Thursday, January 31, 2008

The worst January in equities since 1970 appears to be in the books.

Folks, as you know, I am precluded from making specific recommendations in this forum. I can speak in general terms.

The equity market is, in my opinion, going to swing up and down rather briskly, and will likely be very tough to stomach. The problem is, the bond market (U.S. Treasuries, Don't even THINK about corporate paper) has had the greatest of runs, and his little to gain and much too lose; real estate is in shambles. So you are stuck with with some equity exposure. If you are of advancing years, say over 55, there are products available from and backed by the world's largest insurers that will guarantee your principal while giving you most, but not all, of the opportunity for gains.

These products have been out in the marketplace for years but have really gotten their act together recently. Not too long ago I looked askance at them, but they have responded to the markets and are now designed to provide immediate income, a fixed "walk away date" or the ability to provide lifetime income. And since they protect your principal like a bond, but give you some upside if the equity market goes higher, they are, in my opinion, one of the few vehicles that would benefit in an inflationary environment. Further, as principal is guaranteed, they would not be harmed in a deflationary environment.

There is no such thing as the "perfect investment". Your circumstances, time horizon, tolerances, etc... are unique. These products are not for everyone, and you should not consider them if you need to draw on them when you are under the age of 59 1/2.

Please keep in mind that it is my view that the Fed rate cuts will lead to a lower U.S. dollar and inflation, and that in the future energy supply shortages will add fuel to the fire of market volatility.

Lastly, I am not looking for business here. These require state by state licensing, so call your own financial advisor. If they have any questions you can always email me.

Yours for a better world,

mentatt (at) yahoo (d0t) com

Wednesday, January 30, 2008

The Fed is in full scale flight from the U.S. Dollar.

With the latest 50 basis point cut (1/2 of a percent), the Fed Funds rate now stands at 3%, significantly lower than the headline rate of inflation (which was a lie the day it was written).

It seems that the U.S. is no longer interested in the production of anything with the exception of more asset bubbles. Tech, housing... what's next?

The U.S. energy consumption data does not support recession fears. Consumption of total fuels is up, year over year, in the most recent 4 week period. You see, it does not matter if you look like crap, feel like crap... what matters is how you SMELL. So far, the consumption data says the economy smells OK, and with the Fed enthusiastically joining the ranks of the world's oldest profession... I think we squeak through. Of course, I will continue to follow the energy supply/consumption data and report back if anything changes.

Yours for a better cheap money world,

mentatt (at) yahoo (d0t) com

Tuesday, January 29, 2008

This just in.... (HA!)

"The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974..."

May push rates below rate of inflation? This journalist certainly has a knack for the understatement. Assets bubbles are going to come, for sure... but they won't be were the Fed wants them. Say hello to $200 Oil, $25 Nat Gas, $10 Gallon of Milk, $8 per dozen eggs, $35 Silver, and $2000 Gold. Say goodbye to the value of your savings if you continue to hold them in dollars or fixed incomes securities denominated in U.S. dollars.

"BP's Global Refining Margins Sink Almost Four-Fold on High Oil"

"Folks, the lack of new refineries is soooooo 2006" - Dr. Saif Lalani. Production of conventional crude oil is in decline, not ifs, ands, or buts. We now have TOO MUCH refining capacity, and whenever an industry experiences overcapacity, their margins get killed.

Call me old fashioned... but for me to pay 30, 40, 50 times earnings for a stock, there has got to be some damned sure earnings growth in evidence, and it has to last YEARS. Otherwise, these stocks are going down like a rock in a pond.

WTF???!!! There are several signs of where the bottom is. Rents are 3 to 3.5 % of the purchase price of homes in most bubble markets. When rents get to 5 to 5.5% of median purchase price the market will see the bottom - so either rents go up by 80% or prices come down another 40%, give or take. Any questions you jerks at the Sun Sentinel (South Florida's POS rag). Here is another sign of a bottom: When median income can pay for a mortgage that is 80% of the purchase price of a home. Are these metrics really that hard to understand? Now take the next leap. Inflation will help those housing metrics, deflation will kill them. Hope for inflation. Be ready for anything, but my bet is on monetary inflation.

Folks, most things lend themselves to just a LITTLE BIT of old fashioned homework.

