2 + 2 + 2 ≠ 7, but the market thinks it does


The IPCC’s FINAL report on climate change was clear: Cease growth in Carbon emissions within 7 years and reduce to essentially 0 all carbon emissions within 40 years or suffer horrific consequences. (Forget your politics for a moment. If you are arrogant enough to have an opinion that contradicts the IPCC report but were not invited onto the panel you are the very definition of a MORON, so please, stop reading and go find yourself a recent issue of People Magazine. It is more your speed.)

I don’t think that that was terribly hard to understand.

The Peak Oil Activist community, many of which are some of our best minds in academia, and many in the Oil industry itself, has articulated fairly convincingly that oil supplies will not continue to grow much longer, if they have not begun to contract already.

The Automobile industry, the housing industry, the “this, that, and other industry” is projecting growth out till kingdom come… in complete contravention of the simple mathematical concept “e”, or the “exponential function”, and in complete denial of the political interventions coming due to the IPCC report and the constrictions coming due to the lack of sufficient fossil fuels.

But at the moment, the financial markets believe these projections - 2+ 2 + 2 = 7. Carbon constrained + Fossil Fuel Constrained + Unlimited Industrial Growth = Business as Usual!! Yes! We can have exponential growth in automobile manufacture while cutting our carbon emissions to 0! Yes! We can have exponential growth in the world economy at precisely the time world oil supplies are in terminal decline! Remember, this logic has been brought to you by the same “best and brightest” that brought you this great reasoning: "If we bundle a thousand sub-prime mortgages together and wave our magic wand they will be magically transformed into AAA grade investment bonds."

I know I should be careful, and not offend someone by goring their personal sacred cow (as I recently did over dinner with friends and clients when I had the ill manner to say that the declining Dollar (and rising Euro) would not save South Florida's housing market with oodles of Europeans buying properties in South Florida).

As sure as 2 + 2 + 2 ≠ 7, the markets will figure this one out, too. And there will be hell to pay. I just can’t tell you when, exactly. I CAN tell you it is not “if” but “when”, just not “exactly” when. The myriad doom and gloomers, and other curmudgeons, keep predicting the date of this “collapse” and that “meltdown”, using what statistical model for their forecast I know not – and neither do they. I enjoy James Howard Kuntsler's work as much as the next guy, but has shown no marked ability at calling market (if I may risk the use of understatement) tops. Though he will eventually and most certainly be correct, it may be years until that time.

But I am speaking to you, not those guys. So let me ask you a something(s):

What date, exactly, did you first start to use a computer? (uh, 1984) What date did it dawn on you that it was a life changing development? (uh, 1984) Now, WHAT DATE, EXACTLY, DID YOU BUY MICROSOFT AND INTEL STOCK AND TELL EVERYBODY THAT CAME NEAR YOU THAT THEY SHOULD BUY SHARES IN THESE COMPANIES? (uh, I never bought the stock, or: I bought these stocks in 1999, just before the market crashed.) Or maybe you were to young to take advantage of those life changing opportunities that you were faced with everyday. So, what about Google? (I TOTALLY missed Google).

Here’s your second chance. Don’t blow it.


Mentatt (at) yahoo (d0t) com