Krugman on State and Local Panic

Read "Fifty Herbert Hoovers" in full at the NYT.

"No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis......state and local government revenues are plunging along with the economy — and unlike the federal government, lower-level governments can’t borrow their way through the crisis. Partly that’s because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren’t, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.
What can be done? Ted Strickland, the governor of Ohio, is pushing for federal aid to the states on three fronts: help for the neediest, in the form of funding for food stamps and Medicaid; federal funding of state- and local-level infrastructure projects; and federal aid to education. That sounds right — and if the numbers Mr. Strickland proposes are huge, so is the crisis.

And once the crisis is behind us, we should rethink the way we pay for key public services.

As a nation, we don’t believe that our fellow citizens should go without essential health care. Why, then, does a large share of funding for Medicaid come from state governments, which are forced to cut the program precisely when it’s needed most?

An educated population is a national resource. Why, then, is basic education mainly paid for by local governments, which are forced to neglect the next generation every time the economy hits a rough patch?

And why should investments in infrastructure, which will serve the nation for decades, be at the mercy of short-run fluctuations in local budgets?

That’s for later. The priority right now is to fight off the attack of the 50 Herbert Hoovers, and make sure that the fiscal problems of the states don’t make the economic crisis even worse."

Long On Corn...Obama appoints Vilsick to Ag Dept.

TheHill.com - Obama’s ethanol dream team Yup, a rabidly anti-gay preacher at is inauguration wasn't enough for one day; Obama had to add yet another corn-based ethanol believer to head the Ag department. Get long corn, get short the climate, the environment, and feeding the hungry.

Rick Warren; Obama's Biggest Sellout Yet

John Aravosis at America Blog has a good rundown (with plentiful links) of all the people Obama sold out by selecting Rick Warren to deliver the inaugural invocation. Basically its a list of the folks most responsible for his electoral success, the liberal blogosphere. This is very close to final straw for those of us who support equal rights for gays, and a woman's right to choose.

Goldman Sachs takes bailout while offshoring profits

And we won't bailout the car companies!

Excerpted from Bloomberg

By Christine Harper

Dec. 16 (Bloomberg) -- Goldman Sachs Group Inc., which got $10 billion and debt guarantees from the U.S. government in October, expects to pay $14 million in taxes worldwide for 2008 compared with $6 billion in 2007.

The company’s effective income tax rate dropped to 1 percent from 34.1 percent, New York-based Goldman Sachs said today in a statement. The firm reported a $2.3 billion profit for the year after paying $10.9 billion in employee compensation and benefits.

Goldman Sachs, which today reported its first quarterly loss since going public in 1999, lowered its rate with more tax credits as a percentage of earnings and because of “changes in geographic earnings mix,” the company said.

The rate decline looks “a little extreme,” said Robert Willens, president and chief executive officer of tax and accounting advisory firm Robert Willens LLC.

“I was definitely taken aback,” Willens said. “Clearly they have taken steps to ensure that a lot of their income is earned in lower-tax jurisdictions.”

U.S. Representative Lloyd Doggett, a Texas Democrat who serves on the tax-writing House Ways and Means Committee, said steps by Goldman Sachs and other banks shifting income to countries with lower taxes is cause for concern.

Secret Service Won't Even Take a Shoe for the Guy!

BBC NEWS | Middle East | Shoes thrown at Bush on Iraq trip:

"In the middle of the news conference with Mr Maliki, Iraqi television journalist Muntadar al-Zaidi stood up and shouted 'this is a goodbye kiss from the Iraqi people, dog,' before hurling a shoe at Mr Bush which narrowly missed him.

Showing the soles of shoes to someone is a sign of contempt in Arab culture.

With his second shoe, which the president also managed to dodge, Mr Zaidi said: 'This is for the widows and orphans and all those killed in Iraq.'"

Bettie Page

1950s pin-up queen Bettie Page dies.

How could you NOT post this!

And I gotta love the R93 top light choice!

Yes WE Did

Boots on the Ground!

Imagine a government run by competent people! (Thanks TPM!)

Republican Wealth Redistribution

Ian Welsh, over at Firedoglake, has a rather long post that is well worth the read but these three graphs really tell you all you need to know about the Regan Revolution, Trickle Down versus Trickle Up, and why the folks who really like to redistribute the wealth are the Republicans! (Hmm, in just how many ways is 2008 a lot like 1928?)

