MS's take on the Shekel: It is too cheap

In a new review of EMEA economics, entitled “Israel: The (External) Wealth of Nations”, Morgan Stanley says the shekel is substantially undervalued,and technology-driven sectors are improving Israel current account structure. In short, MS says Israel is cheap, Israeli goods and stocks are cheap, and we Israelis are selling our work too cheaply. I always maintained that this is so but no one agreed.

“Between 2001 and the beginning of last year, the real effective exchange rate depreciated by 25.6%, as the shekel weakened and Israel experienced episodes of deflation. With further deflation earlier this year and a weaker exchange rate in recent weeks, the shekel has become even cheaper." Looking at other aspects of Israel’s macroeconomic circumstances, Morgan Stanley says, “Technology-intensive sectors bring a structural improvement in the current account. The current account balance moved from a deficit of 2% of GDP a year in the 1990s into a surplus of 5% last year, even as higher commodity prices worsened the terms of trade. With its human capital and R&D investment reaching 5% of GDP a year, Israel has developed a global edge in technology-intensive manufacturing industries and services that now account for about one-third of GDP (!!!) and 75% of industrial exports. As Bibi Netanyahu says, we are just starting.

What I think of Others Thinking about IQ

Robin Hanson, adored by Prof. Klinger, writes on a subject I had done some thinking:

Blind Elites. We have many clues that hint at the intelligence of the people around us. These clues include the size of their vocabulary, the wit of their jokes, and the insight of their observations. These clues, however, are less useful for distinguishing the intelligence of people who are smarter than us; we may not get their joke, understand their insight, or recognize their big word. ... in some areas of life, like chess, intelligence may reveal itself quickly in better outcomes. But usually, one has relatively little to gain by acting smarter than elites; elites usually can't tell the difference, and if they can they may resent you for making them look bad. You may well be better off hiding your extra intelligence, finding an area where the elites are smarter than you, or finding an area where better outcomes quickly show smarts. Arbitrary fluctuations in who are the elites in an area can thus change whether smart people are attracted to that area. And the possibility of such fluctuations pushes smart people toward areas where better outcomes quickly reveal intelligence. This is a plausible explanation for why smart people tend to prefer mathematical areas. I quickly learned as a new teacher that my students were just as bad at math as at writing, but they preferred writing assignments because they could not as easily see that their writing was bad; math reveals intelligence more clearly. Of course this effect could induce people to rely too much on math; people may prefer to show their smarts at the expense of being useful.

Hanson's street level test of intelligence consists of (1) vocabulary, (2) wit, and (3) insight. Only the first is measurable, a person's perception of wit and insight in other one only shows that they are contemporaries and from the same social background. I do perceive the Satiricon's wit, but probably I am missing 70% of the material. I would say Robin Hanson judges people's intelligence on the basis of how close they are to his own background. I doubt he enjoys a German joke (say, related to excrement or death), or he perceives the insights of a Mexican illegal immigrant about American kitchens.

Since he thinks elites hate intelligence, which I doubt, he sees only two options for high IQ people: to hide their wit and find a niche where the elite is dominant, say sports or dancing, or to refuge in an ivory tower like chess tournaments or a math dept. As for me, I think hiding is impossible, I could never do it, and I never met in person an individual cultivating an image of dumbness while hiding a brilliant and witty mind. I don't find Hanson's insights here particularly brilliant or witty. But he may be referring to himself.

Manure Electricity

Tambour Hefer Ecology Ltd. has begun delivering electricity to the national grid from its new power plant driven by manure and other organic waste located in Hefer Valley, near Hadera. Tambour Hefer Ecology is a joint venture of Granite Hacarmel Investments Ltd. (TASE: GRNT) subsidiary Global Environmental Solutions Ltd. (GES) and Hefer Ecology & Co-Desalination Cooperative Society.

Within a year, the power plant will generate 2-2.4 megawatt/hour (MW/h). Initial output is 1.6 MW/h, of which 1.3 MW/h is delivered to the national grid and 300 KW/h is used to operate the facility itself. The facility was built to comply with the stricter environmental protection regulations applying to local authorities. The Hefer Valley Cooperative Society was ordered to reduce pollutants generated by the communities’ 12,000 dairy cows, and decided to build the manure-driven power station to solve the problem. GES said that the Hefer Valley plant is the first large-scale plant of its kind in Israel, and one of the first in the world. The plant utilizes 600 tons of manure a day. The manure is sterilized, and the solid and liquid waste are then processed to produce methane, which drives the generators to make electricity.

Granite Hacarmel CEO Amiaz Sagis said, “This is unquestionably an important milestone. This facility fits in with Granite Hacarmel’s strategy to invest in infrastructures and ecology. The company is also investing resources to develop alternative energy, water treatment, and desalination.” Sources at Granite Hacarmel said the project cost NIS 40 million, including a NIS 9 million grant from the Ministry of Agriculture under its program to reform Israel’s dairy industry. GES, formerly Tambour Ecology was founded in 1997 through the merger of three companies

Cleantech

Cleantech investment fund BHCO Group Israel has acquired the controlling stake in Hydroprotect Technologies (HPT), which is developing a unique technology for pest control in agriculture. The system combines an advanced development in energy conversion with biological knowledge of animal behavior. BHCO has made an initial investment of $250,000, but sources close to HPT believe that this could eventually reach $2 million. BHCO Israel is the local arm of Swiss group BHCO. It has invested in four Israeli start-ups so far this year BotanoCap Ltd., in which it invested $1 million; Engineuity Ltd., in which it invested $2.2 million, Ein Gibton Ltd., and Arkoline Ltd.

Asaltantes a Caballo

This morning I achieved the Firemen's approval for the system I designed for a large farm. It has a 2,500 sq.m. stable for horses (it must be on of the largest of Israel) and a big hangar for machinery and feedstuff. Most engineers refuse to do such work because their signature - in case of fire and disaster - will draw them into expensive and long disputes with the insurance company, and the complicated calculations required for a well designed sprinkler system. I called the client to congratulate them and to ask for payment, and they said: "We love to pay, we are people who loves to pay their debts, but you are asking too much, we never agreed to such a sum". I sent a written demand to pay and asked them to check other water engineer's estimates. A signed and approved design is priced generally at 3 to 5 dollars per sq.m., so my fee of 800 dollar plus tax is ridiculously low. But they are unwilling to pay it. Once again, I was drawn into the work without ever signing a firmal contract: at first they asked to do a small thing and later the hangar and then appeared the stable, and I never stopped and demanded a written contract. Incredible how I am being screwed over and over by my "Clients".

Undecided

I am following minute by minute the great battle being fought in the Nasdaq. Stock prices go up and down, the mass of investors is watching the same I am and deciding its collective mind where the market is going. The so called fundamentals are positive, but several banks and mutual funds have invested in expensive mortgages that cannot be paid back and are in danger of collapse. The market is calculating if they will go bankrupt or they will survive, but no one knows exactly. According Count Condorcet, a public makes better decisions than an individual, but he lived before another Frenchman's (Blanc) book on the masses. I find interesting that the first bourse to ignore the American stock exchange's hesitation was the Shanghai stock exchange, which boldly raised several points. If in the next hours America sinks and at night Shanghai raises again, we may be witnessing the historical sliding of the global finance's center of gravity from America to China. The last time the financial "magnetic pole" changed place was in the twenties, from London to New York.

Bahrain Leads the Way

TASE is falling 4 - 5 % in these moments, and people are disorientated. I am fully invested and observing without doing a thing. It is Sunday and only the Middle East stock exchanges are open. All of them are raising, led by Bahrain's bourse (2.5%), only our nerve-wreck of TASE is in free fall. I hope tomorrow Nasdaq will stabilize and calm down the environment.

