Art Cashin On Gasoline Prices And The Economy

Tyler Durden's picture

We have read, and written, all of this before (and speaking of, since 2012 is still a carbon copy of 2011, we could so easily just repost articles from February 2011, change the year, and nobody would notice - we could even save on robo-posting costs) but there is always something just so enjoyable in hearing the Chairman of the Fermentation Committee point out the glaringly obvious to the vacuum tubes in charge of a market which is now a 6-8 week lagging indicator to reality.

From UBS Financial Services

Gasoline Prices And The Economy - With oil soaring, and on the verge of breaking out, lots of folks are wondering about the impact higher gas prices may have on the economy. Bloomberg’s savvy economist, Rich Yamarone, opined on the topic this morning. Here’s a bit of what he noted:

Every U.S. recession since 1971 has been preceded by an increase in the price of oil, currently up more than 7 percent year-to-date. With the economy barely advancing – growth in output is moderating by most measures – the economy may not be able to withstand the blow of a spike in oil and an ensuing increase in prices at the pump. While oil at $106 per barrel and gasoline prices averaging $3.59 a gallon are not yet at crippling levels, they seem headed in that direction.

He summed his article up this way:

It is estimated that a $.10 increase in the price of gasoline results in a decline of about $11.74 billion in personal income. [An average of 12,000 miles driven per year divided by an average fuel economy of 25 mpg, equals 461.54 gallon used per year per automobile. With an estimated 254.4 million registered vehicles, that comes to roughly 117.415 billion gallons used per year.]

 

Elevated prices at the pump are surfacing on the corporate radar screens. Lawrence E. Hyatt, SVP & CFO of Cracker Barrel said that given the company’s susceptibility to potential increases in gasoline prices, “it is appropriate to be suitably cautious about our third and fourth quarter traffic outlook.”

 

Wal-Mart also raised the likelihood of a consumer response to higher gasoline prices. On the company’s quarterly earnings conference call, executives observed a “challenging economy” and said rising gas prices will continue “to drive customers to seek value.” In the past, significant increases in gas prices over short periods of time have led to trip consolidation and higher tickets, executives said.

 

While prices to date haven’t yet climbed to levels that would alter consumer activity, any combination of in increase in gasoline prices or a late winter cold spell could prove problematic for the broader economy.

Looks like gas prices are really important to the economy. Ed Yardeni thinks that the President may open up the Strategic Petroleum Reserve to ease pressure on prices. May be delaying, lest there’s an Iranian “surprise”.

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GeneMarchbanks's picture

There's that little factoid also reported here a while ago that each $ WTI goes over 90 a certain chunk is cut out of US GDP. I'll find it in sec here....

Gully Foyle's picture
The Formula

http://www.reelz.com/trailer-clips/43584/the-formula-trailer/

Arthur Clements: [proposing that Titan Oil can raise their gasoline prices] The people will accept the 12 cents now because we can blame it on the Arabs!
Adam Steiffel, Chairman Titan Oil: Ah, Arthur, you're missing the point: We *are* the Arabs.

...

Barney Caine: [Barney Caine to Adam Stieffel, Chairman, Titan Oil] What do you know about this nation? Don't you ever give a second thought to American citizens? You're the reason their money's worthless. You're the reason old people are eating out of garbage cans, and kids get killed in bullshit wars. You're not in the oil business; you're in the oil SHORTAGE business! You're an ivory-tower hoodlum-a common street killer. I wish to Christ there was some way I could nail ya'.

redpill's picture

Oops, did I just trip over that electrical plug?  Guess we'll have to shut down this refinery for a month or two...

 

 

Cue the clueless Obummer frantically scrambling around and releasing a token amount of oil from the SPR just so he can say he's doing something in an election year

Gully Foyle's picture

http://abcnews.go.com/blogs/business/2012/02/price-shock-watch-cost-of-g...

Price Shock: Watch Cost of Gas Jump 10 Cents During ABC’s ‘World News’ Broadcast
aerojet's picture

That's bs--the stations where I live all installed electronic signs.  They routinely jump the prices anywhere between 10 and 20 cents all the freaking time, sometimes even more than that.  They might as welll install a ticker up there so you can watch oil and gasoline futures trading in real time.

I Got Worms's picture

Time to go long Fred Flinstone cars. Yabba Dabba Do!!

