Wednesday, September 30, 2009
Monday, September 28, 2009
- Ranching and Live Stock
- Mining & Minerals
- Fresh Water
- Fossil Fuels
- Human Resources Capital
Friday, September 25, 2009
Just for fun, read this:
U.S. Federal Reserve Gov. Kevin Warsh said in an opinion piece published late Thursday that the central bank might have to begin taking steps to normalize policy before the need is obvious.
"If 'whatever it takes' was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve's institutional credibility," Warsh said in a piece published on the Wall Street Journal's Web site.
"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers," he said.
Warsh says the Fed is at "a critical transition period." He cautioned that if policy steps are "not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer."
"Policy makers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves," Warsh said.
Since the global credit crisis began, the Fed has pumped more than $800 billon into the banking system, kept the federal funds rate near zero and purchased so many Treasurys and mortgage-backed debt that the amount of assets on its balance sheets has now swollen to $2.14 trillion.
Got that? I don't know about you, but I really liked the:
"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers,"
Allow me to translate:
"We really f**ked up, and the cure may turn out to be worse than the disease. Our policy moves, both fiscal and monetary, are leading to a complete collapse of the currency, and with it, the system. Holy sh*t! This is bad!"
These guys should hire me as their director of public communications.
Thursday, September 24, 2009
I see [in recent Ohio news] that people are getting arrested for murdering dogs and cats. We deliberately murder thousands upon thousands of cows and pigs every day so that we can eat meat but oh my, not cats and dogs. We kill people in war every day too, but oh my again, not cats and dogs. Has it been determined by theologians that dogs and cats are suddenly included in the Thou Shall Not Kill commandment? Did the writers of the American Constitution have in mind covering pets too?
Next thing you know, someone will get arrested for killing a mouse. Why not? Does a mouse have any less rights than a cat or dog? How about a rat? A mosquito? What hypocrites we are. Our pet-worshiping society raises a hullabaloo when a man kills his dog but our local humane societies must kill dogs by the thousands every day because pet-worshipers won’t take proper responsibility for their pets and nobody else wants them.
Sooner or later some poor judge will be called upon to decide which living things can be legally killed by humans and which can’t. Mercy, what a can of worms that will open. The judge will have to decide whether or not animals have rights like humans do; or, if they have some human rights and not others, which? And then, where should the line be drawn between which living things are animals with rights and which are animals without rights. If a cat has rights like humans have, why not the fleas on the cat?
What grinds me the most are people who, believing they are being kind to animals, will live-trap the ones that are bothering them and release them out in the country to become someone else’s problem. That is first of all illegal in many places. Secondly, study after study shows that releasing a wild animal into the wild most often is an act of cruelty. (Not to mention the horrendous cruelty of dropping off pet kittens out in the countryside.) The wild environment already has a full complement of wild animals, believe me. That’s why they are going to town and raiding urban backyards, looking for food. Adding, for instance, more raccoons to the countryside will only mean grave hardship or starvation for the released animal or it will find its way back to town anyway. Or into my barn. People who treat animals this way rather than killing them or taking them to the Humane Society to be killed, are just plain ignorant about nature, or refuse to admit that the food chain requires the constant necessity of death. Thank heavens for our local Humane Societies who do the dirty work of killing these unwanted animals. But why is it cruel to shoot a dog with a bullet, but humane to kill it with a shot of some chemical?
I once had a very refined and cultured book editor who was very adamant about not killing wildlife. She was horrified when I told her that I killed groundhogs and raccoons that were destroying my gardens. Later she took up gardening. Wasn’t long before she admitted that she understood what I had tried to tell her. She cornered the groundhog that was systematically destroying her garden and this very refined and cultured woman killed it with her spading fork, the only weapon handy.
This is the only way I know to change an avid wildlife lover’s view of life and death. Put them in charge of producing some of the food for the world. They can either put an animal and bird proof fence around the entire food producing acreage of the world which not even Bill Gates can afford to do, or they can help nature keep population levels from exploding.