Satan and Iblees

Comes to my mind ... my remote uncle Felix Glucklich - he legally changed his name to Feliz in Buenos Aires - whose worldly goods I inherited. He was very old when I was young, so had little personal contact with him. He was a chemist with a German or Swiss university degree, and worked for my uncles's Szabo Hnos. y Kessler S.R.L. pharm company. When he died in the sixties, alone and with no close relatives, I was given a key to his apartment in central Buenos Aires to take what I wanted before it was cleaned out and sold. Now I realize that a valuable collection of drawings decorated the wall, but then I could not be more indifferent to pencil art. I sat down fascinated by his immense collection of Theosophic, Anthroposophic and Spiritualist texts in German and English, and was amazed by his life dedicated to all that nonsense. I sit down on a chair and read a biography of Krishnamurti and his writings. I took Krishnamurti home and re-read it trying to make sense till all ended in the waste trap we had in our floor. There were many old books (from 1890 to 1930), by Madame Blavatsky, Annie Besant and others, some dedicated by the authors and annotated with Felix's Gothic calligraphic sentences in black ink, and falling apart handwritten sheets. Esotheric, long forgotten disputes among unknown writers and philosophers, mostly in German. He had been in India several times, in an era when travelling was difficult and expensive. It is his apartment with antique, forgotten and senseless literature that comes to mind now that I am reflecting on the Islamic concept of evil, Satan and Iblees. I have spent my life building a family and a fortune, hating obscurantism and mysticism, but my mishpoche has a spiritual legacy, which in my old age am starting to contemplate.

The Holy Quran says:

In The Name of ALLAH, Most Gracious, Most Merciful: Behold, Thy LORD Said to the angels, “I am about to create a human being from clay. When I Have Fashioned him and Breathed into him from My Spirit, fall down in obeisance unto him”. So the angels prostrated themselves, all of them together. Except Iblees, he was haughty and was among the unbelievers. Said, “O Iblees, what prevented you from prostrating yourself to whom I Have Created with My Hands, Are you haughtyor you were from the mighty ones. Said, “I am better than he is, You Have Created me from fire and him You Have Created from clay".

Thus explains the Quran the enmity between man and Satan. The question is what is Iblees and what is Satan? Are they two separate entities? As far as I know, Islamic theology gives no definite answer. Satan is a jinn or spirit that out of jealousy is trying to drive man against Allah. Satan is in a permanent campaign to show Allah that he is better than Man, more worthy of his approval. A weltanschauung as true as any, I respectfully submit. The strange logo is of the Theosophical Movement.

Kfir (Lion Cub) is on the Prowl

Kfir is the name of a battalion organized a year ago on the basis of several existing commando groups (Nahshon, Shimshon, Haruv, Doohifat, Lavie, Netzah Yehuda). Israel maintains a rolling over list of wanted (that is, unwanted) persons in the territories, and Kfir's raison d'etre is to cross name after name on the list.

My Stable of Trojan Horses

My Norton Antivirus program ended so I installed AVG free antivirus program on my computer. It immediately discovered five fine Trojan Horse viruses which put in its vault. Gradually, the computer started to work more and more slowly. Approaching paralysis, I liberated the horses from the jail and the computer was healed. I know that my computer is making copies of everything and transmitting it to its spy-masters. I have little to hide, so let them go on and spy on me. Probably they want to sell me something.

Bank HaPoalim Says "BUY"

Bank HaPoalim, Israel's largest or second largest bank, says "Buy shares, they will go up".

למרות התנודתיות של השבועות האחרונים בשוק המניות, אנו סבורים כי באפיק זה עדיין טמון פוטנציאל להניב תשואה עודפת למשקיעים על פני האפיקים הסולידיים" כך כותבים כלכלני הבנק

This advice is given in an environment of global panic and credit crunch, when the failure of large banks and corporations is quite imaginable. Coincidentally, I agree with the Bank's and my guru-ess's (What do you call a female guru?) position. Now that we are talking about positions, may I quote Modigliani (the painter, not the economist)?

Cargo Cult

Jared Diamond, an evolutionary biologist, wrote that New Guinea natives are not less intelligent as Americans, since they know how to fish and survive in nature. I am sure they are, in the same sense that my SES students are so bright in class. The New Guineans have never developed a civilization or religion, except the cargo cult, which is the most fascinating religious phenomenon I ever learnt of. During WWII American soldiers landed and brought cargo to New Guinea. After the Americans left, a native religious leader directed them to build copies of American landing strips and to re-act American behaviour, hoping that the cargo will arrive to them from the skies, just as it did for the American soldiers. Believers treat the activities of American soldiers as rituals performed for the purpose of attracting cargo. The cult members build these items and 'facilities' in the belief that the structures would attract cargo. In a form of sympathetic magic, they build life-size mockups of airplanes out of straw, and create military style landing strips, hoping to attract airplanes. The John Frum cargo cult is still active on the island of Tanna, Vanuatu. And from time to time, the term "cargo cult" is invoked to mean any group of people who imitate the superficial exterior of a process or system without having any understanding of the underlying substance.

The centre of the Jon Frum cargo cult today is based in a village at Sulphur Bay. The Jon Frum Church here houses the movement's most sacred red cross. On Friday evenings, Jon Frum supporters come from the nearby villages to dance. Every year on the 15th of February, Jon Frum day is celebrated. This is the day when the Sulphur Bay people believe that Jon Frum will return, bringing with him all the cargo he has promised. Prayers and flowers are offered at the red cross in the village church. This is followed by a flag-raising ceremony and a military parade. Islanders carry rifles made of bamboo, painted to appear as if they have red bayonets.

About 100 men march under the command of two village elders dressed as US Army sergeants. The soldiers have the letters "USA" painted in red on their bodies. These soldiers consider themselves to be members of the Tannese Army, a special unit of the American armed forces.

How to estimate IQ at street level

Continuing thinking on the year after year failure of my most impressive students in the classroom at the final written exams, specifically in solving engineering problems, I concluded that there must be some signs of weak cognitive performance that I am not aware of. I mean, I mistake the vivacity, the friendliness, the "brightness" of a student in class interactions with his cognitive capability as measured by solving confusing engineering problems in the written exam. (See note below). Once upon a time, Prof. Greg Cochran answered me that intelligence is very visible in daily life. My experience does not confirm his thesis, possibly because Greg is much smarter (and street-smarter) than I am and has studied the subject for many years. In my life, although I think of myself as a fairly high IQ person, I always lost in the conflicts I had even with recognized idiots (but socially "bright"). I did profit from my intelligence in getting better paying jobs, and by trading successfully, but subjectively one always feels rather bitter and depressed by one's social awkwardness. At least so I felt when I was younger, nowadays I couldn't care less. Anyway, to avoid mistaking "bright" SES students for competent future engineers, before and without taking the actual test, I tried to list some signs to identify SES at the street level, that is, in regular daily life intercourse and without submitting them to any kind of formal testing. I presume American personnel selection managers, working under severe legal restrictions that not only forbid written tests but also question that may discriminate against the candidate, have developed some tools of trade that could serve my purpose, but if they did, they will not tell me, since these tools must be illegal. So much that I could not find anything on the web, but much on the questions that are forbidden in formal job interviews: What color are your eyes, how many children do you have, where did you learn to speak that language, what is your father's name (a standard item on all Israeli questionnaires).

The goal is to develop a method to measure skills in an informal, street level way, without a written test. Skills that can be evaluated are: word decoding (ability to read individual words), reading fluency (reading sentences and paragraphs), reading comprehension (knowing the content of what has been read), written expression (spelling and the ability to write paragraphs/stories), and knowledge and application of mathematics.

A blogger writes: "I am often amazed at the difference between in-the-head abilities and what is produced on paper." Precisely what I am talking about. The same person writes: "Assessing language skills is critical: spoken language, receptive vocabulary (words recognized when others use them), expressive vocabulary (words he/she can actively use), fluency, and syntax (grammar). Mental data processing abilities other than language to be assessed are: fine motor abilities, visual-spatial skills, and memory proficiency. Fine motor skills are related to clear, nice writing, drawing easily, the use of a keyboard. Visual-spatial skills involve visual perception (for example, being able to see that an N is made from two vertical lines and a diagonal) and visual-motor integration (being able to see an N and then draw it). Mild impairments produce slowness in reading and solving problems. Memory testing relates to sequential memory, memory for the order of things. It is also related to the ability to follow orders.

Lets see what I can do.

1. Sense of time, a sense of one thing after another
2. Spelling and vocabulary, language strength
3. Small mental calculations, memory and velocity

The vocabulary technique has been applied to evaluate President Bush's intelligence. "...concerning the specific testing of President G.W. Bush, his low ratings are due to his apparently difficult command of the English language in public statements, his limited use of vocabulary [6,500 words for Bush versus an average of 11,000 words for other presidents.." I think that computerized language analysis systems are easy to developer and must be already in use. Sure it doesn't work with people writing on a foreign language learned at old age, like I am doing now.

The next step will be to work out some standard tests applicable in the street without the tested suspecting that he/she is being assessed.

