Monday, November 17, 2008

Three Great Friends

"There are three great friends: an old wife, an old dog, and ready money." Ben Franklin

But Ben's life had been spent before the age of Oil, or he might have amended that famous line.

The U.S., already suffering an 8%+ decline in Oil imports might soon find itself without the benefit of Oil from it's second largest supplier.  Mexico may become an Oil importer in 4 years.  Oil importers do not export Oil - an uncanny grasp of the obvious.

The U.S. could soon find itself scrambling to make up 11 percent in lost oil imports.
Mexico, the third-largest foreign supplier of U.S. oil, faces the real possibility of having to halt oil exports in four years, a former top Mexican energy official was reported as saying Tuesday in Mexico’s El Universal newspaper.

The I.E.A.'s World Oil Report is out, and while telling the world that they are very concerned... they do not see a problem finding, developing, and producing a new Saudi Arabia every 3 years or so, or a new Kuwait each and every year FROM NOW ON.  Well, that is what the world Oil complex needs to do to meet the IEA's supply projections.

So we got that going for us.

Right now the world economic contraction is outpacing the Oil supply issue.  At some time in the near future, next year, the year after, maybe even the year after that... that circumstance will change.  The timing is unknowable at the moment.

And so we wait.

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The U.S. equity market are at a monumental inflection point.  The U.S. economy, and its currency, cannot survive without the U.S. equity market.  The U.S. equity market cannot survive at certain levels - levels not far from here - with out the Federal Reserve stepping in and buying stocks in addition to all of the debt that the Fed has acquired.  

Think about that.

The Fed cannot ALLOW the U.S. equity market to trade at a S&P 600.  The Fed would have to buy stocks.  Initially, that circumstance might be bullish for the US$, but would be akin to a fatal shot of heroin.  The initial high would be magnificent, the system failure to follow would be no less spectacular.

Now, I am not recommending any particular strategy... but the above scenario leaves savers and investors with little reward for holding cash. So let us "game theory" this just a bit:
  1. The equity markets stay flat.  Market's move up or down, or remain in a range... they do not stay flat.  But let us say in this case it does.  I have no idea how that affects the currency.
  2. The equity market rises.  Money is drawn to assets and away from currency.  The currency loses appeal (and value).
  3. The equity market falls.  The Fed steps in, prints more money and/or the Treasury floats more bonds in order to create an equity TARP.  This hardly bullish for the $.
  4. The equity market falls.  The Fed does nothing.  Raising capital becomes nearly impossible in both the credit and equity markets.  The U.S. economy contracts violently, again, hardly bullish for the US$.
There are very few working wealthy left to tax, and there will be fewer still in coming years.  America's leaders need to help Americans become productive workers, not tax consuming whinners.  Yes, life is not fair.  Americans are NOT created equal.  Most are born into resourceless families, and are bombarded daily with overnight rags to riches "Hollywood" stories, stories of wealth and fame that will not happen to 99.99999% of Americans, courtesy of our brilliant media.  But people want it.  They see it on TV and in the Movies.  No wonder Americans are obese, angry, and violent.   We hear much of "black on black" violence and "white on black" violence, but let me ask you something:

Have you EVER heard of "Amish on Amish" violence?  How about "Hasidic Jew on Hasidic Jew" violence?  I am not advocating a religious answer.  I am pointing out that the American Media, and Hollywood, has "poisoned the well".   James Howard Kuntsler calls it the something for nothing culture, with Las Vegas as its Holy City.  Old Jimmy is on to something here.

The government needs to level the playing field and foster a sense of personal responsibility and optimism in the individual, rather than "The Man" is keeping us down.  Work, thrift, and perseverance are the answer(s).  Come on Obama, Lay a "ask not what your country can do for you" kind of inauguration speech on me.  America needs to hear it.

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The massive contraction of jobs in the U.S. Financial Sector is now underway.  I feel badly for young people who just borrowed $300k to get an undergrad degree and MBA in finance from our "best" universities.  They can't even bankrupt themselves out of those student loans.


Good Luck!

Mentatt (at) yahoo (d0t) com


7 comments:

bureaucrat said...

All over the place today ...

I have been watching the smaller Mexican imports each month on the EIA website -- it seems to be compensated for by Saudi Arabia. Canadian "oil" is flat and Iraq isn't a very reliable import source. The recession/depression is doing its part to reduce overall demand, but not by much. People are still driving.

Simple companies with simple business models don't need a lot of debt. All of my Mexican friends talk incessently about "owning their own businesses." They may finally get their shot. But they will be VERY small businesses.

The Amish don't riot amongst themselves cause they always have food and kin. If you keep the food stores running somehow (Jewel/Osco is now LOADED with sale stickers), that takes care of 75% of your problem. Whether the energy complex allows that food to be made available remains to be seen.

The Fed buying stocks? Isn't that called "communism? If you were upset about the "pinking" of the Republicans lately, I can only imagine what "Federal ownership" will bring. We don't have the borrowing power for that anyway. Obama said last night he will look the other way on the budget deficit for now. Just wait'll we ask the rest of the world to fund this nonsense .... let the bankruptcies start and the downsizing of life begin ...

Anonymous said...

