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xpcdoojk
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Posted: Thu Jul 10th, 2008 04:24 pm | 1st Post |
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Just got this in my email.
Maroons....
To ensure receipt of our emails, please add email@info.united.com to your Address Book.
An open letter to all airline customers
Dear Mr
Last week, crude oil hit an all-time high of $146, and the skyrocketing cost of fuel is impacting our customers, our employees, the communities we serve, and the economy as a whole. United, and the majority of other major U.S. airlines, are asking our most loyal customers to join us in pushing for legislation to add more transparency and disclosure in the oil markets. Please see the attached open letter from the leaders of the U.S. airline industry.
An Open letter to All Airline Customers:
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting http://www.StopOilSpeculationNow.com.
 Robert Fornaro
Chairman,
President and CEO
AirTran Airways
 Bill Ayer
Chairman,
President and CEO
Alaska Airlines, Inc.
 Gerard J. Arpey
Chairman,
President and CEO
American Airlines, Inc.
 Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc.
 Richard Anderson
CEO
Delta Air Lines, Inc.
 Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.
 Dave Barger
CEO
JetBlue Airways
Corporation
 Timothy E. Hoeksema
Chairman,
President and CEO
Midwest Airlines
 Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.
 Gary Kelly
Chairman and CEO
Southwest Airlines Co.
 Glenn F. Tilton
Chairman,
President and CEO
United Airlines, Inc.
 Douglas Parker
Chairman and CEO
US Airways Group, Inc.
To contact the sender, write to: United Airlines Operations Center - WHQPW, 1200 E. Algonquin Rd., Elk Grove Township, Illinois 60007 USA
© 2008 United Air Lines, Inc. All rights reserved.
Last edited on Thu Jul 10th, 2008 04:26 pm by xpcdoojk
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Seahorse123
Super Cruiser
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Posted: Thu Jul 10th, 2008 04:45 pm | 2nd Post |
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Bastards........this is their first step in asking the American people to bail them out with our tax money Take the heat off of them and their bad management and stupidity.
The sad part of this is that most of the American people are going to believe this
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Ann
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"A government big enough to give you everything you want, is strong enough to take everything you have."~~~~~Thomas Jefferson
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BeckyThane
Super Cruiser
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Posted: Thu Jul 10th, 2008 04:53 pm | 3rd Post |
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JC, I think you understand economics much better than I do, so I'm sure you'll help correct my understanding if I'm wrong...
I think much of what that letter said is true -- the current high price of oil is a result of rampant speculation. It is also my understanding that, unlike with other commodities speculating, the margin required for oil speculation is incredibly low. I think one way to cool the speculation would be to increase the margin requirement for oil.
What do you think?
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xpcdoojk
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Posted: Thu Jul 10th, 2008 06:19 pm | 4th Post |
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I don't know how much information you want, and I do not mean to talk down to you, so I will try to make it simple but I don't know how much of this you know. (most people don't know this stuff at all, and that is a source of frustration for me).
It is accurate, but speculation works both ways. When people buy the stock of an airline they are speculating that the price will go up, or that they will earn dividends. When people buy oil futures, they are anticipating making money on their investment by the price of the oil being higher in the future. However, the futures market is a zero sum game... ie I win someone else loses. In other words those driving up the price are in a position of personal risk if the price drops. Stocks, if the airlines do a great job and make money it doesn't necessarily mean that someone else loses. The problem is part what Ann is suggesting and they are wanting the American people to pressure the congress to help them out. Of course, they can only do this by shutting down capitalism. If the futures market disappeared tomorrow in the USA... what difference would it make? The London commodities market still exists, and would provide the same function for the market. Other commodities markets exist all over the world. The futures market is a form of insurance. I run a cruiseline and I know that in 2009 I will need to buy 50,000,000 million gallons of fuel. I am selling the staterooms today, but if the price goes up 100% I could go broke next year. So, I buy my oil today on the futures market for delivery in 2009. This is clearly a good thing as it allows businesses to protect themselves from a price shock. The downside of this is that if I buy gas next year today and the spot price is lower next year, I wasted money. Just like insurance when I don't die the life insurance is a waste.