We Are All Bankers Now!

From Bloomberg

`This is just unprecedented,'' said BMO Capital Markets analyst Peter Winter. ``What the government has said is that you can't let the financial system fail, and if this doesn't work they'll come up with another plan.''

The capital infusions come as governments worldwide do all they can to ensure the stability of banks. Kuwait's central bank said it will guarantee deposits at Gulf Bank KSC, which remains solvent after clients defaulted on currency derivatives contracts, the state-run Kuwait News Agency reported. Paulson already gave $125 billion to nine of the biggest U.S. lenders."

Following are banks that have announced participation in the
Treasury program. Some company names have been shortened for
space:

FIRST ROUND
Citgroup            $25 billion
Wells Fargo         $25 billion
JPMorgan Chase      $25 billion
Bank of America     $15 billion
Merrill Lynch       $10 billion
Goldman Sachs       $10 billion
Morgan Stanley      $10 billion
Bank of New York    $3.0 billion
State Street        $2.0 billion
TOTAL               $125 billion

SECOND ROUND
PNC                 $7.7 billion
Capital One         $3.6 billion
SunTrust            $3.5 billion
Regions Financial   $3.5 billion
Fifth Third         $3.4 billion
BB&T                $3.1 billion
KeyCorp             $2.5 billion
Comerica            $2.25 billion
Northern Trust      $1.5 billion
Huntington          $1.4 billion
First Horizon       $866 million
City National       $395 million
Valley National     $330 million
Washington Federal  $230 million
UCBH Holdings       $298 million
First Niagara       $186 million
Old National        $150 million*
HF Financial        $25 million
Redding Bank        $17 million
Provident            --**
TOTAL               $34.93 billion (35.18)


*Old National hasn't decided whether to participate.
**Provident didn't say how much it expects.

I always liked Abbey Road

Speaking of Bubbles

My good bud S and I decided to try our hand at making beer last night. It was quite a process. Bought a kit, then got the ingredients for a clone of Geary's Pale Ale. Three hours later with no major disasters it was into the 5 gallon pale for the initial fermentation. Went home to dinner, then a few hours later S called to say there was not yet any bubbling in the air lock. BUMMER. But woke up this morning to receive this lovely video in email!

Paul Newman... A Life Well Lived

Merrill Buyout: Thain and Montag might make $32,800/hr.

OK, the damage was done long before these jokers got hired but come on!

Between the two of them they put in 10 months work, lets be kind and say they worked 70 hour weeks (I doubt it!). Thain then would have around 2800 hours into the company and Montag would have aroundy 280 hours. That would be about 47 million for 3080 hours or $15,260 per hour! It appears that is on top of 54 million the two stand to collect in bonus pay. That brings us up to about $32,800 per hour per man! There may be additional stock values that each will receive, the whole article is worth a read! (Some of this value is based on the future value of Bank of America's share price but the calculations provided are based on its current price and the article is not entirely clear (or I may misuderstand it) if any of the 54 million is included in the 47 million figure.)


Also note that previously Thain was C.O.O. to Henry Paulson's C.E.O. at Goldman. Treasury Secretary Paulson's involvment in the brief and "successful" talks between Merrill and Bank of America most likely helped Thain to ink this deal. Will Paulson be working at BOA next year? Inquiring minds want to know.

Excerpts from Jonathan Keehner and Bradley Keoun writing for Bloomberg.com: Worldwide follow.

Sept. 16 (Bloomberg) -- Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.

Thain, hired last December following the ouster of Stan O'Neal, stands to collect about $11 million on the vesting of free shares if he doesn't stay after the sale, said Graef Crystal, a Santa Rosa, California-based compensation consultant. Montag, who joined in August and is a former colleague of Thain's from Goldman Sachs Group Inc., would get $30 million in accelerated stock awards and at least $6.4 million in options if he's dismissed or his duties are diminished after a change of control, Crystal said.

Snip

Since Dec. 1 of last year, Thain's first day, the shares have fallen about 70 percent, as writedowns on devalued mortgage holdings eroded the company's financial results.

