The editor’s opinion from Marketplace, Northeast Wisconsin’s business magazine. (Obligatory disclaimer: Most hyperlinks go to outside sites, and we’re not responsible for their content. And like fresh watermelon, peaches, pineapple, grapefruit, tomatoes and sweet corn, hyperlinks can go bad after a while.)

July 16, 2008

Analyses of the Day

Both are from Forbes:

(1) You'll recall that U.S. Rep. Steve Kagen (D–Appleton) got the House to pass a bill to sue OPEC over high gas prices. JPMorgan Private Bank chief economist Michael Cembalest, writing at, suggests that Congress should not sue OPEC, but ... Congress:
Over the last 30 years, elected U.S. officials blocked nuclear build-out and spent fuel storage construction; impeded the construction of oil refineries; refrained from passing meaningful alternative energy legislation; imposed an import tax on cheaper Brazilian ethanol; prevented offshore drilling in Alaska, California and Florida; delayed tighter auto fuel-efficiency standards for 30 years; blocked the construction of liquefied natural gas ports; killed wind farms in their own backyards (and back bays); and neglected opportunities for public-private sector partnerships on energy research and development.
Cembalest, by the way, believes that the peak of high oil prices is in sight: "
Oil prices will likely approach a breaking point of some kind later this year. Yes, the supply-demand equation is tight (U.S. reserves per well are half the levels they were a decade ago), and marginal costs are going up (more costly horizontal and directional drilling now account for 40% of wells drilled). Even so, marginal costs are $70 a barrel, not $140, and Organization for Economic Cooperation and Development demand is being destroyed at a rapid clip."

(2) RealClearMarkets' John Tamny believes the federal government should allow General Motors Corp. to collapse. I'm not sure I buy that, but Tamny makes a fascinating point about how GM advocated for the wrong dollar policy:

The Big Three have routinely agitated for a weaker dollar against the yen. In a 2005 op-ed in The Wall Street Journal, GM Chief Executive Rick Wagoner cast some of the blame for the company's poor performance on "unfair trading practices," in particular, "Japan's long-term initiatives to artificially weaken the yen."

Wagoner's thoughts were remarkable in a number of ways, but were notable because his comments about yen weakness were so impressively untrue. In reality, as recently as 1971, the dollar bought 360 yen. Today, it buys 107 — a gain for the yen vs. the dollar of 236%!... Despite the dollar's collapse, GM's U.S. market share has continued to wither, falling from 41% in 1985 to less than 25% today. Over that same timeframe, GM shares have flatlined, while those of Honda and Toyota have risen over 600% and 800%, respectively.

What's fascinating is that GM's management could be so obtuse about what aids its success. The obvious truth here is that, with GM a successful producer of large, gas-guzzling autos, a weak dollar has and always will be a killer for a shrunken unit of account, driving up not only the costs of commodity inputs for automobile production but also, more importantly, the price of oil itself. Not surprisingly, GM's shares rose 56% from June 1997 to May 2000 — when the dollar was strongest and oil was cheap.

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