The problem is not that speculation exists, the problem is that the supply of oil is very tight. Do you remember basic supply and demand curves? The price of oil is determined by the intersection of these two lines... Here is a picture from Wikipedia (I hate Wikipedia).
http://en.wikipedia.org/wiki/Image:Supply-and-demand.svg
What happens is that the world wide demand is increasing. This is represented by a curve that basically says at any given market price of oil I would demand a larger quantity. Say the first Demand curve was 2006 and the second is 2008. If the supply is fixed this means the price has to be higher due to increased demand. I would posit that the supply curve is a lot more vertical than the thing I linked at Wikipedia, and this means that the price will increase even faster with an increase in the demand curve (ie the curve shifting to the right). Why do I say that supply is fixed? All I have to do is listen to the messiah Barak Obama. The messiah, says repeatedly that additional drilling in Alaska, off the coast and in other wilderness areas will not increase the supply of oil a single barrell immediately (I laugh, does he really believe that if the price was a $1000 a barrel that suppliers wouldn't supply more immediately?). This is proof to me as an economist that he is unqualified to be president.  Yeah, right Barak. Of course it won't happen tomorrow, but if we increase the supply in 10 years or 15 years will it affect the price? Of course if you add a new supply curve to the right of the current supply curve representing the oil industries ability to produce more oil, it by definition will lower the price. If we are stuck with the same supply curve 15 years from now we are screwed.
What causes speculation to drive up the price? Uncertainty, fear, and the market predicting the effects of politicians on the supply of oil. Everytime the mullahs in Iran let the goat herder fire missles what does it do to peoples expectation of Iran nuking Isreal or worse and this causes people to be afraid that the price of oil or supply of oil may be threatened. When a democrat politician (or in the case of McCain or Schwartzenager) tells us that we are causing global warming and the problem is oil. The speculators are acurately betting that they mean it and that there will be less oil and cars... and they are probably right, again, we are screwed.
The airlines are just hopeful that we can get the congress to give them a big ole loan and forgive their debt so that we don't have to pay more to fly and that we won't have less flying options in the future. While it might keep United in business, we will pay for it in inefficiency and in future taxes. Business failures are part of capitalism. High oil prices are the result of government restrictions on the producing and refining of oil.
The democrats, also, say that no oil company wants to build refineries this is somewhat true, but not because they don't want to be able to refine gas, but due to the regulations surrounding refineries and the uncertainty of being able to operate the refinery in the future, means that this portion of industry is the least profitable and most risky. The other unprofitable portion of the industry is the actual retail outlet of the oil industry you local gas station. Why is it unprofitable? Because the competition is fierce. The profit for these operators are tiny. One of the things that always makes me laugh is when people complain because the price went up at the local station overnight and they didn't buy any gas. Well think about it from the operators point of view. If they have 10,000 gallons in their tank and they pay 3.50$ a gallon. This means that they have an inventory valued at 35,000 and if they sell it for $4 they will make $40,000 in revenue for a profit of $5000. Unfortunately if the wholesale price goes to $4. Then when they go to buy another 10,000 gallons they will find that they have been selling gas, paying rent, and salaries and benefits and that they don't have enough money to buy the replacement gas.
It seems very complicated if you don't understand economics, and it is very understandable if you do. The worst thing that can happen to the left is for people to learn economics. Although, there are a lot more socialist economists now than 30 years ago when I was a poor gradual student. So, you have to be skeptical of even economists today. My favorite economists are those on TV like professor Robert Reich from the Clinton administration, who is actually a lawyer I believe.
