered Samaria. Our army is copying the Americans and privatizing everything that can be outsourced. A roadside food stand won the contract to feed local occupying forces and is setting up a modern catering operation. An energetic Persian (Jewish) boy of about 20 is the dynamo behind the startup, and he contracted me after bargaining down my offer by 50%. He rents a place in a downtrodden industrial building in Ariel and is refitting it according to the ordinances. The building was erected by a visionary entrepreneur when Ariel was a settlement on paper. He promised to create an industrial park, and the Government was only too happy to grant him free all the land he wanted and the infrastructure. He built three cheap two store long blocks, and rented them out. The park is now fully occupied mostly by dozens of garages and small workshops, with hundreds of palestinians from the villages around working (probably illegally) there. The contractor is a former student of civil engineering of mine, and his (friendly and good looking) workers are from Kifl Haris. We had the problem of locating the FOG interceptor, but it appears that we shall locate it under the road. Of course it is against municipal regulations, but the whole area (buildings, roads, hills and wadis around) is registered as private property, and we may do as we want. In the pic the building materials supplier, a fantastic figure from Sh'chem (Nablus). I witnessed a great fight when the Majnoon (Crazy, in Arabic, so he known around) refused to accept a cheque from the Persian. He feigned analfabetism, he said had no bank account, he has a phobia against banks, and wanted to give a false IVA receipt. The workers made fun of the Majnoon, who insulted them back in Hebrew-Arabic. The Persian announced loudly that he is strictly legal and will pay no cash. After a while they asked the mob (we were enjoying Majnoon's antics) to disperse and a mutually satisfactory peace agreement was achieved in no time.

Permit for Supermarket

While driving my blond daughter to her HaPoel Club swimming training session (four times a week, each time up to four hours), I heard on the car radio an interview with the president of Israel's Hotel Association, complaining that 60% of the hotels have no rishayon asakim - business permits. Operating a business without permit is a criminal offense, and it has grave consequences in case of accidents, fires, and so on. He said that getting a permit is nearly impossible, that hotel managers are spending their time in filling forms and satisfying unceasing demands, that there are many competing authorities all establishing rules while changing them continuosly. This situation is making hotel managers into criminals, and the situation is impossible. The Ministry of Finance established a mixed committee to study solutions but nothing is being done. All is true and these are people that employ me and this is the environment I am working in.













I have been planning a supermarket's water and wastewater system to fulfil all the regulatory requirements. I submitted a design and engineering report, and I received a letter with the changes they wanted. I executed the modifications and want to submit the new report, but the supermarket decided to liquidate the bakery section and put instead a fish shop. They had already bought the equipment and I am waiting for the new setup. Today, Ministry of Health made a surprise inspection and gave them two months to update their paperwork. In the meanwhile they are working without a health permit, a criminal offense. They are under much pressure, I could ask for more money, but I am a shmuck like that retard heifer at the entrance.

The Niger River Delta (almost) Civilization

Reflecting on the Nigerian River tribes that (unwittingly) ruined my sure-bet Brent Oil speculation, stands out that these are strategizing, intelligent, purposeful peoples. But innumerable studies set their average IQ at about 80. This is against my real-life perception and I lived years in the area. I wrote to Prof. Greg Cochran that I found many Nigerians eloquent speakers, bright and convincing, able to get the better of me in a debate. Physically, many are stronger and fitter than me, and I am a superior swimmer and waterpoloist. In daily intercourse, one standard deviation may be, in my experience, unnoticeable, but Greg wrote that I am wrong. He must be right, but I am still unconvinced.

Today I received another Nigerian scam letter. Nigeria "exports" some 150 million dollars worth of scams, it is its second "export" after oil. I presume you need intelligence to trick out money from a rich Americans, equal or better than the IQ of the victim. My opinion is that their environment forced them to evolve toward little investment in offspring and multiplying fecundations, which brought about superior physical beauty, sense of rythm, music and dance, good voice, sexual ability, and then, dominant personality (and social abilities). The fitter left more descendants by the strategy of highly improved sexual appeal (body, voice, rythm, brightness, trickiness) and maintaining several relationships and tricking the girls into making them babies. This is opposite to the Arctic survival strategy, of forming stable family units and supplying it with food and shelter in extreme cold climate. Arctic peoples are almost sexless but focussed on hard sustained work and high mechanical intelligence.