Aw, c'mon! The poor work? You can't even talk about it. Even if your black. Bill Cosby opened his mouth and some 30 yr old "affair" becomes headline news, as TPTB go Clarance Thomas on his butt. Obama opens his mouth and he is threatened with castration. I'm so glad the microphones were on. Too many people are invested in keeping the poor down and dumb. I didn't vote for Obama, but if he has the political capital and will to make even a moderate dent in that issue, his presidency will have been a success. I was in Newark a few weeks ago. Sad. Something's got to give.

Regards,

Coal Guy

Greg T. Jeffers said...

Coal Guy:

I come from the lower end of the workin class. I was fortunate enough to have a father that did not abandon us and went to work everyday. We did not have much, but we never missed a meal.

VERY few of our poor miss meals. The obesity data suggests that we are killing our poor with food. Hunger is not the problem - ATTITUDE is the problem.

Still, and I know this from personal experience, it is VERY hard to pull yourself up by your boot straps if you have NO BOOTS.

Our Powers that Be did not create opportunity for anybody EXPECEPT their own offspring. They funded THEIR own colleges, churches, synagogues... if you were born to a single mother in Lebanon TN you were fucking STRANDED.

We make too much of the word "opportunity" in America. It really only exists for people born to the right family, or at least in the right local.

Sure, Bill Clinton and Barak Obama are exceptions - statisically speaking, they are 6 sigma events, 6 standard deviations from the norm.

Speaking of Obama - he was raised in a White culuture WITH A MAN IN THE HOUSE, his grandfather. He is not of poor, black, single mother, live in the projects American Black.

Getting started in the world with a Father (or Grandfather) is extremely difficult to turn into the American fantasy (did not say it does not happen, it is just that if you interviewd all of last year's hires at Goldman Sachs you will find that very few came from poor working class backgrounds. When I worked at Bear Stearns, I was the only one I could find...)

So life is not fair. we Know that. But we need to create opportunities. We don't. We seem to be much more intent on building prisons and getting as many drug convictions as possible, then denying the conficted opportunites because they are now criminals - and the hits keep coming.

bureaucrat said...

1) The people are getting fatter because "comfort foods," the stuff that costs the least and tastes the best, are the fattest foods. Fruits, vegetables, grains, starches, etc. are all relatively low cal, but good food costs too much. The fatty bag of potato chips and the candy bars only costs a dollar. The good stuff costs more. In a poverty-filled society, some can only afford the choco-chip cookies.

2) I grew up in an upper-middle household. When I was a kid, I was soooo lazy. Only recently have I exploded with energy and want to do and read as much as I can. When I met my Mexican-born friends, guys near age 20, I could never have believed these lazy, sloppy, slovenly, unmotivated, smoking/drinking near-thugs that they were. A sociology experiment in real life. Was it nature or nurture ....

Anonymous said...

Hi Greg,

Both my parents grew up in the depression. Very poor, my dad went hungry at times. He had no father for a while, then a stepfather. They all made it out, with a big chunk of the rest of the population. We had a middle working class kind of family, when my dad finally got a job at the electric company. My mother's grandfather was quite a drunk. So, she would not let alcohol in the house, or things might not have been so good for us.

No, Life is not fair, but we, as a society could do better. I've seen poverty, and have relatives in the projects. I have a daughter who is poor, and will always be poor because she manages to make one bad decision after another. Nothing helps.

We have left the poor stranded. The jobs that our fathers worked at are mostly off-shore now. The economic structure of welfare is toxic to put it mildly. The drugs and crime are a symptom as well as a cause. It's a vicious circle.

Creating opportunity would do more to alleviate drugs and crime than all the law enforcement and prisons ever have. My "poor" daughter spent 12 years on drugs, five of them as a heroine addict. We struggled to predict her behavior until someone told us that avoiding responsibility is the essence of addiction. Her actions then became predictable to us. She has been clean for 4 years now.

The point of this is that people who are crushed by responsibilities that they cannot handle, or have no responsibility at all tend to do drugs. These are two common states of existence for the poor. They need honest work for decent pay. 90% of the rest of the crap would take care of itself.

I think we are in general agreement.

Regards,

Coal Guy

Anonymous said...

Dear Greg:
Great Post! Out of the park today.

I agree with you about attitude and poverty. My family were refugees into the US. We had nothing but we did get help from charities in the beginning. My father paid back every penny of help we received. Every penny, even though it took years. I retired at 37 and live in a mansion in paradise. The will to succeed, desire to learn and fear of failure was my motivation. Missing couple of meals when you are young and having no home or country to call your own are ample motivators although I wouldn't recommend them to anyone.

A little anecdote. My brother in MN just bought a second house in his upscale neighborhood. This was at an auction, the price was 1/2 of appraisal value. He is ecstatic. I don't want to mention to him that that means his own house is probably worth 1/2 of what he thinks it's worth now. Nothing to be happy about. If that is the case he is actually has negative net worth. A homeless bum on the streets of Washington DC is richer then my brother. Although my bro drives Mercedes 430s and has several other nice cars. A fullish man.

My brother is not the only one in this situation. Not only the whole country has negative net worth but the entire human species. We all are living in deficit and are technically insolvent. The problem is order of magnitude greater then fiscal issues. When the bank repossesses your house or car it is bad. When nature comes to repossess - it takes your life...

Cheerfully yours,
Chuck H.

Anonymous said...

Interesting how so many former oil exporters (the US, Indonesia, UK, Norway, and now Mexico) eventually become oil importers. The wells dried up even as domestic usage soared.
How much longer before no one is exporting?
Jeffrey Brown (WestTexas) covers this well in his export land model, but it bares pointing out again.