Monday, June 29, 2009

Savoir-Faire (and Hot Air) is Everywhere!

Mike Shedlock had this to say about U.S. Federal Reserve Chairman Ben Bernake
Bernanke is a disingenuous liar with a memory problem. He is also an economic dunce who does not understand the cause of great depression nor could he spot a housing/credit bubble visible to nearly every blogger in the country. However, like his mentor Greenspan, Bernanke believes that every problem can be cured by throwing money at it. Finally, he is a creative, political power grabbing hack who gives memorable speeches about throwing money out of helicopters.
I could say that about everyone working in the government's economic and data reporting system. Still, Bernake will, and should be, reappointed. He has done exactly what was asked of him.

"Savoir-Faire is Everywhere!" Klondike Kat


I have no faith in the data coming from the government, World Bank, or IMF. Not that I think they are trying to deceive us. I don't. Nor do I think that the world stock markets will bang through to new lows this year - there is simply too much stimulus cash sloshing around. But stimulus cash won't solve the state and local tax revenue declines (or that of the Federal Government). I have laid out the declines of Oil supplies to the importing nations over the next 5 years, and I do not see any of the big data aggregators taking that into consideration. That does not mean that markets cannot surprise to the upside in any given year, and any such surprise would likely come in the next year or 2.

I see the possibility of some kind of systemic shock in the Muni Bond market as EXTREMELY high. Not that I know what it is going to look like... it won't be as simple as what we are all expecting (California to default) - things are never that simple - yet California WILL default, and so will a number of other Muni bond issuers.

If I am correct in this, money will come flying out of the Muni bond market. Where will it go? THAT, is the $64 question. How ironic would it be if the money fleeing Munis went into Treasuries who then turn around and bailout the state and local governments. Delicious!!

"Savoir-Faire is Everywhere!!"


The Oil import numbers I covered in my recent post "A Review of the Data", along with media reports and manipulations, agricultural data, and the body politic have left me with a rather unpeaceful, uneasy feeling (from the unEagles).

I will be covering this over the next several posts, as I want to speak with my brain trust, but I will touch on it here.

The numbers I laid out in the Review of the Data post could easily have a lull (flatlining rather than declining supplies), but they could also have a downdraft (black swan, war, whatever/what may). Donal Lang pointed out to me recently that rarely is the the problem outright/absolute shortages of Ag products - the problem is an inability to pay for them (lack of money). That rang true with me. I have been conducting independent research into self sufficiency over the past 4 years. At first I thought, "hey, this is doable"... but the more I think about it, it is only doable IF you have significant means (the ability to own the small holding with no mortgage and furnish the homestead with all of the tools, implements, and equipment needed without borrowed money), are incredably motivated, are in excellent shape (relative to today's average obese person), and have the support of your wife and family. As a statistical repreresentation of the populace, this number is NIL.

So that ain't gonna work on a macro level.

The media comes into play here with their reports of assumptions from the economist community. "Green shoots", an economy that is "leveling out", etc... might even be true, BUT, the economist community is assuming that the Oil will be there to support growth - and the data says otherwise.

How can I be so sure of the Oil supply data? "Sure" is not a word we use in probility mining. We are looking for the most likely outcomes - not what we "want" to happen nor "wish" would happen - but that which is most likely to happen.

The Peak Oil Community, in my humble opinion, has been worried about the wrong thing(s) (at least for the next 10 years): "The 3,000 mile ceaser salad", lack of fuel for farm equipment due to fuel shortages, transportation costs for food... while these energy inputs are a significant protion of the industry's energy footprint - when compared to the larger economy that become quite manageable (at least for 10 years).

SO..... here comes the body politic's contribution to the "fine mess we are in"...

