Speculation in Fuel prices: Southwest is right on the money!

Southwest Airlines success in using simple and complex investment techniques has, for almost a decade now, enabled it to lock in prices it pays for large amounts of jet fuel, months and even years ahead of time. This investment strategy has protected U.S.A's leading discount carrier from run ups in crude oil prices by dramatically cutting down its fuel expenses.When all other airlines were estimated at paying close to $4 a gallon, Southwest was estimated at paying only close to about $2.
Airlines assume a considerable amount of risk when they hedge jet fuel purchases. It is also possible that sometimes they end up paying more than the spot market price for contracted fuel. Had oil prices collapsed in the past year, Southwest's hedges could have cost them large sums of money.
I just thought this was really interesting since just the other day we were talking about speculation and its effects on the market.

Lehman Bank Failure

This is an article from the BBC about the possible collapse of Lehman bank, which has suffered it's worst quarterly return in history and is trying desperately to shake things up to inspire confidence with what appears to be little success. What I find interesting is how much this crisis, like so many other financial problems of recent past, seems to be based entirely on perception and confidence instead of actual results or business practices at least in the short run. Stories of incredible corruption or questionable ethics appear time and time again and people ask how this keeps happening, and the answer seems to be that if things look good, they are for the most part taken at face value. Isn't there some way to regulate these massive companies that have an undeniable effect on public welfare and confidence when they go up in smoke? Or are they too ingrained in the political system itself to achieve any sort of unbiased third party observation?

You feeling Frogish? Leap: the rarest tree frog in the WORLD found.

A tiny tree frog by the not so tiny name, Isthmohyla rivularis, was found in Costa Rica's Monteverde Cloud Forest Preserve the other day. Scientist thought the species had become extinct after not seeing it for 20 years, until last year a University of Manchester researcher caught a glimpse of a male. Now that both sexes have been found scientists can deduce that they frogs have been procreating where other frogs have been unable. Scientist have been coming out every night for years hoping to catch the female while she lays her eggs, then it finally paid off. Andrew Gray, a herpetologist, marked this moment as "the highlight of the whole of my career".

I would like to see how the rarity of this species plays out for further conservation efforts.

Palin: Gaffe No. 1...

Gov. Palin of Alaska made her first miss-statement (not counting all the lies) on the campaign trail Monday Sept 8. The former Miss Alaska second runner-up was in Colorado Springs speaking about the recent government takeovers of Fannie Mae and Freddie Mac. She said they had "gotten too big and too expensive to the taxpayers." What she tried to do was link two big entities to the government and say that she will reduce government. Of course we know that the companies were never state owned privately.

This is pretty big. It's definitely possible the Obama campaign will make a commercial about this in due time. The Governor hasn't introduced herself as someone who is knowledgeable enough to be able to "misspeak" from time to time. All she has done is talk about herself and Barack Obama, not stating much truth about either.

Microsoft - Is it a monopoly? Question of antitrust laws violation.

Today we discussed in class about market failures and mentioned a little bit about monopoly and antitrust laws. One of the examples is Microsoft (MS). This giant computer corporation has actually been hit hard for various antitrust violations. The two biggest cases (and is still going on) are the United States v. MS and European Commission v. MS. The cases have lasted for a pretty long period of time. MS was actually ruled to share information (with rival software companies in Europe) and recently “lost its appeal against a record of 497 million euro fine imposed by the European Commission” (according to BBC on Sept 17, 2007)

European Commission v. MS and the decision in 2004

European Commission v. MS and the Decision of Appeal in 2007


the United States v. MS, current case

Large companies are subject to criticism at all time. And we can easily see that MS is one of the great examples.

Fed's Fisher Sees 50% Chance Inflation Will Increase

By Steve Matthews and Margot Habiby

Sept. 4 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said there's a 50 percent chance inflation will accelerate even amid slowing economic growth.

The Fed confronts ``even odds'' that ``the inflationary scare we experienced of late infiltrates the mindset of consumers and business operators,'' Fisher said in a speech in Houston. ``The jury is out on whether lesser momentum will be sufficient to translate into relief on the price front.''

Financial Crisis Isn't Over Yet, Nobel Economist Granger Says

Financial Crisis Isn't Over Yet, Nobel Economist Granger Says

By Fergal O'Brien

Sept. 8 (Bloomberg) -- The U.S. financial crisis isn't over a year after it began, and more institutions will probably report losses tied to the collapse of the subprime-mortgage market, Nobel prize-winning economist Clive Granger said.

``The amount of repackaged mortgage debt is much bigger than anyone realized,'' Granger said yesterday by telephone from Tralee in southwestern Ireland, where he is attending a conference. ``Every month, we think that's it and then we find some more, so I have no idea how big the problem is.''