Double Top Formation

Watching oil prices and specifically Brent Futures, it seems that a double top is in the process of formation. This predicts a trend reversal and collapse in prices. It means that this is the moment to buy put options, not when I did it. Now I could buy them paying the half of what I paid for my options.

Is the reversal near? The encyclopedia says: While the double top formation may seem straightforward, technicians should take proper steps to avoid deceptive double tops. The peaks should be separated by about a month. If the peaks are too close, they could just represent normal resistance rather than a lasting change in the supply/demand picture. Ensure that the low between the peaks declines at least 10%. Declines less than 10% may not be indicative of a significant increase in selling pressure. After the decline, analyze the trough for clues on the strength of demand. If the trough drags on a bit and has trouble moving back up, demand could be drying up. When the security does advance, look for a contraction in volume as a further indication of weakening demand. The reversal seems to be approaching, but who knows?

Drama in the Ehad Ha Am Street

Many speculators lost money today in the TASE, as they bet on higher "maof" index. Today is the day options are paid and the index, instead of rising as expected, fell 3%. Large speculators had to cover their bets and the day ended very badly. As observed by Victor Niederhoffer, TASE is an early signal of what is going to happen during the day in Nasdaq, and that was exactly so. TASE's fall was followed by the collapse of Nasdaq, which closed 3% lower. Interestingly, POT went up 1.3%, so ICL will recover its gains on Sunday. A tightening of credit (and sphincters) is felt all over the world's stock exchanges, and private equity conglomerates are unable to sell their trashy debt. Large US banks have enormous commitments to finance takeovers by private equity adventurers, and that means that they may fail and go bankrupt. This well could be the beginning of the long-prognosticated recession. Inconsistently, oil raised. This inconsistency, going against the trend, confirms my hypothesis that past oil price behaviour is predictive, and the price will rise through the summer to collapse in the third quarter. The graph shows a good fit between last year and this one.

The Bank of Israel announced that 2006 ended with about 70 billion dollar exports, and a large national superavit. Israel is not only economically self sustaining, but an increasingly prosperous country. I remember the times when people said that if American Aid, or the German reparations or the generous donations of American Jewry stop, Israel will sink. When I came to Israel it was a war situation going on and people was not very sure Israel had a future. I came with much money to Israel and I could have bought land or buildings very cheap, but instead of doing so I wondered about the courage of the natives to invest money in risky real estate. Israel then had less than 2 million inhabitants, and it goes without saying that the values have rocketed toward the stars. Politically, the Arab League delegation is visiting Jerusalem and there had been not one terrorist act for months. Israel is a success, when younger I was very wrong at committing my life but not my money to this country, but in the lat few years I am convinced that there is a solid basis to be optimist regarding its future.

Saturday of Consolation

Nahamu Nahamu Ami... (Console, console my people...) are the first words in the Haftara (the section of the Prophets that is read after the Torah) on the Shabbat immediately following Tisha B'Av. The ninth day of the month of Av is the date on which many of our national tragedies have occurred... chief among them the destruction of the first and second Temples that once stood in Jerusalem... and the subsequent exile of the Jews from their land. In the wake of fasting and recalling such national traumas, we now begin a period of consolation. If ever a nation - an entire nation - were in need of consolation... ours would be it.

Marcha Atras on OPEC's rethoric

Prof. Hamilton directed me to a 2005 post on his Econbrowser blog, where he wonders the disconnection between Saudi declarations and promises and actual production figures.

http://www.econbrowser.com/archives/2005/06/what_is_saudi_a.html

In view of the new (for me) information, I officially give Marcha Atras (reverse course) on the subject. OPEC probably is just a facade, faking market control where there is none. It has the power of the theatre, of the drama, which in our mass media word is power, effective bluffing power. The pic show Lebanese actor Kazak playing Shakespeare in Arabic.

My immediate problem is that I base my investment strategy on things like el-Hamri's declarations. Knowing he is bluffing, that OPEC has been doing it for years or for ever, I have to rethink my strategy.

Exploring the Leveraged Speculation World

Gradually I am becoming bolder in my speculative incursions. It took me twenty years to advance from government bonds to managed funds, and then another interminable time till I collected enough courage to buy directly Israeli so called heavy stocks - Teva, ICL, Makhteshim. Only on January 2007 I sold my last mutual fund of my portfolio. I made a try at the TASE options market, but it requires daily, hourly attention to succeed, and it is hard work. Lately they are selling leveraged funds like Maof Kafool, which makes the double of the TASE "maof" index, but it is quite expensive. So I took a rather large loan from the bank (which costs me 5% indexed interest per year) and invested all in BAZAN, the Haifa refinery that was recently privatized. The buyer is Israel Corporation aka the Ofer Bros., who have an excellent record in multiplying the value of state-owned companies such as ZIM and ICL, and also they have the nice custom of paying good dividends. The refinery business seem very promising as there is a deficit in worldwide refining capacity. The graph shows Valero Energy Corp. stock prices during the last six months. I hope that BAZAN will rise more than 5% indexed the next year.

The world has plenty of heavy crude - much of it in Saudi Arabia - but most refineries around the world aren't equipped to handle this high-sulfur oil. Even when plants can refine heavy crude, it's a more costly process than refining light crudes, which are lower in sulfur and easier to refine but less widely available. As a result, refiners are in a bidding war for light crudes -- pushing their cost up. Contributing to the pressure, countries around the world have been tightening emissions standards for diesel and gasoline. Many refineries, especially in developing nations, aren't equipped to meet their standards. Until the recent crunch, oil companies were reluctant to invest in refining because of the difficulties of the permitting process and the long time required to bring to fruition a refinery project.

Today, the squeeze is proving to be a bonanza for refiners. The refiners' advantage shows up best in the refining margin -- that is, the difference between the price of refined products like gasoline and jet fuel and that of a barrel of crude oil. Since 2003, refining margins have been rising for all kinds of oil products, most sharply for diesel fuel, jet fuel and heating oil. Margins for diesel fuel are in the stratosphere, especially abroad. Refiners in the Netherlands, using a type of oil known as North Sea Brent Crude, had margins of $16.25 a barrel in the first quarter, compared with $13 in 2004 and an average of $5.80 in the period from 1998 to 2003. I understand that the Haifa refinery, built by the British colonialists to process the TAP line crude, is able to process also heavy crudes. It looks that it is a good business. I hope that the risk I am taking will yield about 5 - 20% in a year.

Fasting and Working

Today is Tisha Be-Av, the Ninth of the month of Av, and Jews all over the world are fasting in mourning for the destruction of the first and the second temples, which coincidentally happened on this day according to the Jewish (Persian) lunar calendar. It is very hot in Kever Benjamin Land, and I had to work, so I allowed myself to drink coffee. I had a meeting in the mall project with the engineer of the supermarket chain that will rent two floors, and it was a very unsatisfactory conversation since he wants fire fighting systems which have been left to the end. Then I drove to a factory in the industrial area of the City of Ariel. The plant is ten years old and they had added a second unit and bought lots of large machines. To start up the process, they need industrial electricity connection for the ABB blower shown in the pic. Somehow they electric corporation cannot give them the connection without clearing their legal situation. In Israel, any additional building (such as the 1800 sq.m. factory addition) needs about a dozen permits - before actually building anything. Currently they are under a court order of closure, having spent the many years everybody gets in Israel to regularize their status, from the planning commission to the environmental authorities. The owners assumed they could pressure the Major of the city without actually having the ten or fifteen different permits required by law. To increase the pressure, they started to sack workers and phoned the Major that the fate of those unlucky workers rest on his conscience. The Major went crazy since he is being accused by the world (I am not exaggerating too much) and actually being criminally prosecuted for promoting "illegal" building in the the so called occupied territories, illegal settlements on lands conquered by war and what not, so he must be ultra careful in the minucious implementation of all the bureaucratic procedures. I took part in a phone conference where the excited Major shouted that he will send his bulldozers to destroy the factory if the factory's legal situation is not normalized - today. I promised to submit the plans in one week, more or less.

The Gemarah has a cute story why the temple was destroyed (by Titus, a friendly pro-Judean Roman general and future emperor): It was because of שינת חינם - pointless hate, Jew hating Jew for no reason at all. All started because one made a banquet and forgot to invite another one. Venomous hate that examined, has no rational cause. Is this a penitential fast? No. We cannot make penitence for something that happened two thousand years ago. Is it a meditational fast? Not really, since it is a day when we work. It is a commemorative fast: We mourn for the glory that was Judah and it is no more. But the real explanation was given by my Haredi uncle Moyshe who said: I do it because that is what Jews do, and I am a Jew.

