Obama:On Tires, Autos and Dishonesty

Photo Copyright: AP

Barack Obama, seen here riding a bicycle with at least one flat tire last June, is clearly too ignorant to know how to inflate a tire.

First Barack Obama, a failed lawyer has lectured the populace on one subject that he is completely ignorant on, economics, now he has found time to lie on some other subjects that he and his followers are ignorant on, automobiles, oil and tires. Many Democrats insist that if my taxes go up (see: expenses) I will hire more employees and I will be giving all of my employees more health care, family leave, raises, more time off and other such perks. That of course is ridiculous, when the expenses of a business rise faster than than that business' income then that money will come from somewhere, both the owners and the employees will suffer. Most liberals do not understand this, sure when confronted with the above facts some may hedge a bit but others will announce that the business owners are evil and that they are "taking" from their employees. Let me be blunt, I am not waiting with baited breath for the feds to raise my taxes so that I can increase the compensation and perks of my employees. Period.

Now on to automobiles. Regular readers of this blog have probably figured out that I am somewhat of a car guy, one of my Porsches is a race car and I have restored another Porsche. For racing folks tires are important, we can actually obsess over such issues. Barack is correct that a properly inflated tire will raise a car's gas milage, an over-inflated tire will raise it even more! Of course an over-inflated tire is dangerous as it puts less of the tire's tread on the road giving the car less grip. However with modern tires under-inflation is less of an issue due to the strength of the modern tire's sidewalls. After some point every under-inflated tire will require more rolling force to move the car but one point that Obama and his people are likely ignorant of (my experience is that many people cannot maintain their cars due to lack of rudimentary knowledge) is the fact that modern tires keep their shape at less than optimum inflation levels. I had a slow leak in one car's front passenger-side tire (a nail) and until the tire lost dramatic amounts of pressure you could not tell that the pressure was low by simply looking at it. I keep that tire at 30 psi and even at 20-22 psi the tire shape was the same, meaning that the additional force required to roll the tire was very low. That example is of a tire that has lost 26-33 percent of it's air pressure. So to obtain Barack's magic 3% - 4% improvement in gas mileage I would have to leave the tires with much less than 70% of optimum pressure.

It is also notable that many new tires are being mounted after being filled with nitrogen. This is a racers trick, as tires roll they gain heat and the air inside expands (does Barack even know this?) and we racers like to have optimal tire pressure thus racers use nitrogen because it is an inert gas, the volume will stay the same as the tire heats up and cools off. We also use tire thermometers but that is a different story. Nitrogen molecules are also larger than oxygen molecules, thus nitrogen is less likely to leak out, especially around the rim seals which is a typical spot for leaks. I recently found out that Costco inflates the tires that they sell with nitrogen. You can find more here, although I am dubious of some of their claims. There are of course some folks who refuse to believe what us racers have known for years, I found a post by Cecil Adams who writes the Straight Dope, Cecil should really stick to what he knows best, strange sex information.

John Hinderaker of Powerline has put up another excellent post questioning Barack's numbers (or should I say numerlogy?). The real world numbers do not add up to what Barack has been claiming. Barack is of course wrong in his assertions that if Americans just kept their tires full that we would not need any additional oil. Go read the Powerline post. Barack and his pals are dead wrong because they don't have what Americans know as "common sense", they must not have many life experiences outside of their limited worlds. There is also the problem that like some children some of them will say anything to get their way.

 Obama said this about his detractors "Its like these guys take pride in being ignorant" and "You know, they think it is funny that they are making fun of something that is actually true. They need to do their homework." What an ass. Homework Barack? Is the guy still living in high school? Look, the inflation issue is one that makes sense to those who didn't actually "do their homework", those who are ignorant of the specifics concerning how oil is consumed (can you say "plastics" or fertilizers or electricity or airplanes?). Let me put it this way, I am much more accomplished than the failed lawyer Obama, who has one single accomplishment to his name, he won an election to the US Senate with the help of a dishonest press that lied to us about Obama's church and went after every credible opponent that Obama has thus far faced. Oh yeh, and Obama knows nothing about automobiles, if he did he would have would have advised that people fill their tires with nitrogen. Barack needs to do his "homework."

Thanks to the Gateway Pundit for posting the photo of Obama and his bicycle.

In Defense of Speculation

"Speculators" have traditionally gotten a bad rap but the word has practically come to mean "baby killer" as fuel prices have spiralled higher during the past few months. What people don't realize is how much "speculation" we all partake in during our lives, anytime a person buys something due to expectation of higher prices or lack of availability or holds off selling expecting higher prices, or conversely sells or waits to buy expecting lower prices, that person is speculating.

The role of speculators in markets like the current oil market has a few facets, the first is one that seems counter intuitive, speculators smooth out volatile markets. That seems hard to swallow considering some of the intra-day moves that we have seen in oil, however my experience has been that futures markets are almost always deeper and more liquid than the underlying cash markets and even more so when markets go crazy. One reason is that futures contracts deal with the market in the future giving a hedger or trader more time to deal with the market as opposed to the underlying cash markets that deal with the market in the here and now. It is not unusual for the volume traded in a futures market to represent many times the volume traded in the underlying cash market. It is completely reasonable to say that the addition of speculators helps to make markets less volatile than they otherwise would be.