To market, to market

The BBC ran an interesting opinion article relating back to what we have been discussing in class. Basically the author was bringing up the joke of "how many economist does it take to change a light bulb?" The answer to the joke is "none; that the market will take care of it." What the author was trying to illustrate is that this may not be the case or at least everyone should not have blind faith in this idea. She goes on to discussion specific circumstances where the market had failed the public in Britain.

The issue I have with the article is that the author tries to relate all economic issues due to a few private corporation failures. I feel that the issue is not necessarily the blind belief that free markets will solve everything, but that there was not enough competition to force efficiency. I do agree that blind support in free markets is not healthy, I just do not agree with the examples she uses to support her ideas.

Cigarette Tax Controversy

According to this article, the government plans to hike up the taxes on cigarettes near the end of this month. It explains that more than twelve states are involved in this tax raising controversy, and from the officials interviewed, none seem too guilty about it. Essentially, the attitude from the top down seems to be "if you don't want to pay the tax, don't smoke." The acticle describes this situation of the tax raising a win-win because teenagers are less likely to start smoking and older adults are more likely to quit. Apparently the officials in charge are raising the taxes on cigarettes in order to lower their deficits and bring in money whatever way they can. In this case: taxing cigarettes.

I would imagine if I were a smoker I would be none too pleased about this proposition, while the article somewhat fails to mention the opposition side. I can see the consumer-side uproar coming from a mile away, most likely to no avail. However, coming from the bias of a non-smoker, I feel as if this is a relatively harmless tax raise. The number of people who will be seriously crippled economically by this tax seem minimal to me. Plus, smoking is bad for you- I feel as if thats rather undisputible. If a tax is to be placed on a good that is rather seriously harmful to the consumer, I feel as if that is not an increase worthy of an outrage. After all, I highly doubt smokers are willing to dump crates of cigarettes in Boston Harbor.

Women in a Weak Economy

Are men or women more sensitive to a weak economy? This article suggests that women feel more economically insecure during shaky economic times, whereas this article claims that inflation has more of a negative impact on women’s health than men’s health. (Note that the first article refers to the US, and the second to Australia).

Among the reasons given: women feel that bad economic times are tougher due to gender pay inequality and the pressure to support their families, and -- as the main purchasers of everyday goods and usually the ones responsible for household budgeting -- women are more sensitive to the rising costs of goods which thus affects their health.

Conversely, more men are confident about their economic security (44% compared with women’s 33%). However, some of it might be a “false sense of security,” with men believing their purchasing power is consistent or steadily increasing – at least until they suddenly realize their dinner bill is more expensive than it used to be.

Not to say that men are oblivious to the state of the economy, especially when it’s in bad shape. But I think with women still tending to do most of the grocery shopping, driving to the mall, and paying the bills, they are constantly surrounded by reminders of prices going up and it makes sense that they worry whether the money they have will be enough. You could argue that this is a generalization though.

It’s interesting to observe the impact of a weak economy on women specifically, but one also has to consider the role of women’s race and social class. And whether the woman is working, raising children, single, or all three. And whether or not health insurance is available to them. Presidential candidates would do well to address these issues, because women will be heavily considering their policies on more spending on childcare, education, and promoting job equity in the upcoming elections.

(By the way, please ignore the line in the second article that goes, “The key to women’s happiness is a bigger [shopping cart].” Wow, really? Women are happiest when we have more stuff? I love shopping as much as the next girl, but I thought you could only say that --without being called a sexist pig -- on Sex and the City. Then again, maybe it says something about an economy propelled by consumerism…?)

OPEC Considers Cutting Production

On July 11th, crude oil hit an all time high price at nearly $150 a barrel. Since then, the price per barrel has dropped nearly $40. Becasue of this decrease in price, certain members of OPEC are calling for a decrease in production to increase the price. Iran and Venezuela, the second and third highest producing members, are both calling for the cut-back. Venezuela is also calling for a price floor at $100 a barrel. Unfortunately for them, the leading producer of oil in the world, and the main member of OPEC, Saudi Arabia, disagrees. They currently believe that production should remain constant, even if that means prices to continue to fall. They also are calling for a price floor of $80. OPEC will have a meeting Tuesday in Vienna to discuss these possible cut-backs.

Some statistics-
Even with the price falling, oil prices are still 14% higher than last year, and are four times as much as they were five years ago.

Government takes control of Freddie Mac and Fannie Mae

With the financial market in trouble the government decided they needed to step in to help out. They concluded that a failure in these two markets would greatly affect the American population in their ability to take out home loans, auto loans, and other consumer credit. Not only would a failure in these two markets hurt American but also all over the world since they are such a vital part of the United States financial market, which is supposed to be fairly secure. The two loan giants "own or guarantee about $5 trillion in home loans, about half the nation's total." This was announced Sunday by the Bush administration and they also noted that all of the executives and board or directors have been replaced for both Freddie Mac and Fannie Mae