Houston’s bull on oil prices

This earlier post reported on an interview of Matt Simmons, the Houston-based investment banker who is an expert on forecasting oil supplies. Following that interview, this Barron’s interview of Mr. Simmons warns that the Saudi oil supplies are not what they appear to be and that, because the Saudi oil industry is state-run, there is no independent auditor of national reserves who can verify just how large — or small — the Saudis’ reserves are. As Mr. Simmons notes, that makes a big difference for the following reasons:

With global demand for oil on the rise, and prices hovering near $50 a barrel, the Saudis’ production profile is more than academic. The No. 1 oil producer, Saudi Arabia pumps 13% of the world’s oil and boasts 23% of its oil reserves. Moreover, the Saudis alone claim to have excess production capacity and the ability to increase output if demand continues to rise.

If the Saudis’ numbers are correct, the kingdom could continue to produce at current levels of about 10 billion barrels a day for the next 50 years, or more. That would give the industrial world time to develop alternative energy sources and prepare for a graceful transition.

If Simmons is right, however, the world could face a dangerous imbalance between rising oil demand and diminishing supply, perhaps within the next 10 years. Oil prices could soar, economies could suffer, and oil-dependent nations, such as the U.S., China and Japan, would be forced to scramble for additional energy sources.

Matt Simmons’ opinions are not to be taken lightly. Read the entire article.

2004 Weekly local football review

Texans 31 Titans 21. My younger son and I went to the Texans game today with a couple of friends and we all enjoyed an entertaining game. The Texans began the game in a coma and found themselves trailing 21-3 midway through the second quarter as Titans’ QB Steve McNair sliced and diced the Texans’ secondary. The Texans then pieced together their only drive of the first half to narrow the score to 21-10, but still looked overmatched as they could not stop McNair’s pinpoint passing. Then, seemingly without reason, the Texans offense woke up in the third quarter, David Carr began to look like a top level NFL QB, and the Texans’ defense started getting pressure on McNair. Before you knew it, the Texans had scored two TD’s to take the lead 24-21. The remainder of the game pretty much involved the Texans playing it close to the vest on offense while defending furiously against the Titans’ fourth quarter thrusts. Finally, a McNair fumble and interception in the fourth quarter thwarted the Titans’ final drives, and then the Texans’ Domanick Davis ran in a late TD from 41 yards to seal the victory for the hometown crew. The bottomline on this one was that the Texans’ offensive line did a much better job of establishing a running attack for Davis and in protecting Carr, and that’s the primary reason that the Texans (now 5-6 on the season) were able to beat the former Oilers for the second time this season. Next week’s game for the Texans is at the Meadowlands against the Jets.
Dallas 21 Chicago 7. After a horrid first half display from both teams that almost set back NFL offenses from several decades of development, the Pokes’ Vinnie Testaverde made the first of what will likely in coming weeks be several appearances in relief of current Cowboys savior Drew Henson and engineered two second half drives to secure the win for the Cowboys on Thanksgiving Day. Henson — who curiously has gotten rich off of unrealized potential in both professional baseball and professional football — stunk in his first start for the Pokes, going 4 of 12 for 31 yards with 1 interception that was run back 45 yards for a Chicago TD. Thus, in his first outing, Henson passed for more yardage and touchdowns to the other team than his own. The 4-7 Cowboys go to Seattle for the Monday Night game next week against the Seahawks. The Texans have a real chance of finishing this season with a better record than the Cowboys, which would not go over well with Pokes’ owner Mr. Jones at Valley Ranch.
Texas Longhorns 26 Texas Aggies 13. In a game that was not as close as the score indicates, the Horns calmed down after a first half near-disaster to pound the Aggies into submission in the second half and come away with their fifth straight win in the storied series between the two programs. The Horns were about ready to take a 13-7 lead at the end of the first half when Texas QB Vince Young had a brain fart and fumbled the ball while attempting to stretch his arm over the goal line. Aggie safety Jonte Buhl picked up the fumble and raced 98 yards for an Aggie TD and a stunning 13-7 Aggie lead at halftime, which did not go over well with the Horns. That incident appeared to make the Longhorns downright ornery as the Horns’ defense suffocated Aggie QB Reggie McNeal in the second half, holding the Aggie offense to a total of about 60 yards total offense. In one series during the fourth quarter, Texas took complete control of the line of scrimmage and sacked the elusive McNeal on three straight plays before the exasperated Aggie QB threw an interception on the fourth play. Meanwhile, Young and Cedric Benson kept pounding on the overworked Aggie defense and methodically scored 19 second half points to put the game away. The 10-1 Horns now await the outcome of the league championship games, but it is looking more and more like the best Texas team of the Mack Brown era will again miss out on a Bowl Championship Series game on New Year’s Day. That’s a shame, became this Horns team — particularly its fast and strong defense — is pretty darn good. The Aggies look like they are headed for the Holiday Bowl in San Diego against Arizona State for the Ags’ first bowl game in three seasons.
Louisiana Tech 51 Rice 14. Rice’s disappointing season ended on Monday night in a 51-14 loss to Louisiana Tech before a “crowd” of friends and family members of 8,317 at Reliant Stadium. The Owls finished with a record of 3-8 on the season.
The 3-8 Houston Cougars’ season finished last week (mercifully).
And finally, don’t miss Kevin Whited’s final Big 12 wrap-up.