I Got Worms's picture

My corner 7-11 went from 3.49 yesterday on my way home from work to 3.54 on my way to work this morning.

ceilidh_trail's picture

You got off easy. Ours jumps 17-23 cents and then dribbles back 1-3 cents at a time. Fixed markets- Greater cincinnati area has several co's owning multiple different brands to give the appearence of competition where there is none.

CClarity's picture

My local Chevron (have to drive by each morning) went from $4.27 to $4.46 overnight for 91 octane - which, unfortunately, is what my vehicle demands.  It's 8 years old, been cheap on maintenance, and performs well in every other regard, so I'm not about to turn it in for other fuel - - - yet.

greensnacks's picture

With a few more eletrical cars on the road and better efficinies in gas, 50 mpg is within reach. And if 117 billion gallons are consumed at 25 mpg, then at 50 mpg and $3.50 per gallon, it would free up over $200 billion annually.

GreenPlease's picture

You just need to replace "254 million registered vehicles". No big.

Centurion9.41's picture

1970's liberal propaganda, right up there with that other energy classic "The China Syndrome".

Have you ever noticed how the anti-capitalist/big-oil antagonists never point to "big-oil" revenues as a percentage of GDP, GNP, or GNI? Think about that for a minute. There's a very good reason they do not do so.

As for the "we are the Arabs" BS, right.... All the employees and people who have been overseas working for the oil industry are in on this conspiracy. Oh yea, and there's a long trail of dead bodies who passed under mysterious circumstances.

Grow up kids.

jwoop66's picture

Hollywood is by far more corrupt than the oil industry.

SelfGov's picture

So Europe (read: The World since the economy is now global) just issued Greece a loan to help it keep up with the interest payments they need to make on their previous loans.

Greece will require extreme economic growth to meet the terms of that agreement, let alone pay back the loan.

As we all know, growth requires copious amounts of cheap energy.

If anything were to happen to Greece’s energy supply, all economic hell would break loose.

Well wouldn’t you know it but Europe also has also put an oil embargo on Iran* who just happens to supply Greece with 15% of their cheap oil.

So Greece is being setup to default, hard.

When you know a fighter is going down in the 5th, what do you do with that information if you like money?

Now, look at this long list of big swinging dicks that quietly resigned just before the Greek deal was struck.

=================

1) Feb. 15, 2012 / World Bank CEO Zoellick resigns

http://business.time.com/?s=World+Ba… rchsubmit%3DFind

http://business.time.com/2012/02/15/…llick-resigns/

2) Feb. 15, 2012 / Anz Bank CFO Australia resigns

http://www.marketwatch.com/story/anz… fle-2012-02-15

http://www.proformative.com/news/147…s-amid-turmoil

3) Feb. 15, 2012 / Nicaragua Central Bank Pres Rosales resigns

http://www.businessweek.com/news/201… th-ortega.html

http://www.bloomberg.com/news/2012-0…-amid-row.html

4) Feb. 17, 2012 / Credit Suisse Chief Joseph Tan resigns

http://www.businessweek.com/news/201… n-resigns.html

5) Feb. 18, 2012 / GERMAN PRESIDENT Christian Ruff resigns

http://www.dailymail.co.uk/news/arti…ed-resign.html

6) Feb. 15, 2012 / Royal Bank of Scotland Australian CEO Stephen Williams resigns

http://blogs.wsj.com/dealjournalaust…-to-step-down/

http://www.theaustralian.com.au/busi…-1226272513981

7) Feb. 13, 2012 / Kuwait Central Bank CEO resigns

http://www.washingtonpost.com/busine… OAR_story.html

http://www.bloomberg.com/news/2012-0… abas-says.html

8) Feb. 15, 2012 / Nova Kreditna Banka Maribo CEO resigns

http://www.bloomberg.com/news/2012-0… s-resigns.html

http://www.reuters.com/article/2012/… 8DF6K120120215

9) Feb. 15, 2012 / Nova Ljubljanska Banka CEO resigns

http://www.bloomberg.com/news/2012-0… s-resigns.html

http://www.reuters.com/article/2012/… 8DF6K120120215

10) Feb. 6, 2012 / Bank of India CEO Chaturvedi resigns

http://www.livemint.com/2012/02/0616… itabh-Cha.html

http://www.thehindubusinessline.com/… cle2865955.ece

11) Feb. 10, 2012 / Tamilnad Mercantile Bank CEO resigns

http://www.business-standard.com/ind… esigns/464259/

http://economictimes.indiatimes.com/…w/11830538.cms

12) Feb. 18, 2012 / GOLDMAN SACHS CEO Blankfein Asked to resign, says No.

http://www.huffingtonpost.com/2011/0… n_858647.html?

https://www.google.com/search?q=GOLD… resign&qscrl=1

=================

Source: http://www.facebook.com/BABYDIABOLICAL/posts/3250595713250

Please draw your own conclusions.

