Sunday, April 20, 2008

The Silence is Deafening

Over the past 4 or so years I have communicated my position on U.S. oil supplies, oil imports, and the U.S.$ to my brethren on Wall Street.  I have traded email barbs with good humor.  Now, with oil prices substantially over the $100 mark, I find the silence DEAFENING.

Allow me to shed a little light on Wall Street.

Folks who make a living in the U.S. financial markets are TERRIFIED of the energy issue, and so MUST DENY IT.  Their commissions and fees DEPEND energy prices declining, and doing so before the reason they do decline is the lack of supply decimating the economy and hence their demand.  This is the FINAL game of musical chairs for this generation of market participants.  

Reality does not give a good fart about what you perceive, what you want, what you hope, what is convenient.  "Faith" should be confined to the things nobody really believes in.  

Life has been, and always will be, a competition for survival and primacy (argue the point if you like, but those who do will likely not be the folks who pass on their genes, evolutionary dead ends).  The energy condition will continue to present opportunities, though the opportunities presented might not be what you originally wished for.  Well, that's just too bad.  When I was a kid, I wanted to be like my hero, Bobby Mercer, the Yankees' center fielder.  Problem was, I couldn't hit a beach ball with a bat.  I still got an athletic scholarship to a major university (I was just a journeyman but I had fun) , but it sure wasn't in baseball.  Sometimes you have got to make adjustments.  Bobby Mercer or Micky Mantle (I know I am dating myself here) aside, most of us have to make a continuing series of adjustments in order to succeed.  That is where businessmen and investors are right now - at the cusp of an important decision to make of one of those life altering adjustments.

I doubt this is THE BIG ONE.  Oil prices will give and take up and down on their way higher - but the writing is on the wall, so to speak.  All of the B.S. Wall Street is feeding 45 year old businessmen about "Retirement"!!  What a laugh!!  By the time this age group arrives at the age where they might need their money the U.S. currency will have devalued another 75% to 90% from here!!  Maybe people are not so dumb.  Maybe THAT is why we have a zero savings rate.   

But if you are reading this blog you are probably not among the Zero assets crowd.  So here is my advice:

1.  Spend everything you have on all things you ever wanted to do.


2. Convert most of your financial assets into hard assets.


3. Some combination of the 2.

Mentatt (at) yahoo (dot) com


Zeke said...

I've been watching this fiasco come for a long time. I encounter very few Americans with a clue of what is going on. They do not like reality, are incapable of making a connection between what goes on in their lives and their own behavior and are deeply involved with a "keep me amused" lifestyle. Most are adolescent in their ability to deal with the real world which is one of the reasons the evening news is fluff ending with some happy little report about a puppy. So we'll sail on into our virtual reality sunset and be totally amazed when the boat sinks. Frankly, I'm one of those "doomers" who thinks the course is set and god help anyone that tries to change it.

Anonymous said...

US society has drifted far far out to sea. And most USers are unable to put together the whole picture. And the US leadership seems so steeped in arrogance that they cannot envision the day when the US does not call the shots.

We sit here like a spoiled Humpty Dumpty as we import nearly 70% of our oil production and 75% of world savings. And the day approaches when oil exporters will no longer accept flimsy dollaros for their precious product. And the day when the capital inflows stop and long rates go skyward. Our former reserve currency status becomes a joke in third world slums.

The 500 billion we spend on oil imports becomes 1 trillion or 2 trillion a year. The 400 billion we pay in interest on the national debt becomes a trillion or 2 trillion per year. And the lack of internal savings means that no large scale solutions to any of this will be possible.

And the hard part doesn't even start until oil peaks and our energy imports get hit by 5-10% each and every year on out. And it is highly likely that the oil importing nations have now arrived at an early peak.

Thanks to greg for the great blog!

Greg T. Jeffers said...

Thank you for your comments...


I do not concern myself with societal issues of the masses. I have no ability to do anything about their issues (nor does any president we elect) and so I direct my commentary to folks who have worked hard within the system to provide a life for their families. I am not talking about the elites here - they take care of their own and I am certainly not accepted within their ranks. But to see guys who fought their way out of the muck and mire to own homes, portfolios and businesses and have families be misled by members of the elite for he benefit of the elite REALLY ticks me off.

All of us, me, you, our friends and families, are going to go through this energy crisis and we WILL pop out the other side. How well we enjoy thr fruits of our efforts and frugalities on THIS side will depend the decisions we make NOW. Kuntsler calls the coming period the "Long Emergency". I call it the "Age of True Personal Responsibility".


The U.S. Federal Government knows the story quite well. It is our ELECTED representitives that refuse to make the acknowledgement publicly.

The Department of Defense, a no-bullshit organization if ever there was one has published extensively on the issue in a number of reports to capital hill. The CIA, another no-bullshit zone, to judge by the public writings of former CIA directors (just Google James Woolsey)are extremely aware.
The problem areas are the banking and finance regulatory bodies of the US Government. I can only speculate on their motivations to remain mute on the subject.