Another advantage that speculators bring to markets is foresight, professional speculation involves looking at the world as it may be in the future given what is known at the time. It is a very interesting exercise that does a great service even when incorrect. Working out scenarios for the future can make markets and interested parties aware of potential problems and also of potential advantages so that market participants are less likely to be taken by surprise. The exercise also smooths out market moves, a market move will occur as more participants become aware of a scenario, the likelihood of it's occurrence and the scenario's time frame. The alternative is dramatic moves in very short time periods, instead of seeing dime changes overnight in the price of a gallon of gas we could see 50 and 75 cent increases overnight.

Another advantage that speculators bring to markets is the transference of risk, the liquidity that speculators help bring to markets help both users and producers lower their own exposure to the risk of price movement. Commercial users of futures markets use those markets to hedge against either increasing or decreasing prices and often times those commercial users market interests do not occur at the same time or price and that is where the speculator often steps in. The fact that there is trade between the areas where commercial users want to trade increases the attractiveness of using the markets to insure against risk. Speculators help businesses large and small protect themselves from a major risk, that of price.

When I hear politicians and others talk about the need to raise the margins of oil futures to 50% I am shocked at their ignorance, I wrote about futures margins here and I should stress that margins are simply a down payment that insures that a party to a trade is good for any losses that could ensue from a particular trade. The reason that the level seems so low is that markets are primarily used by entities looking to insure against future price movement and it is unreasonable to force them to leave such large amounts of money on deposit, especially if their position is backed by a position in the underlying cash market. The reason that it is unreasonable to levy 50% margins on speculators is that they serve some very important roles, some of which I have likely missed in the above paragraphs. Congress or a government bureaucracy taking over the decisions on margin levels is the same as having the government take over the setting of insurance rates, it would lead to less use of and usability of futures markets and more risk for American business. Bottom line, it is an ignorant idea.

This deserves it's own post but a short synopsis fits well here. I have been doing some investigation of the now infamous "Enron Loophole" that allows energy markets that exclusively trade electronically to avoid US governmental oversight. The Clinton era loophole for energy markets clearly exists but surprise, surprise much of the commentary is misinformed. The story is that the West Texas Intermediate oil trade that takes place on the Intercontinental Exchange (ICE) is all electronic thus it is beyond all American regulation. Due to the current political posturing as the Feds deal with issue all of those I spoke to chose their words carefully, a friend who runs a US trading firm just rolled his eyes when asked about the level of federal oversight and replied that the US government regulator the CFTC definitely oversees the trade on ICE. One issue is that the oil trade on Atlanta based ICE takes place on ICE Europe because ICE bought the International Petroleum Exchange in London in 2001. When they closed the London trading floor in 2005 ICE retained the London market designation, meaning that they are overseen by British regulators. The CFTC has been in very close contact with the British regulators and they have open access to ICE Europe trading screens and open position books. Don't get me wrong, it is a good idea to correct the "Enron Loophole" but is just height of silliness to suggest that the demand led oil rally that we have seen has been due to a regulatory loophole.

Democratic Lies on Oil Leases

These people are shameless and they believe that their fellow Democrats are just dimwitted, Rep. Edward Markey (D-Mass) got the ball rolling last week and since then others have jumped on the BSers Bandwagon including my congressman Rahm Emanuel (D-IL).* They are telling the world that Big Oil is trying to game the lease system and that they have ample acreage to drill on but that they are refusing to drill, for some unknown, conspiratorial reason. Maybe Rahm's brother can get a movie made about evil oil executives not using oil leases. This does go along very well with the Democratic manner of looking at the world, not as complex often intertwined systems but rather as various conspiracies often featuring great and powerful invisible hands, just not the Adam Smith types of invisible hands.

It should not really take much to imagine why any certain leased land may not be drilled on, the most obvious being dry holes. While looking around the internet for a more complete answer I ran across American Anachronism, the blog of Lt. Col. Mark Ward, US Army (Ret.) and the good Colonel had the good sense to contact one of his fellow Heritage Foundation members and former Oklahoma Congressman Ernest Ishtook who wrote a very interesting response that includes the following:

Believe me, with oil at $130 per barrel, they would drill on those lands if it made sense to do so! No, not all oil and gas leases are “being used”, because not all of them have production-worthy quantities of oil or gas. Lots of people have property that is not being used, but government doesn’t use it as an excuse to take it away, or to forbid the owners from buying other property.

First, a company may lease property, but never have the funds to properly explore it or drill an exploratory well. Second, after paying for further tests (such as seismic), they often decide the lease isn’t worth the high, high costs of drilling after all. Or they may hold onto the lease for years until either higher oil prices or new technology makes it feasible to drill. Third, a company may lease property but drill on another tract (which drains a “pool” that covers multiple leased tracts), so perhaps they’re counting it as “not used” if no well is sunk on that particular piece of property. Fourth, they may try to drill and be blocked by government bureaucrats, environmental lawsuits, etc.

Finally, not all acres are alike. Some have lots of oil. Others have virtually known (sic). Saying they’re not drilling for oil everywhere is like faulting them for not digging a gold mine on every acre.

*The linked article includes an argument for new educational funding and relies on the idea that this nation does not contain a large number of underemployed engineers.