More on the wild world of Equatorial Guinea

The latest news from the wild world of Equatorial Guinea is not good for Mark Thatcher, the son of former English Prime Minister Margaret Thatcher. Here are the previous posts on this lurid affair. Movie rights to be sold soon.

UAL, we have a big problem

Most of news over the past two years about the United Airlines chapter 11 case has focused on the legacy airlines operating losses, its unfunded pension obligations, and its need to overhaul or reject its collective bargaining agreements. Here is a series of posts on those various issues.
So, United has established that a legacy airline can lose money for a long time while floundering in chapter 11. However, can United continue meandering in chapter 11 without aircraft? Look at this seemingly innocuous press release that United issued late this past Friday:

A U.S. federal bankruptcy court judge has blocked a group of creditors from repossessing up to 14 airplanes from UAL Corp.’s United Airlines, saving the bankrupt carrier tens of millions of dollars.
Judge Eugene Wed off issued a temporary restraining order Friday barring the group, represented by the Chicago-based law firm Chapman & Cutler LLP, from seizing up to eight Boeing 767s and six 737s.
The group of financiers, which controls about one-third of United’s fleet, had threatened to seize the planes as early as Dec. 1 because of an impasse over their leases.
United, the nation’s No. 2 airline, is seeking to lower aircraft operating costs by renegotiating its leases with creditors. However, it argued that the Chapman group was violating antitrust laws by renegotiating as a bloc instead of as individual leaseholders, forcing United to accept higher lease rates.

Well, you say, what’s so unusual about that? Secured creditors in chapter 11 cases are automatically stayed from repossessing their collateral until they petition the Bankruptcy Court to modify the automatic injunction under Bankruptcy Code section 362 to allow them to exercise their contractual rights. Isn’t the Bankruptcy Judge simply enforcing the stay against United’s aircraft lenders?
Not exactly. Aircraft collateral is treated differently under the Bankruptcy Code than other types of collateral (financial institutions that make aircraft loans lobby well in Congress). Under section 1110 of the Bankruptcy Code, the above-described TRO is on quite shaky grounds:

(a)(1) . . . , the right of a secured party with a security interest in [aircraft] equipment, . . . or of a lessor or conditional vendor of such equipment, to take possession of such equipment in compliance with a security agreement, lease, or conditional sale contract, and to enforce any of its other rights or remedies, under such security agreement, lease, or conditional sale contract, to sell, lease, or otherwise retain or dispose of such equipment, is not limited or otherwise affected by any other provision of this title or by any power of the court.

In plain English, that says “a bank that has aircraft collateral cannot be enjoined from repossessing and selling its collateral in a chapter 11 case.” Section 1110 goes on to provide that the only limitation on an aircraft lender’s collateral rights is during the first 60 days of the chapter 11 case and that the debtor must cure any defaults under its agreement with the aircraft lender if the debtor wants to continue using the aircraft that is collateral for the lender’s loans to the debtor.
Consequently, it looks like the financial institutions that control a third of United’s fleet have had enough. As United’s management, unions, and other parties-in-interest continue to fiddle while Rome burns, I wonder whether they have examined pro formas on operating an airline without a substantial portion of its aircraft fleet? Inasmuch as the Bankruptcy Court’s decision to approve a TRO in the face of section 1110 is almost certainly in error, United’s dithering parties-in-interest better get ready to deal with a few less aircraft sooner rather than later.

Ken Lay’s lawyer hammers the Chronicle and the Enron Task Force

The public relations contest that the Enron case has become continued today. In this Chronicle op-ed, Mike Ramsey — former Enron chairman and CEO Kenneth Lay’s criminal defense attorney — levels a blast at the Chronicle for adhering to the government’s witch hunt theme in regard to a recent Chronicle editorial critical of Linda Lay’s involvement in the sale of a Lay Family charity’s Enron stock days before the filing of Enron’s bankruptcy case:

As the tabloids demonstrate, there is money to be made by jumping onto the popular side of a public frenzy. However, one can still hope that major newspapers will refuse to become mouthpieces for those who prefer strong-arm tactics to public trials.
Just maybe it is time to get to the truth by a public trial instead of in the backrooms of the Enron Task Force and Houston Chronicle. (One might even wonder if those backrooms have adjoining doors.)

