The Dead Zone (or, BP and the Oil Well That Keeps on Giving)

[Louis VI the Fat]

The hottest investment strategy of the last few years has been: Buy Companies You Hate. That is, get BP while you can!


Dilbert Scott ran a very entertaining column about it in the WSJ last week, pretty much summing the mechanism up. Required reading for anybody holding any stock: http://online.wsj.com/article/SB1000...265955016.html



It is not new. It is the curse of capitalism - the incentives are to behave badly. BP has been acting perfectly rational. Unfortunately, acting rationally in the oil market means ruining the world.

[Crazed Rabbit]

The hottest investment strategy of the last few years has been: Buy Companies You Hate. That is, get BP while you can!

Dilbert Scott ran a very entertaining column about it in the WSJ last week, pretty much summing the mechanism up. Required reading for anybody holding any stock: http://online.wsj.com/article/SB1000...265955016.html

It is not new. It is the curse of capitalism - the incentives are to behave badly. BP has been acting perfectly rational. Unfortunately, acting rationally in the oil market means ruining the world.

There are incentives to play for keeps and increase profit. That's often not appreciated by consumers.

Look at Activision. They increased the price of PC games from $50 to $60 because they could. They charge $15 for map bundles for COD:MW2. And they make money.

Now, in terms of oil drilling having the potential for environmental damage, we need to make sure that oil companies will pay for the cleanup and damages. If they can't, hold the executives personally liable, which ought to balance risk and reward properly.

From the little I've read about the rig in the days before it exploded, BP did not consider an explosion a real possibility while justifying going against contractor recommendations for safety equipment. I don't think they were looking rationally at the danger. I consider as well the fact that BP has a history of deadly accidents at their refineries in the US in the past few years. Company wide, they don't seem to properly evaluate risk and weigh safety too lightly against costs.

Oh, and it's Adam Scott, the cartoon is Dilbert.

Let's talk about morality. Can you justify owning stock in companies that are treating the Earth like a prison pillow with a crayon face? Of course you can, but it takes some mental gymnastics. I'm here to help.

If you buy stock in a despicable company, it means some of the previous owners of that company sold it to you. If the stock then rises more than the market average, you successfully screwed the previous owners of the hated company. That's exactly like justice, only better because you made a profit. Then you can sell your stocks for a gain and donate all of your earnings to good causes, such as education for your own kids.

CR

[Husar]

Look at EA. They increased the price of PC games from $50 to $60 because they could. They charge $15 for map bundles for COD:MW2. And they make money.

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50€ here while CoD games are 60 (yes, €, not $!) at release.

[Seamus Fermanagh]

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50€ here while CoD games are 60 (yes, €, not $!) at release.

CR is quoting a typical, pre-tax, USD price. You are quoting a post-VAT EUE price, yes? What's the pre-tax equivalent?

[Tellos Athenaios]

@Seamus: 19% VAT over here (Netherlands) for most products, but of course 1 € is not 1 $... I don't think those prices[*] actually work like that, though: as I see it, it is more of a perception of price. A company simply creates the perception to charge 50 units of a given currency, or 60 units or whatever the price point they want taking into account the local custom of pricing products (with or without VAT). Hence why currency fluctuations seem to have no bearing on actual market price of these things.
[*] Prices of games, DVD's and such like.

[drone]

No dividends for the rest of the year, $20 billion to be set aside over the next 4 years into escrow to handle the cleanup/recovery costs.
http://money.cnn.com/2010/06/16/news...pt=T1&iref=BN1

[Husar]

CR is quoting a typical, pre-tax, USD price. You are quoting a post-VAT EUE price, yes? What's the pre-tax equivalent?

It's including 19%VAT, but the point was that Activision still charges more than most others, including EA.

[Fragony]

It's including 19%VAT, but the point was that Activision still charges more than most others, including EA.

EA ain't so bad, good quality control.

And BP are idiots we can clean things up for ya and it won't cost 20 billions http://www.rnw.nl/english/article/du...s-oil-disaster

[Crazed Rabbit]

I hate to ruin your well-informed opinion but that wasn't just EA and CoD:MW2 is from Activision who actually seem to charge more for their games than EA do. EA games are mostly 45-50 [euros]; here while CoD games are 60 (yes, [euros];, not $!) at release.

Whoops. I got the two game conglomerates we're supposed to hate confused. Well, just insert Activision for EA.

And in the US, video games on the PC have been $50 for normal edition copies at release forever. Only console games have been priced normally at $60 traditionally.

CR

[Lemur]

Oh, and it's Adam Scott, the cartoon is Dilbert.

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

[Crazed Rabbit]

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

If he sells now.

Also, from drone's link, the stock lost 45% of its value over the last year, and rose 1.4% after the dividend was cut.

Another interesting thing is the lack of a legal basis for forcing BP to start an escrow account for payouts. Of course, skirting and at times outright defying the rule of law has happened before under this administration in regards to company's finances.

CR

[Azathoth]

Only console games have been priced normally at $60 traditionally.

For the current generation of consoles. Before 2005 or 2006 new games used to be $50.

[Louis VI the Fat]

And between the day he announced he was buying BP stock and today it has lost at least 40% of its value, so I think mebbe Dilbert's daddy got pwned. Timing is everything.

Timing is everything. Earlier today would've been a great time to buy BP.


Capitalism rewards moral bankruptcy.

The reputation of a company - it's moral standing with the public at large - roughly correlates negatively with how well its stock performs.
http://www.slate.com/id/2131777

In psychology, game theory, it turns out a majority of people is willing to incur personal loss just to punish cheaters, that is those who seek a profit at the expense of others. Companies that are perceived to do this, have a low reputation. However, in many a capitalist market, the incentives are to gain a profit at others expense.
Being hated is thus a good indicator of future succes.


Sad.

With a few corrections, many markets could be re-organised to other incentives, which take general interest instead of private interest into account. Unfortunately, this is a taboo in neo-liberalism, which holds that markets must be organised to suit immediate private interest, instead of long-term, sustainable, general interest.

Instead of re-organising our markets to operate to our advantage (including those of companies), we'll vote ourselves into worker ants, operating in an unsafe, unhealthy, dangerous, instable society. One would think we'd had enough by now of a new crisis every three months: resource, food, financial, environmental, monetary, etc etc.


Free market is a deceptive term. It is commonly used to mean little government intervention. This is not the case, never. The Congo has a free market, without government intervention. Western markets, by contrast, are organised by governments. As witness for example BP in the Gulf. There is no such thing as a 'free market' in this case. There is a government that grants concessions, decides who gets to drill, safeguards property, does this in a certain fashion (safeguards private, tangible property over intangible, public, environmental property), decides on saftey regulation, decides the mode of risk management (litigation instead of social risk) , etc.

I for one am of the opinion that BP operated quite rationally within this market. Risks had to be taken. Once disater struck, rational policy is to prevent as little immediate private financial loss as possible, even at the expense of long-term, public, intangible loss (health, environment etc). Such are simply the incentives set by the market BP operates in.

[ajaxfetish]

Oh, and it's Adam Scott, the cartoon is Dilbert.

I hate to invalidate your smily, but it's actually Scott Adams.

Ajax

[Crazed Rabbit]

I hate to invalidate your smily, but it's actually Scott Adams.

Ajax

Hoist on my own petard.

CR

[Vladimir]

How do you apologize for an apology? So much for Republican "leadership."