*Now that oil supply is inelastic it is getting ugly fast. Expect hoarding and new alliances. Hell the US sanctions are backfiring too. Forcing Iran into gold for oil contracts with rapidly growing countries like China and India is the last thing we want to do right now. So much for the world’s reserve currency.

Moneyswirth's picture

That's a disturbing, yet impressive list.  Well done...

Dr. Engali's picture

I'm sure we will see this list on CNBC at some time during the course of the day.

HD's picture

Uh..do any of those links work? All seem to be 404...

aerojet's picture

It's a data point in a vacuum.  How many CEOs resigned last year?  I have no fucking clue what that means or if it is even related, but people on here will knee-jerk and say "heading to the bunkers."  WTF?

resurger's picture

the Hedge Fund Chief of Goldman resigned yesterday

Centurion9.41's picture

Stopped at "As we all know, growth requires copious amounts of cheap energy"....FAIL

Agree on all the Greek Bankster notes, but everyone knows these folks are scumbags. What the Sheeple haven't figured out is how a fiat currency system really works, and WHY it works. Wen they do, it will be a stampede of cotton...which scares the sh1t out of the politicians and their cohorts in the private sector.

As for the growth issue.

Growth by definition requires either an increase in demographics &/or productivity.

The big kick in growth RATE from productivity through technology is over. The world is now dependent upon wage deflation from China, which of course creates its own problems.

Demographics, thanks to the Socialist mentality of wants becoming rights, e.g. unfunded liabilities, and debt, not energy costs, are the issues keeping the world from growing at the rates it did in the past.

If you follow the political flags planted by liberals/progressives, you ARE Chicken Little.

Flakmeister's picture

I take it that you have never taken a course in Thermodynamics?

Growth requires an increasing amount of energy....

Given that *real* growth involves the production and movement of *real* goods and not simply the pulling forward of future demand via financialization that it would seem to be the case that if the energy source that drives the worlds transportation infrastructure is unable to grow, then *real* growth will be very difficult, in fact, well nigh impossible...

So take your head out of your neo-classical economic asshole and expand your horizons.....

Centurion9.41's picture

Actually Flake, my training is Physics & Mathematics. So yes, I know about thermo. But am not so stupid as to apply a law of physics to a body that is not ruled by its laws.

As for your assertion regarding energy and "real" growth, thank you for displaying how deeply up your backside your head is placed.

Energy is not, contrary to the BS you've deeply drank, the limiting issue. Demand, which is always and everywhere first driven by and limited by the numbers of people available to create demand, determines the growth limit and max growth rate. This is one area the Keynsian clowns are correct, demand drivers matter. One can not make more fires than people available to tend them. To do so would not produce a productive growth of heat but rather a raging fire of destruction which would destroy growth.

The same applies to economic products. Don't think so? Make more of anything than demand demands and what happens? ....Some thing very similar to OWS, a bunch of worthless objects sitting around creating more filth in the world. That's not growth son. It's called trash.

For some reason, I think you are well versed in trash.

Flakmeister's picture

When you have an economic system that relies on perpetual growth. and we know what growth means by neo-classical measures, i.e. consumption, you will hit an energy wall at some point...

Demand is droping here in the US because significant amounts of oil are used in a dead end means... Marginal users are burning it in the equivalent of joy rides, if you burn oil, you better be rich or using to to make money...

And both groups are decreasing demographiscs....

Moreover, Chindia is more than willing to pick up the slack...

Economic success is all about the leverage with which you use your energy and there is more to leverage than supporting debt that artificially brings forth unsustainable demand...

So Demand here is stagnant because Energy costs are biting into discretionary consumptive income,,,,the old trick of lower energy costs fueling demand and hence growth are over....