Then, Mr. Ramsey gives the Lay side of the story regarding the stock sale:

Linda Lay sold Enron shares as president of the family’s charitable foundation. They were shares that Ken and Linda had given to that foundation prior to the end of 2000 and every penny of the money from the sale went to such charities as United Way, YMCA, DePelchin Children’s Center, Star of Hope, Holocaust Museum Houston, and Open Door Mission, among many others.
The sale was made on the day, Nov. 28, 2001, when the share price was in free-fall. Linda salvaged what she could, as was her duty as president of a charitable foundation. (The sale price was $2.37, off from a high near $85 earlier that year and a closing price the day before of $4.01.) More remarkable, during that market panic neither Ken nor Linda sold any of their personal shares.
Indeed, after Ken’s return as CEO in August 2001 they held all their shares as the market plunged from near $40 per share to near $0.
The only shares that Ken and Linda ever sold during that tragic three and one-half months were sold to prevent margin calls from triggering a forced sale of all their shares. They never voluntarily sold a dime’s worth after Ken’s return. In fact, at bankruptcy they still held more than 1 million shares and more than 4 million vested stock options.

The dubious nature of the government’s insider trading case against Mr. Lay has been examined in many previous posts here, including this one and this one. But Mr. Ramsey sees something far more sinister than a government investigation:

While it is true that Andrew Weissmann and his Enron Task Force have chosen not to comment publicly [on the investigation of Linda Lay’s stock sale], I cannot accept that after nearly three years of investigation, the press and a secret grand jury happened, by coincidence, upon this particular event at the same time.
Perhaps I am cynical, but this is not exactly my first rodeo.
No, there was a calculated leak done to produce an unfavorable story in aid of a shamefully false accusation.

Mr. Ramsey is undoubtedly correct that the Linda Lay story was a calculated leak by the government, and I am sympathetic to the argument that the prosecution has no business engaging in this type of public relations. However, the fact remains that Linda Lay’s sale of this stock days before Enron’s bankruptcy was a stupid move. Here’s hoping that no lawyer advised her to do it.

Profiling radical Islamic fascists

Marc Sageman was a CIA case officer in Afghanistan between 1987?89 and is now a forensic psychiatrist in Philadelphia. His book, Understanding Terror Networks, was published by the University of Pennsylvania Press earlier this year.
After the attacks on New York and Washington of September 11, 2002, Dr. Sageman noticed the lack of systematic data on the perpetrators, so he began to apply the principles of evidence-based medicine to terrorism research. He gathered terrorist biographies from various sources, relying most heavily on the records of various criminal trials. After matrixing approximately 400 biographies, Dr. Sageman began a social-network analysis of this group.
This Foreign Policy Research Institute article provides a summary of Dr. Sageman’s findings and conclusions. Inasmuch as the entire article is fascinating, I had a difficult time deciding which excerpts to pass along, but here are a few.
First, Dr. Sageman notes that the key period of development for the current radical Islamic fascists was the time in the late 1980’s and early 1990’s when their leadership gathered in Khartoum, Sudan to hatch their dream of indepedent “Salafi” states:

The Khartoum period is critical, because what these violent Salafists basically want to do is to create a Salafi state in a core Arab country. Salafi (from Salaf, ?ancient ones? or ?predecessors? in Arabic) is an emulation, an imitation of the mythical Muslim community that existed at the time of Mohammed and his companion, which Salafists believe was the only fair and just society that ever existed. A very small subset of Salafis, the disciples of Qutb, believe they cannot create this state peacefully through the ballot-box but have to use violence. The utopia they strive for is similar to most utopias in European thought of the nineteenth to the twentieth centuries, such as the communist classless society.