Check back here for a no BS assessment of the incomprehensible HS we are spoon fed from the Main Stream Media.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Saturday, January 26, 2008

The “Peak Oil” issue is now everyday, front page news

On January 22, 2008 Shell Oil CEO Jeroen van der Veer, Chief Executive issued a letter to all Shell employees about the coming of oil shortages in the near future and the challenges the company and the world faced by the constraints on energy supply and climate change.

Mr. van der Veer is not the first Oil Company CEO's to come clean, Chevron, Total, and the CEO of other companies have been willing to confront the issue, if not the immediacy, of Peak Oil.

The Wall Street Journal, which up until this past summer disparaged the theory (data) or ignored the issue has now had 4 front page articles in the last 90 days on Peak Oil. Today, January 26, 2008 the WSJ had another front page story on Peak Oil, this one covering a "Peak Oil Aware" family in Michigan and that family's efforts to prepare for the social, economic, and political fallout of an oil shortage - AND DID SO WITHOUT MOCKING THEM! Holy Molly!

Remember, the financial markets are "discounting mechanisms", that is they discount in the present the probability of future events. The U.S. energy situation is starting to sink in to the Main Stream Media and the Corporate Establishment. Significant reaction in the market place is not far behind.

I will leave you now withe the prophetic words of the
1960's singer/songwriter Bob Dylan:
(Or you can listen here)

“Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone.
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'.
For the loser now
Will be later to win
For the times they are a-changin'.

Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall
For he that gets hurt
Will be he who has stalled
There's a battle outside
And it is ragin'.
It'll soon shake your windows
And rattle your walls
For the times they are a-changin'.

Come mothers and fathers
Throughout the land
And don't criticize
What you can't understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin'.
Please get out of the new one
If you can't lend your hand
For the times they are a-changin'.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin'.
And the first one now
Will later be last
For the times they are a-changin'.” Bob Dylan’s 1964 classic “The Times They are a Changing"


mentatt (at) yahoo (d0t) com

Tuesday, January 22, 2008

A Tale of Two (Classes of) Commodities

It appears that a recession is a certainty in real terms. The government's nominal argument ain't fooling anybody.

The run in commodity prices for the near term is over, and painful corrections are likely in many commodities. Base metals are no where to be, but even precious metals and energy commodities will likely be overcome by the contraction, at least for the next several quarters.

The energy crisis is not going away, though. This is just a time out on the field. Opportunities of magnanimous proportion will present themselves. This is the time to get your ducks in a row.

The bond market has had the mother of all rallies. I could be wrong, and rates could head lower and bond prices higher, but I am not willing to make that bet at these prices (still I sold weeks ago and bond prices moved higher since then) and would prefer to hold cash.

There are now 2 kinds of commodities. Those that will rise in price as the energy shortage takes hold over the next few years - and everybody else. One group will soar, the other will humble you. Gold and SIlver? Tough call. They have had a hell of a move up, and there are not many bids around for anything. Still, Gold and Silver tend to do well in deflation AND inflation, but discretion is the better part of valor. This is no time to be a hero. That time will come.

Mentatt (at) yahoo (d0t) com

Monday, January 21, 2008

Asset prices are plunging. First Real Estate, now the world equity markets.

This looks like DEFLATION to me, and I am losing (lost) faith that the Fed can re-inflate.

Monetary deflation coupled with commodity price inflation (though commodities may not be inflating again for sometime) is about as bad as it could have been. America, welcome to Japan, circa 1990.

You will read and hear a great deal of specious cause and effect explanations from the media, for most of which the journalist engaged in perhaps 30 seconds or so of research before trumpeting their findings to the public.

Here is one cause and effect you will not see in the Main Stream Media:

The energy complex has been unable to deliver increasing amounts of BTU's in sufficient quantities to maintain economic growth.

For my money this is THE cause and effect.

Mentatt (at) yahoo (dot) com

Sunday, January 20, 2008

“They’re here!’ – Poltergeist

The ghost of 1973 is here, and it is here to haunt the U.S. for a long, long, LONG, long, long time to come.

In my last post I covered U.S. population increase of about 1% per year. Since total oil supplies to the United States PEAKED in 2005 at 20,802,000 barrels per day (“bpd”) and the 2005 mid year population for the U.S. was 295,895,897 (U.S. Census Bureau data), each and every American consumed 7% of a barrel (.07) of oil per day during that year.