It seems to me that we have become a nation of James Carville's (Bill Clinton's BRILLIANT operative)... running a personal war/quick response media room to spin every issue that comes up: Our guy/group f*cked up here (Obama and Iran)... so we are going to counter with XYZ and 123 (he's a wonderful family man!) - but we are not going to fix our error. No, that would require us to admit the error in the first place... we can't do that! That would be, well.... UNAMERICAN!!

Talk is cheap. Programs and agencies are expensive. What, exactly, has the department of energy done that is worth its $28 BILLION budget? What have they done that is worth a $1 BILLION budget? And where, exactly, does the money come from for the $28 Billion? Do you have any idea how many of these worthless programs we have? But that ain't the bad part... The bad part is we have TENS of MILLIONS of people that have been so addicted to certain social programs and policies (this includes the pensions and disability payment for people that worked for these worthless programs... in addition to the usual suspects). These people have little to no idea how to do anything for themselves, and the policiy response has been non-existant, and when you bring that fact up... the James Carville wannabee's come out of the woodwork and bring up all of the ghosts of administration's past.

It looks to me that the U.S. will lose about 25% of its total daily Oil supply into the system between the end of 2007 and the beginning of 2013. That's 25% over 5 years, and we are a third of the way through those 5 years. Now throw in a $2 TRILLION budget per year deficit that just isn't going away, at a time when the unemployment rate is 10% (and the U6 number is 16%) and climbing, savings are at a historical low (so the idea that folks can go out and buy the equipment - fencing, tools, amendments, seeds, livestock, etc... - they would need to become more self-sufficient just is NOT GOING TO HAPPEN)... Where are the resources going to come from for the transition? After all, as Donal so correctly (IMHO) pointed out, the problem will be an inability to PAY for it all.

This would have to be the most impressive balancing act EVER.


Saturday, June 27, 2009

The Body Politic's ADD

In my last post, "Obama finished on World Stage", as in previous posts, I point out a measurable failure on the part of the Administration, and the commentary and emails go off on a million tangents.


Is it because, for well over a generation, the world's body politic has been awash in the media reports of politician's refusal to answer the question directed at them, or address the issue at hand?  I spoke of Obama's poor handling of Iran, and I got email about how all of the world's problems were caused by Ronald Reagan!  

The GWB cause celebre has got to come to an end.  Yo!  You Democrats! You Liberals!  You WON!  Now you have to govern, and have your actions measured, scrutinized, reviewed, considered, reconsidered, etc... You have to ANSWER for your promises, your claims, your mistakes, and even your successes.  Welcome to the winner"s circle.  This is true in any high profile success.  Hit it big as an actor, businessman, or politician - this is your reward.

All presidents after George Washington inherited somebody else's issues. Every generation blames the one before.  But after a while... you gotta stand on your own two feet.

Barak Obama is not Chairman of the U.N.  He is president of the United States of America.  He better get over the idea that everyone is going to love him.  Just ask Arnold out in Cal.


Friday, June 26, 2009

Obama Finished on the World Stage

I am just sick at the opportunity squandered by the Obama Administration, and the absolute inability of his supporters and their political sensibilities to see what they have wrought.

Iran's Junta just stole a MASSIVE election and murdered their own people, and are intent on murdering more. Every regime in the world looked at that, then looked at the Weeney-in-chief at the White House, and laughed up their sleeve. Way to go guys! First California's complete and utter economic destruction and now the end of any opportunity Obama had in effecting any kind of international policy. The Left is batting 1.000!

Just a couple of words to you Obamaphiles:

The U.S. does not NEED to influence our friends and other liberal democracies. We NEED to influence authoritarian regimes. You will wind up with far more blood on your hands than your boogey man, GWB.

The presidency is not for the faint of heart.

"Can You Hear Me Now?"

The glad handers and happy slappers on Wall Street and in Washington just got a smack to the ear.

After all of the denial about the U.S. Budget Deficit and our silly social programs that we have NOT been paying for, the Chinese felt the need to clarify.

In other words... "Can you hear me now?"