Moreover, Dr. Sageman points out that the background of the radical Islamic fascist leadership is similar to that of the “best and the brightest” of the societies from which they have emerged:

Most people think that terrorism comes from poverty, broken families, ignorance, immaturity, lack of family or occupational responsibilities, weak minds susceptible to brainwashing – the sociopath, the criminals, the religious fanatic, or, in this country, some believe they?re just plain evil.
Taking these perceived root causes in turn, three quarters of my sample came from the upper or middle class. The vast majority?90 percent?came from caring, intact families. Sixty-three percent had gone to college, as compared with the 5-6 percent that?s usual for the third world. These are the best and brightest of their societies in many ways.
Al Qaeda?s members are not the Palestinian fourteen-year- olds we see on the news, but join the jihad at the average age of 26. Three-quarters were professionals or semi- professionals. They are engineers, architects, and civil engineers, mostly scientists. Very few humanities are represented, and quite surprisingly very few had any background in religion. The natural sciences predominate. Bin Laden himself is a civil engineer, Zawahiri is a physician, Mohammed Atta was, of course, an architect; and a few members are military, such as Mohammed Ibrahim Makawi, who is supposedly the head of the military committee.

Mr. Sageman notes that there really is not one profile for a radical Islamic fascist:

So what?s in common? There?s really no profile, just similar trajectories to joining the jihad and that most of these men were upwardly and geographically mobile. Because they were the best and brightest, they were sent abroad to study. They came from moderately religious, caring, middle-class families. They?re skilled in computer technology. They spoke three, four, five, six languages. Most Americans don?t know Arabic; these men know two or three Western languages: German, French, English.
When they became homesick, they did what anyone would and tried to congregate with people like themselves, whom they would find at mosques. So they drifted towards the mosque, not because they were religious, but because they were seeking friends. They moved in together in apartments, in order to share the rent and also to eat together – they were mostly halal, those who observed the Muslim dietary laws, similar in some respects to the kosher laws of Judaism. Some argue that such laws help to bind a group together since observing them is something very difficult and more easily done in a group. A micro-culture develops that strengthens and absorbs the participants as a unit. This is a halal theory of terrorism, if you like.
These cliques, often in the vicinity of mosques that had a militant script advocating violence to overthrow the corrupt regimes, transformed alienated young Muslims into terrorists. It?s all really group dynamics. You cannot understand the 9/11 type of terrorism from individual characteristics. The suicide bombers in Spain are another perfect example. Seven terrorists sharing an apartment and one saying ?Tonight we?re all going to go, guys.? You can?t betray your friends, and so you go along. Individually, they probably would not have done it.

In fact, the lack of these social networks is one of the reasons why Dr. Sageman believes that another 9/11-type attack has not occurred in the United States:

Indeed, there are not that many terrorists in America. There have never been any sleeper cells. All the terrorists are fairly obvious. The FBI cases we see in the press tend to unravel. The Detroit group has been exonerated, and the prosecutor is now being prosecuted for malfeasance on the planted evidence. He allegedly knew exculpatory facts that he did not present to the defense. The only sleeper America has ever had in a century was Soviet Col. Rudolf Abel, who was arrested in the late 1950s and exchanged for Gary Powers, the U2 pilot. Eastern European countries did send sleepers to this country, men fully trained who ?go to sleep??lead normal lives?and then are activated to become fully operational. But they all became Americans.
In order to really sustain your motivation to do terrorism, you need the reinforcement of group dynamics. You need reinforcement from your family, your friends. This social movement was dependent on volunteers, and there are huge gaps worldwide on those volunteers. One of the gaps is the United States. This is one of two reasons we have not had a major terrorist operation in the United States since 9/11. The other is that we are far more vigilant. We have actually made coming to the U.S. far more difficult for potential terrorists since 2001.

But Dr. Sageman warns that the radical Islamic fascists have adapted and changed the way in which they will plan future attacks:

We hear that Al Qaeda plans its attacks for years and years. It may have before 9-11, but not anymore. Operatives in caves simply cannot communicate with people in the field. The network has been fairly well broken by our intelligence services. The network is now self-organized from the bottom up, and is very decentralized. With local initiative and flexibility, it?s very robust. True, two-thirds to three- quarters of the old leaders have been taken out, but that doesn?t mean that we?re home free. The network grows organically, like the Internet. We couldn?t have identified the Madrid culprits, because we wouldn?t have known of them until the first bomb exploded.
So in 2004, Al Qaeda has new leadership. In a way today?s operatives are far more aggressive and senseless than the earlier leaders. The whole network is held together by the vision of creating the Salafi state. A fuzzy, idea-based network really requires an idea-based solution. The war of ideas is very important and this is one we haven?t really started to engage yet.

Read the entire article.