 

KRYPTOS's picture

Hyperbolic expression is an impediment to rational debate and effective problem solving. Furthermore, casting aspersions and the use of code words to advance a rhetorical objective are counter-productive and unseemly.

The U.S. defense budget could easily also be included within the category of unfunded liabilities. The expansion of these unfunded liabilities to support illegal wars based upon wispy doctored intelligence and false war objectives is in itself a national security threat.

President Eisenhower clearly outlined the danger of a military-industrial complex coopted by an overriding profit motive:

http://www.youtube.com/watch?v=Gg-jvHynP9Y

GreenPlease's picture

Bravo dude. Impressive list and due diligence. I agree with your thesis as well.

HD's picture

I do love the chart porn. It's okay though, my broker understands a man has needs.

GeneMarchbanks's picture

Much obliged. Oil price spikes have preceded 5 of the last 6 recessions... so um... there.

BobPaulson's picture

The next bit of the equation is seeing how this cost actually impacts the economy. I know it has been studied to death but showing how much different expenditures in a household recycle back into the economy clarifies the impact of fuel costs. Since in the US most oil is imported and it is effectively a commodity, in spite of the refining and distribution spin offs, that side of the story is not a big a plus as things like the food industry or health care industry that employs many people and recirculates the money more. The other really obvious factor is that the real hit on the economy is not families, but in energy intensive industries. In other words gasoline is an input for other industries, whereas food and health care are much less so.

Moneyswirth's picture

But DC gave us a payroll tax break.  You know, looting the SS fund for $40 biweekly.  Surely this offsets any rise in fuel costs. 

Then again, maybe not...

Moneyswirth's picture

But DC gave us a payroll tax break.  You know, looting the SS fund for $40 biweekly.  Surely this offsets any rise in fuel costs. 

Then again, maybe not...

blunderdog's picture

looting the SS fund

Looting...what?

StychoKiller's picture

Hmm, rifling through a box full of IOUs = NOT looting...

blunderdog's picture

It's just funny to be reminded what sorts of things people "believe in."

People often forget why it's worth studying things like logic and philosophy.  It drives me to despair to see so much hostility towards a liberal arts education on these boards.  What possible use can investigation into "types of existence" ever be? 

But I'd say for certain there is actually value in recognizing the difference between "the Social Security trust fund" and "unicorns."

duo's picture

20 MPG?  Most minivans get 17 in town.  Most pickups 15-16 MPG.

Gully Foyle's picture

http://theunderstatement.com/post/18030062041/its-a-brick-tesla-motors-d...

“It’s A Brick” – Tesla Motors’ Devastating Design Problem

Tesla Motors’ lineup of all-electric vehicles — its existing Roadster, almost certainly its impending Model S, and possibly its future Model X — apparently suffer from a severe limitation that can largely destroy the value of the vehicle. If the battery is ever totally discharged, the owner is left with what Tesla describes as a “brick”: a completely immobile vehicle that cannot be started or even pushed down the street. The only known remedy is for the owner to pay Tesla approximately $40,000 to replace the entire battery. Unlike practically every other modern car problem, neither Tesla’s warranty nor typical car insurance policies provide any protection from this major financial loss.

Despite this “brick” scenario having occurred several times already, Tesla has publicly downplayed the severity of battery depletion risk to both existing owners and future buyers. Privately though, Tesla has gone to great lengths to prevent this potentially brand-destroying incident from happening more often, including possibly engaging in GPS tracking of a vehicle without the owner’s knowledge.

How To Brick An Electric Car

A Tesla Roadster that is simply parked without being plugged in will eventually become a “brick”. The parasitic load from the car’s always-on subsystems continually drains the battery and if the battery’s charge is ever totally depleted, it is essentially destroyed. Complete discharge can happen even when the car is plugged in if it isn’t receiving sufficient current to charge, which can be caused by something as simple as using an extension cord. After battery death, the car is completely inoperable. At least in the case of the Tesla Roadster, it’s not even possible to enable tow mode, meaning the wheels will not turn and the vehicle cannot be pushed nor transported to a repair facility by traditional means.