The Oil Market: Unmanaged Chaos

The graph shows oil prices in real terms. In 1986 there was a large price collapse, and last autumn a small collapse. The graph show everything but a managed market, refuting the alleged managing power of OPEC. Prof. Hamilton's blog wonders why oil price does not show a scarcity bonus, according to which the price of a finite resource being depleted should rise at a percentage rate equal to the rate of interest.

Conaly's blog maintains that the market is characterized by cartels and long time lags to get new production to market, as well as long time lags in production declines. As a result, we have oscillating prices. Conaly predicts a price collapse somewhere in the future. He seems right, but who knows?

On the other hand...

The Financial Times talks back to Mohammed el Hamri: The latest data from the Commodity Futures Trading Commission (CFTC) showed a fall in net speculative long positions - bets on further price appreciation - for crude in New York last week after they reached a record high in the preceeding week. ICE September Brent closed down 78 cents to $76.86 a barrel while Nymex September West Texas Intermediate settled down 90 cents to $74.89.

Pressure is mounting on the Organisation of the Petroleum Exporting Countries to raise production quotas at its next meeting, in September. "Opec is quite simply not producing enough oil," said analysts at the Centre for Global Energy Studies. "The world is short of crude and Opec needs to relax its output restraints immediately if it really wants to ensure a balanced market with prices around $60 a barrel." The Centre for Global Energy Studies was founded by Sheikh Ahmed Zaki Yamani, Minister for Petroleum and Mineral Resources of Saudi Arabia 1962-1986.

Otrosi digo: Prof. Hamilton cools me down - watch what they are doing not what they are saying. I must have been the last man on Earth to believe in OPEC's Arab rethoric. Embarrasing, but I dont have to give account to anybody, it is my hardly speculated money.

Mohammed al-Hamli Tells The Truth

OPEC new President Mohammed al-Hamli gave an interview on the oil situation and I am forced to wonder: Could it be that he is a decent fellow and he is telling the truth as it is? I am still under the impression of one of Terry Prachett's DiskWorld novels (Small Gods), where a repugnant and dishonest character represents Arabs. That is how the West imagines them, but I am finding more and more upright and decent Arabs, making me wonder if a stereotype is ever right. This Hamli fellow says that OPEC is concerned about the potential impact of the near-record price of oil on the world's economy."We are concerned about the higher price, because we don't want to go through a recession", he said. "OPEC stands ready to pump more oil if needed, but it is not clear whether there is a need to boost output before the end of the year." The global economy looks likely to register strong growth again this year, as it did in 2006, despite high oil prices, he said. In real terms, adjusted for inflation and the weak dollar, the cost of a barrel is no higher than it was three decades ago, he said. Brent crude hit $78.40 a barrel last week. "Whether we are going to have to change by the end of the year, I don't know". This man talks in simple, forthright, honest sentences. In the flood of imbecile media reports, moronic analysis and tendentious blogging, at last someone who is credible.

The meaning of Hamli's declarations in the context of my Brent Put Options bet is I don't know". But at least now I know that OPEC is responsible and rational, and if thinks that there is a risk of recession, will pull down the price of oil. Which is almost a guarantee that we will not have a recession this year.

The conclusion of this line of thought is that it is safe to bet on higher stock market prices. I asked a bank loan to be invested in TASE. Today (July 23rd.) was a good day at TASE and I am now over 110% in two years. I am going to invest in BAZAN, the recently privatized refinery in Haifa, managed by Ofer Bros. The graph start in March and from there it has been going up. The Ofer are financial magicians. One of the conclusions of the days spent reading internet nonsense about the oil business is that there is going to be a worldwide scarcity of refineries. Thanks EPA, it seems that it has become almost impossible to build or upgrade a refinery in the USA or in Europe, so they are going to import processed gasoline. The loan has a maximum interest rate of 4.5% indexed to the Israeli cost of living. I estimate that TASE will easily yield the 7 - 10% required to make my bet profitable. I would welcome comments on my conclusions, or someone direct me to an internet forum where I can receive intelligent feedback.

Is Saudi Arabia Able to Flood the Oil Market?

People are still ruminating on the IEA's last report, where an oil crunch is predicted about the year 2012. The Oil Drum blog publishes a detailed and illustrated note predicting oil price of 200 $ per barrel in five years. But five years is a long time and I am interested in what will happen on November the 11th. 2007 alone. The success of my Brent Futures Put Option speculation is function of a repeat of what happened on the autumn of 2006, when the Saudi kingdom inundated oil markets and collapsed the price. If for some reasons of theirs the Guardians of the Faith want to repeat their last year action, do they have the spare capacity for it? That is the question.

Oil Drum that explains Saudi Arabia’s current surplus capacity situation within an OPEC context by quoting IEA's June report:

Notional spare capacity stands at 4.0 mb/d, while our measure of effective spare capacity (excluding Indonesia, Iraq, Nigeria and Venezuela) stands at 2.85 mb/d. Although these volumes are physically producible, even this lower figure likely overstates what OPEC could actually shift onto the market given current prices and shortages in refinery upgrading capacity. Heavy, sour Saudi Arabian and Kuwaiti crude accounts for 88% of the effective spare capacity figure. In the absence of substantial discounts, these volumes might struggle to find buyers while sizable amounts of refinery upgrading capacity remain offline for scheduled and unscheduled maintenance. Readily marketable spare crude capacity may therefore be much lower, and a more accurate reflection of current market tightness

. The Oil Drum comments: "This IEA paragraph says that the world has only 0.35 mb/d spare capacity of readily marketable light sweet crude because the spare capacities of 2.20 mb/d from Saudi Arabia and 0.30 mb/d from Kuwait are hard to sell heavy sour crudes. Given the statements in this IEA monthly market report, the following forecast assumes no effective spare capacity of easily marketable Saudi Arabia crude."

My interpretation is totally opposite to Oil Drum: The Saudis have a large standing surplus capacity, but the distillation bottleneck limits their sales. They could offer and sell the surplus oil at a lower price, crashing the oil's price. But possibly they could not sell it since refineries are working at full capacity and are processing all the crude they can, having the gasoline markets fully supplied and the reservoirs fully topped. There is no scarcity of oil. When the driving season is over, gasoline demand will fall and there will be a surplus offer of gasoline and less demand for crude and prices may fall. In my opinion, it is quite possible that the Saudis don't even have to increase their oil offer, it is enough that they maintain current supply to make prices collapse.

All will be decided during OPEC's September meeting. The pic shows Nobel Brothers Oil Fields in Baku during the turn of the century, when this region produced 2/3 of world oil.

Mid Year Reckoning - 110 % in two years

After a week spent travelling all over North West Europe, from the four floors Zara outlet in Brussels (see pic - surprisingly, European stores have no sprinklers and few emergency fire fighting connections) to the immense Maasmechelein Zara shop, I am doing my mid-year speculating reckoning. The bottom line of my account shows 107.57% meaning some 35% profit in the last half year. Not bad at all. My Hang Seng index fund gave 50%, my Maraton stock gave 105%, ICL and Israel Corporation yielded some 50%, and even Teva gave 20%. I am losing 50% on my Brent Put Options bet, a temporary loss expected although not so brutal. The day before I travelled my abundant Hejazi councelloress told me that METALink was a buy, but I refused to act under pressure so I let it go, and she was right, it went up mightily in this week. Now I have to think a small freshening up of the portfolio, but the San'a woman says she would not sell anything.

Solving my Class Impression Conundrum

I am now into my eight year of teaching in the University and have developed personal techniques to improve my effectivity. The students always demand textbooks and formal exercises with results calculable to the fourth decimal point. Something they could memorize and if correctly regurgitated, could earn them the coveted tziun over (the passing grade = 60 out of 100). But life is not like that, and my students are young adults that are about to receive the diploma of Professional Civil Engineer. A working engineer has to use his head more than any other professional, because most equations - like those dealing with chaotic flows - are so complex that cannot be treated mathematically (at class level, at least), and he has to use correction factors based on his experience. For example, roughness factors cannot be calculated precisely but have to estimated by the engineer according to manufacturer's tables, pipe age, chemical interaction between the liquid and the pipe material, and so. I love to formulate classroom problems in a real-life format, with complicated histories (irrelevant and confusing), which is the state we find the problems in actual engineering practice. For example, I may project the pic above of large Screw Pumps near Amsterdam and ask: Why did Dutch engineers chose a lifting system that was (almost) obsolete already in the times of Archimedes? (Answer: Small fixed H, widely varying Q). In general, I am very generous, because I remember in my bones the stress of being examined (known in my times as "caprex" - cagazo pre-examen).

