Bloomberg notes Chrysler’s Jeep Cherokee chassis could be the underpinnings for other Fiat brands Maserati and Alfa Romeo. Fiat, along with you the taxpayer, owns Chrysler:
Chrysler Group LLC’s redesigned Jeep Grand Cherokee has been so successful that Fiat SpA may use the sport-utility vehicle’s platform for Alfa Romeo and Maserati models, the companies’ chief executive officer said.
Chrysler, the U.S. automaker controlled by Fiat, introduced the updated Grand Cherokee earlier this year.
“One of the things that we are now looking at in some detail is the possibility of utilizing this architecture and extending its application for additional products both within Chrysler and outside Chrysler,” Sergio Marchionne, chief executive officer of both Chrysler and Fiat, said yesterday on a conference call.Fiat, based in Turin, Italy, owns its namesake brand, Alfa Romeo, Ferrari and Maserati as well as a 20 percent stake in Chrysler that it acquired during the U.S. automaker’s bankruptcy last year.
I got the idea that Fiat’s purchase of Chrysler would have that company importing fuel sipping micro- cars like the Fiat 500. I guess that’s the smoke screen. The heart and soul of Denial America is the bulbous SUV: the Jeep Cherokee tips the scales at a massive 4660 pounds with a standard 290 hp engine. A 400+ hp engine is ‘available’. Fuel consumption? What do you think?
Keep in mind the SUV is yesteryear’s solution to the ‘Last Mile’ problem that afflicts American life. Since this life is meant to be an orgy of goods consumption a large vehicle is required to transport the gigantic quantities of furniture, housewares, televisions and entertainment devices — ‘stuff’ — from the box stores to the McMansions.
The fervent hope of the Establishment and its minions is this paradigm can reassert itself ASAP. Hence the money pumping by various entities from rathole to rathole with increasing desperation; ‘Good news America! A ‘Niewe’ Alfa Romeo sport utility vehicle!’ is part of the frantic piece.
With crude oil a crushing $87 a barrel it is hard to see how much longer the remnants of ‘the stuff paradigm’ will remain intact.
Is the American Dream Over?America has long been a country of limitless possibility. But the dream has now become a nightmare for many. The US is now realizing just how fragile its success has become — and how bitter its reality. Should the superpower not find a way out of crisis, it could spell trouble ahead for the global economy.
It was to be the kind of place where dozens of American dreams would be fulfilled — here on Apple Blossom Drive, a cul-de-sac under the azure-blue skies of southwest Florida, where the climate is mild and therapeutic for people with arthritis and rheumatism. Everything is ready. The driveways lined with cast-iron lanterns are finished, the artificial streams and ponds are filled with water, and all the underground cables have been installed. This street in Florida was to be just one small part of America’s greater identity — a place where individual dreams were to become part of the great American story.
But a few things are missing. People, for one. And houses, too. The drawings are all ready, but the foundations for the houses haven’t even been poured yet.
Apple Blossom Drive, on the outskirts of Fort Myers, Florida, is a road to nowhere. The retirees, all the dreamers who wanted to claim their slice of the American dream in return for all the years they had worked in a Michigan factory or a New York City office, won’t be coming. Not to Apple Blossom Drive and not to any of the other deserted streets which, with their pretty names and neat landscaping, were supposed to herald freedom and prosperity as the ultimate destination of the American journey, and now exude the same feeling of sadness as the industrial ruins of Detroit.
The American Dream: houses that always go up in value with SUVs and giant pickup trucks in every porte cochere! Wha happened? Americans have always looked funny to Germans; we don’t wear leather ‘breeches’ (knickers) in public, for one thing!
The fall of America doesn’t have to be a complete collapse — it is, after all, a country that has managed to reinvent itself many times before. But today it’s no longer certain — or even likely — that everything will turn out fine in the end. The United States of 2010 is dysfunctional, but in new ways. The entire interplay of taxes and investments is out of joint because a 16,000-page tax code allows for far too many loopholes and because solidarity is no longer part of the way Americans think. The political system, plagued by lobbyism and stark hatred, is incapable of reaching consistent or even quick decisions.