There is an old adage that The Powers That Be really should listen to:

"When you find yourself in a hole - stop digging."


As I laid out in my previous post, the U.S. saw Peak Oil in 2005, and supplies began to decline earnest in 2008.

In earlier posts I have made the case that because of the size of the U.S. Budget Deficit, the interest on the debt will outpace any possible growth in GDP. Without more Oil, growth is going to be hard to come by.

Now China is making it clear that things must change.

Things could really come unglued politically and economically in the next several years. So what should you do?

Most of us are completely broke, we just don't know it yet (If you had you had a Billion German Marks at the end of WWII, you had less net worth than a guy with 100 live chickens). If you are not willing to make any serious adjustments in your life, well, "no decision" is a decision, too. Besides, when you think about it, the average (poor as a church mouse) person in the U.S. lives to be 79. The Rich and Famous Kings of Rock and Pop (Elvis died at 47, Michael Jackson at 50), can't seem to make it past 50.

Life is short. Go to the beach.


Thursday, June 25, 2009

Review of the Data

Total Petroleum supplies into the U.S. peaked in 2005 (not 2007, as I had previously reported) at 20,802,000 barrels per day ("BPD").

For the last 4 weeks, total petroleum supplies into the U.S. system were 18,320,000 BPD.

The official decline: -2,482 BPD.

Well, sort of.

Ethanol supplied into the system in 2005 was immaterial (not zero, but close enough for statistical analysis). Over the past 4 weeks ethanol supplied 731,000 BPD of U.S. total supply(under "other liquids new supply").

In order to make an "apples to apples" comparison we should remove that number as well. Ethanol is NOT petroleum.

20,802,000 - 2482 - 731 = 17,589,000, or a decline in supply of 3,213,000 BPD. That is a decline of 15.44% over 4 years, with most of the decline ( nearly 15%) coming over the past 2 years.

OK so far?

Petroleum supplies to the U.S. have declined from 20,802,000 BPD in 2005 to 17,589,000 BPD in 2009. Here is a table for total products supplied 1990 - 2009. Please notice that we are back to 1997 levels of supplies.

(BTW and just FYI

U.S. population on January 1, 1997: 266,490,000

U.S. population on Janurary 1, 2009: 305,529,237

40,000,000 more folks, no more petroleum, and this metric is going to get much, much worse.)

Will the U.S. total products supplied continue to fall by 7% per year, as it has over the past 2 years? I think that the rate of decline should accelerate for several years, with the period 2010-2015 having the steepest rate of decline. This is due to domestic production remaining nearly constant (perhaps a 2-3% decline) while declines in imports accelerate. As the proportion of domestic supplies increases as a percentage of total supplies, the rate of decline will by necessity decline (provided that the rate of domestic decline remains in the 2 - 3% range. The Mad Scientist thinks that the decline rate for domestic production this year will be at least 3.5% and 6% in 2010 because of collapsing rig counts for NG production).

For the sake of argument, and for our purpuses here, let us assume that I am correct. Let us move the discussion 3 years hence, 2012, and let us assume that total products supplied has continued to decline at 7 % per year and total supply into the U.S. system is somewhere in the 15,000,000 BPD area.

What are the ramifications and outcomes? And "what if" the market place recognizes that this trend is going to continue?

This is really happening. Right now.

For those of you that beleive that the NG people are correct in their claims... the data does not support them just yet. Yes, we are going to have NG storage full this October/November, and yes, that likely means a significant decline in NG prices for 2009. Which also means a significant decline in E & P for NG, which results in less Crude production...

This does not mean that either commodity will move in a straight line. I think it means wild swings which will be far more damaging to the economy than if we could project the E & P budgets better.

Now throw in $2 Trillion per year U.S. budget deficits for as far as the eye can see...

This just gets weirder and weirder.

Mentatt (at) yahoo (com)

Wednesday, June 24, 2009

The Grind Goes On...