Snip

Any payouts triggered by a change in control are on top of a $15 million signing bonus awarded to Thain last December and a guaranteed $39 million bonus Montag is due to get in January for his work in 2008.

Snip

``This isn't necessarily the outcome I would have expected when I took this job,'' Thain said. He said his future role at the combined company hasn't been decided.

Snip

(THAIN) was president and chief operating officer at New York-based Goldman, where he served under then-CEO Henry Paulson. Now U.S. Treasury secretary, Paulson helped to lead a weekend of discussions during which Bank of America initially weighed a bid for Lehman.

Thain said Merrill's talks with Bank of America began on the morning of Sept. 13. The deal was done by nightfall the next day.

Anne Kilkenny with a bird's eye view of Palin from Wassilla

Heard a great little interview with Anne Kilkenny on NPR yesterday. She really didn't expect her email to go viral and was getting thousands of emails and a barrage of phone calls for interviews from the likes of the Times, NBC, etc. She found it quite funny.

Here is that email.

Dear friends,

So many people have asked me about what I know about Sarah Palin in the last 2 days that I decided to write something up . . .

Basically, Sarah Palin and Hillary Clinton have only 2 things in common: their gender and their good looks. :)

You have my permission to forward this to your friends/email contacts with my name and email address attached, but please do not post it on any websites, as there are too many kooks out there . . .

Thanks,
Anne

ABOUT SARAH PALIN

I am a resident of Wasilla, Alaska. I have known Sarah since 1992. Everyone here knows Sarah, so it is nothing special to say we are on a first-name basis. Our children have attended the same schools. Her father was my child's favorite substitute teacher. I also am on a first name basis with her parents and mother-in-law. I attended more City Council meetings during her administration than about 99% of the residents of the city.

She is enormously popular; in every way she's like the most popular girl in middle school. Even men who think she is a poor choice and won't vote for her can't quit smiling when talking about her because she is a "babe".

It is astonishing and almost scary how well she can keep a secret. She kept her most recent pregnancy a secret from her children and parents for seven months.

She is "pro-life". She recently gave birth to a Down's syndrome baby. There is no cover-up involved, here; Trig is her baby.

She is energetic and hardworking. She regularly worked out at the gym.

She is savvy. She doesn't take positions; she just "puts things out there" and if they prove to be popular, then she takes credit.

Her husband works a union job on the North Slope for BP and is a champion snowmobile racer. Todd Palin's kind of job is highly sought-after because of the schedule and high pay. He arranges his work schedule so he can fish for salmon in Bristol Bay for a month or so in summer, but by no stretch of the imagination is fishing their major source of income. Nor has her life-style ever been anything like that of native Alaskans.

Sarah and her whole family are avid hunters.

She's smart.

Her experience is as mayor of a city with a population of about 5,000 (at the time), and less than 2 years as governor of a state with about 670,000 residents.

During her mayoral administration most of the actual work of running this small city was turned over to an administrator. She had been pushed to hire this administrator by party power-brokers after she had gotten herself into some trouble over precipitous firings which had given rise to a recall campaign.

Sarah campaigned in Wasilla as a "fiscal conservative". During her 6 years as Mayor, she increased general government expenditures by over 33%. During those same 6 years the amount of taxes collected by the City increased by 38%. This was during a period of low inflation (1996-2002). She reduced progressive property taxes and increased a regressive sales tax which taxed even food. The tax cuts that she promoted benefited large corporate property owners way more than they benefited residents.

The huge increases in tax revenues during her mayoral administration weren't enough to fund everything on her wish list though, borrowed money was needed, too. She inherited a city with zero debt, but left it with indebtedness of over $22 million. What did Mayor Palin encourage the voters to borrow money for? Was it the infrastructure that she said she supported? The sewage treatment plant that the city lacked? or a new library? No. $1m for a park. $15m-plus for construction of a multi-use sports complex which she rushed through to build on a piece of property that the City didn't even have clear title to, that was still in litigation 7 yrs later--to the delight of the lawyers involved! The sports complex itself is a nice addition to the community but a huge money pit, not the profit-generator she claimed it would be. She also supported bonds for $5.5m for road projects that could have been done in 5-7 yrs without any borrowing.

While Mayor, City Hall was extensively remodeled and her office redecorated more than once.