For the 10 months data available for 2007 U.S. mid year population was 301,621,157, and this increase population had less oil, 20,683,000 bpd available to consume – or 6.86% of a barrel of oil.

The average 2007 American had 2.4% LESS OIL available to consume than the average 2005 American. Natural Gas use and availability fell during this period, too (though this is more closely tied to wheather than oil is). Total coal availability BY VOLUME was up roughly .5% in 2007 from 2005, though it is likely that total production of coal BTU's fell as U.S. supplies are declining in BTU content.

What does it mean? That the average American lifestyle will decline until/unless this trend reverses. No matter what fiscal or monetary stimulus our government attempts. Either population falls, or per capita oil supplies increase… or our consumptive lifestyle declines.

Argue what you will as to whether this is good or bad, a blessing or a curse, for our humanity, etc…. It is without debate that the political, economic, and social impacts of this phenomenon will be felt in increasing measure over the next several years.

My bet is that the U.S. dollar’s decline versus commodities will likely be BREATH TAKING.

Yours for a better world, one way or another.

Mentatt (at) yahoo (d0t) com

Thursday, January 17, 2008

The U.S. population topped 303 million this month.

Industry has substituted natural gas, nuclear, and coal fired electricity for oil to the extent possible.

The only efficiencies left to be rung out of the system:

More efficient cars. This will have moderate impact in the short term as the installed rolling stock of vehicles cannot be replaced fast enough (to prevent);

Less total miles driven. On average each American motorist will drive fewer miles each year from this point forward. Pretty simple really. There are more Americans accessing declining oil imports and domestic production. No amount of economic stimulus, monetary or fiscal, will negate the (work and kinetic energy) laws of physics.

It is not likely possible for inflation adjusted non-internet retail sales to come back in this environment, for example. If the consumer is 2/3 of the U.S. economy, and the consumer is experiencing: declining access to credit, increasing energy and food costs, and has ZERO savings, and is now constricted in his/her transportation opportunities, how does the U.S. economy come again to experience real economic growth? Corporate spending you say? The effects of declining transportation fuels will hot corporate America at least as hard as consumer America, but more on that in a future post.

A good friend of mine likes to say that driving around in circles does not increase GDP. Maybe. But less circle driving is certainly bad news for the auto industry, the fast food industry, retailers, rubber and glass producers, lawyers for drunk drivers, etc...

If the U.S. has seen peak oil imports, then the U.S. will see peak (real) economic growth soon, if it is not past tense (I say "soon" because there are still great efficiencies to be rung out of our wasteful use of electricity - I would not be long Utilities). If this is true, and it is very, very possible, we can expect tough times for Wall Street and Banking to be a permanent condition. This is not to say that we will not have vicious rallies in the markets. We will. Nor that hyper inflation could not drive the market up in NOMINAL terms. It could.

Still, your wallet will not be fooled.


Yours for a better world,

mentatt (at) yahoo (d0t) com

Here's a fun fact to know...

The U.S. Dollar as measured against other currencies by way of the Dollar Index closed today at 76.23. In December of 2007 the Dollar index hit a low of about 74.50. With me?

Well... in the last 4 weeks the dollar rose 3% versus the various international currencies yet fell over 10% versus gold and silver. Hmmmm... Perhaps the various central banks are willing to debase their currencies, too... Hmmmmm...

Can you say "Hyper-inflation" boys and girls? HI PER IN FLAY SHUN!! Very Good!!

Yours for a better post debt driven reserve system of currency world.

Mentatt (at) yahoo (d0t) com

“A recession is when your neighbor loses his job. A depression is when you lose your job.”

Is the U.S. in a recession? In real terms, probably. In nominal terms (you know, the kind of data reported by the U.S. Commerce Department), I doubt it.

The government understates the rate of U.S. price inflation. The headline numbers as reported by the U.S. Federal Government for 2007 of 4.1% for retail inflation and 6.3% for wholesale inflation defy credulity.

Before your eyes glaze over, here is the deal. If the economy experiences 0% REAL growth, and inflation of 7%, if the government reports inflation of 4% they can claim 3% in GDP growth. Got that? If the same methodology of collecting and reporting inflation data are employed in the future, we may have a year in which unemployment rises to 10%, and GDP grew by 10% (which is what the U.S. is likely to experience as oil imports decline and the price of oil rises).

Gold and silver are telling you a great deal about where THEY think inflation is.