The amount of time it takes an unplugged Tesla to die varies. Tesla’s Roadster Owners Manual [Full Zipped PDF] states that the battery should take approximately 11 weeks of inactivity to completely discharge [Page 5-2, Column 3: PDF]. However, that is from a full 100% charge. If the car has been driven first, say to be parked at an airport for a long trip, that time can be substantially reduced. If the car is driven to nearly its maximum range and then left unplugged, it could potentially “brick” in about one week.1 Many other scenarios are possible: for example, the car becomes unplugged by accident, or is unwittingly plugged into an extension cord that is defective or too long.

When a Tesla battery does reach total discharge, it cannot be recovered and must be entirely replaced. Unlike a normal car battery, the best-case replacement cost of the Tesla battery is currently at least $32,000, not including labor and taxes that can add thousands more to the cost.

...

Tesla’s Unorthodox Prevention Measures

While customer and marketing communication about charging are focused on gentle reminders, behind the scenes Tesla has seemingly been scrambling to try to ensure existing owners don’t “brick” their cars.

After the first 500 Roadsters, Tesla added a remote monitoring system to the vehicles, connecting through AT&T’s GSM-based cellular network. Tesla uses this system to monitor various vehicle metrics including the battery charge levels, as long as the vehicle has the GSM connection activated4 and is within range of AT&T’s network. According to the Tesla service manager, Tesla has used this information on multiple occasions to proactively telephone customers to warn them when their Roadster’s battery was dangerously low.

In at least one case, Tesla went even further. The Tesla service manager admitted that, unable to contact an owner by phone, Tesla remotely activated a dying vehicle’s GPS to determine its location and then dispatched Tesla staff to go there. It is not clear if Tesla had obtained this owner’s consent to allow this tracking5, or if the owner is even aware that his vehicle had been tracked. Further, the service manager acknowledged that this use of tracking was not something they generally tell customers about.

Going to these lengths could be seen as customer service, but it would also seem to fit with an internal awareness at Tesla of the gravity of the “bricking” problem, and the potentially disastrous public relations and sales fallout that could result from it becoming more broadly known.

financeguru500's picture

The same thing can happen to priuses when they run out of gasoline and the owner tries to drive home using what is left of the battery.

 

Funny thing is, when you discharge any battery fast it heats up, when you discharge a huge battery like what is in the prius or the tesla it produces significantly more heat and puts a lot of wear on the battery. I don't think electric vehicles should have ever been designed to use the batteries they are currently using. It would have been smarter to build some sort of hydrogen energy storage system that then converts hydrogen to electricity.

 

The other bad thing about electric vehicles that no one realizes is that even though they are being touted as the cheapest mpg vehicle when factoring in the cost of electricity, if even a third of drivers switched over to electric vehicles it would overwhelm the electrical grid and also cause electricity prices to skyrocket.

http://www.good.is/post/electric-cars-are-coming-but-can-the-grid-even-handle-them/

NidStyles's picture

A steady state chemical combustion engine driving a generator. It's what drives the majority of the transport industry around the world. Why hasn't the civilian market picked up on this yet? It's far more efficient than the rest of the systems everyone is touting, and the provide performance doesn't require expensive and heavy batteries.

 

You run the thing off of cheaper and lighter Super-Capacitor banks.The actual engine can be a smaller turbine, think in the 5" total blade size range or smaller. Turbines are the most efficient engines in the world and can be designed to burn anything.

 

Seriously, why the fuck has no one done this yet?

 

 

 

DCFusor's picture

Um, engineering limitations?  You need to learn your history, and not get your science from the hype press releases that are full of "if" statements.  Steam cars were made once, too heavy - and dangerous.  Turbines, especially small ones, are not that efficient, see capstone for some small ones.  They dont live that long - people would call them crap.

Supercapacitors aren't "there" yet.  Even in the lab, they don't have the energy density of batteries so far - just rosy predictions for someday.

In truth, the Volt is about the best you can do with the tech that is actually available.  On a long trip where you're using the IC engine, the electrics act like a flywheel so you can run the engine constant output at its efficiency peak but still have decent performance off a small engine.  This lets them take full advantage of variable cam timing, computer engine controls and so on - the IC engine-generator in the Volt is far more efficient than most fixed plant generators - at any price.  I know, because I own both and actually, you know, measured it.