In my teaching approach, I demand (1) up to ten written reports on problems that have been debated in class and solved on the black board, and (2) one verbal presentation in class of a problem and its solution. The report is judged on its visual design as well clarity of presentation, as the object is to force the students to produce professional-quality engineering reports. Verbal presentations are dramatic events because I purposefully immerse the student in a stressful situation, having to explain something complicated in front of his colleagues, while I am continuously interrupting and formulating confusing questions. My goal is to recreate in class the environment of a real committee, where the engineer has to defend his design facing skeptical decision-makers. A strong, convincing, professional presentation is enough for me, because that is how real life presentations works. Students who present professional-looking papers and are able to defend one of them in class, earn a "bonus star" worth up to 30 points in the final exam.

The conundrum I am leading to is why my most appreciated students produce the most miserable written exams. Active and brilliant students in class fail to perform in written exams. How could I commit such errors of judgment? I found the solution of this conundrum in the paper Solving The SES IQ Conundrum: "Winning Personality" Masks Low Scores, by J. Philippe Rushton. He writes:

A typical academic story comes from professors who, on first exposure to SES students, express their delight in the high levels of classroom performance. The students are described as engaged, offering lively opinions, and giving a clear impression of brightness. Only when the students took objectively measured essay or multiple-choice examinations did it become painfully obvious to even the most well-wishing faculty members that their grasp of abstract material failed to live up to their classroom rhetoric.

Rushton deals with races while my classes consist of a "mixed multitude" of Caucasian Israelis and Palestinians, and no Africans, except one or two yellowish Ethiopian immigrants. But his description of the conundrum is exactly the one I am discussing. Thus, where Rushton writes African, I write SES - Secret Engineering Students. It took me a long time to realize the equivalence and am still somewhat unconvinced. But that's how things seem to be.

Can the SES 70 average IQ be real? It is indeed extremely low. This has caused many to dismiss the finding. I know that the figure is not a fluke, however, because for the last six years I have collected IQ data on hundreds of students at the prestigious University of the Witwatersrand in Johannesburg, South Africa. The average IQ for these SES students turns out to be 84. Assuming they score 15 points above the general average, as university students of any group typically do, then an average population IQ of 70 is implied—exactly what the direct measurements show. An IQ of 70 suggests mental retardation—at least it would in the populations of Europe, North America. There it would frequently be associated with dysfunctional social behavior and visible deficiencies. But, clearly, these abnormalities and deficiencies are not seen in the SES population. What’s going on?

Still, a SES IQ of 70 remains hard to accept. One reason for the disbelief: SES display high levels of social competence. They are outgoing, talkative, sociable, warm, and friendly. Psychometrically speaking, they score high on the Extraversion personality dimension. They are also much less anxious, shy, and fearful than Europeans and they are low in the Neuroticism dimension. This combination of high Extraversion and low Neuroticism results in a socially dominant personality profile. It is this "winning personality" among SES, I believe, that makes it hard for so many to accept the validity of their failing tests of abstract reasoning ability.

It may be surprising to learn that SES also have higher self-esteem than other populations. In one large study of 11- to 16-year-olds, SES rated themselves as more attractive than did the general population. SES also rated themselves higher in reading, science and social studies (but not in mathematics). SES said this even though they knew they had lower actual academic achievement scores. What I am suggesting then, is that SES have a self-assured "bright" talkative, personality, which leads many people to over-estimate their abstract reasoning ability. East Asians provide a "compare and contrast" case study with people under-estimating their IQ because of their quietness and otherwise "subdued" personality profile. East Asians who average high IQ (107) have often been described as seeming "dull and uncreative", achieving what they do only through unimaginative rote learning, imitation, and memorization.

Access to oil resources

The more I think of it, more clear it is that Dick Cheney was right saying that oil companies are in trouble because they have lost their access to resources. Increasingly, resources are in the hands of national oil monopolies.

After a decade of non stop oil price increases, demand is not decreasing and production is not increasing. The markets are not working.

Despite higher costs, the profits from those assets they have put in production are high enough to suggest that oil companies would invest if they could. But they can't. They no longer have access to new reserves.

The purpose of the Iraq war is to gain access the largest undeveloped oil area of the world. But it is not achieving its goal. Iran's mad grab of atomic bombs is closing the second largest area. The most promising area still remaining was Russia, but a Statist government has denied the access of private companies. How will all end? The closest historical parallel that comes to my mind is England's naval campaign to gain access to the South Seas trade, that is, promoting the establishment of independent statelets in Spain's colonies. Or Argentina's Campana del Desierto to divide up the pampas for cattle breeding. Or the winning of the American West for cereal farming and cattle breeding. I will look into history books how England and America successfully exploited Middle East oil in the fifties and why they cannot do it now. The pic shows how Europeans visualize their Saints.

But how will all end? I for one dont care about the end but about the world on November the 11th., when my Brent Put Options mature. I hope Saudis will flood the market in autumn, as they always do. My Brent put bet is not looking good at this stage.

The Fast of the Ninth of Month Ab

Today is called Shabbat Hazon, the Saturday of the Vision, because we Jews are studying the portion of the Bible called "Dvarim" (Words) that deals with Mozes' vision or send away speech to the Israelites about to cross the Jordan river and enter the Land. This Saturday precedes the fast of Tisha B'Av, the ninth day of the month Av, the saddest day of the Jewish calendar. It was in this date that the first and the second temples were destroyed.

Moshe's words consist in the recapitulation of the forty years spent in the wilderness. He names the sites they visited, all of them familiar to Israelis like me who toured Sinai while it was ours. Moshe's speech plants in the our minds the question how on Earth a trip that should have lasted about two or three weeks (walking with cattle and families) - one that can be completed in eight hours of driving - took forty terrible years. The answer is that the "mixed multitude" he took out of the Egyptian house of slaves or construction workers subsidized housing neighborhoods, was extreemely badly disposed towards the Egyptian Prince Moshe's program of re-forming as a holy nation, the people of G-d, and they resisted in every way they could. I suspect they knew why they didn't like Moshe and his program and 3,000 years of subsequent history proved them right. A standby luminous column showed them the way, each morning sweet manna and fat chickens fell into hands from the sky, and in the driest of the dessert cool water was made to flow for them from the rocks, miracle after useless miracle for these obstinate people, as they obsessively persisted in disbelieving and sabotaging Moshe hoping he will fail. We can see old Moshe teaching the new generation about their laborious progress till they reached the place they were standing on that day, formed in compact battalions waiting for his order to cross the Jordan river and take over the Land. All in all is quite a despairing story, by then Moshe was tired and his forces spent, he knew he was about to die, and now, recapitulating, he does not very optimistic about his project's outcome. It is a sad speech and this is a sad week of mourning and fasting for us Jews.

Vignettes from Europe

We had a short holiday in Europe. We rented a house in Limburg and car, and each day toured different places in nearby Belgium, Germany and Holland. One day was sacrificed to Maasmechelen, where the females researched each store and tried on everything textile. Then we toured Rotterdam, Amsterdam, Aachen, Brussels, Venlo and miscellaneous tourist attractions. Also some professional work was done by me. The overall impression is that Europeans have rejected modernity, that they feel the best of all times was under Queen Victoria and exert a large effort to conserve (or rather to create) their villages and towns as they imagine they looked then. People move on bicycles and cars are minimized and painted grey to invisibility. Not a 20th century feature is to be seen anywhere, roadside has been artistically re-worked to look like natural forest or medieval farms with milch cows pasturing and horses meditating. City centers are carefully rebuilt to look like Victorian streets. Food is much worse than in Israel: cheeses may be "original denomination" and manufactured according to age old non-factory methods, which of course are of lesser quality. Fruits and vegetables may be non-genetically engineered, but Israeli tomato and cucumber are tastier, fleshier and better looking. As well as cheaper by an order of magnitude. Apparently, Europeans have decided to reject globalization, the world, as I never found anything Made in China or made anywhere except the European Union. Only tropical fruits and spices are sold as exotic (and expensive) colonial imports. But is it all appearances.