The stock market is telling you a great deal about what they think REAL economic growth will be for 2008.

Yet the Federal Reserve chairman told Congress that the Fed sees the economy continuing to grow in 2008.

And thanks to the wonders of data massaging and nominal reporting THEY CAN ALL BE RIGHT!!

Confused? You are meant to be. Now go be a good little consumer and borrow some money, order up a double frapa-poofy, swishy-weenie, mocha chino, and watch some T.V. programming interspersed with commercials extolling you to EAT! DRIVE! DIET!
AHHHH!!! The good life…

Yours for a better - post-consumer, non-obese, black coffee drinking, living within your means, real men don’t eat quiche (or how to spell it for that matter) - world.

Tuesday, January 15, 2008

Inflation at the wholesale level for 2007 rose a the fastest pace in 26 years.

The sad thing is that the U.S. Federal Government understates the measure of inflation in no uncertain terms. Which is why gold, silver, oil, natural gas, wheat, corn, etc... continue to soar and give the lie to the data coming out of that den of iniquity commonly known as Washington, D.C.

Retail sales took an "unexpected" fall (clearly the journalists calling this unexpected have not been reading up and researching here) of ".4". Yea, and pigs fly! REAL Inflation was most likely somewhere between 7% and 9%... if "sales" fell .4, and that would include the RETAIL PRICE OF GASOLINE, THE REAL FALL WAS MUCH WORSE!!!

Another country heard from, Wall Street's own Jim Kramer tells us that the Federal Reserve could have prevented the markets woes with a stroke of its interest rate pen. Earth to Jim: If the U.S. cannot expand its consumption of BTU's (energy) no amount of stimulus is going to spur growth within our borders (actually any growth spurred by said spurious activity would happen in Saudi Arabia, Iran, Venezuela, etc...). Folk's, one way or another you are going to have to come to terms with this issue.

Speaking of Wall Street... Anyone notice who our "best and brightest" had to go hat in handfor capital to keep their ships afloat? The folks that sell us our oil. They have so many of our dollars that these "Sovereign Wealth Funds" (fancy words for "Dictatorships of Countries Endowed with Oil") have nothing to lose in propping up our banking system, lest those dollars become worthless even faster than they would have left to the Fed's devices.

Meanwhile, General Motors rolled over and and has admitted that the end of oil is in sight and that ethanol is just a stop gap. I wonder if the pension manager's know what that means?

The U.S. dollar is at real risk of a full fledged catastrophe. I don't know what will precipitate it, but at any time in the next 1000 days we could see a move in the American currency that would jar the American people out of their consumptive/political/societal stupor.

Stay awake. This movie is just getting good.

Yours for a better world,

mentatt (at) yahoo (d0t) com

Friday, January 11, 2008

This is funny...

``Outside of oil, the trade deficit is moving in the right direction,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit.

That is right out of the macbre joke: "Other than that, Mrs. Lincoln, how was the play?"

Earth to Mr. Price:

There IS nothing "outside of oil" as applied to the U.S. Trade Deficit.

Clearly, Mr. Price is an economist that skimped on his history studies. The U.S. was at one time the largest CREDITOR nation the world had ever seen. That began to change when the U.S. went from OIL EXPORTER to OIL IMPORTER. By the time the U.S. Oil production began to decline in earnest in the early 1970's, the U.S. was on its way to becoming, what we are in fact today, the largest DEBTOR nation the world had ever seen. And the only HOPE for our trade deficit is this:

When the oil exporting nations no longer have oil to export the U.S. won't go into debt to buy oil anymore. That's the cure. When there is no oil left to buy.

Talk about a cure that is worse than the disease!

Yours for a better post B.S. world,

Mentatt (at) yahoo (d0t) com

Thursday, January 10, 2008

The following is a guest post by Dr. Saif Lalani, Vanderbilt University. He wrote this article after sharing a cup of coffee with my 14 year old son and I at a Nashville Starbucks... Hysterical!

$2100 a barrel Frappucino

Frappucino prices today hit an all time high by decisively crossing the $2100 a barrel mark. Prices at the Frappucino pump crossed $4.25 for about 300 ml (A barrel contains about 160,000ml). Widespread shortages of both chocolate and strawberry flavors were reported. The recent surge has been attributed to increased consumption in both China and India. China's imports rose a whopping 18% over last year as its sugar and caffeine needs exceeded domestic production. People were irate over the latest rise.

