Tuesday, March 4, 2008

We Are Changing

Today's WSJ has a front page story about our changing gasoline consumption practices. It's worth a read.

As crude-oil prices climb to historic highs, steep gasoline prices and the weak economy are beginning to curb Americans' gas-guzzling ways.

In the past six weeks, the nation's gasoline consumption has fallen by an average 1.1% from year-earlier levels, according to weekly government data.

That's the most sustained drop in demand in at least 16 years, except for the declines that followed Hurricane Katrina in 2005, which temporarily knocked out a big chunk of the U.S. gasoline supply system.

As supplies have outstripped demand, gasoline inventories have been on the rise for the past four months, reaching their highest levels since February 1994. Yet, in a sign of the growing disconnect between demand and the market, prices at the pump are being driven higher by a powerful rally in crude oil.

Investors piling money into commodities as a refuge from inflation have helped push oil prices close to their inflation-adjusted record of $103.76 a barrel, set in 1980. On Thursday, oil closed at $102.59 a barrel on the New York Mercantile Exchange, a new high in nominal terms, but slipped back 75 cents on Friday to settle at $101.84 a barrel. (Gold closed at $985.70/oz, Silver at $21.35/oz, Platinum at $2,230.00/oz, Palladium at $576.00/oz. Grain and other ores are similarly at all time highs-AJ)

Car dealers are selling fewer minivans and large sport-utility vehicles. In fact, only small cars and smaller, more fuel-efficient SUVs, are showing a rise in sales. Small-car sales in January were up 6.5% from a year earlier, while sales of crossover vehicle grew 15.1%, Autodata Corp. says.( I look for changes in engine technology to make the gas guzzlers bargains for the creative and inventive. Such as the man in Sacramento area who has converted a Hummer to diesel and claims to get 20/mpg. Of course, his warranty was voided by the action.-AJ)

At $6.00/gallon we will be a different nation. This will have knock-on affects on restaurants, job choices, wages, housing decisions, entertainment. The pressure on taxi regulations will create political turmoil as restrictions on the number of taxis meets a suddenly rising demand for service. All of this will have political mischief, demagoguing and pandering opportunities.

Sawdust Shortage

Something else we might not have considered with the slump in the housing markets and restrictions on tree harvesting, also from today's WSJ:

The price of sawdust has soared since 2006, up from about $25 a ton to more than $100 in some markets. Blame the housing slump: Fewer new homes mean fewer trees cut for use in construction, which leads to less sawdust and other wood waste, driving up the price.

It's surprising how many industries use wood waste. Wineries use oak sawdust as a flavoring agent for some wines. Perdue Farms, which raises broiler chickens, goes through seven million cubic feet of wood shavings a year. Oil-rig operators in Wyoming and Colorado pour sawdust into the caverns they find deep inside rock formations as they hunt for pools of petroleum. Sawdust gives drill bits something to grind through.

The shortage is leading to some unusual solutions. Mr. Johnson now mines old houses that are being torn down for lumber that he can grind up and sell. He has also opened a free wood dump for any construction crew that wants to drop off any two-by-four trimmings from a local site. Mr. Stulce, who runs the Utah wood-waste supplier to oil rigs, says rig operators that use sawdust are now dumping some novel substitutes. "They're pumping in almond hulls, walnut shells, whatever they can get," he says.

Farmers have come up with perhaps the most unusual tactic: using processed cow manure as bedding instead of wood shavings. Many dairy farms have a process to convert cattle waste into methane gas that they sell to electric generators. The byproduct is basically the hay the cows ate. Lee Jensen's Five Star Dairy in Elk Mound, Wis., uses an aerobic digester to render manure into stall bedding, and has so much on hand after the process that he's selling the excess to neighbors. (I love American ingenuity. This is a great example of making a profit out of what others would consider waste-AJ)

Texas vs. Ohio

The WSJ Opinion Journal has a great comparison of these two states that are playing such an important role in shaping our current election battle.

There's no doubt times are tough in Ohio. The state has lost 200,000 manufacturing jobs since 2000, home foreclosures are soaring, and real family income is lower now than in 2000. Meanwhile, the Texas economy has boomed since 2004, with nearly twice the rate of new job creation as the rest of the nation.

Anti-Nafta rhetoric doesn't play well in El Paso, San Antonio and Houston, which have become gateway cities for commerce with Latin America and have flourished since the North American Free Trade Agreement passed Congress in 1993. Mr. Obama's claim of one million lost jobs due to trade deals is laughable in Texas, the state most affected by Nafta. Texas has gained 36,000 manufacturing jobs since 2004 and has ranked as the nation's top exporting state for six years in a row. Its $168 billion of exports in 2007 translate into tens of thousands of jobs.

Ohio, Indiana and Michigan are losing auto jobs, but many of these "runaway plants" are not fleeing to China, Mexico or India. They've moved to more business-friendly U.S. states, including Texas. GM recently announced plans for a new plant to build hybrid cars. Guess where? Near Dallas. In 2006 the Lone Star State exported $5.5 billion of cars and trucks to Mexico and $2.4 billion worth to Canada.

So tomorrow the eyes of America will be on these two states moving in different directions. Ohio has an economy burdened by high taxes and work rules that impose heavy costs on employers. Texas embraces free trade, keeps taxes low, doesn't impose unions on business and has tooled itself for 21st century global competition. Ohioans may not like to hear this, but for any company considering where to locate a new plant or move an existing one, the choice between Ohio and Texas isn't even a close call.

The challenge for our national economy in a world of competition is to become more like Texas and less like Ohio.

I really enjoy the Wall Street Journal. I find it to be the only newspaper in America that treats me like an educated adult. I don't always agree with their positions. I can't use all the information they bring every day. I would feel handicapped if I did not have access to their information in print and online. Rupert Murdock and News Corp have taken over the paper. I pay for both the print and online. They talk about making the online side free or no charge. I hope they don't get too clever with their marketing... If you don't subscribe, please consider joining. Like William F. Buckley's works -they will prod you from your comfortable set world of assumptions and opinions.

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