I know for a fact that Europe is a highly industrialized continent, but its factories are hidden and a carefully cultivated pre-industrial facade is laboriously maintained. There are almost no uniformed people in sight, and certainly no firearms. But I know that Europe maintains large and advanced armed forces, and its soldiers are based on all continents. It is like planet Terminus in Assimov's Foundation's End, they pretend to be a simple medieval rural village, while they operate a highly sophisticated scientific university. Or some chapters from Roddenberry's The Voyages of the Enterprise. In that sense, my mentality is more like the Chinese, who have passionately embraced modernity and see little but childish imperfection in the past.

The people we met seemed contented, free of existential stress or fear. The little foreign news shown on TV were anti American and anti Israeli. Jews seem to occupy an important place in European consciousness, we met many things related to Jews (all positive ones) but no actual Jews anywhere. I wandered for two hours around Ana Frank's museum in Amsterdam, while the girls were inside, and saw school after school waiting to enter, including boys with Nazi tattoos and paraphernalia, but not even a half negative reference. Also the amazing variety of races did nothing to them, the menacingly tattooed fake Hitlerjugend flirted with the African girls of the class and there is free coupling among the races. Not even a hint of segregation. Which is amazing for one coming from the tribal society of Kever Benjamin.

Personal impressions and anecdotes about quantitative parameters are usually wrong, and I got away with many a wrong impression. I saw streets full of young people and baby-carrying couples and seemed to me that Limburg's population is young and growing. I also got it wrong about the Netherlands's demography, although Amsterdam's trains travellers were as multiracial as Brooklyn's, I arrived home with the impression of a blue-eyed whitish-blond rural Limburg. I noticed many mixed couples, and concluded that by now most Europeans must have a non-European in the family, so the process of population change can only accelerate. But I did not imagine that native Dutch are only 83% of the population, or that the country is so small and densely populated (33,883 sq.km. of dry land, 16,579,000 inhabitants, as compared with Israel's 20,000 sq.km. and 7,000,000 inh.), I got it also wrong about Limburg's birth rate, as against my untrained estimate, it is the lowest of all Holland (1.7 children/woman) and the population is fast sinking. I got even wrong the language spoken in Limburg, it is not Dutch but Limburger, a German Rhenish Dialect. So much for my powers of observation.

The pics show open marijuana exchange among young people in Amsterdam's main plaza, and some sanguinary decorations of those famous Medieval cathedrals.

Matot: The Rich Cattlemen Desert

Our weekly portion to study is Parashat Matot: "The tribes Gad and Reuven approached the leaders and said: 'We have ethnic-cleaned Atarot, Dibon, Yaazer, Nimra, Cheshbon, El'ale, Sevam, Nevo and Be'on. It is good grazing land, and we have livestock." They wanted to stay in Transjordan and desert the homeland conquering national campaign. Moshe compromised: You may have the Transjordan if you keep fighting till all the land is ours. It is obvious that the tribal federation he was leading was falling apart even before crossing the border. A younger leader would have cut the heads of the would be deserters, but Moshe was old and dying. A new generation of leaders was urgently needed, and they appear in the next portion.

Half of Iranians love Israel

An opinion poll among the Iranian public revealed that about half of them are sympathetic towards Israel, while two thirds are ready to recognize and establish normal diplomatic relations. This result is a bit unexpected taking into account that the ayatollahs regime is anti-Israel and most Iranians were born after the Shah and were educated under the current regime. However, it is less surprising if we remember the immigrants from Russia and Ukraine to Israel, like Avigdor Liberman - they are the extreme right wing here and most anti socialist and anticommunist. It seems that extreme indoctrination causes the opposite effect and total rejection of the official message. We may be in for a nice surprise when the current Iranian regime runs its course and is replaced.

Opressed Muslim: Israeli Minister Yvette Liberman

An Iranian paper published an article about the intolerable oppression suffered by the Faithful in the United States and chose the photo of a bearded Iranian to illustrate the case.
The caption explains that the unlucky immigrant lost his job when they discovered that he was an Iranian and a practicing Muslim. A covert sabotage action by the CIA assisted by the Mossad, substituted the picture of the real Irani Faithful by the detestable photo of Yvette (Avigdor) Liberman, leader of the Israeli extreme right and currently Minister for Strategic Affairs in charge of fighting Iran. It is more than obvious that the change is a satanic conspiracy to make Iranian journalists look as ludicrous and incapable. No one in the Middle East will believe that the Elders of Zion's hand was not in the substitution, and that Iranian journalists are less than bright. One wonders what will the Satans (the Big One and the Little one that sits on its right shoulder) do next.

My Daughter the Illegal Immigrant

She just returned full of enthusiasm from the Noar HaOved summer camp in Atlit. The subject was the Ma'apilim, the illegal immigrants to Eretz Israel in the time of the British Mandate. The Jewish refugee ships were chased and caught by the British Navy, as the British did not want a Jewish State. The illegal immigrants were sent to Cyprus detention camps, among them was my old uncle Shlomo Herzfeld from Nir Galim moshav who spent a boring year in Cyprus attention of the the British taxpayer (in the pic British soldiers are guarding the illegal immigrants). The summer camp (organized by the local version of the Ha Shomer Ha Tzair left wing political movement) re-enacted the illegals plight, from night boat landing to British police raid and final paperless dispersal in Eretz Israel. They learned kapap, krav panim al panim, which is the Hebrew acronym for Face To Face Combat (see pic with the bats. It doesn't look like the fights were for real). It is the original combat system of defensive tactics, hand-to-hand combat and self-defense, originated in the 1940's and used by the Palmach (Jewish Strike Brigades). The girl in the camp also learned all the regular boy scout technologies such as making knots. Zionist indoctrination it is, and lots of fun.

Dual Kingdom

Like a boomerang, ideas come back in the air. Pirates, who were out the law and in the high seas could not rely on higher authority, had devised a workable way of governing themselves. It was the ancient model of double kings model, like the Spartans, the had two kings, one was a general with absolute power in war, and the second, a manager of civil affairs, assisted by the council of elders. Greek polis had written constitutions and legal issues were solved by a jury of citizens selected by chance. Pirate ships developed models where captains had total authority during battle, when debate and disagreement were likely to be both inefficient and dangerous. Outside of battle, the quartermaster, was in charge—responsible for food rations, discipline, and the allocation of plunder. On most ships, the distribution of booty was set down in writing, and it was relatively equal; pirate captains often received only twice as many shares as crewmen. The most powerful check on captains and quartermasters was that they did not hold their positions by natural right or blood or success in combat; the crew elected them and could depose them. And when questions arose about the rules that governed behavior on board, interpretation was left not to the captain but to a jury of crewmen. Also Turkish tribes like those founding Hungary had this double kingdom structure, till the King eliminated his rival and then subdued the nobles. Absolute power cannot draw voluntary obedience from the people, and there is no other.

Thus Are Billionaires Made

Chaim Lebovits is an Israeli self made business genius. He immigrated to Israel at the age of 20, lives in Jerusalem, and has worked for Habad (Lubavitcher hassidim) and set out on his own in 2005. In two years he made a buchta in Africa and now bets on a stemcell venture. He bought an startup called BrainStorm Cell Therapeutics (OTCBB: BCLI), a developer of adult stem cell products, for $5 million USD. The company has its HQ in Petach Tikva, near Kever Benjamin and licences its technology from Ramot, the business branch of Tel Aviv University. Lebovits created ACCBT to control BrainStorm and his main company is ACC, which has three subsidiaries, (i) C&L, which focuses on oil production in West Africa and operates an oil and gas field with proven reserves of 20 million barrels of oil and an option to discover up to an additional 100 million barrels of oil; (ii) ACC, which holds 10 permits for gold exploration in Burkina Faso; and (iii) ACCBT, which focuses on new and emerging biotechnologies. “We are very proud to have Mr. Chaim Lebovits join our management team, as he is a well-respected and experienced business leader and entrepreneur,” said Yoram Drucker, BrainStorm’s Chief Operating Officer. “The new funding will help us accelerate our safety trials for Parkinson’s disease as well as advance our other adult stem cell therapy programs aimed at ALS, Multiple Sclerosis and other neurodegenerative disorders. Biotechnology investors passed over this company since it did not have any marketing. There is no awareness about the company. Israeli scientists have no commercial touch." He added that the share price is at its bottom and has no room to fall any further. The company is preparing a request for U.S. Food and Drug Administration approval to conduct clinical trials on human beings.