Now all you friends of wildlife can rant at me. I wish you well and I wish you were right. If raccoons were endangered in any way, I would be the first one to rise in their defense. We certainly have to avoid cruelty to animals, but, oh my, it is extremely difficult to define what is morally or immorally cruel. Life is cruel by whatever standard you want to use. I just took my lambs to market, an experience that is always very sad for me. I’ve spent many a cold night keeping those lambs alive and healthy and many a long day guarding them from neighborhood dogs whose owners won’t live up to their responsibility as dog owners. I have enjoyed the supremely pleasant sight of lambs gamboling over the meadow grass. I had the unpleasant task of cutting off their tails so that fly eggs don’t hatch into maggots in the manure that would otherwise cling to the lambs’ tails and literally eat the lamb alive. I have tried very hard to raise lambs in a way that will protect them from internal parasites which is the main reason they often get loose bowels that bring on the maggot problem. But it is extremely difficult to succeed at raising sheep without internal parasites. Should I not raise lambs because I don’t like docking them? Should I quit raising lambs because they will end up as rack of lamb for rich people who descry the ways we shepherds must use to keep the lambs alive until then?
Should I not get married and have children because in the end we all must die? Perhaps in some idiotic war? Some of the very people who belch bricks at me because I will kill a dog that is killing my sheep support that terribly insane Iraq war and now nod their approval to killing more people in another idiotic war in Afghanistan.
But oh my, we must save our precious dogs and cats so they can die of old age and be buried in animal cemeteries. Did you know there are even live traps for mice now? You trap them and then let them loose away from your property to infest someone else’s house. I wonder how far away we are from spending money on mouse cemeteries while poor people can’t get adequate health care.
Japan's exports tumbled 36 percent in August -- with car shipments falling by half -- and imports also contracted sharply, the government said Thursday, showing the world's No. 2 economy remains mired in a deep slump.
Declines in automobile and steel exports were especially pronounced, the Ministry of Finance said. Exports fell for the 11th straight month to 4.5 trillion yen ($49 billion).
"We are not seeing an improvement in exports due to a continued slump in global demand," said Hiroshi Watanabe, an economist at Daiwa Institute of Research. "Japan's exports were particularly hit hard by stagnant demand in Asia and China."
Imports, meanwhile, dropped 41.3 percent from a year earlier to 4.3 trillion yen, reflecting weak consumption within Japan, where the jobless rate is at a record high as companies shed workers. Consumer finance company Aiful Corp. said Thursday it will cut 2,000 jobs, or about 44 percent of its work force.
This is not the stuff of expansions.
Wednesday, September 23, 2009
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 335.6 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 5.4 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 3.0 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 1.3 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 8.0 million barrels last week, and are above the upper limit of the average range for this time of year.
That last line, the 8 million barrel increase? And the "above the upper limit of the average range"? Those 2 data points are not supportive of any meaningful expansion in GDP in the recent past. The question of whether or not it is supportive of Oil prices in US$ terms is a more complicated story, and the short answer to that is "No". Please note that "not supportive" means nothing in the data would lead me to go long, but that does not mean that the price will not go up (just to make me look bad), it just means in the short run it will be without me.
Monday, September 21, 2009
I spent the weekend crawling through reams of data: Bank reserves, energy consumption and inventories, Gold prices, interest rates, shipping rates and costs, retail sales, industrial production...
I come away with the sense that we might have seen a bounce but not necessarily a "recovery"in the U.S. and perhaps something more than that in the world data (keep in mind world population growth virtually assures "growth").
This does not mean that US equity market momentum won't carry the market higher... I get back to my inflation argument because EVERYTHING has been going up versus the US$. If you compare the Dow to Gold, it has gone nowhere. If EVERYTHING is going up relative to the US$... well, isn't that the very definition of inflation? What would happen if all asset classes fell ALONG WITH the US$? Isn't that a possibility if the world is in a state of over-capacity and the US keeps running $Trillion plus budget deficits? (Read this excellent post by the Mad Scientist... then tell me that that is not a DISTINCT possibility.)
For my money, on SIGNIFICANT weakness, I am going to go long energy equities, but I am going to hedge it with a short position (could be a typical long/short or just a covered call.) I say this even though the risk of significant decline in Oil prices is pretty high (after further consideration, the data does NOT support higher energy prices in the short term). Inventories just don't justify $73 Oil, even if gasoline consumption might. Since the object is to buy "low" and sell "high" and the likelihood of supply constraints in the U.S. in the 2011 - 2013 is fairly high... this outcome would awfully convenient... perhaps, too convenient.
Oh, well, as I like to say - you can trade it, just don't believe it. If you are right hold on; if you are wrong be gone.
