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“Every vendor that delivers to my stores, their fuel charges are going up and they’re passing the costs along to us.”—Glen Rega, local supermarket owner, in ‘The Trickle-Down Costs of Higher Oil’ from the New York Times, August 21.

The price of oil is trickling down into the real world, and making itself felt to consumers and retailers and distributors alike in ways apparently not contemplated by the various price indices.

In a brief but information-packed story in the Connecticut section of the Sunday New York Times, real people who run real businesses talked about the impact of rising energy costs—some being borne by the business and some being passed on to the consumer.

And some appearing in the strangest places.

Mr. Rega said he just received notice of a price increase from his linen company, which cleans the aprons and smocks used by deli workers and cashiers.

Too bad that linen company can’t fly the smocks and aprons to China or India to get them cleaned.

But it’s not just linens. It seems that a very large segment of the economy is not able to offset the cost squeeze by packing up and moving to Guangdong Province or Bangalore.

Rick Crays, for example, owns a flower shop in Fairfield and is “getting ready to make an adjustment” to cover the cost of delivering flowers (as many as 60 each day). The adjustment Rick is contemplating amounts to a 10 percent hike in the delivery charge.

Marty McCarthy, a pizza store owner, doesn’t have Rick’s delivery cost problem, because Marty’s pizza drivers pay for their own gas (how’s that for trickle-down inflation!).

However, the story notes:

[McCarthy] does have to deal with the rising costs of the ingredients, all of which are dropped off by truck.

The reporter also talked to movers (the cost of diesel fuel) and home builders (the price of asphalt shingles) now raising prices to cover the rising cost of just doing their job every day.

Larry Buck, manager of Feinsod Hardware…feels the pinch of higher fuel costs every time he looks out the door to the store and sees, on the sidewalk, a garbage-can shed for sale. The wholesale price on it went up $27 recently, an increase of more than 10 percent…

Sounds like the “trickle-down” cost of energy has become a flood.

Jeff Matthews
I Am Not Making This Up

My name is MR John Wale Balogun the eldest son of Formal Inspector General of the Nigerian Police Force (N.P.F) Mr.Tafa BalogunI am contacting you in a benevolent spirit; utmost confidence and trust to enable us provide a solution to a money transfer of $22M that is presently putting my entire family into great disarray.

Thus begins an email I recently received in my Gmail account.

It had been, quite correctly, flagged as “Spam” and moved to a separate folder which I had decided to peruse just to see what it was that the folks at Google were not letting through to me.

It is, of course, a variation on the “send money to me so I can recover millions more that are due to me for some ridiculous and entirely incomprehensible reason” type of scam that has been floating around the internet for years.

And which, of course, has been convincing enough to that portion of the population of internet users which, on Official Government Census forms checks the box marked “Knucklehead,” to keep doing.

I could have deleted it and moved on, but there was something so bizarre and so amusing that I couldn’t stop reading–funky grammar, typos and all…

You may be quite surprised at my sudden contact to you but do not despair, I got your contact from a business site on the internet and following the information I gathered about you, I was convinced that you could be of Assistance to me.

Ah–well, that settles that! This was not a mass mailing to 800 billion email addresses: it was addressed to me alone. Quite the honor.

However, I was not “surprised” by the “sudden contact,” nor did I “despair.” Rather, I marveled at the notion that not only would somebody send this kind of email, but somebody else would actually still be reading it by this point…

So, I decided to contact you at once due to the urgency required for us to immediately transfer the said funds out of the country. During the time my father was in the government with the Nigerian Police Force (N.P.F} as the police Inspector General, he was able to involve himself in several contracts and business transaction and deals that yield him several millions of United State Dollars.

You’d think this Nigerian connection would start making the average reader nervous.

Nigeria is, after all, one of the most corrupt counties in the world–last year only Haiti and Bangladesh were more corrupt, according to one study. If you’re going to scam somebody, why would you pretend to be from Nigeria?

Why not just invent a country–“Moronia,” say, or “The Republic of Schlemeil”?

The prominent amongst the deals was money that emanated from funds set aside for the importation of Arms and Security Gadgets to boost the Nigerian Police Force, funds set to embark on oversea training of some young Nigerian Police officers to boost there strength in combating crimes in the Nigerian territory, if you are conversant with world news, you would understand better.

Yes, that’s what I want to get involved in: money that’s been laundered from the importation of guns into the third-most-corrupt country in the world!

“Hey, Hon, get the checkbook out. A guy name John Wale Balogun from The Republic of Schlemeil needs some cash. That new condo we have our eye on in Vegas can wait–in a few weeks we’ll be able to buy ten new condos in Vegas!”