The country is reacting strangely irrationally to the loss of its importance — it is a reaction characterized primarily by rage. Significant portions of America simply want to return to a supposedly idyllic past. They devote almost no effort to reflection, and they condemn cleverness and intellect as elitist and un-American, as if people who hunt bears could seriously be expected to lead a world power. Demagogues stir up hatred and rage on television stations like Fox News. These parts of America, majorities in many states, ignorant of globalization and the international labor market, can do nothing but shout. They hate everything that is new and foreign to them.
Lobbyism and bear hunting. Back off Germany! We do also drink a lot of beer!
One Monday in September, six weeks before the mid-term elections, the CNBC television network invited President Obama to a town hall meeting with voters. One after another, members of the audience stood up to air their grievances: about the job crisis, America’s crisis and the feeling of hope that the country has lost since the excitement of the 2008 presidential election.
Velma Hart, a stout woman in her mid-40s, stepped up to the microphone. “Mr. President,” she said, as her eyes teared up, “I’m a mother. I’m a wife. I’m an American veteran and I’m one of your middle-class Americans. And quite frankly, I’m exhausted. I’m exhausted of defending you, defending your administration, defending the mantle of change that I voted for, and deeply disappointed with where we are.”
“The financial recession has taken an enormous toll on my family,” Hart said. “My husband and I have joked for years that we thought we were well beyond the hot-dogs-and-beans era of our lives. But, quite frankly, it is starting to knock on our door and ring true that that might be where we are headed. And quite frankly, Mr. President, I need you to answer this honestly: Is this my new reality?”
No Real Answer
The president smiled thinly. He mentioned the “right steps” that had been taken but he had no real answer. He couldn’t reassure her or even argue with her point. Her dream was his dream, he said.
Mutter, mutter, mutter … the right steps have not been taken at all! Here’s the real answer: what is needed is accountability, reform, fairness and an energy policy that gets people from behind the wheel. It’s conceptually simple, just unpleasant and difficult to implement. Americans are like little children that cry when they don’t get their way. They just voted into management positions a large number of professional nincompoops who promised more easy answers, unfortunately all the wrong ones …
We would need to start by asking what a return to the “gold standard” might mean.
The most limited reform would be for the central bank to adjust interest rates in light of the gold price. But that would just be a form of price-level targeting. I can see no reason why one would want to target the gold price, rather than the price of goods and services, in aggregate.
The opposite extreme would be a move back into a world of metallic currency. But money in circulation will continue to be predominantly electronic, with a small quantity of paper, as today. That is the only convenient way to run a modern economy.
Finally, a return to the Bretton Woods system, in which the US promised to convert dollars into gold, at a fixed price, but only for other governments, would lack any credibility, since there would then be no direct link between gold stocks and the domestic money supply.
Good article, a must read, covering the usual territory. This is the remark that is interesting: “I can see no reason why one would want to target the gold price, rather than the price of goods and services, in aggregate.”
Why aggregate? Goods and services are energy derivatives. Why not target energy prices? Reason is we already are, but through the back door. Energy prices are the foot on the brake of the economy while monetary policy (expansion, please) is the foot on the gas. Here, pushing down on the gas also pushes down on the brake! The feedback loop targets a certain – lower – price for crude and other energy forms by using price ‘targets’ to destroy demand. Which puts current policy at odds with itself with energy prices in the middle.
Expansionist policy is form of Peak Oil denial at the same time it is the straight road to energy conservation by way of demand destruction and deflation.
Also read Laurence Kotlikoff’s remarks about Limited Purpose Banking on FT while you are at it.
Meanwhile, let’s look @ the ‘Greater Turkey’ theory of economics by noting Atlas Energy’s sale of itself to Chevron.
Chevron to Buy Shale-Gas Owner Atlas Energy for $3.2 Billion
By –Chevron Corp., the second-largest U.S. oil company, agreed to buy Atlas Energy Inc. for $3.2 billion in cash, giving it access to the natural gas-rich Marcellus Shale formation in Pennsylvania.
Shareholders will get $38.25 in cash plus units of an Atlas pipeline affiliate, for a total of $43.34 a share, a 37 percent premium to yesterday’s closing price, Moon Township, Pennsylvania-based Atlas said in a statement today.
The deal is worth $4.3 billion including assumed debt, the companies said. If completed, the purchase would be the third- largest for San Ramon, California-based Chevron and its biggest since the 2005 acquisition of Unocal Corp.
