AskDong

I’ve been following the rise of oil, personally and professionally.  Oil prices affect me a lot more professionally than they do me personally. I don’t drive enough that the price of gas makes a substantial impact on my budget.  The fact is that rising oil prices have been good for me professionally.  Yes, I’m in the “evil” energy business.  I’m one those “speculators” driving up oil prices.

That’s not quite true. I don’t trade oil, but oil does have a substantial but indirect impact on the electricity market that I’m in. I also don’t believe that rising oil prices can be squarely blamed on financial speculators.  This is not to say that traders do not affect or profit from rising oil prices. However, it’s simplistic to think traders can make oil go from $60 to $120 and keep it there all on their own.

When an oil trader bids up oil by buying oil futures in the “shadow” financial economy, there is still a day of reckoning in the real economy. There’s no question that a speculator can raise the price of futures by merely buying.  Futures are contracts to buy or sell at a future date.  If I sold a one year future contract for $100/barrel, I’m obligated in one year to deliver oil for $100/barrel.  For instance let’s say I wanted to raise oil prices, I could buy future contracts settling a year out for $200 when oil is only trading $100 today in the spot market.  The spot market is the real world actual time economy.  The spot market and the futures market however do move together.  If someone is willing to buy oil for $200 in year, but oil is only $100 today, there’s a clear profit opportunity. I can buy oil today, store it for something less than $100/barrel, and sell the future contract.  Instant profit of a $100.  As a result spot markets and futures markets tend to track.

However for the same reason that speculators can affect the real world spot market, the real world spot market has impact of the shadow economy.  If speculators are willing to buy $200 oil in on year’s time, but inherent supply and demand implies oil should be $100 today and tomorrow, then there should be other traders who would gladly take the other side of that trade.  That trader knows he or she should be able to procure oil for less than $200/barrel.  Ultimately what really prevents speculators from affecting actual prices in the long term is that for every deal there is someone just as canny on the other side.

I’m not naive enough to believer that speculators have not had an impact on oil prices. They have, and were the movement in oil prices short lived, I would put more blame on speculators. However, high oil prices have been sustained and for that I believe there have been actual supply and demand changes. Speculators can only keep prices high only for so long as it takes ever more capital to keep prices high.  For example let’s say I’ve brought $200 oil last year, I’m out $200 already, and if I were want to keep prices high I need to come up with more capital to buy more without raising capital by selling.  It certainly wouldn’t be the first time that speculators have tried to corner the market.

Sadly enough, rising oil prices if they persist are being caused by long term change.  Rising demand in developing nations such as China and diminishing supplies have fueled the rise in oil.  I don’t believe necessarily that we will run out of oil in the next decade, but it is a matter of time.  Oil and other fossil fuels are a limited resources.  It’s not a question if we’ll run out, but when.  In this regard, high prices are the answer to the long term problem. Higher prices will force us to rethink where we get our energy and how we use it.

I’ve been rather unattentive to my blog. I apologize to my readers for that. Been busy at work, and other stuff. This blog ultimately is not by number one priority, despite my desire to make it at least in my top 10 priorities.  Anyhow, to the main topic.

I’m personally perplexed at the state of the Consumerist Americana. I had been very hopeful that with the current housing downturn that Americans were finally ready to learn a lesson. I commented as much a few months ago.  I spoke too soon, and have been proven wrong.  Consumers are turning to plastic now that they’ve drained their home equity/piggy bank.  There’s no question that many Americans are suffering hard times.  Just as there’s also no question that too many Americans have also lived beyond their means.

I’m not against debt. I think debt can be a useful tool. I’ve got quite a bit of debt. Student loans and mortgages.  Properly managed debt has it’s place. The problem with debt under which I include dipping into home equity, is that it allows too many people to achieve instant gratification. If there’s a skill that modern man has forgotten, it’s the ability to delay gratification. In the old days, you had to save money if you wanted to buy something. Some people still do, but too many buy first and ask questions later.