Jeff Matthews
I Am Not Making This Up

Goldman ups U.S. long-term oil forecast to $60—Reuters.

One of the top news stories of the morning seems to be word that the Goldman Sachs oil gurus have raised their long-term U.S. price forecast for next year to $68 a barrel, up from $55, and determined that oil prices will stay above $60 for the next five years.

Crude oil prices are, of course, trading up in Europe on the Goldman call, the first rise in four days.

Back in March, readers will recall, Goldman did much the same thing, calling for “a ‘super spike’ period” for oil and noting that “Resilient demand has caused us to revise up our super-spike range to $50-$105 per bbl…” (See The Goldman Gurus: Two Years Too Late, April 1.)

That “super-spike” forecast came after Goldman had for years maintained an entirely consensus view of oil prices (in January, strategist Abbey Joseph Cohen had told Barron’s Roundtable “we’re pricing $28 a barrel oil into Goldman earnings estimates”) despite the fact that oil had hit $55 and refused, under any circumstances, to break below $40.

The day after the Goldman Gurus called for “$100 oil,” as the Street interpreted the ridiculously broad $50-$105 “super-spike” target range, oil hit $58 a barrel and then fell for seven straight weeks before touching bottom at $47.

In other words, the Goldman Gurus—in the grand tradition of Wall Street analysts everywhere—threw in the towel at precisely the wrong moment. Anybody who bought crude on their “super-spike” call stood to lose nearly 20% in seven short weeks.

And today we have, I believe, a similar situation.

Oil prices stubbornly refused to do anything else but keep rising since the May 20th post-Goldman “super-spike” bottom—up 30% from that low—and now appear to be at a high-end-of-the-range level. Thus, to me, Goldman’s newer, higher forecast looks once again to be marking a near-term peak.

I still believe the world is running short of oil; that oil companies need to spend far more on new exploration and development and far less on buying back their own shares than they’ve been doing; and that the remarkable complacency exhibited by most economists (until quite recently) towards the imbalance between oil supply and oil demand has been misplaced.

But when the Goldman Gurus make another headline-grabbing and largely irrelevant oil forecast after a 30% run, it’s more than likely that we’re in for another short-term correction.

This time the Goldman Gurus look to be about two months too late.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

Wal-Mart’s earnings call just ended, and, as usual, it contained an interesting—although too brief—snapshot of the world’s economies and some insight into the rising cost of doing business at the world’s largest retailer.

In the U.S., “summer did arrive” after an unusually cool and wet spring dampened sales. Germany is weak, as is the U.K. But China sales were up 20% and operating profit there was above plan and the company sounded very optimistic about new store openings there.

Interestingly enough, Wal-Mart in the U.S. is making an effort to attract more customers in Target’s middle-to-upper economic space, noting a large push into digital televisions. After a year or two of sub-par comp-store sales, Wal-Mart is clearly suffering “Target-envy”—a highly unusual turn of events for long-time retail watchers such as myself.

The culprit appears to be Wal-Mart’s lower-income customer and the toll higher oil prices are taking: energy “impacts an important portion of our customer base,” as the company noted several times on the call.

Energy also (somebody should tell the economists who subtract energy from the various price indices) hurts Wal-Mart itself: total utility costs “were up $100 million in the quarter,” while “the cost to move freight from our distribution centers to our stores” jumped $30 million in the quarter.

Bad for Wal-Mart? Not particularly, given that it’s spread over a quarter-trillion in sales.

But it sure makes things tougher on the little guys.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

WARNING: THIS MAN RUNS A PUBLIC COMPANY.

I agree that CEO’s who spend time worrying about shorts or obsessing about shorts are fools. And that most of the CEOs who tangle with shorts are crooks…

Did I stutter? Did I stutter or did I say I was going to take this fight to you? Well now you know what I meant. And lastly, the man I’ve identified here as the Sith Lord of this stuff I just say, you know who you are and I hope that this is worth it, because if the feds catch you again, this time they’re going to bury you under the prison. And I’m going to enjoy helping.

Those are the words of Doctor Patrick M. Byrne, Chairman and CEO of Overstock.com, reprinted straight out of the conference call transcript announcing a lawsuit against short-sellers.

“Squeeze me?” and “Sith Lord” and “Stinger missiles” and all.

For first-time readers, Overstock.com is a money-losing, internet-based enterprise whose stock is currently recommended as a “BUY” by Legg Mason analyst Scott Devitt and W.R. Hambrecht & Co. analyst Craig Bibb.

Nobody can make that up.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

Airports in Arizona, California, Florida and Nevada recently came within a few days — and at times within hours — of running out of jet fuel, according to airline industry officials.