The Niger River Delta peoples were already on the road to creating their own civilization and the Benin and Yoruba had organized kingdoms, with strongly walled cities and specialized tradesman, military and artists. The Benin bronzes and wood carvings are very impressive and original. They had already reached Iron Age, the Hittite level. From the Hittites it took 1500 years to advance to the Hellenistic civilization, so it is reasonable to assume that by year 2,500 AD the Niger Delta would have produced an original high civilization, equal to the Greeks, Romans and Chinese. Lately it has been demostrated that ancient populations were different from contemporary populations due to accelerated evolution. We have been evolving fast lately, they also would have been and possibly they already were on the way of becoming an advanced agricultural race. If only left alone. But its natural development was cut short by the contact with Europeans - and like in America, Australia and much of Asia, Europeans caused the collapse of aboriginal cultures and frequently of the peoples themselves.

How would have looked the Niger civilization? These are a religiously inclined people, so they would have developed the cult of Shango, the brutal god of the thunderstorm, tyrannizing a rebellious, treacherous menagerie of minor gods. Gods apply violence and trickery to rape goddesses and human females, they use black magic to cause disease and prosperity to humans. Like Zeus who took the form of a bull to rape Hera, Nigerian pantheum wold be amoral like the Greek Olympus. In contrast, Jewish and Mesopotamian gods were jealous but highly moral. The Arctic peoples imagine a ritual-ridden heaven of disembodied spirits. Only the Greeks had their oversexed gods full time screwing each other. Maybe they were originally Africans? But then, we all are.Now let enjoy the funny scam of today:

Dear friend, This letter may come to you as a surprise due to the fact that we have not yet met. I have to say that I have no intentions of causing you any pains. My name is Mr.John Spencer, a merchant in London, but taking treatment in ubai, in the U.A.E. now I have been diagnosed with prostate and esophageal cancer that was discovered very late due to lack of caring for my health. It has defiled all form of medicine and right now, I have only about a few months to live according to medical experts. I have not particularly lived my life so well, as I never really cared for anyone not even myself but my business. Though I am very rich, Iwas never generous, I was always hostile to people and only focus on my business as that was the only thing I cared for. But now I regret all this as I now know that there is more to life than just wanting to have or make all the money in the world. Recently, I use to say to my self that if God should give me a second chance I would have live it differently way from how I have lived.I was meditating on my hospital bed and something told me that God is giving me a second chance by keeping me alive though doctors said I won’t last long. I know my time is near, that’s why I have willed and given most of my properties and assets to my immediate and extended family members and as well as some few close friends. I have decided to give alms to charity organizations, as I want this to be one of the last good deeds I do on earth. So far,I have distributed money to some charity organizations in the U.A.E, London and Ireland. And I have also met two people on the net who have helped me distribute money to charity organizations in their country. Now my health is deteriorating so badly, I really need you to help me distribute the last of my fortune. You might be wondering why I did not ask my close relatives to pick over this task. But I once asked members of my family to close one of my accounts and donate the money, which I have there to charity organizations in Bulgaria; they closed the account but refused to donate the money to the organizations, some of them even fled away with some of the money while the rest shared the remaining money among themselves. From the way they are acting around me tells that they want me dead so that they can talk about inheritance. Hence, I do not trust them anymore, as they seem not to be content with what I have left for them. The last of my money which is a huge cash deposit that I have with a security firm abroad will be put in your care if only you will agree. I want you to help me collect this deposit and dispatched it to charity organizations and let them know that it is I(John Spencer)that is making this generous donation.I am writing this from my laptop computer in my hospital bed where I wait for my time to come. I pray for you to support and assist me with a good heart. Please you can contact me through this email address: john_spencer@mail.com Be blessed my beloved, John L. Spencer

Brent Crude Futures Put - The Outcome

My Brent Crude Future Option expires tonight at 00.00 Israel Time. Its Strike Price is 65$ per barrel. Now is 2200 hs and the above minute-by-minute quotes graph strongly suggests that the price will be around 67$ - ergo my money is gone. I paid my derecho de piso. What can I learn from this failure? (1) Things do happen. (2) Two days is an eternity in the markets. (3) Future is difficult to predict. (4) B&S values are probabilistic i.e. only work with large numbers. (5) Sell my November Puts at the first opportunity.