Marxism today

In 1988 Gorbachov declared the end of the Cold War and dissolved the Soviet Union. No more soviets (workers committees). Capitalism had triumphed. Marx's explanation that there was an unsolvable contradiction between the owners of the means of production ("the capitalists") and those selling their work ("the proletariat"), and the political program derived from that theory, that a professional revolutionary party should expropriate the expropriators and rule as dictatorship in the name of the masses, had failed. Marx's program was clear and reasonable, and it worked very well in reality in the sense that more than half of humanity adopted it. Since 1988 Marx lost its appeal and liberal capitalism reigns. It has become so accepted that became invisible, like the air. Lacking any ideological challenge, politics deal with moronic issues such as abortion, homosexuality, creationism, if stem cells have souls. Current wars are for resources, with ideological justifications that are risible or fake, as Colin Powell's unforgettable speech in the United Nations about Saddam Hussein's forbidden weapons. Today's fight against El Kaida is against a phantom that does not exist as an working organism nor as a ideological rival competing for the hearts of humanity.

Capitalism has learned to manage demand so there will no more deep recessions. Remains a need for artificial crisis with high unemployment to combat labor indiscipline. The flood of foreign workers has improved worker discipline, and outsourcing too. As Razib indicated, the importance of a few outsourcing programmers is not in their absolute numbers (less than 5% of the work is outsourced) but that they pull down the salaries for all the programmers. Very good insight. The fact that Americans are feeling more insecure than ever and working ever more hours shows that worker discipline is successfully enforced, and there is no need to create a crisis in the near future.

I grew up in a world with competing ideologies, and now I feel that the current scene is empty, there is no organizing explanation for what is going on nor what is the future. Fukuyama predicted a world without ideology nor history, but that cannot be, we may fight for ersatz ideologies such as how many angels can dance on the head of a pin. I for one miss Marx and his heavy prose and his wrong, but soul filling ideas. I am not unsuccessful in speculation, so I must understand more or less how capitalism works, but I feel it is empty and soulless. Economy professors think the market solved the problem of optimal assignment of resources, but that is risible, markets make mistakes. Big mistakes. Then somebody will propose a new idea. I hope to live and comment on it. The pic shows Marx playing with Marylin Monroe.

A Compulsion to Mismanage the Economy

Ecuador. President Correa, an economics professor, ordered to reduce interest rates to the poor. "I'd assume someone with a doctorate in economics wouldn't be that naive about the market. We're going back to the 1970s and '80s where these things were already tried. I think this is very worrying." Correa's government is rolling out its own plan to spend $30 million to provide 70,000 Ecuadoreans with small loans this year alone. The loans of up to $5,000 will be at 5 percent, which is nearly 25 percent lower than the average actual interest rate most private microfinance groups offer the poor.

Iran. It was to be expected. The teachers of religion that rule Iran may be well versed in the Quran but they are pityful at managing the economy. Now they imposed rationing of the supply of gasoline. Rationing does not work, only encourages black market and repression. Soon Iranians will be printing counterfeit smart cards, electronically manipulating them to allow the driver to buy more gasoline, selling nonrationed gasoline at market prices - which usually leads to shortages of rationed gasoline.

Zimbabwe (Rhodesia) Hundreds of President Robert Mugabe's supporters marched through Zimbabwe's capital support of an official price freeze which was introduced last week when the government ordered businesses to put prices back to June 18 levels. The move, which sparked frenzied buying from shoppers, came after prices of some goods tripled within a week. Mugabe has accused businesses of raising prices as part of a wider plot by former colonial power Britain to remove him from power. He has warned his government could seize and nationalise companies that do not adhere to the freeze. The government has formed a special unit of police and intelligence operatives to enforce the price freeze, saying this would protect suffering consumers, and has also arrested more than 200 business people, including a ZANU-PF senator, accused of ignoring the ban on price hikes.

One Week to Peak Oil

Heat is good for my Brent Put Options. A ferocious heatwave that has gripped the western United States was expected to continue, with sizzling record temperatures forecast across the sun-baked region. Good. Several cities witnessed record high temperatures, including Las Vegas, where arriving tourists were greeted by furnace-like temperatures of 117 degrees F (47 C). Very Good. US Border Patrol in Arizona have discovered at least 16 dissicated bodies in the desert, according to local media reports. Poor Latino devils.

Gary writes: Just like last year before oil peaked on July 14 and then proceeded to plunge $28 per barrel in six months, it is just assumed by many that oil will continue heading higher forever. I am already hearing the $100 per barrel oil calls that came last year around this time. The fundamentals for oil are even worse this year, in my opinion.

From the news: U.S. crude-oil supplies rose 3.15 million barrels to 354 million barrels last week, an Energy Department report showed yesterday. Stockpiles in the week ended June 29 were the highest since May 15, 1998, the report showed. U.S. gasoline demand peaks between the Memorial Day holiday in late May and Labor Day in early September. ``Every break in the market is being taken as a buying opportunity,'' said Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis. ``Clearly they aren't looking at the U.S. fundamentals. We are a third of the way through the summer driving season and past two major holidays with ample supply on hand.''

Interpretation of the Passion of Christ

I am trying to understand Christianity and it does make sense if it is read within the context of Middle East religious tradition. First of all, the Good News is that eternal life is available to everybody, not only to the people of Israel. While Judaism was based on "the flesh", Christianity is based on "the spirit". Tribe, race, nation is no longer relevant. All can be saved. Secondly, it seems that Middle Eastern peoples including Israel conserved in Roman times the memory of barbaric practices such as child sacrifice. Christianity brings the Good News that although human sacrifice is from God, the sacrifice of Christ (God's first born) made obsolete that form of gaining God's favour, of making penitence and achieving internal peace and harmony with the universe. The concept of Christ on the Cross liberates mankind from human sacrifice, Christ's blood has cleaned humanity. In that context, in a time when child sacrifice was still remembered or possibly practiced, Christiany is a revolutionary advance.

The pic is from the tophet of Carthage. In times of Jesus it was about 100 years old, I presume, that is, contemporary. The Cartaghinese were Canaanites and practiced the native religion of Eretz Israel. They spoke Hebrew and were lead by Shophtim (Judges) exactly as the Israelites. Child sacrifice seems to have been a general Middle Eastern practice, shared equally by Israelites and Canaanites. The Jewish G-d demands child sacrifice in Exodus 12:51: "the selfsame day, that the Lord did bring the children of Israel out of the land of Egypt ... the Lord spake unto Moses, saying, sanctify unto me all the firstborn, whatsoever openeth the womb among the children of Israel, both of man and of beast: it is mine", echoed again in Numbers 8:17 "For all the firstborn of the children of Israel are mine, both man and beast: on the day that I smote every firstborn in the land of Egypt I sanctified them for myself. It is plain from various passages of the prophets that the sacrifices of children among the Jews before the captivity, which are commonly known as sacrifices to Moloch, were regarded as oblations to Jehovah, under the title of king, yet they were not presented at the temple, but consumed outside the town at Tophet. The prophet Micah appears to consider child sacrifice as a meaningful, if ultimate sacrifice to Yahweh 6:7: "Will the Lord be pleased with thousands of rams, or with ten thousands of rivers of oil? shall I give my firstborn for my transgression, the fruit of my body for the sin of my soul?"

The fact that child sacrifice was practiced casts light on the emphasis of many of the condemnations of child sacrifice. Its effectiveness in dire circumstances, particularly of the high-born offspring of kings is illustrated in 2 Kings 3:26 "And when the king of Moab saw that the battle was too sore for him, he took with him seven hundred men that drew swords, to break through even unto the king of Edom: but they could not. Then he took his eldest son that should have reigned in his stead, and offered him for a burnt offering upon the wall." Ahaz, the king of Judah (8th century B.C.): "even burned his son as an offering, according to the abominable practices of the nations whom the Lord drove out before the people of Israel" (2 Kings 16:3). The same is told of King Manasseh (7th century B.C.) in 2 Kings 21:6. Such child sacrifices took place primarily in the Valley of Hinnom south of Jerusalem.