“This is not a non-renewable, difficult to extract, indispensable commodity like oil. We are still being charged 20 times as much” said Amy Potter. Amy plans to cut back on her discretionary Frappucino consumption as much as she can. “I FRAP-POOL with my husband whenever I can. We buy an extra-large and share rather than buy 2 small cups. But there is only so much you can cut back.”

The White House urged FPEC (Frappucino producing and Exporting Companies) to increase production to cool the overheated market. It is believed that SA i.e. Starbucks is the only one with significant spare capacity. “The market is adequately supplied” said CEO Howard Schultz. “The increase in prices is due to a lack of customers.” “It is” explained the CEO “exactly like the oil market where prices are going up due to a lack of refinery capacity (i.e. customers of oil). Basic Economics 101.”

Frappucino analysts however point to other factors . “Speculators are the prime culprit. At least $1,500 a barrel is coming due to speculation.” said Michael Lynch. “ The real problem” said Fadel Gheit “is a lack of blending capacity for the heavy gunky sour milk. We are running low on light sweet milk.” Daniel Yergin of CFRA said that prices were being influenced by below-udder rather than above-udder factors. Other economists blamed the low interest rates for causing a bubble in prices. “The fed needs to understand how the weak dollar is increasing prices” said John Cain author of “Why Bernanke Bucks don't buy you much at Starbucks”. Geopolitics is another issue. 25 Cows were brutally killed in the latest attack in Finland. The FOE (friends of earth) Group who blame methane from cows as being the principal reason for Global Warming took credit for this massacre. In Iraq the standoff between the 2 major cow sects over grazing pastures got worse. The 2 sects were unhappy with the proposed division with each insisting that the grass was clearly greener on the other side.

Senator Stupak held a special session in the senate where he proposed a gouging investigation. “Friends, we cannot allow our citizens to be robbed in broad daylight like this. A barrel of milk with enough sugar and chocolate costs about $125. The rest is pure profit. I propose we levy a windfall profits tax and use the money to give tax cuts to the oil industry which charges us so little for a way superior and essential product.”

Presidential hopeful Hillary Clinton promised to do just that if elected. Others such as Senator John Edwards proposed increasing production of other sources of caffeine such as chocolate and green tea. A growing number of alarmists however feel that the world has reached Peak-Frappucino. “The world is consuming more Frappucino than it is producing.” said Matthew Simmons, author of the book Twilight in the Cafeteria, “The era of cheap Frappucinos is over”, he added. Starbucks, however dismissed such claims, saying that it could meet increased demand for the next 50 years. Jeffery Brown said that Starbucks employees will be consuming its entire production within 15 years leaving it with nothing to export. Legendary investor T Boone Pickens seemed to agree with Starbucks. In a move that shocked the markets T. Boone Pickens sold his Frappucino contracts and bought oil contracts. “Oil and Frappucino will one day be the same price. Whether it is at $500 a barrel each or $4000 a barrel each I do not know.”

This article is dedicated to Matthew Simmons for his untiring work in trying to educate the world about how cheap oil really is and how big a problem we have. To Jeffery Brown for his “Export Land Model” work which the WSJ just recently saw the light on. To Stuart Staniford for bringing to bear his enormous intellect on the peak oil problem. To oilycassandra (Youtube Profile) who has given a whole new meaning to the term “education at all costs”. And finally to all those others who have endured criticism and ridicule in trying to help others understand, and have carried on the good fight. "

Wednesday, January 9, 2008

It ain’t just housing

I got an email from a regular reader linking me to an article regarding Highway Revenue Bonds. FYI, these are bonds issued my municipalities that are repaid through the revenue received from users of the project. A good example would be water and sewer revenue bonds (which are pretty safe in terms of default… people living in the burbs really aren’t looking for that rustic outhouse look just yet).

But Revenue Bonds for a highway project? A project that PROJECTS a 30-year payback period IF, and only IF, there is exponential growth in the use of the highway? How do you think that is going to work out in an oil-constricted future? Hell, 20 years from now I sincerely doubt much demand for toll roads.

By the way, let me toot my horn for a moment…

Last summer I wrote about a future credit crisis – Student Loans. Seen Sallie Mai’s stock price lately?