“Alexander the Turkey”

My younger son, who is a serious film buff, went to see Oliver Stone’s Alexander the Great yesterday. He passes along that it is an unmitigated disaster, and predicts that it will be out of the theaters in less than a month, a prediction that is supported by the woeful early financial performance of the $210 million film (there were few people in the audience of the showing that he attended). The Washington Post’s Stephen Hunter agrees in this hilarious review, and passes along this gem on the performance of Angelina Jolie as Alexander’s mother, Olympias:

Then there’s Angelina Jolie as Mom. Really, words fail me here. But let’s try: Give this young woman the hands-down award for best impression of Bela Lugosi while hampered by a 38-inch bust line. Though everyone else in the picture speaks in some variation of a British accent, poor Jolie has been given the Transylvanian throat-sucker’s throaty, sibilant vowels, as well as a wardrobe of snakes. She represents the spirit of kitsch that fills the movie, and with all her crazed posturing and slinking, it’s more of a silent movie performance than one from the sound era. Theda Bara, call your agent.

The blogosphere’s foremost film critic — Professor Ribstein — passes along his thoughts in this post. And even Victor Davis Hanson chimes in with this review, in which he concludes:

There is also irony here. If we remember the embarrassing Troy, we are beginning to see, that all for all the protestations of artistic excellence and craftsmanship, Hollywood has become mostly a place of mediocrity, talentless actors and writers who spout off about politics in lieu of having any real accomplishment in their own field. I?ve heard so many inane things mouthed by Stone that I would like someone at last to address this question?why would supposedly smart insiders turn over $160 million to someone of such meager talent to make such an embarrassing film? Alexander the Great is third-rate Cecil B. Demille in drag.

For Seinfeld fans

The Chronicle’s Ken Hoffman will like this — The Jerry Seinfeld Dictionary of Terms and Phrases. An example:

Must-Lie Situation – when a person feels that they cannot tell the truth to someone else for fear of offending them (ex #1 calling one’s baby “Breathtaking”, ex #2 not being able to tell someone that their hairdo is pre-1960’s or just plain hideous)

The politics of statutes at UT

This NY Times article reports on the squabble that has arisen over the University of Texas at Austin’s decision to honor famed Houston trial lawyer Joe Jamail with his second statute on the UT campus:

Of the more than a dozen statues peppering the University of Texas campus here, one glorifies the first native-born governor, two pay tribute to deceased American presidents, and others honor Confederate leaders.
Another statue is poised to join the cast on Friday, honoring a graduate who is a successful trial lawyer.
The subject, Joe Jamail, a Houston alumnus who has donated $21.7 million to the university and its athletic programs, already has one bronze likeness at the law school and his name is on several campus sites. The newest statue of Mr. Jamail, who won billions of dollars for Pennzoil in a landmark suit in the 1980’s, is scheduled to be unveiled inside the football stadium before the annual game against archrival Texas A&M.
But not everyone looks forward to another likeness. The statue, . . makes Mr. Jamail the only person with two on the 350-acre campus, university officials say, and that distinction has rankled some faculty members.
“One is enough, with due respect to whoever,” said a journalism professor, Gene Burd.

The 78 year old Jamail is most famous (notorious?) for persuading a Houston state court jury in 1985 to award a record $11 billion in damages against Texaco for tortiously interfering with Pennzoil’s attempted acquisition of Getty Oil. The subsequent judgment prompted Texaco to file a chapter 11 case, which eventually resulted in a settlement of Pennzoil’s claim for $3 billion in 1987. Already a wealthy plaintiff’s lawyer, Mr. Jamail took the case on a contingency fee, so his piece of the settlement made him one of the wealthiest attorneys in the world.
Over the past 20 years, Mr. Jamail has become a philanthropist, and UT has been the main beneficiary of his philanthropy. Sites at the university named for Mr. Jamail include the swim center, the football field, the law school pavilion that contains the first statute of him, and the law school’s legal research center. The newest statue of Mr. Jamail planned for a corner of the football stadium will be placed near a new statue of the former national champion football coach and UT legend Darrell Royal. By the way, Mr. Jamail paid for the statute of Coach Royal.
To this day, the Pennzoil-Texaco case is most remembered in Houston legal circles for the catastrophic trial decision that Texaco’s general counsel made. Texaco’s main defense was that it was justified in competing with Pennzoil for Getty Oil and, thus, could not have tortiously interfered with Pennzoil’s takeover attempt. However, in support of an alternative defense, Texaco’s trial counsel recommended that Texaco put on expert testimony that would contradict Pennzoil’s evidence of alleged damages. Texaco’s general counsel decided that putting on countervailing damages testimony would be a signal to the jury that Texaco did not confidence in its primary defense, so he directed Texaco’s trial counsel not to put on any expert damages testimony.
Consequently, when the jury found in favor of Pennzoil on the liability issue, the only damages evidence in the trial record was Pennzoil’s. Thus, the $11 billion jury verdict ensued, and the trial record contained inadequate evidence upon which an appellate court could base a decision to reduce the damages.
As they say in defense circles, “Ouch!”