These are small numbers, but Wasilla is a very small city.

As an oil producer, the high price of oil has created a budget surplus in Alaska. Rather than invest this surplus in technology that will make us energy independent and increase efficiency, as Governor she proposed distribution of this surplus to every individual in the state.

In this time of record state revenues and budget surpluses, she recommended that the state borrow/bond for road projects, even while she proposed distribution of surplus state revenues: spend today's surplus, borrow for needs.

She's not very tolerant of divergent opinions or open to outside ideas or compromise. As Mayor, she fought ideas that weren't generated by her or her staff. Ideas weren't evaluated on their merits, but on the basis of who proposed them.

While Sarah was Mayor of Wasilla she tried to fire our highly respected City Librarian because the Librarian refused to consider removing from the library some books that Sarah wanted removed. City residents rallied to the defense of the City Librarian and against Palin's attempt at out-and-out censorship, so Palin backed down and withdrew her termination letter. People who fought her attempt to oust the Librarian are on her enemies list to this day.

Sarah complained about the "old boy's club" when she first ran for Mayor, so what did she bring Wasilla? A new set of "old boys". Palin fired most of the experienced staff she inherited. At the City and as Governor she hired or elevated new, inexperienced, obscure people, creating a staff totally dependent on her for their jobs and eternally grateful and fiercely loyal--loyal to the point of abusing their power to further her personal agenda, as she has acknowledged happened in the case of pressuring the State's top cop (see below).

As Mayor, Sarah fired Wasilla's Police Chief because he "intimidated" her, she told the press. As Governor, her recent firing of Alaska's top cop has the ring of familiarity about it. He served at her pleasure and she had every legal right to fire him, but it's pretty clear that an important factor in her decision to fire him was because he wouldn't fire her sister's ex-husband, a State Trooper. Under investigation for abuse of power, she has had to admit that more than 2 dozen contacts were made between her staff and family to the person that she later fired, pressuring him to fire her ex-brother-in-law. She tried to replace the man she fired with a man who she knew had been reprimanded for sexual harassment; when this caused a public furor, she withdrew her support.

She has bitten the hand of every person who extended theirs to her in help. The City Council person who personally escorted her around town introducing her to voters when she first ran for Wasilla City Council became one of her first targets when she was later elected Mayor. She abruptly fired her loyal City Administrator; even people who didn't like the guy were stunned by this ruthlessness.

Fear of retribution has kept all of these people from saying anything publicly about her.

When then-Governor Murkowski was handing out political plums, Sarah got the best, Chair of the Alaska Oil and Gas Conservation Commission: one of the few jobs not in Juneau and one of the best paid. She had no background in oil & gas issues. Within months of scoring this great job which paid $122,400/yr, she was complaining in the press about the high salary. I was told that she hated that job: the commute, the structured hours, the work. Sarah became aware that a member of this Commission (who was also the State Chair of the Republican Party) engaged in unethical behavior on the job. In a gutsy move which some undoubtedly cautioned her could be political suicide, Sarah solved all her problems in one fell swoop: got out of the job she hated and garnered gobs of media attention as the patron saint of ethics and as a gutsy fighter against the "old boys' club" when she dramatically quit, exposing this man's ethics violations (for which he was fined).

As Mayor, she had her hand stuck out as far as anyone for pork from Senator Ted Stevens. Lately, she has castigated his pork-barrel politics and publicly humiliated him. She only opposed the "bridge to nowhere" after it became clear that it would be unwise not to.

As Governor, she gave the Legislature no direction and budget guidelines, then made a big grandstand display of line-item vetoing projects, calling them pork. Public outcry and further legislative action restored most of these projects--which had been vetoed simply because she was not aware of their importance--but with the unobservant she had gained a reputation as "anti-pork".

She is solidly Republican: no political maverick. The State party leaders hate her because she has bit them in the back and humiliated them. Other members of the party object to her self-description as a fiscal conservative.

Around Wasilla there are people who went to high school with Sarah. They call her "Sarah Barracuda" because of her unbridled ambition and predatory ruthlessness. Before she became so powerful, very ugly stories circulated around town about shenanigans she pulled to be made point guard on the high school basketball team. When Sarah's mother-in-law, a highly respected member of the community and experienced manager, ran for Mayor, Sarah refused to endorse her.