Just another of those unintended consequences. The Federal Government gets the great idea to provide loans to college students. So what do colleges do? Raise tuition, give faculty compensation that substantially exceeds the rate of wage inflation, pass the expense on to the students, because now they can “afford” it (by means of going into debt. If this sounds vaguely familiar to the housing crisis and easy credit, well, that is only because it is the same damn thing).

Making loans easily available often drives up the price of the financed commodity, to the substantial detriment of the participants. Just ask a South Florida homeowner.

Yours for a better not-so-easy-credit world

Mentatt (at) yahoo (d0t) com

Tuesday, January 8, 2008

A Nation of Realtors

The U.S. has become a nation of realtors, stockbrokers (like yours truly), lawyers, bankers, loan officers, and day traders.

The housing crisis is telling us loud and clear:

"Get a real job!!"

Yours for a better world,

Mentatt (at) yahoo (d0t) com
The U.S. Housing Market, “Another Fine Mess” – Laurel & Hardy

Remember David Lereah? The chief economist for the National Association of Realtors from 2001 to 2007 earned the nickname “Baghdad Bob” for his consistently optimistic projections for residential real estate, even publishing 2 books about why prices would continue higher (2005) and why the market won’t crash (2006). Great work, Dave, and kudos to the American mainstream media (“MSM”) for using this MoRon as a source to help bury the American public alive with debt.

Mr. Lereah got to the top in his profession by telling people what they wanted to hear. Perhaps I need to take a lesson from this jerk. Daniel Yergin, too, but I digress…

The Federal Reserve Bank has but one client: The U.S. Banking system.

The U.S. Banking system is entirely dependent upon one market: The U.S. mortgage market (residential and commercial).

(If A = B, and B = C: Then A = C)


The median family income must exceed the mortgage requirement of the median family home (however you define it) in order to amortize the loan.

The market rent for commercial space must be sufficient to amortize the carrying costs and debt service of land costs and improvements or the property is on the fast track to foreclosure.

Any rational analysis of housing and incomes would lead to the conclusion that many markets, totaling tens of MILLIONS of homes, must decline in market price by 50% in order to bring median income and median home price into equilibrium, or that NOMINAL median income must rise at least 100%(!), or some combination of the 2. This is where the Fed comes in. IF: the Fed can inflate the money supply; and, IF that increase liquidity can be directed toward real estate, the U.S. MIGHT be able to avert a significant banking/housing/economic disaster. Even IF the Fed is successful in inflating the money supply (devaluing the U.S. $ further) it seems reasonable to conclude that not ALL of that new supply would flow into Real Estate (after all this is not a command economy). Some, if not all might find its way into other asset classes. It appears this is happening as we speak with Gold and Oil prices rising by over 1/3 since the summer credit crisis began and the world’s central banks began their liquidity injections.

You see, it does not matter that the average home in America has 30% or 40% equity - as I have heard it argued that it would take a HUGE decline in home values before the equity in U.S. banks, about $1.1 trillion, is wiped out because of this cushion. The U.S. mortgage market is in excess of $11 trillion, with 2/3 of that for 1 to 4 family homes, or $7.3 trillion, the preponderance of this is in the HIGH price homes (not the number of homes but the number of DOLLARS) and these markets are taking the biggest hit. South Florida, California, and other coastal zones that were hot in the boom will be taking 30%, 40%, and sometime 50% hits to home values. It is not a big reach to say that it is entirely possible that all $1.1 trillion of “equity” of the U.S. banking industry might be a thing of the past.

Remember, I am speaking in NOMINAL dollars. If the Fed is able to inflate the money supply and funnel these dollars into the Real Estate market disaster might be averted. Then again, it might not be averted either.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Saturday, January 5, 2008

“Always drink upstream from the herd” - Old Country Saying

My friends love to tease me about my response to anything they quote to me from the mainstream media (“MSM”) – “Propaganda!” is my usual response.

Unfortunately, it is not just the MSM that is taking shortcuts with the public’s relative “informedness” or lack there of, the various federal agencies charged with data collection and reporting should be charged with dereliction of duty. Under no circumstance is unemployment 5% or inflation 3%, under no circumstance is housing going to “bottom” in 2008, under no circumstance is ethanol or hydrogen going to replace the missing BTU’s from the decline in hydrocarbons, and under no circumstance is any agency of the federal government or any major corporation going to come clean on these issues until our media gets its head out of its ass and into the sunshine.