PS: No, not all my money is gone. The Option was of the bond type, so they paid me back some 60% of my investment. An amazing point: On Thursday the price of the option was below the value of the bond, meaning that one was actually paid to make a bet that Brent futures price would sink under 65$ (it didnt).

My Brent Executed by Ijaw Infight

Ijaw never disrupted Nigeria's oil industry on a large scale. After all, if the oil stopped flowing, so would the money they were after. This is what made MEND different. MEND's goal was to not just be another gang after payoffs (or demanding social justice). They set out to change the underlying political order, that is, institutionalize the "sharing" of oil revenues. Thus, not only did the normal taboo against inflicting substantial damage on the oil industry not apply, the damage was the goal. The strategy worked and Goodluck Jonathan, an Ijaw, got elected as vice president. But on May 9, something fell apart. On that day, MEND's spokesman flat out labeled Jonathan as the group's political patron and warned him that if he did not provide them with sufficient income, their attacks against the Nigerian oil industry would most certainly continue. Leading up to Jonathan's outing, MEND carried out a week of attacks that took 200,000 bpd off line. The challenge for the incoming administration will be to find a way to give the Niger Delta states more resources without unduly upsetting the various power balances in the rest of the country. Currently, the oil-producing region shares 13 percent of the federal government budget in special "oil derivation funds," on top of the region's regular budgetary allowance from Abuja; some militants have demanded that the oil derivation fund amount be boosted to 50 percent. This is a sore point for other regions of the country -- especially the north, which feels it is time for it to have more power and resources after the eight years of rule under Obasanjo, a southerner from the Yoruba tribe. The only unanswered question now is why MEND decided to out Jonathan when it did. That is unclear, but one thing is sure: Nigeria's president distributes the country's oil money by a host of informal means; Obasanjo's impending departure means that an entirely new set of informal means has to be set up, and MEND has no intention of being on the outside for another eight years.

Why me? Why now? Why my Brent?

My Brent Oil Put Speculation is souring. Its price is rising and topped 66 dollar. The Nigerians began kidnapping foreigners at an alarming pace —22 kidnapped in 36 hours— and overran offshore platforms and production ships. On Monday, the Ijaw ethnia issued an ultimatum. “All foreign and local nationals working with multinational oil companies should vacate Ijaw territory immediately. Nothing can protect them.” Three major oil pipelines were bombed, shutting down another 150,000 barrels per day of oil production. Total production shutdown is now 900,000 barrels per day. Then there is that situation in Venezuela. Chavez expropriated $30 billion worth of oil company processing facilities last week and is currently negotiating the terms under which the oil companies will remain in that country. The negotiations do not seem to be going well and there seems to be a good chance one or more of the foreign oil companies will pull out and head for the courts. As the interaction between oil production and a hurricane is unknowable it strikes, there is not much useful to be said other than that the oil companies are working hard to mitigate damage from future hurricanes in the Gulf. The future of Iraqi oil exports depends on the course of the insurgency. Then there is the declining Mexican production, lower Saudi production, and acceleration of the frenzied growth of China. All these seem destined to add a few dollars to Brent futures.

La puta madre que los pario.

Brent Crude Contract over 65 $ - Why?

Why? Because more oil workers were kidnapped in the Niger River Delta oil producing area and three ENI pipelines were blown up. I have worked in the Benin area and know well some of the jungle and river peoples there. These are Black Africa's most beautiful people, highly intelligent and energetic, having developed the latest of humanity's six independent agricultural civilizations (others are the Inka in the Andes, the Maya in Central America, the Indus River people, the Chinese and of course the earliest one which was the Mesopotamian). When meeting the Portuguese in the 15th century, they already had well-organized kingdoms and were on their way to develope an independent civilization. They created the yam and other tropical roots, and the sleeping sickness tolerant dwarf cattle and goats. I loved their palm beer and grass eater meat and fish soups. What Is Happening?