Sunday, September 20, 2009
Saturday, September 19, 2009
Friday, September 18, 2009
The only way to pay the debt back is to increase net nominal (not real) tax revenues, actually or de facto. This can be done in a number of ways:Then a couple of days ago the Mad Scientist sent me this from a Research Report from Sprot Asset Management: (here is a link to the entire report)
• The U.S. can raise tax rates.
• The U.S. can cut services, entitlements, and spending for defense
• The U.S. can grow the size of its economy, thereby collecting more taxes without necessarily raising tax rates. For this to work, the U.S. must still get a hold of its spending.
• The U.S. can debase (lower the value of) its currency (or its trading partners can do it for the U.S.).
It is extremely doubtful that the U.S. could raise its tax rates enough to make much of a dent in its budget deficit and entitlement liabilities – to do so, the U.S. would have to tax its citizens into penury. How likely is it that the U.S. Congress would cut services and entitlements in the absence of crisis? Pigs have a better shot at flying. Can we grow our way out of this mess? Sure, if we had an unlimited supply of domestic Oil and Natural Gas (“NG”) and if we were also able to control our spending. In order to grow the economy we must increase our consumption of energy. And “therein lies the rub”: The only energy source we can increase consumption of is Coal, and Coal will not run the U.S. transportation system. Coal will not heat the homes of the approximately 60% of Americans that use NG for home heat. Not to mention the external environmental costs concomitant with the use of Coal.
So we are left with the currency. You see, to pay its IOU’s, a government is very much able to print more money and use it to pay its debts. The problem with that is the contra party, the guys that hold those IOU’s, don’t like that very much. They won’t extend any more credit on such terms. They will want MORE of that less valuable money in the form of interest in the future and for the exchange of goods and services that they sell us. That means higher interest rates and higher inflation. Much higher, and we all know what that means
So how will this US debt crisis ultimately resolve itself? Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues (as we argued in “The Solution... is the Problem”), then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:
1. Default on Medicare promises. (Unlikely given the current debate in Washington to
expand medical coverage.)
2. Default on Social Security promises. (Unlikely given the increasing average age of the
3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget
4. Default on outstanding debt. (Unthinkable)
None of these options are feasible for the US Government. So they realistically only have one option left – to print their way out of their debt crisis.
We keep coming back to the numbers for the US debt, and they don’t add up. Even Alan Greenspan, former Chairman of the Federal Reserve, believes that the rising budget deficits in the United States are “unsustainable”. Because the US Government is printing dollars to fund their liabilities, it is highly unlikely that we will ever see a failed bond auction similar to that of Poland. The far more likely outcome, therefore, will be a US dollar crisis. It is for this reason that we have positioned our hedge funds and mutual funds so heavily in precious metals. At the end of the day, when the world finally realizes what the US has done to the world reserve currency, international investors will shift into an asset that no government can print. In our opinion the US dollar’s status as a ‘port’ in the financial storm has officially come to an end.
I will be the first to admit that the deflation argument held sway with me for a short period of time - and it cost me in lost opportunity. When the data changes and you don't change fast enough with it... you won't be in my business for long.
More to come.
Wednesday, September 16, 2009
(In case you didn't notice...) Your head is rolling down the street, leaving a bloody trail all the way up to the bloody sword still in the hand of the various Central Banks. You had your day in the sun, but you're done. Toast. Kaput.
Remember, it was you guys that said that the Fed, the ECB, the Bank of Japan, etc... would not be able to reinflate, that they were pushing on a string - you had me going, too. I would make some money, take my profits and leverage a short trade, cover, lose money... rinse and repeat. I have heard the arguement for a double dip - and I even buy it - but that has not done me any favors.
Turns out, the Central Banks still have some mojo left.
I get very little satisfaction out of missing the funeral and then get lost trying to get to the wedding. It is supposded to be the other way around - "if you don't get an invite to the wedding, don't go to the funeral".
Oh, and the US$? You know, the currency that was supposed to sparkle in a deflationary environement? The US$ ain't twinkling folks, it tinkeling - all over itself. So, although the Central Banks still have "the power", said power does not seem to extend to currency valualtion.
Well, I did not think thet could do it this quickly. The Central Banks have pulled off a marvelous success in their effort to reinflate.
Here's the rub:
Oil is over $72 while the world's largest consumer of Oil is at the tail end of a miserable recession. What will the price of oil be if the Reinflation effort continues to work? $100? $150? $200?
