Buffett’s bet on peak oil

Warren Buffett is lauded as one of the greatest investors of all time, if not the greatest. He's the second-richest person in the world, and known as the "Oracle of Omaha" for his seemingly prescient investments. For example, in the wake of the collapse of Bear Stearns and during the height of the market panic that followed it, Buffett stepped in and negotiated a deal with Goldman Sachs. He acquired $5 billion worth of preferred shares, which would pay him a 10% dividend, as well as warrants with the rights to sell those shares at any time within 5 years from the time of the transaction. As of September this year, those warrants were "in the money" to the tune of $3.1 billion, and that doesn't include the $500 million in premium payments that Goldman pays every year. Those lucrative terms (punitive for Goldman Sachs) left others wondering why the Treasury Department could only negotiate a 5% dividend, but that only added to the mystique and legend of Warren Buffett. At the time, Buffett was quoted as saying "If I didn't think the government was going to act, I would not be doing anything this week," referring to the massive bailout bill which was indeed enacted by the government. It's deals like that that enable one to become one of the richest people in the world. But it's also that background that has some on Wall Street scratching their heads at the news that he was purchasing Burlington Northern railroad. The Wall Street Journal discussed how the acquisition seemingly broke two of Buffett's cardinal rules on investments: 1) buy undervalued stocks or companies, for obvious reasons and 2) don't split your own stocks, as it dilutes the equity of the existing shareholders. Bloomberg quoted a hedge fund principal as saying, "It could be five years before the logic of [Buffett's purchase of] Burlington Northern becomes clear." Even Buffett admits that the purchase was "not cheap" and that it represents an "all-in wager"on the future of the American economy. And there can be no doubt that it is a significant investment-- he's liquidating other rail investments totaling $691.3 million while the Burlington Northern purchase will cost some $26 billion-- an increase in his railroad holdings of some 3,600%. And this bears repeating, he's splitting stock to get it done. This is the first time ever that Berkshire Hathaway (Buffett's investment company) has split shares. He's so reluctant to split shares, the class A shares regularly trade over $100,000 per share, an unheard-of valuation.

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“Going Muslim” as the new “going postal”

The shootings at Fort Hood last week have provoked a media feeding frenzy. Questions abound, and there is no dearth of speculation as to the shooter's motives. Most articles I have seen waste no time pointing out that the shooter was a Muslim, that he exclaimed "Allahu akbar" before shooting, and that he is linked with radical imams and possibly Al Qaeda. That's from the ostensibly "impartial" media, but there are also a few extremely distasteful editorial perspectives that are unfortunately quite mainstream that I wanted to comment on today. I'm afraid my ability to edit sarcasm out of my posts declines in direct proportion to the insanity and hypocrisy with which I'm confronted, so bear with me. First, Forbes featured an article by Tunku Varadarajan entitled "Going Muslim", a play on the old phrase "going postal". He describes it thusly:

As the enormity of the actions of Maj. Nidal Malik Hasan sinks in, we must ask whether we are confronting a new phenomenon of violent rage, one we might dub--disconcertingly--"Going Muslim." This phrase would describe the turn of events where a seemingly integrated Muslim-American--a friendly donut vendor in New York, say, or an officer in the U.S. Army at Fort Hood--discards his apparent integration into American society and elects to vindicate his religion in an act of messianic violence against his fellow Americans. This would appear to be what happened in the case of Maj. Hasan.

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Kelo vs. New London revisited

Remember the case of Kelo vs. New London? Briefly, it was a case in which homeowners including Susette Kelo sued their municipality to stop it from taking their homes using the power of eminent domain. The city wanted to raze the homes and redevelop the area, making it shiny and new to complement the anticipated Pfizer pharmaceutical research facility. After all, one musn't allow the shabby dwellings of the peasantry to mar the image of success and corporate uniformity that one is trying to project:

So, the politicians picked a 24-acre lot and sold it Pfizer for $10, adding on special tax breaks. Also, state and local governments promised $26 million to clean up contamination on the lot and a nearby junkyard. But Pfizer executive David Burnett thought New London needed to do some more cleaning. "Pfizer wants a nice place to operate," the Hartford Courant quoted Burnett in 2001. "We don't want to be surrounded by tenements." The old Victorian houses in the Fort Trumbull neighborhood next door did not match Pfizer's vision - a high-rise hotel or luxury condominiums would be more fitting.

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More to the peak oil story

A few weeks ago, I wrote a post entitled "The Unspoken Reality of 'Peak Oil'", in which I tried to convey the scale of the problem we face. "My main motto never changes, the era of low oil prices is over," said Dr. Fatih Birol who is the Chief Economist for the International Energy Agency (IEA). Now we have even more confirmation that peak oil has arrived. Today, the IEA released their 2009 version of the annual World Energy Outlook, in which they attempt to forecast supply and demand through 2030. And once again, the IEA continues to forecast that there will be plenty of supply, if only we can muster the needed capital investments. Unfortunately, the needed capital investments are enormous:

The capital required to meet projected energy demand through to 2030 in the Reference Scenario is huge, amounting in cumulative terms to $26 trillion (in year-2008 dollars) — equal to $1.1 trillion (or 1.4% of global gross domestic product [GDP]) per year on average. (p.43)
As if that weren't bad enough, the release of the report has been almost completely overshadowed by yesterday's Guardian which has alarming allegations from two different whistleblowers within the IEA

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Drugs, the CIA and Afghanistan

Covert government by defense contractor means corrupt wars of conquest, government by dope dealer. When the world's traditional inebriative herbs become illegal commodities, they become worth as much as precious metal, precious metal that can be farmed. ... Illegal drugs, solely because of the artificial value given them by Prohibition, have become the basis of military power anywhere they can be grown and delivered in quantity. ... To this day American defense contractors are the biggest drug-money launderers in the world.— Drug War: Covert Money, Power and Policy, p.318.
Revelations from today's New York Times that Ahmed Wali Karzai, the brother of president of Afghanistan, has been on the payroll of the CIA for years should be utterly unsurprising to anyone that has followed the history of either the CIA or drugs in Afghanistan. In a considerable understatement, the Times story says "The C.I.A.’s practices also suggest that the United States is not doing everything in its power to stamp out the lucrative Afghan drug trade, a major source of revenue for the Taliban." Far from "doing everything in its power" to end the drug trade, Afghan poppies are also a major source of revenue for the CIA. As Noam Chomsky said: The close correlation between the drug racket and international terrorism (sometimes called "counterinsurgency," "low intensity conflict" or some other euphemism) is not surprising. Clandestine operations need plenty of money, which should be undetectable. And they need criminal operatives as well. The rest follows."

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