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jc<----- Proud member of the O crew
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mrdawson
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Posted: Thu Jul 10th, 2008 06:25 pm | 5th Post |
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| Damn JC..that made my head spin, can't we get back to discusing wine? j/k how was the the fatherland? I gues I need to go check your blog huh?
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Mike
So many Pots....so few spoons!!!!
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xpcdoojk
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Posted: Thu Jul 10th, 2008 06:33 pm | 6th Post |
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I just noticed your comment about the margin requirement. That is fine if you are talking about the stock market in 1929 on Black Tuesday or Friday or whatever it was. Because at the time the margin requirement for buying stocks was tiny and small investors were in an enthusiastic mode. Buying on the margin means that I can buy say for $1000 a $100,000 worth of stocks (I believe this is what Hillary did in the cattle futures where she took a $1000 and made $100,000, which is patently impossible without a large corporation giving her nothing but winners and absorbing the losers. IE if you go to the Casino you can take $1000 to the craps table and make $100,000, but it is a lot easier if the house will let you win even when you crap out. ) and the poor investor could take a $1000 and lose $50,000 if the price of the stock went down 50%. I am not active in the futures market, and I don't know how many barrels you have to buy in a contract, but it ain't for little people like you and I. I personally, don't worry if some billionaire speculator loses his shirt. It is like the people that go to Vegas for a living. Win some lose some. If you raise the margin requirement it will clearly make it harder for the little guy to play. In the historical example people lost their fortunes in the stock market. Is that what we are seeing today? I don't think the futures market is causing people to go poor.
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scrappy
Funnel Deck Cruiser
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Posted: Thu Jul 10th, 2008 06:37 pm | 7th Post |
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| I got the same letter from Delta. Word for word, but signed by their own execs of course.
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xpcdoojk
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Posted: Thu Jul 10th, 2008 06:49 pm | 8th Post |
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mrdawson wrote: Damn JC..that made my head spin, can't we get back to discusing wine? j/k how was the the fatherland? I gues I need to go check your blog huh?
Sorry, and I am sleep deprived, not sure how much sense I am making despite what I said being absolutely true.
We drank a lot of wine. Mostly Austrian and Swiss that are not available in the US at all. The whites were very good, and even the best Swiss and Austrian Reds were not very good. I would compare the Nortons from Missouri as being superior. So, we drank a lot of sparkling and a lot of whites. It was expensive over there! Gas was between about $7.75 and about $9.00. Surprisingly, it was highest in Germany, next highest Austria and the cheapest Switzerland. Still can't figure that one out! The wines were reasonable, but dinner was almost always $100 to $150 every night. We ate lunch as picnics a lot. In Switzerland we went to the Migros or Coop stores and bought a bottle of wine, a sandwich, salad and dessert and had a picnic.
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Seahorse123
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Posted: Thu Jul 10th, 2008 06:49 pm | 9th Post |
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Everything that JC says is absolutely true (I am glad that he had the time to say it)
If left alone the markets will right themselves. Not saying that a lot of people won`t get hurt.
There are so many reasons that oil is what it is......supply and demand from India, China... and China subsidizing their people using oil and gas...inviormentilists putting a stop on exploration of natural gas and oil.......poor government decisions..........I could go on and on. It is a pretty straight forward issue.
Who do you think the speculators are in the commodities market? Could be you and you don`t know it. Most 401K`s are and most pension funds from Universities, etc.
I hedge on my oil every year with my heating company. You lock in a price, if it goes down you lose. Pretty much the same thing made simpler. BTW I am now converting to natural gas....can`t put up with this hedging
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Ann
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"A government big enough to give you everything you want, is strong enough to take everything you have."~~~~~Thomas Jefferson
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BeckyThane
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Posted: Thu Jul 10th, 2008 07:46 pm | 10th Post |
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Thank you for the lengthy explanation, JC! That must have taken you quite a bit of time, and I appreciate it. It's helped to shake a few things loose from the cobwebs in my head... Micro and macro were 25 years ago, and I made C's in both, but it's still obvious I know more about economics than a certain presidential wannabee. 