The world is grinding through its Oil supply, talking "green shoots" to keep people going into debt, and aging, with all of aging's attendant societal costs...

Energy will be the dominant issue of the next decade, 2010 to 2019. How to pay for all of the alta cocker's (that is a technical term for senior citizen, something that I am not as far from as I would like to be) dragging a prostate behind them (I know a thing or two about BPH), will be the dominant societal issue after 2020.
"The 2020s for most of the developed world will be an era of fiscal crisis, with a real long-term stagnation in economic growth and ugly political battles over old-age benefits cuts," said Richard Jackson, director of the Global Aging Initiative at the Washington-based Center for Strategic and International Studies.

"In emerging countries like China, they will face the real prospect of a humanitarian aging crisis," he said.
(and from the same article)
In the U.S., immigration of younger residents has helped slow aging of the total population. Still, Medicare is projected to become insolvent by 2017, and President Barack Obama has said that overhauling Social Security and Medicare is critical. In making reforms, Obama and a Democratic-controlled Congress risk alienating a 65-and-older voting group by cutting benefits or their younger generation by raising payroll taxes.

"As they age, boomer support on issues like Medicare and retirement security will be just as key for continued Democratic success as the party's hold on younger minority voters," said William H. Frey, a demographer at Brookings Institution, citing higher voting rates among seniors who could prove important in key states such as Ohio, Pennsylvania and Missouri.
Talk about your uncanny grasp of the obvious...

A serious decline in imported Oil into the U.S. at a time when largest slice of the American pulation will be the aged - and given our propensity for obesity - decrepit and infirm, does not bode well for the economy. For those of you who think we will simply open the immigration spigot... The human migration pattern since the beginning of time has been one in which people migrate to follow resources, and the most important resource they have been following into the U.S. has been Oil (first domestically produced and then imported)... and that is now trailing off.

For our markets to function they must provide a positive return over time, after all, if the market's provided a continuous negative return, no one would participate in them - and that would be the end of that. Therein lies the rub.

In real terms that is beginning to look, from my perspective and at this moment, as the most likely outcome. This is not to say that by 2040 we have not sorted most of this out... but seeing how I will be nearly 79 in 2040 (if the fates allow), well I think I will focus on the nearer future.

The question is this: Do you earn and save US$ for the purpose of providing for your needs in old age or not? Today is easy. Watch your weight, get enough rest, play, make love, etc... these are fairly easy decisions. In what field should your children be trained? How much should you pay for the training? These questions offer some unique challenges.

(It is a cost/benefit analysis, after all. I have seen reports of kids graduating from Harvard and other elite private colleges that are "relieved" to not have the option of making too much money on Wall Street, partying like a rock star, traveling the world, and having a love life that would make Caligula blush for the first decade or 2 out of college (talk about FOS!), and instead are thrilled with the prospect of $45k per year teaching jobs so that they can help save the world... (I am rolling my eyes at this point)... well, kiddies, only a rich kid would talk like that. Poor kids would be too busy doing the math on how long it would take to pay back $200k in student loans on a $45k salary. I guess there are advantages to being poor or working class after all. You don't have to spend as much time Bullsh*ting yourself.)

Speaking to my contemporaries, people with kids in high school and college: What, exactly, are our kids going to do for a living armed with an undergraduate degree in Woman's studies, art appreciation, english literature, or my favorite... "marketing" ? Especially when all those over paid/under worked positions in Academia dissapear? (In my next life, I want to come back as a professor at a business school - I won't have to make payroll, deal with regulators, survive recessions, and actually perform a useful service to the market place! I will merely pontificate from on high. It always staggered me that Wall Street went recruiting almost exclusively from the elite business schools - people with absolutely NO EXPERIENCE of accomplishing ANYTHING, with the glaring exception of navigating the selection process of their Alma Mater - while there were THOUSANDS of guys (and gals) that started a business from sratch, built it to millions in sales, and actually had profits from all over the U.S.... Nah, Wall Street did not want to recruit rifraf like that... they were looking for folks that walked and talked just like them. They wanted people that had training assembling Lego models from Harvard's Business School rather than a guy had built a few things and made a few bucks. Go figure.)