I have posted several times that a $1 or $2 TRILLION trade deficit for oil is not possible without hyperinflation, and as Mish Shedlocke has so correctly pointed out (and by way of evidence just take a look through the Treasury bond yields throughout the curve) we appear to in the grips of credit deflation (though I might argue that PRICE inflation can (and is) exist at the same time as CREDIT deflation).

AND in the final analysis TALKING ABOUT or ACKNOWLEDGING the energy prediciment the U.S., and the world, finds itself will in itself accomplish nothing. Despite the howlings of the looney Left and the pissed of Right, the U.S. is a very free society. We have no benevolent dictator to force a solution on us. Does any rational student of American politics believe that Americans will vote in representitives that ask them to give up their cars and take the bus? Stop flying for recreation?PU LEEZZE! OUr political system requires that our representitives FOLLOW not LEAD the people.

And perhaps that is not such a bad thing. After all, that is a very slippery slope.

Anonymous said...

So, greg. What happens in the more immediate time frame as the US runs up a 1 trillion dollar govt deficit THIS year? Something is going to blow in a timeframe of the next few months.

Will our Asian bankers be willing (able?)to sink more money into the US credit quagmire? I would guess that our attempts to meddle in Tibet are not helping the situation.

Of course, we are still dependent on a daily inflow of 2-3 billion just to keep the doors open. And the war in progress....

Greg T. Jeffers said...


Good question. I have no idea, and if I really could understand the timing invloved what a great trade THAT would be.

We are in surreally uncharted territory here, economically and politically speaking. I cannot imagine an outcome of less than staggering change from the way we do things currently.

It also now appears that FOOD might be the bigger problem BEFORE the energy problem. Most of us studying the issue (including yours truly) thought that a lack of hydrocarbon energy supply would be the catalyst for insufficient food supplies. To judge from grain inventories worldwide, and reports coming in from Asia and Africa, it appears that we had our "order of opperations" out of whack.

That is the problem with forecasting. While we might be strident in our findings (just look at CERA, Dan Yergin, Michael Lynch, Larry Kudlow, Steve Forbers, just to name a few) it does not mean we are correct.

But back to your point, while I don't know the timing it is not possible to run a trade deficit for just OIL at these prices for very long, and forget about $200, $300 oil. Now we have to define "very long".

Good luck

Anonymous said...

Dear Greg:
Actually what is happening now is kinda straight forward. If food is dependent on fossil fuels for production inputs then when the inputs rise in price the price of food increases. It is still there but it is more expensive. Now if the oil gets scarce and actual supply interruptions appear the you would expect that supply interruptions would also appear in food. So since now only the poorest of the poor are simply priced out of the food market even though there are still bags of rice on the shelves, in the future with scarce oil there will be no food on the shelves and if you could find the food it would be prohibitively expensive. So only the rich and resourceful will be able to get the food. Much more time and resources will be spent by everyone to provide food for their family. Being a stock boy at a supermarket will pull the chicks better then being a hedge fund manager or a software engineer. Don't laugh about that example, I have lived in Soviet Union where that was definitely the case. My father was an engineer :-) Oh the shame of it!!! But it really is cathartic to bare my soul amongst friends. Thanks for being there for me.

Best regards,
Chuck H.

Anonymous said...

Energy depletion may take the following course in the western nations as we average citizens will be hit with a triple whammy-

1. Geological peak means a ratcheting down of available energy year after year beyond 2013 or so. We will be scrambling just to plug all the new holes and will have few resources left for mega projects of any type.

2. Export Land Model. Here the exporting nations use more and more of their own production after peak. Also they will save resources for their own future use. So importing nations will be hit not just by a geological peak but by an oil import peak which will appear much sooner. We importing nations may have already passed our effective oil peak at this moment.

At this point, the resources for grandiose alternative energy projects in wind, solar, rebuilding of the rail system, or nuclear generation will no longer be available. The time for doing these types of projects will be past.

3. Prioritization of remaining energy supplies ie agriculture, military, police, govt, etc means that the little man will have zero access to any oil products. Basic food may remain on the table but life will quickly begin to revert to the energy equations of the mid 1800s or earlier.

Greg, do you do any investment counseling etc for smaller investors? If so could you provide appropriate contact info? Thanks

Zeke said...

I appreciate your adversity to dealing with societal issues. Rarely do I find a blog that does. It is much easier and far more secure to deal with facts. Rest assured those in power understand that societal issues are the key. Any dictator worth his/her salt understands, perfectly, manipulating the masses angers, fears, insecurities, etc is where the answer lies. It is those that understand the answer lies in power that will run the show and burst through your door, with an automatic weapon, to take what you have. They could care less about "personal responsibility". If truth and personal responsibility were the answer, the nightly news would be very different. I wish you luck and, even though, I once believed as you do, life taught me differently.

Greg T. Jeffers said...


One of the best things about being a "ham and egger"
is that I am free of the delusion that I can change the world. I have a hard enough time making breakfast some days, and this weekend I have GOT to get my garden, and the weather has not cooperated for most of April.

But "Haves" and "Have Nots" change places all the time, or have down through history.

Just trying to improve the lot of me and mine.