This is the Conundrum. The American Consumer's ability to pay their TAXES, let alone necessities, goes out the window with gasoline at $4.00 per gallon, and at $5.00 they are flat on their backs. Any recovery at all - ANYTHING - and Oil is back over $100 per barell. Then... POOF!! That's the end of the recovery, with its concomitant decline in tax revenues (collections) yielding ever increasing budget deficits, which puts more pressure on the US$, which causes Oil prices to rise in US$ terms, repeating, ad infinitum. After all, the Central Banks CAN inflate asset prices, but employment is a very different animal. Asset prices are abstract, employment is real.
This process has begun, and each successive cylce will jerk us around like a puppy on the end of a leash held by Michael Vick's Dark Side.
Here is a link to the U.S. Department of Energy's weekly petroleum status report. Please note that the US has been drawing down its inventory in recent weeks as imports continue to decline and while it appears that we CAN reinflate, it seems it will be so at the expense of destroying the US$. This will no doubt make many American debtor's happy in the short term, but it will certainly accelerate the decline in Oil imports into the U.S.
And we all know what that means.
So, here we are again. The housing/financial issue put the energy energy issue on the back burner for perhaps 15 months.
Monday, September 14, 2009
Sunday, September 13, 2009
Friday, September 11, 2009
Like it or not (and most don't) this is a global economy. The US cannot make itself into a self-sustaining island. Moreover, the idea that we can pay everyone $35 an hour and compete globally is ludicrous.Fairly straight forward, right? The U.S MUST trade with the world, whether one likes it, or believes it. MUST. ALL of us must compete at every level with people that do not have 3 extra bathrooms to pay for, or a bunch of retired police officer's pensions. Ergo, they are pretty competitive (they can work cheap).
As I have said many times, the problem is not wages, but how far wages go. Greenspan and Bernanke have wrecked the US dollar. Financial engineering drove property prices up to insane levels. The US wastes $trillions attempting to be the world's policeman. There are so many student loan programs that the cost of education has soared. This is what happens when one throws money around.
The U.S. has seen its supplies of petroleum products reduced by 2.7 MILLION barrels per day (if you do not consider ethanol a "petroleum product" - and I do not). -------------------------------
So? At this rate of decline, several million people in the U.S. each year FROM THIS POINT FORWARD are going to stop commuting and start working from home (those that will still have a job, that is). That means that the value of commercial Real Estate is going to drop like a stone (Who holds all of those commercial mortgages?
It is simple physics. If you remove an energy input large enough to run Germany from the American economy a certain number of people either are NOT going to have a job or are going to have to work from home and the commercial space they formerly used is going to go vacant. A certain number of hotel rooms will have to go empty and a certain number of jets will have been grounded.
The U.S. was already overbuilt with office, retail, and commercial space. I think it likely that the U.S. will NEVER need any more construction in these products - ever again. The 2 year rate of decline for petroleum imports is over 8% per year. If that continues, and I think it likely to continue AND accelerate, in a addition to no need for further construction, the U.S. will have little demand for cars and trucks, aircraft, etc...
We are in the grips of powerful deflationary forces, yet the stock market has taken off and the US$ has cratered. These things can happen in tandem in the short run, but over the longer haul they are mutually exclusive events. And while the US$ might catch another bid (I had thought that would have happened as I write this... didn't work out that way), over the next 2 years the Federal Budget Deficit is likely to grow by nearly $3.5 Trillion. More than the reserves of China and Japan combined. Will the new American saver have enough savings to finance the difference? Maybe. Then again, maybe not.
I love it when someone says something so profoundly common sensical... Thank you! (I expected nothing less from a fellow named "gardenerG". Us gardeners are used to getting our hands dirty
but seeing the reward.)
I did not suggest rejecting education - I suggested doing a careful cost/benefit analysis of what you pay for and what you ACTUALLY get.
Spread out your life on an excell form! It used to be that a home was our biggest investment and a car was our second... but NO MORE! The costs of Private school education and then private college, and compounding the lost interest yields an investment FAR greater than the individual's likely home.
My son's private school education since preschool has totaled over $200,000. Private college is another $200,000. But that is just PRINCIPAL. Had I invested that $400k in U.S. 10 year Treasuries by the time he graduated college he would have had well over $1 MILLION. Will the increased earnings of his undergrad degree EVER catch up to the continued power of compounding? NAFC.
Of course, there might have been some intangibles that could be factored in, but on a dollars and cents basis, the investment is indefensable.