I hung with your argument just fine, but let me be sure I've got this straight on the margin requirements... what you're saying is that if the exchanges raise the margin requirement all that will do is knock the "small" investor out of speculating, with "small" being a relative term. (Probably not your average investor, but investors with megabucks.) Net effect will be negligible. Did I get that right?
BTW, I just got my "Open Letter to All Airline Customers" from United at 3pm.
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dwrist
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Posted: Thu Jul 10th, 2008 07:58 pm | 11th Post |
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jc, you go!! Thanks and I have not heard a better explanation of economics 101 anywhere! Even if you are sleepy. Thanks.  Last edited on Thu Jul 10th, 2008 08:00 pm by dwrist
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xpcdoojk
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Posted: Thu Jul 10th, 2008 08:05 pm | 12th Post |
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I think that would be correct, Becky. I was thinking a future contract was 10,000 barrels for a single contract. Which is a lot of money. It may be only a 1000 or some other number (I knew this at one time, but the brain ain't quite back to normal). In the 20s the margin requirements on stocks were tiny and when the market crashed those calling the margin were wiped out as well as the investor, and this was one reason why runs on banks occurred (of course, a run on a bank isn't a big deal if the fed does their job, which they didn't in the 20s and 30s). Those trading these contracts are trading more than a single contract. Plus the margin being raised would limit those trading to those who can put up a larger amount of money meaning fewer traders which would actually tend to cause potential for even more volatility. IMHO (this one is just my general market opinion and might not be true, but I bet it is).
Remember with an e trade account, you can buy 100 shares of RCI for $2000 plus a few dollars to e trade or other online broker, and the risk is only $2000. If you buy a future contract the contract could cost you much more than your investment. Some rich guy once said how can you make a small fortune in the futures market, and the answer was start with a large fortune. Buying on the margin ain't for weaklings.
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BeckyThane
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Posted: Thu Jul 10th, 2008 08:16 pm | 13th Post |
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xpcdoojk wrote: Buying on the margin ain't for weaklings.
Heck, NO!  I've got all my accounts set up as margin accounts, just in case I ever want to go that way, but I don't use it. I'm just a bear of very little brain.
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Carey and Kerry
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Posted: Thu Jul 10th, 2008 08:23 pm | 14th Post |
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Excellent explanation, jc, very well said.
I have just rec'd the identical letter, but it came from Air Tran of all places.....
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xpcdoojk
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Posted: Thu Jul 10th, 2008 08:33 pm | 15th Post |
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Here is a recent article on of all websites CNN that is very good about the political side of this...
http://money.cnn.com/2008/06/27/news/economy/birger_oil_speculation.fortune/index.htm?postversion=2008062709
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JenDalessan
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Posted: Thu Jul 10th, 2008 09:36 pm | 16th Post |
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Does this mean that sneaking alcohol onto cruise ships might cause an increase in our fuel surcharge? 
(just trying to change to a topic I can better understand here...)
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cruiseman_tx
Frequent Cruiser
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Posted: Sat Jul 12th, 2008 05:23 pm | 17th Post |
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JenDalessan wrote: Does this mean that sneaking alcohol onto cruise ships might cause an increase in our fuel surcharge?
(just trying to change to a topic I can better understand here...)
You know you can get a few hundred replies on the dark side with a post like that.
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JenDalessan
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Posted: Sun Jul 13th, 2008 01:32 am | 18th Post |
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cruiseman_tx wrote: JenDalessan wrote: Does this mean that sneaking alcohol onto cruise ships might cause an increase in our fuel surcharge?
(just trying to change to a topic I can better understand here...)
You know you can get a few hundred replies on the dark side with a post like that.
actually you can usually get replies here for just about anything. I mentioned masturbation in a thread and Dawson was all over that....
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