As Governor, she stepped outside of the box and put together of package of legislation known as "AGIA" that forced the oil companies to march to the beat of her drum.

Like most Alaskans, she favors drilling in the Arctic National Wildlife Refuge. She has questioned if the loss of sea ice is linked to global warming. She campaigned "as a private citizen" against a state initiaitive that would have either a) protected salmon streams from pollution from mines, or b) tied up in the courts all mining in the state (depending on who you listen to). She has pushed the State's lawsuit against the Dept. of the Interior's decision to list polar bears as threatened species.

McCain is the oldest person to ever run for President; Sarah will be a heartbeat away from being President.

There has to be literally millions of Americans who are more knowledgeable and experienced than she.

However, there's a lot of people who have underestimated her and are regretting it.

CLAIM VS FACT
*"Hockey mom": true for a few years.

*"PTA mom": true years ago when her first-born was in elementary school, not since.

*"NRA supporter": absolutely true

*social conservative: mixed. Opposes gay marriage, BUT vetoed a bill that would have denied benefits to employees in same-sex relationships (said she did this because it was unconsitutional).

*pro-creationism: mixed. Supports it, BUT did nothing as Governor to promote it.

*"Pro-life": mixed. Knowingly gave birth to a Down's syndrome baby BUT declined to call a special legislative session on some pro-life legislation

*"Experienced": Some high schools have more students than Wasilla has residents. Many cities have more residents than the state of Alaska. No legislative experience other than City Council. Little hands-on supervisory or managerial experience; needed help of a city administrator to run town of about 5,000.

*political maverick: not at all

*gutsy: absolutely!

*open & transparent: ??? Good at keeping secrets. Not good at explaining actions.

*has a developed philosophy of public policy: no

*"a Greenie": no. Turned Wasilla into a wasteland of big box stores and disconnected parking lots. Is pro-drilling off-shore and in ANWR.

*fiscal conservative: not by my definition!

*pro-infrastructure: No. Promoted a sports complex and park in a city without a sewage treatment plant or storm drainage system. Built streets to early 20th century standards.

*pro-tax relief: Lowered taxes for businesses, increased tax burden on residents

*pro-small government: No. Oversaw greatest expansion of city government in Wasilla's history.

*pro-labor/pro-union. No. Just because her husband works union doesn't make her pro-labor. I have seen nothing to support any claim that she is pro-labor/pro-union.

WHY AM I WRITING THIS?

First, I have long believed in the importance of being an informed voter. I am a voter registrar. For 10 years I put on student voting programs in the schools. If you google my name (Anne Kilkenny + Alaska), you will find references to my participation in local government, education, and PTA/parent organizations.

Secondly, I've always operated in the belief that "Bad things happen when good people stay silent". Few people know as much as I do because few have gone to as many City Council meetings.

Third, I am just a housewife. I don't have a job she can bump me out of. I don't belong to any organization that she can hurt. But, I am no fool; she is immensely popular here, and it is likely that this will cost me somehow in the future: that's life.

Fourth, she has hated me since back in 1996, when I was one of the 100 or so people who rallied to support the City Librarian against Sarah's attempt at censorship.

Fifth, I looked around and realized that everybody else was afraid to say anything because they were somehow vulnerable.

CAVEATS
I am not a statistician. I developed the numbers for the increase in spending & taxation 2 years ago (when Palin was running for Governor) from information supplied to me by the Finance Director of the City of Wasilla, and I can't recall exactly what I adjusted for: did I adjust for inflation? for population increases? Right now, it is impossible for a private person to get any info out of City Hall--they are swamped. So I can't verify my numbers.

You may have noticed that there are various numbers circulating for the population of Wasilla, ranging from my "about 5,000", up to 9,000. The day Palin's selection was announced a city official told me that the current population is about 7,000. The official 2000 census count was 5,460. I have used about 5,000 because Palin was Mayor from 1996 to 2002, and the city was growing rapidly in the mid-90's.

Anne Kilkenny
August 31, 2008

Biden sums up the GOP campaign

What do you talk about when you can't explain 4 years of failure?

Will `Ace' McCain Flame Out Again?

Too good not to quote extensively.