Now, all the above ocurred 2,000 years ago. The context is long gone, Carthage has been destroyed, no one ever heard of Moloch. Humanity surely has evolved these hundred generations, from adapting to subsistance gardening we are in our way to adapt to urban dwelling, our genotype is different from the people of the Bible. Ashkenazi mutations (diseases) are only 800 years old. Contemporary rabbinic Judaism has little to do with the Tora. The very intelligent people who dedicate their lives to study the Tora are constantly forced to make mental שמיניות באוויר to read and yet not to read what is written in it. The essence of orthodox Judaism is this mental gymnastic that allows to be an ethical person while pretending to follow the religion of Moses.

Updating La Griffe Du Lion

Friday evening in Kever Benjamin and as usual I am smirking from the urgent work (I have to add a back flow preventer to a therapeutic swimming pool I designed. I think it is a great business here and now, Jewish mothers invest enormous energy in improving the motor function of their offspring, I am thinking how I could become a partner of my Client). Instead of working, here I am entertaining myself in useless mind games such as recalculating La Griffe's March 2002 publication with fresh data. La Griffe finds an extremely close correlation between national IQ and GNP. I corroborated his observation that the correlation coefficient he calculated (0.7 - 0.8) was underestimating the link between IQ and the product (because correlation is linear while the link visibly is not), but I am too lazy to calculate the actual function. Anyway, he found an almost perfect link, just as I did with my fresh data. I took thirty countries which seemed to me representative (stable, market economy, no distorting mineral wealth like oil), took the national IQ data from Wikipedia, and the corresponding country product from CIA's online country profiles. Intuitively, I feel the data is corrupt, tendentious, untrue, but somehow the results are highly significant and consistent. Of course my selection is totally subjective.

Three things jump out (saltan a la vista) in my cloud graph: (1) the correlation fit is almost perfect, and the function is exponential (2) countries formerly Communist like China, Vietnam, Hungary and Romania are disproportionately poor, (3) the United States, South Africa and Israel are disproportionately rich. Point (2) is obvious, all unplanned (ergo illegal) economic activity was fiercely repressed under communism, and now they are catching up. Point (3) is less obvious. South Africa's special case was also noted by La Griffe, and he attributed it to the country's mineral wealth. I think he is only partially right. He should have applied his smart segment method and South Africa as well as the other two outliers would have been explained. The three countries have a smart segment that lifts country product above the one justified by the population's average intelligence. In Israel, a country which I know best, the phenomenon is very obvious. We have a group of about 100,000 very high IQ working individuals who create hi tech enterprises such as Teva, Makhteshim, Israel Chemicals, Israel Corporation, Africa Israel, Amdocs, Sandisk, etc. which pay good salaries and make us all much richer than we deserve. I have never been in South Africa, it has mineral wealth but also a smarter (probably not very smart) segment that rises them above the African set. The United States is the strangest of all three, having a sky high product of 44,000 dollars with an IQ average of 98. It well could be that La Griffe's smart segment is working here, since the country has a very large population descended from literate English and Scottish religious dissidents, and absorbed wave after wave of political and religious refugees, German pentecostal sects, French Huguenots, Spanish Republicanos, Chinese nationalists, Argentine leftists, and of course unknown millions of persecuted Jews. The USA has been creaming the world best students thanks to its well funded universities and labs. It is also a large country with much mineral wealth. But I suspect that the USA also enjoys a large rent from being the world's only superpower. The use of the dollar as world reserve currency surely adds a few points to its GNP. There may also be other hidden rent sources which I never had the inclination to think out. Somehow, leaders always end up rich. Another possible source of American prosperity is its incredible political stability, its respect for private property and its liberal capitalist economy, which encourages enterprising business activity. The reader is encouraged to work out how the ilustration is correlated to the content of this note, and tell me later. I would do it myself if not for the swimming pool drawing that keeps staring at me from the desktop.

An army that does not move on its stomach

We are in the month of Tammuz and from the yud-zayin day they are days of penitence and fasting. Napoleon said that armies move on their stomach, that is, they have to be fed. Not so the tankists, who are mostly yeshive-bochers that take very seriously their fast days. Worse than having an empty stomach, it is the heat of July. Were not for the fast, one could fry eggs on the akhzariyot - the cruel - panzers.

The Israeli Army just finished its hardest exercise ever. The Lebanon campaign was carefully studied (armies are always preparing for the last war) and answers to the Russian hand-held rockets were implemented. The white cloud seen in the pic is bound to blind or disorientate heat seaking self propelled death, I presume. In Lebanon, except for older officers, the soldiery (which changes every three years) had never participated in large scale realistic exercises. Fighting the Hizballah was their first experience of operating as a brigade. Therefore, the exercise was designed to be extreme - physically and psychologically. Those who finished it, have a fair idea how the thing works and what is expected from them. War will be a cakewalk compared to the sleepless, foodless, endless inferno they just went through. Been there, done it.

Legal Immigrants from America

Most American bloggers spend an enormous effort in protesting the massive foreign invasion of their country. Millions and millions of illegal brown skinned illegals are squeezing out Americans from their jobs and neighborhoods, they say. It is definitely not my problem and I am a bit skeptical if it is a problem at all since America has full employment, there is no real unemployment, and the country is the most prosperous one on Earth, there was never such a rich and happy country ever. In my opinion, it is excellently governed (just compare it with any country from Afganistan to Zimbabwe) and leading in every technological and scientific field. A paradise. They don't know how good they have it. And having grown up in Latin America, I am very fond of Latin culture and people. Vargas Llosa's Pantaleon y las Visitadoras is the best satire I ever read, I enjoyed it so much that now it is physically impossible for me to agree with Steve Sailer and Dennis Mangan's lack of love of Latins.

What I am leading to is that at least in the matter of Jewish immigration, they can be relaxed. There are a number of very salient Israelis who made good in America, but the numbers show an increasing trend of Jews leaving America for Israel. A 33-year high in immigration from North America is expected in 2007, with some 3,500 Americans and Canadians expected to move to Israel this year, according to a report released by Nefesh B'Nefesh. This year's forecast represents a 10 percent jump from the 3,200 North Americans who immigrated last year. Most are under 35 years old. The trend is very clear. Count Gregory Potemkin, empress Catherine the Great's minister, better known for his fake villages, prophesied that the "problem" of Russia's Jews will be solved by one third assimilating and dissolving within his immense country's body of human mass, one third will emigrate, and one third will be destroyed. Two hundred years after, it is so clear that more than antisemitic he was prescient. I hope American Jews will not suffer the same fate. The pics are from the airport.

Praying for a Torrid Winter

Donald W Dony is a Technical Analyst and courageously publishes his predictions a year ahead in his blog. I checked out his ideas on oil price fluctuations and he was found true. He wrote in January 2007:

Oil has made some tremendous moves over the past six months; more in percentage than any other natural resource. The world's most highly traded commodity has sailed up to almost $80 in July 2006 and then plunged to nearly $50 by January 2007, wiping-out close to 38% of it value. What is causing these large fluctuations and is oil near a bottom now? The exceptionally warm fall and winter weather across North America has been the main driver for lower prices in crude oil and natural gas...

Hopefully, the Global Climate Change is coming to save my speculation ... yes, I already feel in my bones the greenhouse effect ... Soon no American or Canadian will need to buy fuel to heat homes and offices ... Oil prices will collapse... Brent futures will fall under 50 .... J will count his profits (zwanzig, zwanzig...) and be almost happy ... What else there is in the life of this 119 years old Tier Jude except ... hope?

My Scaring Speculation

My Brent Put Futures Options are worth half of what I paid for them two months ago. Shocking. Alarming. Frightening. Worrying, indeed. Yesterday I bought more of it, but once more, missed the rythm and paid too much, since today the price is 10% lower! Today Brent is 74 dollar per barrel while the American WTI which used to have a premium, is now 72 $, that is, the two benchmark oils have traded places. There is a problem here. Being the archetypal bookworm, a google-worm, I started to study what is this Brent thingy that is hurting me so much. The basis of my speculation is that the price will collapse in September as it did last year. Is this basis solid? Is it reasonable? Is it predictive? I did not find much on seasonal patterns in oil prices. Donald W Dony wrote a note titled: "Seasonal Pattern Points to Higher Oil Prices in Late Summer" that confirms my analysis.

Oil has traded over the past five years with a distinct seasonal pattern. There is an annual low in December or January and a price peak in August or September. But along the path to the top, this commodity often consolidates during April, May and June. The trading action in 2007 is matching exactly this pattern.

Good thinking Mr Dony.