So what does this all mean? Not sure. Though I’ll join the Greek chorus of Cassandras, and simply state the bill will come due at some point.  Hopefully soon.  I feel it’s much better to learn our lessons, endure some pain, and emerge a stronger economy of prudent consumers.  The longer we put it off, the greater the crisis.

Yesterday, I started an account on Yelp. Why? It seems whenever I’m doing a search on a resturaunt, Yelp results are on the top of list. The user reviews are thorough, and generally pretty good. Though whenever reading user reviews, I feel they must be read with a grain of salt. There are too many reviewers who want to rant. The problem with rants is that they often focus on specific problems that are usually particular to that day or that situation. I usually don’t gather that much information from these types of rants.

I eat out a lot, too much really. Given my eating habits, I feel like should be adding something else other than inches to my waistline. Yelp seems like a good community and has effectively leveraged itself as social network and not just a user review site. I also have accounts on Facebook and Linkedin, but I don’t really use them. Yelp seems like a good place for me to make a more active foray into social networking given it’s centered on something I love, food. Of course the beauty of Yelp! is that it’s not just about food like Chowhound. Yelp wants to fry bigger fish.

So what was my first review of? The new Orinoco in Brookline Village. Orinoco is a Venezuelan restaurant and fantastic value. Everything is under $20, and most entrees hover between $13 and $17. It’s hip place, though I hear the South End location is much hipper.

A reader, P,  asks:

I recently got accepted to a Non ABA certified Law School. Given the nature of the beast. What are your thoughts on such an endeavor, as there are pros and cons to the affair?

I’m certainly no expert on education. I have but one degree, and nary a desire for another. I’m done with school. That said, I believe it’s generally in everyones’ best interest to attend the best school that he or she can. This does not mean the most expensive as there are many affordable public institutions that outclass expensive private schools.  However, all else things being equal, ABA accredited school is by definition superior to a non accredited one.

To practice law, one must pass the bar exam. To take the bar exam, one must attend an ABA accredited school. In that light, it would seem that attending a non-accredited school is not worthwhile. Of course it’s not that simple as different states have their own individual bar associations that may allow graduates of non-accredited schools to take the bar. By passing the Bar in one state, and then practicing law for a few years, it’s often possible to take the Bar in any state. Of course with ABA accredited degree, you can take the Bar anywhere.

The more interesting question is not if you can take the Bar or not, but rather what doors an ABA accredited school would open versus a non accredited school. My initial read into the matter, is “a lot.” The ABA has gotten criticized and justly so for being a elitist institution that is in the business of exclusion. From what little I can gather, this seems to be true. Ironically because this is true, it’s better to member of the club than excluded.

So why would anyone want to attend a non accredited school? They are cheaper, and often easier to get into. The former is a good reason and the latter is a good reason only for those who can’t get into another school.  I don’t believe my reader is such an individual.  He’s clearly a smart guy if he’s reading AskDong.  It’s important to attend the best school that you can get into, and not just the best school that you know is easier to get into. Shoot for the moon, I say. Even when it comes to cost, I think the extra money can be well worth it if more doors are open because of it.
My attitude towards education is biased. I don’t believe that a diploma is a necessary prerequisite of learning. I don’t believe the ultimate value of education is not what’s learned, but what doors that diploma can open. A diploma is a key, and it’s clear from what little I know about the ABA and law jobs a degree from ABA accredited school is a much better key. Is it fair? No, I don’t think it is, but it’s how the world works.

I’m a little late on my investment update as I’ve been trying to get it out around the 1st of the month. The month of April pretty much continued how it started. The market rallied while I lagged relative to market. My lagging is not very surprising given that I have quite few put options on the NASDAQ and the DOW. Those haven’t worked out very well recently, but I guess that’s what hedges are for.

I am finally up for the year. Almost all of that can be attributed to the calls on AAPL that continue to race onward an upward. Last month AAPL shot past $150. The stock is up above $180 now….

Now that I have a few months of data for my historical performance chart, it’s actually beginning to look like something.