Look, this idea has now gained traction all over the web. It ain't just me making the point anymore. People can count.
Its all about what you get for your money. If my son becomes a highly paid surgeon (besides the nachus I will have) it will have been worth it. If he becomes a social worker? A noble profession, but a very, very poor investment for the family.
Thursday, September 10, 2009
I read your energy blog regularly and am trying to chart a course in life amid the ongoing collapse. I'm writing to ask what, if any, thoughts you have about what I should do. I was thinking about law school, undergrad for econ, or grad school for stats, or education. But will there be time to use any of those? Guy McPherson (from the Nature Bats Last blog) advised me to forget school and move far from pop. centers.
Background: I have one useless degree (in religion/philosophy, but with great grades) and one seemingly more practical (mathematics) that may be useless due to mediocre grades. I was valedictorian in high school (with scholarship to a top college), but am now 31 and flat broke due to never having a real job. If the industrial economy weren't in its death throes, I'd still be young enough to start over, but with oil production soon to fall to 1980 levels, my margin for error is not large. I currently scrape by teaching test prep courses part-time for one of the major companies. My family moved from NJ to Montana 5 years ago when my dad retired as a carpenter. They would take me in a second, but there is no work there except Walmart.
I think the solution under "normal" circumstances would be a degree, but is the time right? Any thoughts, please send them along.
Well, though I don't know you or your talents, I will speak in generalities…
Another degree is not the answer, unless you need it for a professional license. Education does not really require somebody else's approval. When I referred to myself as self-educated, my good friend, family clergy man, and adviser Rabbi Mo Silver sniffed and said: "As if there was any other kind." He has an uncanny ability to grasp the obvious and to remind me that it was so...
Start a business. Learn to make money, negotiate, sell, buy, trade, manage... the most important skill in business is the ability to "grind it out". It is true: “80% of life is just showing up”. Business is not as much fun as going to school (with all of it attendant social opportunities), but it can provide you with a living.
Don't know which business? Me neither. But I think something where YOU add value beyond just being a merchant... but if you can't add value, well... being a merchant ain't all that bad.
Northern Rockies? LOOOOOOONG Winters... if that is OK with you... but the middle of the country will likely empty out (with the exception of rain belt farm land), and that ain't good for a local economy... and in the end, that kind of isolation is not for many people.
The U.S. advanced education industry has ripped off millions, saddled them with debt, and held up their productive lives for years and years - and you might have been caught up in that fraud, though I can't be know for sure. 31 years old is a bit late to be going to work, unless you are a surgeon and spent 8 years in full time training...
I have a son, 16 years old. Every chance I get I tell him the faster he can get through college and get some real life experience in business, the more success he will likely see, and the more comfortable will the end of his life be.
I can only look at my own life for perspective, and compare that to others… which is rather imperfect. I went to work at 17 (14, if you count my weekend job I held till 17), worked through college with an athletic scholarship (I would have been better off working at McDonald's), skipped back packing around Europe (mistake, but I did travel extensively through South America’s third world – excellent eye opener) to go right after it in business (best thing I ever did, by the time my friends got their MBA's I was a millionaire) and I have been at it ever since with a couple of weeks off per year. That's life. The good news is that I have been blessed to be able to provide very well for my wife and children - and that really IS a reward. I worked hard, saved my money, and never bought a red sports car.
But there is something you should know... unless you are a freak of nature, there will be times when life beats you up. I have had business failures, lost every thing, came back, lost everything again in a market collapse that nearly broke me… went through a divorce… personal loss… came back... nothing is static, especially in business.
Still, through good times and bad I always had a glass of wine with dinner, never missed desert, and endeavored to make love every night. I played hard in general.
If I could give you any advice... start with the wine, desert, and love making... add some hard work in a business that pays (too many folks give you the circle jerk about doing what you love, doing what makes you happy... let me tell you something... while “money can't by happiness”, happiness can't buy money... whoever said the former had never been poor - I have. Poverty SUCKS. You will find whatever you do for a living infinitely more fun if it pays $2 million a year, or even $200k...
Go into business, and go to work. Besides, since you probably can’t get a job you really don’t have a choice.
I continue to be struck by the number of people just STARTING to go to work at 30 or 31 years old. If you need medical or law school to enter the profession, that's OK. That is simply the start up costs... but if you are getting Poly-Sci degrees and putting off work until you are 30 years old... well, I think you would have to have rocks in your head.