Friday, September 5, 2008

The Great Unwinding Continues

Some Americans think they are wealthy if they have a good credit score.  Some Americans think they are wealthy if they have a boat load of their company's stock in their 401k.  Some recently thought they were wealthy because they were astute enough to buy a house, and said house would actually PAY THEM to live in it.

Is it any wonder that people who think like this elect people that think we can cure economic problems with "stimulus packages"?  

This is only "dress up" for the real dance to come.  When the Oil import crisis meets the Great Credit Default Swap Default (and that is not from the department of redundancy department... there really will be a default on the Credit Default Swap), you may look back on this period with fond memories.

The markets are imploding for good reason.  The Banks are dead, the Brokerages are dead, and the Hedge Funds are looking to the left and right, trying to determine which of the 3 of them won't be here at the end of 2009... so who is left to buy?  John Q. Public?  He's broke and about to get broker trying to figure out how to make payments on that luxury care he can't afford to drive.  The Feds?  Give me a break.

Let us go back one year from today.  Ready?

What if I told you then that the economy would be going down like a rock in a pond, unemployment would top 6%, AND oil would be north of $100 for the entire year?  What would you have said?  That $100+ oil and the rest of the scenario are mutually exclusive events, right?

This is not to say that Oil might not win the race to the bottom.  Right now the economy is falling faster than U.S. oil imports, and Oil likely will not bottom until that reverses - with the exception of WINTER.  Remember WINTER?  You know, HEATING OIL?  Our fondness for warm homes?  That might trump the economy, and then again, if it is a mild winter, it might not.

Wait for more data.


So much for the bottom in housing.  So much for Fannie Mae & Freddie Mac.  So much for if's and and's and candy and nuts...

Our economy will remain broken until we figure out that:

  1. People must be productive, not doing "make work".
  2. Building houses and condos does not count for much when measuring "productive".
  3. Neither does Government employment.
  4. "Productive" means creating things of value, not false paper wealth.
  5. "Productive" does not mean wasting energy driving around in circles trying to find the next mall to go shopping in.
  6. That the "great social programs" are destroying our living standard and our way of life.
Now, since we are not going to figure this out until it has been jammed down our throats, the best thing you can possibly do is to un-complicate your life.  Cut every recurring expense that you can live without, lower your overhead, and get used to the simple life.  Because once we get past this economic issue, the Oil import shortages will be the second shoe to drop.

"May you live in interesting times"

Mentatt (at) yahoo (d0t) com


Anonymous said...


Oil heat is the next thing to produce "demand destruction" in the oil market. At 85% efficiency for an oil furnace, electric space heaters are at cost parity with heating oil at $5.45 per gallon assuming the $0.16 per kWh we pay here in the People's Republic of Massachusetts. Even at $4.00 per gallon, and our crappy cold winters it's no competition for a well designed heat pump. This shifts more energy toward coal, gas and nuclear.

The problem with this is the same as trading a gas guzzler for a nice diesel car, the initial investment has to pay back, so people will be reluctant to change until the old one dies. But it will happen. No time to invest in oil heat distribution companies!


Coal Guy

Anonymous said...

(From the governmentally-employed bureaucrat):

Hell, go back farther than one year ... I entered "apocylapto mode" at the start of '07 as the subprime thing was being explained to those who were interested. After 18 months (more than 1% of the average person's lifetime), I'm still waiting for the Apocylapse. The Dow is down but it was a LOT lower in 2001 (7200 I believe), my tobacco stocks and MLPs are paying great, all my friends that work are still working, prices for energy (gasoline & natural gas) are dropping, the Jewel is still filled with food, one of the homes on my block got sold recently, and most likely, being part of the government, I'm "in for life." So, while I watch us march toward a great debt bubble unwinding, and some people will no doubt be hurt, I have to ask again ... what exactly is wrong here?

Anonymous said...

>So, while I watch us march toward a great debt bubble unwinding, and some people will no doubt be hurt, I have to ask again ... what exactly is wrong here?<

How about 5,000,000,000 barrels of crude oil being imported yearly into the US by foreign producers? And being paid for not with real goods but with IOUs courtesy of the reserve currency status of the $$$. The oil producing nations are aware of this and desperately looking for ways to exit this situation- and Mr. Putin has some been doing some hard thinking about how to help them out.

How about running 2 wars without raising taxes? And more war in the works. Plus we have 2 presidential candidates who are promising more war, more big programs, and lots of big tax cuts?

How about the next budget deficit of $1,500,000,000,000 for one year? I would not bet that this would help the reserve currency status of the $US. When the reserve currency status goes, we may be looking at Argentinian interest rates ie the yearly 275 billion debt service that we now pay on our 10 Trillion National Debt will quickly morph into an amount much closer to one Trillion per year.

And that's just for starters.

Anonymous said...

(Yet you can't say that any of that will adversely affect your life today or tomorrow, if it were even true -- we don't have 2 presidential candidates planning more wars -- you are snug in your home (likely paid off), getting checks from Uncle Sam, your fondue pot at the Safeway is cheaper today than last week, and other than baseless bellyaching, your life is pretty damn good. God Bless George Bush!) Hahahahaha! I can't believe I just said that ...

Greg T. Jeffers said...

Nothing IS wrong, until it is. And we will all survive physically.

I write about peoples FINANCIAL well being. In real terms, peoples incomes are falling pretty hard, they have no room in their budget to save, and I think a serious contraction is coming. If you have a secure government job, don't sweat it.

If you work in the financial markets, like yours truly, you are sweating this one big time.

Recessions like the one we are entering are slow and grinding. This one will likely last the better part of a decade. It can't hurt to keep your eye on the ball.

Bureaucrat said...

New ID :)

A recession is here if not a depression; people have little to save cause they can't earn, cause China took all the work away; and a serious contraction is coming if it's not here already. All true.

The problem is I just don't see what I should be seeing. Even my damn brother-in-law who works in the financial industry is still gainfully employed.

Signed, the Bureaucrat :)

Anonymous said...

>Recessions like the one we are entering are slow and grinding. This one will likely last the better part of a decade. It can't hurt to keep your eye on the ball.<

Greg- This is not just another one of those typical recessions that characterize the capitalist system. We are facing large and imminent changes in the geopolitical status of the USA. The US is trying to pull a UK rerun which is to live off investment income after sending all the dirty manufacturing activities etc abroad. This does not work and only presages a big drop ahead- especially with ongoing war expenses.

We are also facing the mother of all credit crises.

After that, if we come through in one piece, we face the grizzly bear of Peak Oil.