The current guerrilla war is led by the Movement for the Emancipation of the Niger Delta [MEND]. The others include The Martyrs Brigade and the Coalition for Militant Action in the Niger Delta [COMA]. These groups employ strategies like kidnapping of oil workers and damaging oil facilities. These are not new, it has been going on for a while but for economic reasons and limited to communities, individuals and criminal cartels, which include government officials and even members of the Presidential Task Force on Pipeline Vandalisation. The Ijaws, the majority ethnic group in the Niger Delta, is leading the fight. They are a Christian tribe with centuries long experience with European traders. The most famous Ijaw is King Jaja of Opobo (ethnically, an Ibo slave boy). These delta peoples have a tradition of collective action, such as the 1895 the Nembe Ijaws revolt against the plundering British Royal Niger Company. A decade ago the Ijaws started non-violent agitation known as “Operation Climate Change” – prayers, fasting, meetings, peaceful processions commonly called “ogele”. They framed their action within the environmental imaginery: against pollution from gas glaring, from oil spills, from noise, from deforestation. The Nigerian government responded by militarising Ijaw communities from Yenagoa to Bomadi, and a military invasion of Kaiama, Yenagoa and most Ijaw communities from Mbiama to Patani, where many persons were killed and properties destroyed by the invading soldiers. In 1999, the people of Twon-Brass protested to the AGIP oil company. The company reacted by sending government forces and three youths were killed. In Peretoru and Ojobo, government forces guarding SHELL oil flow stations killed several persons in 2005. The story is same in other Ijaw communities: Bonny, Bakana, Buguma, Kula, Bille, Okrika, Ataba, Nkoro, Etiama, Ewelesuo, Diebu, Peremabiri, Akassa, Nembe, Okokodiagbene, Aghorho, Gbaranmatu, Esaba, Egbema etc. The Ijaw war is being joined by other Niger Delta peoples and clans, such as the Ogonis, Ikwerres, Urhobos, Itsekiris, Ekpeyes, Isokos, Orons, Ibibios, Efiks, Kwales and Etches. The Ijaw have the potential to connect with the powerful worldwide anti-globalization and environmental movement, but I am not sure they are able to pull that off. The antiglobalists have moralistic tendencies which the Ijaw do not share. When working in he Bauchi Meat Products Company in Bauchi, in the seventies, I had an Ibibio mechanic. He had a fantastic muscular body, shining blueish skin, excellent disposition and spoke very good English. A Christian Southerner, he did not stay for long in the company.
My Day Trader internet board friend invested in Brent Put Options that are due next Friday. The Striking Price is 65 $ and he was happy, because the leverage was 130 and he would triple his money if the price went down to 62 $ as seemed then almost sure. But thanks to the Niger River Delta native anti-globalization environmentalists, the price is 66 $ and rising. The Day Trader is bound to lose all his money. I am afraid I played a part in suggesting him that oil prices were sure to fall and we should buy PUT options, which we did.

Kibbutz Infrastructure

Jack, the partner of one of the two most important food industry design engineers, took me to Kibutz Lahavot Havivah, in Emek Hefer area. The kibutz has he monumental big-cement-block infrastructure typical of the fifties and sixties, when the Socialists ruled Israel. In the center of the kibutz stands an enormous kitchen and dining hall poliedric building, built to accomodate one thousand or more kibbutz members. It is almost empty and unused today, because the kibutzim have been privatized and the members cook and eat at home and not collectively. Under the dining floor there is a vast and empty space, part of which has been converted into a commercial night-club with a small kitchen. Ministry of Health wants to close the place because the kitchen is very unsanitary and unsuitable for preparing food for events. It is a large corridor of irregularly shaped spaces at different levels. Jack is already re-designing the place, although not a word has been said about money. He stated that he is responsible for my fees. Hope so.

All the water and sewage infrastructure of this large complex building has been left to decay and over the years new pipes and plumbing has been added. There is no plan, everything looks temporary, short term, improvized (see grey sewage pipes). The water for the kitchen and the bar is supplied from the "hanukiah" (candelabre) manifold fixed to an outer wall (lower pic), with Pexgol 1/2" black flexible plastic pipes. According to the law, water pipes cannot be naked like this in the food industry. The whole place has the peculiar smell of ages-old sewage, because old pipes have been obtured and never cleaned, and some people find it natural to use these spaces as pissoir and latrine. According to Jack, the club is very successful. The people in the kibutz lives in very old and derelict wooden cabins, even Jack was shocked and scandalized. The agricultural machinery garage is full of rusting equipment and the dairy lots are empty with dry old dung. The place gives a sad impression.