Teslas problems were blown out of proportion by astroturfers. As were the Volts.  It takes months to brick one - who doesn't drive an expensive car for months?  Only rich collectors.  Name one other thing with such a tiny market share that gets this level of AstroTurf-hatred.  Somebody has an agenda here.  Do you hear this much crap if a Jag or Ferrari has a problem?

Hydrogen is too damn dangerous at present to use in vehicles.  If a fire three weeks after a crash scares people yeah, lets go for an instant gas detonation.  That was all a scam by the bushies/oil-cos to keep us burning their oil, waiting forever till hydrogen found a way to be practical - with nothing in sight to get us there.  All smoke and mirrors.  It's considered so dangerous that the outfit that sells me acetylene can't get it for sale without extra safety stuff - and it's not like acetylene is all that safe itself.

 

GreenPlease's picture

I sort of disagree re: "the volt is the best". I think GM was way too conservative with the engineering. The battery pack that they chose has a LiCoO2 anode and a graphite cathode. This is a very traditional LiIon battery (easy to sell to insurance co's). IMO, the should have either gone LiFePO4 and graphite or LiCoO2 and titanate and then been more aggressive with cycling the battery. Also, I think they should have gone with turbocharged wankel engine for the genset.

GreenPlease's picture

"Cheaper and lighter" are we talking power or energy? Details matter....

Before stating "turbines are the most efficent engines in the world" you should use context. The clearance between the blades of a turbine and the housing are limited by thermal expansion and machining tolerances (the edges are generally finished using EDM). This tolerance is fixed regardless of the size of the turbine. The allows "blow by". The smaller the diameter of the turbine, the greater the percentage of total flow the blow-by is thus reducing the efficiency of the engine. 

There are several other notable limitations for small turbines. Notably, combustion temperatures must be kept low thus reducing potential Carnot Efficiency and realized thermal efficiency. In large turbines, part of the intake air would be diverted to form a thermal shroud around the turbine. This isn't feasible for turbines below ~500kw in output. Turbines aren't exactly cheap either. If you want a turbine to achieve >25% efficiency each stage needs to go through the following process:

-Forging

-5 Axis Machining

-EDM

5 Axis machining is pretty common in mass manufacturing but the tool paths for a turbine are complex and the operation would be relatively slow. This is compounded by the fact that you'd probably have to use Inconel which isn't exactly a walk in the park to machine. EDM is slow and expensive.

GreenPlease's picture

Hydrogen leaks through solid steel. It can embrittle said solid steel. It's highly combustible and it's flame is invisible. It's a pain in the ass (and energy intensive) to liberate it from water (less so from methane). 

Do you need any other reasons to avoid hydrogen vehicles?

Flakmeister's picture

Umm... the Pt catalysts for the fuel cells would be prohibative???

GreenPlease's picture

Hahahaha.... I actually forgot that one

GreenPlease's picture

Where does it say in that article that EVs will "overwhelm" the grid? (Hint, it doesn't). Most people aren't aware of this but the U.S. electrical grid is actually OVERBUILT by design. The grid is designed to peak capacity (which is about 30% greater than average capacity) which generally occurs between 11am and 3pm in respective time zones. EVs will primarily charge at night (when electrical demand is lowest). Utilities don't have to add any additional capacity for EVs. They'll just have to run existing capacity (such as gas fired mid-peakers) at higher utilization rates.

Bob Sacamano's picture

Converting car fuel from oil based to coal based (source of energy for most US electricity) doesn't seem to be particularly environmentally friendly nor efficient. 

GreenPlease's picture

There have been many pier reviewed studies that conclude that, using the current fuel mix of our electrical grid, accounting for charging losses, and lifecycle emissions from manufacturing batteries, running EVs or PHEVs would be way more environmentally friendly than our current liquid fuel ICE powered vehicles.

How?

Consider that the ICE gasoline engines maximum efficiency on the otto cycle tops out around 30%. In the real world, load variability drops that efficiency to the 15-18% range. Even old and dirty coal fired power plants run Brayton cycle turbines with an efficiency of ~32%. Modern CFPs run in the 35% range with oxy-fueled bottoming cycle CFPs in the low 40s. Combined cycle natural gas turbines run in the low 40s. Super-critical CO2 turbines, which can be made of stainless steel and thus relatively cheap to manufacture, will operate somewhere in the high 40s to low 50s. They can be readily retrofitted to existing power plants and will sell like gang-busters once they're ready for prime time.