OPEC is a case study in pathological deception. OPEC would have you believe that they can pump as much oil as they wish but that the problem with high oil prices has to do with refineries, speculators, violence in Nigeria, the U.S. Housing Crisis and hem lines in Paris this spring.

The U.S. Department of Energy's EIA has gotten into the act. On the same day as the Iowa Presidential Caucus, the EIA reported that crude oil stocks fell by just over 4 million barrels per day, but not to worry folks because most of that was represented on the other side of the production pipeline by an increase in distillates and gasoline. OK, now let's go to the video tape, or the EIA website, Just click the link directly above. Notice that net petroleum stocks not including the SPR declined by over 7 million barrels for the week? Notice at the bottom of the page that "unfinished oil" declined over 2 million barrels? What exactly is "unfinished oil"? Isn't crude unfinished? Couldn't those 2.2 million barrels have made it into the headline number as 6.2 million barrels of crude oil were drawn down from inventories?

If you believe what the MSM, Corporate America, and our Government spoon feed the masses, well, by all means, blow all of the sunshine up your skirt that turns you on. That does not change the 1 salient issue: Oil imports into the U.S. Nothing else matters. If 2008 sees a decline of over 2% from 2007 as happened in 2007 from 2006, all the finger pointing, first black/woman presidents, gay sex bathroom stings, invasions, hydrogen skateboards, dyslexic poets and double jointed porn stars won't be enough to distract the legions of the great unwashed from being really, really, really pissed off. Not to mention selling their stocks and walking away from their mortgages and credit cards. Maybe we make it into 2009 before a nasty round of hyper-inflation, and then again maybe we don't. There is a reason why gold is at $860 an ounce, oil near $100, and wheat (WHEAT! You know the Staff of Life!) nearly tripled in 2007, and it ain't because the folks in charge are telling you the truth.

Propaganda? No, folks we left propaganda behind some time ago - this is more like the Funny Papers meets Truth, Justice and the American Way!

Yours for a better world,

mentatt (at) yahoo (d0t) com

Wednesday, January 2, 2008

“It don't take a genius to spot a goat in a flock of sheep” – Old Country Saying

$100! Oil, that is, traded at or above $100 today after surging nearly $4 on for no particular reason (other than the fact that our collective oil problem is sinking in through the shield of denial).

Well, trumpets did not blare, the wheels did not come off the economy, and the world didn’t come to an end. $100, $98, $96… there just isn’t enough difference between these prices to make today anything special or enough pain at these prices to retard demand. Here’s the deal: OPEC and the U.S. are no longer in charge of oil demand, distribution, or price. The U.S. will consume EVERY DROP it can get its hands on, irrespective of price, and that price will be set in a very competitive world market. U.S. crude and refined product imports declined 2% in 2007 from 2006, and that trend is going to continue in the short term and then accelerate. Also it is worth mentioning that while total availability of oil fell, the total usage rose slightly. This was possible by drawing down our inventories. These inventories muffled what would have been a true explosion in oil prices, and that explosion has only been delayed, not permanently denied.

Now, let us use our capacity for abstract thought…
What other commodities are likely to surge in price (in dollar terms) in reaction to oil? You can make a lot of money if you pay attention here - or you could lose your life savings if you listen to the droning bullshit coming from cheese-doodles-for-brains Financial Planners, Advisors, Money Managers or whatever the f&%@#!$ these jerks are calling themselves these days.

Oil is going higher. The U.S. imports Oil. The U.S. runs a massive trade deficit. The U.S. has no choice but to continue to run this deficit for as long as the sellers of oil will take their phony IOU’s. This means the U.S. $ is DOOMED. Any questions?

Sorry… that got away from me. You are still going to need U.S. Dollars (if you live in the U.S.) to pay taxes and to pay your bills. Let me restate by saying that the U.S. $’s purchasing power is going to decline fairly dramatically over the next several years. You will know what I mean when milk is $10 per gallon, gasoline is $8 per gallon, bread is $6 per loaf and a dozen eggs is 9 buckaroos. That is my measure of doomed.

If you want to hold the value of your life’s work in a doomed currency I want to wish you the best of luck with your vow of poverty (and chastity; everything has its price – no tickie no laundry)

Yours for a better $100 plus per barrel of oil world,

Mentatt (at) yahoo (d0t) com