I received phone calls from two friends this week and I think they illustrate how our banking system and broader financial system is barely working.

A friend from the southeast of the U.S. called me on Monday and asked for my advice and help (please excuse my generalities to protect my friends and their exact situations and details). He is contractor and is bidding on a contract for a small part of several hundred million dollar energy project. His part is a couple of million dollars. He needs some short term financing to put a deposit for the materials he will use. He went to his local bank and they told him no. The bank manager that he has dealt with for years told him they want nothing to do with construction.

My other friend on the west coast works at a restaurant that is growing like a weed. They seem to have expanded a little too fast in a new location and had a major cost overrun. Regardless, they are still very, profitable and generating cash but they now have some short term debt they have to pay off. They went to their bank, and the bank said, sorry, no. Now my friend’s company is in a short term cash crunch and that has nothing to do with the fundamentals of their business and they may be in trouble.

Both of these situations are relatively simple, extremely low risk financings for banks or financial institutions. And yet neither of my friends can find banks to finance them right now. This is very, very bad for the economy as a whole and speaks volumes for the state of the financial system.

This is a great blog post from Jeff Matthews:

Jeff Matthews Costco Post

This is hilarious:

Jon Stewart Auto Bailout talk

Here is a bloomberg story quoting Jochen Hitzfeld, an analyst at UniCredit SpA in Munich.

“Agricultural commodities will outperform the broad commodity indices in 2009,” Hitzfeld wrote in a research note this week. “If key crop-producing countries then impose export bans again and speculators drive up prices via physical stockpiling and futures contracts, new food unrest is even conceivable in the second half of 2009.”

Here is the link: Bloomberg on rising food prices

Another great post on the Carpe Diem site highlighting that the Big 3 pay half a billion to people that don’t work:

Jobs Bank and Not Working

In April, Ford reported Mr. Mulally received $2 million in base salary, a $4 million bonus and more than $11 million of stock and options in 2007. His base salary was unchanged over 2006. Mr. Mulally has earned nearly $50 million in compensation since taking the helm of the auto maker.

Why exactly are we listening to a man who has been paid $50 million while his firm is going down the toilet?

Here is the Wall Street Journal article, where I got this data: Ford’s CEO obscene pay package
In the same article it mentions that the GM CEO got a 33% bump in salary to $2.2 million while GM lost $38.7 billion.

Are you kidding me? Why should I pay my hard earned tax dollars to these bloodsuckers?

This is a good article from the NewYorker highlighting the problems with agriculture that I’m worried about.

Agriculture Efficiency article

A very good article by Michael Lewis, asking that very question:

Michael Lewis and the End of Wall Street

This New York Times article has broad implications for oil and gas prices and companies. Drivers are going right back to driving as normal and not permanently altering their habits.

New York Times article on gasoline and driving

Tom Kloza, chief oil analyst at the Oil Price Information Service, said: “Demand is trickling back among everyday people.” He added that gasoline retailers around the country were telling him “they are probably past the bottom of demand destruction for 2008, meaning they see subtle signs that gasoline demand is increasing.”

I see two major sea changes coming due to the current financial crisis.

1) When things normalize in credit land (and it has already started normalizing, albeit very slowly), there is going to be a slew of M&A activity.

2) The next commodity bull run will be mind numbingly explosive.

Let me start with point number one. I think this whole crisis has shaken small companies to the core. Suddenly having the rug pulled out from you or realizing that your credit can be pulled at any time potentially threatening the life of your company or watching your company’s stock fall 50-75% just from panicked investors has been an eye opening experience. I’m guessing a lot of small to medium sized businesses are going to be looking for larger companies for protection or will start merging with other smaller companies to gain scale and size. I think this will start to happen in q1 or q2 of next year after a couple of mergers are announced before year end.

The second point is based upon the printing of money and debasing of currencies from every major government in the world, combined with the fact that we are still in relatively short supply for most commodities once the world starts to grow again, I think the next run in commodities will be enormous. And trust me one day the world economy will grow again. Unfortunately for the world, production was just getting ramped up to meet demand when the bottom fell out on commodity prices and worse the bottom fell out for financing. I’m guessing many levered commodity companies are going to go under or will not be producing from projects any time soon due to current market conditions. Further, it has become very, very expensive to start new projects from copper to iron ore to oil. The cost of lifting these commodities from the ground has soared, causing the break-even to be much higher than in the past. All of these factors will put a floor on commodity prices much higher than in past. And when the next run starts look out.

The 1970s show us what can happen. Oil went from $1 to $4. Then pulled back to $2, before going to $20. Could $750 oil be in our future by 2015? I think its more likely than $20 oil.