Because of supply bottlenecks, airlines were forced to fly in fuel from other markets and scramble for deliveries by trucks. But these are expensive, short-term fixes that don’t address what airline executives consider to be the underlying problem: With passenger traffic rising above levels before Sept. 11, 2001, the nation’s aviation business slowly is outgrowing the infrastructure that fuels it…

One of the latest supply snags began around July 20 in Phoenix. The trouble apparently began after Kinder Morgan didn’t make a scheduled delivery of jet fuel, at which point carriers began “ferrying” extra fuel to Phoenix from California and Nevada.

The near-shortage in Phoenix gradually spread to airports in Reno, Nev., San Diego and Ontario, Calif. Jet fuel had to be trucked in just to keep the ferrying program to Phoenix alive, executives said.

The crisis was resolved gradually as pipeline deliveries returned to normal and airlines focused on using as little fuel as necessary.—Associated Press

Let me get this straight: of all the stories in the world that make the front page of my online New York Times and my online Wall Street Journal, the fact that jet fuel shortages have forced airlines to fly jet fuel from one airport to another and to use “as little fuel as necessary” somehow doesn’t make the cut?

On the New York Times web site we can, of course, read the latest installment in what Judge Roberts may have written in a letter home from summer camp when he was twelve that might or might not provide a clue about his position on abortion.

I am, of course, making that up—barely. But I am not making up the fact that on the Wall Street Journal site’s front page we can read not about the airline industry’s jet fuel problem but about how the Chinese government wants Chinese families to use an extra pair of chop sticks when they eat, so as not to contaminate the common food bowl.

Now that is fascinating stuff, and I’m sure it plays into the Journal’s desperate attempt to attract new readers (“Okay, what’s our Chinese angle today…?”)

But when I read of a jet fuel problem that forces airlines to use “as little fuel as necessary,” I wonder just how blind we want to be to what’s causing oil prices to hit $65 a barrel—and ask myself how the editors at those two distinguished bastions of journalism determine that Judge Roberts’ abortion position and China’s two-chop-sticks push can overshadow what we may very well look back on as The Energy Crisis of 2005.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

“Despite all of the legitimate criticisms that may be leveled at Eisner, especially at having enthroned himself as the omnipotent and infallible monarch of his personal Magic Kingdom, I nonetheless conclude … that Eisner’s actions were taken in good faith.”

“By virtue of his Machiavellian (and imperial) nature as CEO, and his control over Ovitz’s hiring in particular, Eisner to a large extent is responsible for the failings … that infected and handicapped the board’s decisionmaking abilities.”

“Eisner stacked his (and I intentionally write “his” as opposed to “the Company’s”) board of directors with friends and other acquaintances who .. were certainly more willing to accede to his wishes … than truly independent directors.”

—Delaware Chancellory Judge William Chandler III

Well somebody’s got Michael Eisner’s number.

Here’s a judge who tells it exactly like it is—even going so far as to identify the Disney Board of Directors as Michael Eisner’s puppets.

Chandler’s comments need no elucidation from me—I have pointed out Eisner’s vainglorious paranoia in June 8th’s “Summer Reading: ‘Eisner’ Without the ‘D’” and urge all to absorb the gory details of Eisner’s follies in James Stewart’s wonderful “Disney Wars.”

But his comments should be read.

All those in control of our legal system should think so clearly.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

Even here, in the cool, quiet dawn of the northernmost point of Michigan’s Lower Peninsula, major worldwide economic trends make themselves known.

For starters, the daily parade of iron ore ships that first appear on the western horizon heading towards us under the five-mile Mackinac Bridge and then plow inexorably through the narrow channel between Bois Blanc Island and Mackinac Island, are greater in number than I have seen in a decade—and they are always startlingly huge beasts.

Those ships are taking iron ore from mines in Minnesota to steel plants in Hamilton Ontario and the Detroit area—which are having the best years of their lives thanks to booming consumption in China and India.

For another, the woman at the front desk of the hotel—this is a 118 year old hotel in the heart of the Midwest—is from Bulgaria. So is the kid in the coffee shop, and so is the girl who serves coffee at breakfast.

Before they arrived this year, the only seasonal staff was the local kids from the area and the Jamaican men and women who have been handling the dining room for years. Turns out, the Bulgarians responded to a jobs fair and came over here to work.

That’s globalization.

One more economic trend: inflation, or at least whatever it is you call price increases which the bond bulls wants to pretend don’t exist.

The ferry to the island—diesel fuel costs, you know; the hotel itself—being fully occupied and consuming millions of BTUs of electricity for running the building and gas for cooking the food; and even the local fudge-makers who churn out cubic yards of the thick, fattening stuff—which requires that pesky, ever-present and highly costly thing that the government and the bond buyers deduct from the various inflation indicators as if it doesn’t matter…also known as “energy.”