Over the years he's played many roles and worn many titles, including Navy aviator, prisoner of war, hero, congressman, U.S. senator, Washington insider, maverick outsider and, now, presidential candidate. But the one title of which few are aware is that of "service ace."

John Sidney McCain III is known among many of his Vietnam flight buddies as "Ace" McCain. This title has not been bestowed upon McCain because he destroyed five enemy aircraft. On the contrary: It was five on our side -- in fact, five of his own. Since throwing his hat into the presidential ring, the fact that McCain was graduated from the U.S. Naval Academy nearly at the bottom of his class has been publicized. His star-crossed flying, on the other hand, remains unknown to most

Robert Timberg, author of The Nightingale's Song, a book about Annapolis graduates and their tours in Vietnam, wrote that McCain "learned to fly at Pensacola, though his performance was below par, at best good enough to get by. He liked flying, but didn't love it." Timberg counts himself a friend of McCain and has written a McCain biography.

It wasn't long after arriving in Pensacola that McCain racked up the first of his five crashes, beginning in 1958, on his way to becoming a "reverse ace." As told by Timberg, "McCain was practicing landings; his engine quit and he plunged into Corpus Christi Bay. Knocked unconscious by the impact, he came to as the plane settled to the bottom."

There was, however, no engine failure with the aircraft. According to one of McCain's former flight instructors, "The engine was removed from the aircraft that afternoon, mounted on a test stand and a new propeller installed. [It] was flushed with fresh water and started. It ran just fine. So the theory of engine failure was proven false."

The instructor added that McCain was "positively one of the weakest students to pass our way, and received consistently poor marks and a number of Dangerous Down grades assigned by more than one instructor. He had no real ability and was clearly out of his element in an airplane, and way over his head even as a junior naval officer."

The second of McCain's crashes occurred while he was deployed in the Mediterranean. "Flying too low over the Iberian Peninsula," reports Timberg, "he took out some power lines [reminiscent of the 1998 incident in which a Marine Corps jet sliced through the cables of a gondola at an Italian ski resort, killing 20] which led to a spate of newspaper stories in which he was predictably identified as the son of an admiral."

Crash three occurred when McCain was returning from flying a trainer solo to Philadelphia for an Army-Navy football game. According to Timberg, McCain radioed, "I've got a flameout." He went through the standard relight procedures three times. At one thousand feet, he ejected, landing on the deserted beach moments before the plane slammed into a clump of trees."

By 1967, McCain was ready for battle and assigned to the USS Forrestal as an A-4 Skyhawk pilot. While seated in the cockpit of his aircraft waiting for takeoff, a freak accident occurred when a rocket slammed into the exterior fuel tank of McCain's plane. Miraculously, McCain escaped from the burning aircraft, but dozens of his shipmates were killed and injured in the explosions that followed.

McCain's final downing came just three months later when his A-4 Skyhawk was hit by antiaircraft artillery over Truc Bach Lake near Hanoi, North Vietnam. McCain spent the next five-and-a-half years as a prisoner of war and, upon return to the United States in 1973, like the other returning POWs, McCain became an instant hero. The POWs had been treated abominably, yet stood up to their torturers and were deserving of the accolades they received. But some questioned the number and types of medals bestowed upon "Ace" McCain, the son of the admiral commanding in the Pacific as well as the grandson of another admiral.

"McCain had roughly 20 hours in combat," explains Bill Bell, a veteran of Vietnam and chief of the U.S. Office for POW/MIA Affairs -- the first official U.S. representative in Vietnam since the 1973 fall of Saigon. "Since McCain got 28 medals," Bell continues, "that equals out to about a medal-and-a-half for each hour he spent in combat. There were infantry guys -- grunts on the ground -- who had more than 7,000 hours in combat and I can tell you that there were times and situations where I'm sure a prison cell would have looked pretty good to them by comparison. The question really is how many guys got that number of medals for not being shot down."

"John McCain," says another Navy pilot and acquaintance of that era, "was the kind of guy you wanted to room with -- not fly with. He was reckless, and that's critical when you start thinking about who's going to be the president," The old pilot laughs, and then continues: "But the Navy accident rate was cut in half the day John McCain was shot down."

McCain; Why Settle for just 2nd Best?

