Under the Weather, Still

Update (Thursday 3/9) - Headed to the doctor today, will return here when able - thanks for the get well wishes.

Check back in a day or two... hopefully, by that time, whatever malady is impairing current cognitive and digestive functions will have eased and a normal schedule will resume.

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Occasional Paper No. 1

Late in the day on Friday of last week, the Treasury Department released a new report titled Petrodollars and Global Imbalances. It contains all sorts of great information about the enormous amount of oil and U.S. dollars that are sloshing around the world, but the most intriguing aspect of this report, at first glance, is that they chose this as the first subject for a series of "occasional" papers.

While the casualness of this characterization belies the significance of the subject matter, the "addicted to oil" theme does seem to be spreading in the nation's capitol.

It's hard to believe that in 1998 oil was selling for near $10 per barrel. This was largely a result of the Asian financial crisis, an event that continues to influence behavior today. The difficulties experienced during that time and the manner in which they were resolved have resulted in a broad-based risk-averse approach to international trade and global finance in much of the rest of the world.

While at the same time, these events cemented the role of the U.S. as the proverbial father who bails his son out of jail for youthful indescretions. Recall that Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and Deputy Treasury Secretary Larry Summers were dubbed the "Committee to Save the World" by Time Magazine for their efforts at that time, in conjunction with the International Monetary Fund.

Few in the West appreciated the severity of this crisis, as we were all in the midst of an internet and technology boom, while illicit White House encounters were heating up. There was a brief lull in the stock market euphoria that had gripped the country, but the Asian Financial Crisis was largely a non-event across the Pacific.

These events go a long way in explaining the nature of global imbalances we find today.

In seven years, $10 oil turns into $70 oil. The aging father figure turns into a bit of a free-loader, constantly needing to borrow money while living a lifestyle he really can't afford - money which the maturing son is all too happy to lend because their relationship since the crisis has resulted in great prosperity and stability.

Meanwhile, petrodollars pile up in oil exporting countries at an unprecedented rate in order to perpetuate this relationship, and life goes on. Take a look at this table from the Treasury Department report to see where oil and dollars have been flowing.


Click to enlarge

The first item of interest in the chart above is that oil export revenues have more than doubled in the three-year period from 2002 to 2005. Saudi Arabia and Russia alone have accounted for nearly half of this increase, with Russia more than tripling its oil exports during this time.

What are they doing with all these petrodollars?

By and large, they are doing responsible things - building up reserves and paying down debt. Their imports have increased, but only by a fraction of the increase seen in their oil exports. Recall that a few months ago, Vladimir Putin made clear Russia's intention to exchange some of the paper money held as reserves for more tangible money in the form of gold.

During this time, China has emerged as the second leading importer of oil, behind the U.S., where much of the increased demand is a result of their booming export business with the U.S. This trade relationship is evident in the changes to current account balances for the same time period as shown below.


Click to enlarge

So, the U.S. goes from a dangerous level ($475 billion) to a critical level ($759) with no reversal in sight, while China racks up a huge positive change to their annual current account without the benefit of the relatively easy job of pumping oil out of the ground.

Note the standing of Germany in the chart above - a large swing in exports relative to the rest of Europe and all other non-oil exporting countries, and notably, one of the very few Western countries not experiencing a housing boom. Is there a connection there?

The more you think about it, the more unbalanced it seems to be - the U.S. borrows money from Asia to buy their exports, while the Middle East and Russia supply both the U.S. and Asia with oil at ever-rising prices.

Think of the oil exporters as being "the house" in Las Vegas - the U.S. and Asia are in a high-stakes game of poker, where the U.S. keeps losing hand after hand, but the Asian poker players continue to lend money back to the U.S., so the game can go on.

They are both having a swell time.

Meanwhile, "the house" continues to take their cut on every hand and as the dealer tires, the house cut increases. Both the U.S. and Asia would like for the game to continue indefinitely, but it is looking more and more like "the house" will determine when the game ends - either by making it prohibitively expensive for the players to continue or by exhausting the supply of cards.

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Another View on Rebates

Barry Ritholtz doesn't seem to appreciate the true value of rebates offered by many computer equipment manufacturers via their retailers. In a nutshell, buyers who purchase products with mail in rebates can get a discount roughly twice what would be available had a rebate not been offered, all other things being equal.

We'll explain in a minute, but first, have a look at the first scan to come out of a new Epson CX4200 printer/scanner/copier/back massager that was recently purchased for $30 (after rebates).

Not too bad.

The backside of the page shows through, and with the photo editing software provided with the printer along with all the gizmos and gadgets in the various control panels, this week's Economist cartoon might be made a little more presentable. But, there is little time to fiddle with these extra goodies when there is the larger issue of rebates on which to opine.


Yes, rebates are a pain - sometimes a big pain.

This particular printer cost $130 plus about another ten dollars in sales tax and the combined value of the three rebates (yes, there was one for $50, one for $30, and one for $20) was $100. It seems the most grating thing about the whole rebate process is that you have to pay sales tax on the rebate amount, which in this case is about $8.

So, it's really a $40 printer (after rebates).

Anyway, once the equipment was found to be in working order, all the rebate instructions were studied and the required material was assembled, filled-out, punched, stapled, folded, and then inserted into envelopes and sent on their way.

Please allow 8 to 10 weeks for processing and delivery of your rebates.

The nice thing about mailing in a rebate for a piece of equipment such as this is that it is very easy to make copies of all the completed paperwork. The copies of the paperwork can then be assembled, punched, stapled, and affixed via a push-pin to some bulletin board - somewhere out of the way but in plain sight, so that it can be retrieved, dusted off, and scoured for a phone number to call if the checks fail to arrive after three months.

So, how do you get double the discount when you buy something with a rebate? The explanation begins with this comment left by yours truly over at The Big Picture:

Statistics are hard to come by, but I believe the real reason why rebates exist is that many people never send in the rebate material to claim the rebate. I've heard numbers as high as 50 percent, but, this data is hard to come by.

The psychological effect is that if the buyer paid $1100 for the computer and had a $200 rebate, in his mind he has only paid $900. End of story - regardless of what happens next.

Many people are unorganized enough to throw away the box before they cut out the UPC label or fail to fulfill some other term of the agreement, so they just abort the process and go on thinking that they only paid $900.

So, others who have purchased the same $130 printer may have come home, unpacked the equipment, set aside the rebate forms to be filled out later, set the boxes out by the trash, and began fiddling with their new toy.

They probably think of it as a $30 printer, even though there is work yet to be done...

A couple days go by, and it's still a $30 printer, but the rebate work is beginning to fade from memory, and the rebate forms have worked their way down into a pile of other paperwork...

A week later, it's still a $30 printer and the boxes went out with last week's trash and the rebate forms are nowhere to be found - but that's OK, because all thoughts about doing rebate work have exited the owner's consciousness days ago.

This particular rebate is only available when you purchase a notebook computer, so some smarty at Epson probably figured out that the rebate submittal rate becomes exceptionally low when the new printer owner is distracted from his printer rebate forms by a new notebook computer.

So, if you figure that half the people never send in these three rebate forms to claim the hundred dollars, as Epson probably did when deciding to offer the rebates, then the real retail cost of this peripheral, all other things being equal, is about $80 - the average of the final cost paid by those who submitted the rebate and those who did not.

Both purchasers continue to think of it as a $30 printer.

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