They’ve all raised prices.

Let the bond market beware.

Jeff Matthews
I Am Not Making This Up

“With buyer appetite so healthy, approximately one-third of our communities now have backlogs stretching out twelve months. Therefore, in a number of communities, we’ve chosen to hold off taking new home sale contracts rather than lock in sales prices today for deliveries more than a year away. Instead of selling out communities too quickly, we’ve chosen to ration our supply to maximize profit.”

So said Robert Toll, CEO of the red-hot high-end homebuilder with his name on the door, in the company’s press release announcing yet another huge quarter yesterday.

Toll Brothers, in other words, is playing the spot market.

This move could have interesting consequences down the road, should the red-hot housing market ever blow a gasket.

Back in the prime days of the last energy boom (1979-1981) the oil service companies faced a similar situation: too much demand for their services from oil companies eager to drill as many wells as possible as quickly as possible, and too little capacity.

Solution? They raised prices—and the oil companies happily paid up.

As background, the term “oil service company” actually encompasses a wide range of offerings, from low value-added, anybody-not-too-hung-over-to-drive-a-truck-can-do-this services such as putting down portable mats over swamps so equipment can reach a drilling site in the bayou, to high value-added, don’t-try-this-at-home stuff like building floating offshore rigs the size of a large office building.

When the oil bubble burst—and burst it did, suddenly and with no helpful warning from Alan Greenspan or CNBC talking heads—the oil service industry hit the wall in pretty much a sequential order, from low value-added services with day-to-day contracts that dried up overnight, to the high value-added equipment with long-term contracts that took years to finish.

If you were an anybody-not-too-hung-over-to-drive-a-truck-can-do-this road-builder like Newpark Resources, it was “See ya!”

If you were a smart, well-run, big-rig operator like Sedco, you had a few years to work off your backlog before the order book vanished and you had to shut down the yards.

By holding off on new home contracts in certain areas—in the hopes of getting higher prices down the road—Toll Brothers is no longer just “a homebuilder.” It is now also a speculator, making bets that prices will be higher next month, next quarter, and next year.

And since the reality that building a house is of the anybody-not-too-hung-over-to-drive-a-truck-can-do-this type of business, Toll runs the risk of becoming the Newpark Resources of the next building cycle.

But I’m sure they know what they’re doing. Demand this huge never goes away. Just ask the folks at Newpark.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.

In a huge shake-up of the market, Gannett Co. has agreed to sell the Detroit News to closely held MediaNews Group Inc., and to acquire the larger-circulation Detroit Free Press from Knight Ridder Inc.

With the purchase of the Free Press, Gannett is raising its bet on Detroit’s long-term viability as a newspaper market.—Wall Street Journal

While such a shifting of ownership from one un-readable newspaper to another (I spend a week each year in Michigan, and am always struck by how terrible the Detroit papers are) might have been a “huge shake-up” in the old days—i.e. two years ago—today I believe this kind of deal is about as notable as two fence post manufacturers merging.

Take the New York Times, for example—a highly readable newspaper, with very strict editorial controls (I had a piece published on the op-ed page many years ago, and they do not mess around with what goes on the printed page) and reporters around the world pumping out Pulitzer Prize-winning stories.

In the quarter just ended, during the fattest part of a multi-year economic upturn, the Times reported a 1.1% increase in revenue. In the mid-to-late 1990’s—the last period of multi-year economic growth, the company was turning out 6-8% annual revenue increases until the 2001 downturn.

What has changed since the last upturn, of course, is that consumers, advertisers and corporations now have Yahoo, Google and Craig’s List—not to mention Expedia and a lot of other ways of putting stuff out there—to reach end-users, without spending money and time sticking a classified ad or a full-page color ad or a fat, coupon-loaded insert into newspapers that lose thousands of aging customers each and every day, through no fault of their own.

It’s just demographics.

Google’s revenue, for example, grew 110% last quarter; Yahoo’s grew 50%.

Lest you think these are apples-and-oranges comparisons using percentage growth off small bases, well, in dollar terms the comparison is even starker.

The New York Times added about $10 million in revenues (excluding an acquisition) and Gannett added $63 million in revenues last quarter—a total of $73 million.

Google, on the other hand, added $685 million in revenues and Yahoo added $420 million—a total of about $1.1 billion.

Hmm…let’s see…$73 million growth in newspaper revenue versus $1.1 billion growth in internet revenue…hmmmm.

So, if the big news in newspapers today is that Gannett swapped one doomed newspaper—fully loaded with union employees, aging plant and a dying customer base—for another…well, I guess it’s more fun than watching that big iceberg dead ahead.

Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.