Why settle for 2nd best when you can get 844th out of 899?

Has The Oil Bubble Finally Burst?

Click the graph below for a larger image.

A few observations but first understand that this chart is for USO. Its movements tend to reflect the movement in the price of a barrel of oil but the absolute value is not the same. (USO is currently at 102/share and oil is around 126/barrel.)

1. Two long term bull trend lines (green and purple) remain intact, but the most recent bull trend (light blue) support has been significantly penetrated on strong volume.
2. The support of the 20 and 50 day moving averages has failed and price is now below them. The 50 in particular had been prviding strong support during the most recent rise. The 20 average is moving downward, the 50 day is rounding, but prices are well above the 200 day average.
3. This latest downward move was well predicted by a negative MACD divergence which I have indicated with black lines on the price and MACD chart. This divergence shows the move from the June 08 price peak to the July price peak was not confirmed by the action in MACD.
4. I have also shown with black lines the same type of negative divergence that occurred from early December 07 to early January 08. In that instance prices simply consolidated their previous gains until the mid February bull breakout which started the most current bull trend line.
5. We could be in a consolidation pattern again but notice that in the earlier divergence the 50 day moving average acted as support for the consolidation; in the current case it has been violated. Also notice that in the earlier divergence the volume was not unusual; in the current divergence we see volume starting to build in march 08 and very strong volume on the actual downtrend beginning in early July. Certainly the March to July volume appears speculative and not unlike volume patterns often associated with the final stages of a bubble (blow off tops).
6. The four light blue bars are Fibonacci retracement levels from the beginning of the most recent trend line (February 08) to the current high in July. Price is sitting at 102.38 as I type, hovering just above support at 100.17, the 38.2% Fibonacci retracement level. Should this support fail the next Fibonacci support is 94.30 with a bit of technical support above that provided by the mid April high of 95, indicated by the gray line. The support at 102.38 appears crucial for the bull case. If it gets taken out the 50 day moving average will have turned down as well and the 200 day will likely have gone flat. We would also likely see the 20 day average move below the 50 day which would be very bearish technically.
7. Points to watch on the way down: Notice how nicely the Fibonacci 61.8 % and mid March peak line up (another gray line.) That area should provide strong support. Finally notice how, should that fail, the Fibonacci 100% will likely be aligned with the 200 day average.
8. Short term upside resistance for USO appears to be around 110. That will be the bulls target to once again establish control.
   

So has the bubble burst?
Not yet. This chart is still a correction within a bull market but for the first time this year short term speculators will likely find the bear case (AGAIN I SAID SHORT TERM) at least as attractive as is the bull. For those keeping score a $90 on USO probably means a barrel price around $110 and a $70 USO probably puts a barrel around $86.

What about fundamentals? There has never been a fundamental case for the degree of oil price rise we have seen. The only fundamental driver, IMHO, has beet he decline in the value of the dollar and that would put a barrel at perhaps the 60-80 range. People who argue that supply and demand have driven the price are, again IMHO, really confused; they think the market is pricing in now the pressures that oil might feel in 10 or 20 years; markets don't act that way, they don't think THAT far ahead. People however sometimes do so I think its fair to argue that PERCEPTION of a fundamental issue (in this case supply/demand,the peak oil scenario) has powered some of the bubble.

Lately reality has been making a bit of a comeback perception-wise. Demand is showing much less acceleration, (and in some cases actually decreasing), supply has had positive news of late, and the Iraq and Iran outlooks are perceived to be becoming more stable. Some governments and companies are making more serious noises about conservation and alternative sourcing. What would be the last shoe to drop if you follow fundamentals? I think that would be a world tightening of interest rates as the fear of inflation increases. The US being in the worst financial shape will likely be the last to tighten, but tighten it will and then the fear of recession will be the final excuse from the fundamentalists for the bursting of the bubble which the charts are already suggesting.

Bottom line: I am not a fan of fundamentals but the perception of them is significantly improved compared to say, January. I had said all along oil at 60 before 200. I will now add that I think 40 is very possible.

UPDATE: In the 4 hours since I posted USO has now closed around 100. (See item 6 above.) Upside resistance is now around 107.50. I actually expected a reaction back up to the 110 area before additional damage was done.