Atlas “has one of the premier acreage positions in the prolific Marcellus,” George L. Kirkland, Chevron vice chairman, said in a statement. “The high quality resource, competitive cost structure in the Marcellus, strong growth potential of the asset base and its proximity to premier natural gas markets make this targeted acquisition a compelling investment for Chevron.”
Read that then note the very complete analysis of shale gas expectations versus realities by the estimable Art Berman @ the Oil Drum. Berman is ‘the analyst’s analyst’.
The Traveling Circus
Shale play promoters constantly try to divert attention and analysis from current plays to newer plays. Newer plays have less data to analyze and, therefore, reserve claims are more difficult to question. Because the Barnett and Fayetteville shale plays have under-performed expectations, we were invited a few years later to consider the future potential of the Haynesville Shale play. Now that the Haynesville looks disappointing, we are asked to consider the Marcellus Shale play. Since the State of Pennsylvania does not publish monthly production data for analysts to evaluate, no one can dispute or confirm the claims made by operators. With the shift to liquids-rich plays like the Eagle Ford Shale, we are again asked to trust the same promoters that sold us under-performing plays in the past that this time it will be different.
We should call a time out at this point and ask for a reality check. This will never happen because the capital keeps flowing and the promoters continue drilling and leasing. There appear to be a host of foreign investment companies that may provide capital for the shale plays now that operator debt has reached extreme levels, and most available assets have been sold at considerable damage to shareholders.
The Marcellus Shale Play Will Disappoint Expectations
What projections seem reasonable for the Marcellus Shale based on experience with other plays? We should expect that the play will contract to a much smaller core area, or perhaps a few areas, instead of the currently advertised expectations for the region as a whole. It is also likely that identification of core areas will be more difficult because of the large geographic extent of the play. This should result in a higher level of capital destruction in drilling and leasing than in other shale plays.
While the play may have built-in advantages because of natural fracturing and proximity to important natural gas markets, it also has disadvantages. The region currently lacks sufficient pipeline capacity to deliver gas to markets or storage, especially in northeastern Pennsylvania. While infrastructure is forthcoming, wells are being drilled to hold leases now and delays in sales connections will have a negative impact on net present value.
Much of the Marcellus gas contains natural gas liquids (NGL), apparently necessary to justify the economics of the play. These NGLs must be removed before delivering the gas to a pipeline, but fractionation plant capacity is limited. Even after plants are built, demand for ethane (about 60% of NGL volume) is limited, so wells may have to be shut in, further destroying present value and slowing development of the play.
Water needed for hydraulic fracturing and disposal of produced load water are becoming serious obstacles for Marcellus development. The problem with water sourcing is not availability but getting water management plans approved for the high volume withdrawals (drilling requires about 100,000 gallons and completions use another 3-4 million gallons). There are few waste treatment plants and the cost of transporting disposal water from the well may add $250,000 to the cost (Tudor, Pickering and Holt, 2009). Also, there is widespread belief that hydraulic fracturing will contaminate aquifers and that this is a risk that cannot be tolerated.
The population density is high in many areas of the play, and this will heighten sensitivity to perceived drilling and producing hazards. Any spills or blowouts have the potential to shut down or curtail operations in a larger area than the problem well. Drilling in suburban areas will complicate putting acreage blocks together. It will also mean more potential objections to drilling the thousands of locations necessary to hold leases and prove reserves. These factors do not mean that development won’t proceed, but it is likely to move forward more slowly and at greater cost than in other shale plays.
Berman sums up:
U.S. shale plays have been over-sold and are unlikely to deliver the results that investors now expect. In fact, shareholders have already lost most of their investment. The shale gas resource is huge but the commercial portion is likely to be much smaller than what has been claimed or hoped for. At higher gas prices, more of the resource makes economic sense but that depends for the near term on production discipline that seems to be absent in the U.S. E&P companies. It also assumes that attendant service costs do not escalate at similar multiples to gas prices.
For many companies, there is no turning back–the entire company has been bet on the success of shale plays. This seems to violate what has been learned in the E&P business about the importance of having a balanced portfolio. In some cases, companies do not have sufficient shareholder value to justify being bought and, therefore, saved.
Not so with Atlas! It has promoted the sale of itself to Exxon. If Berman is right – and I trust his analysis over the freebooting Atlas – its Marcellus play is an oversold turkey. Atlas’ tactic is now clear; puff up its ‘book’ and sell itself to a greater turkey!