The kids from my adoptive home town of Boca Raton in South Florida don't even know how to run a dishwasher (but they have DRAMA down pat). The "help" does that for them. I was reading the sad story of former star NFL quarterback and fellow Hurricane, Bernie Kozar's bankruptcy filing (If anybody can come back, he can. Bernie, by all accounts, is as sharp as they come). In one of the articles he was complaining that his kid's idea of cleaning their room was telling the cleaning lady to do it, and that the live-in nanny's had cleaning ladys. Talk about "unintended consequences". (Though we could easily afford it, my wife and I do not have a nanny or a cleaning lady. We have found that if you keep your home and life humble, small, and simple, and you get the kids to help, you can get it all done - provided that you live on one income AND your wife is not corrupted by "The Real Housewives of Horrorville".) Kids raised in this environment frequently develop "afluenza", and have a difficult time adjusting to paying their own way as adults.

But I digress...

The slow grind is on... with misdirection and deceit from our political leaders and entrenched interests the order of the day. The "unintended consequences" from a myriad of actions and decisions derived from indutrialized society have brought us to this cusp, and as industrial society winds slowly down over the coming decades we will adjust - like it or not. While the world won't come to an end nor the waves cease to crash onto the shore the world will change. And that is the kind of "Change You Can Believe In".

You see, we are nearly half way through 2009. Oil imports into the U.S. are down 5.7% from 2008 (and total products supplied are down 6.1%, year over year, and if I take ethanol's incfrease out of the picture, and compare apples to apples, petroleum supplies are down over 8% year over year), and in 2008 imports were down 8% from 2007. The U.S. will NEVER AGAIN be able to import the amount of Oil the U.S. imported in 2007. The Powers That Be can debate, argue, cajole, deny, and even persecute those that point out the obvious... but you can't fool the markets for long.

Mentatt (at) yahoo (d0t) com

Friday, June 19, 2009

Things Change, Times Change

Things change.  Times change.

Look at Iran.  The Islamic revolution of 1979 was, in fact, a PEOPLE'S revolution.  That was then, this is now.  The children of the people from that revolution feel differently about their place in the world than their parents' and grand-parents' did.  

The funny thing is that the older generation literally sowed the seeds of this generation's "revolution".  The older generation were religious fundamentalists. In keeping with their beliefs, they had HUGE families with many, many children.  Consequently, Iran has among the youngest populations on earth - nearly 70% of the population is under 30.  And it is the children of the Islamic Revolution Generation that are have decided to reject their parent's politics AND religion - theocracy - and here we are, with people being slaughtered in the streets.  (Ironic does not begin to describe that.)  The same thing is occurring here in the U.S. with the NAACP, NOW, JDL, South Florida Cubans, etc... and, so far, absent the pesky slaughtering of innocents.

"When strange peoples meet... first they fight, then they fornicate".  

DNA wins all wars.  Groups that have been successful in avoiding assimilation do so by controlling the reproductive options of their females, using techniques like head scarves (to differentiate), "honor killings" (Oxymoronic at its best, moronic at its worst), and dietary restrictions (if you can't eat together, its kind of tough to meet new peoples, and even if you did the relationship isn't going very far), among other strategies. (Look, I am not a qualified sociologist (whatever that is),  just a self-educated, white trash, multi-ethnic mutt American, in an inter-racial marriage that grew up in the world's biggest ethnic melting pot (New York) with a half century of doing my best to keenly pay attention to the human condition around me... well, if you feel you know someone more familiar with assimilation, I am all ears...)

In my recent post where I  beat the hell out of Special Interest Groups ("SIG"), the thing I was trying to point out is that times CHANGE.  While there may have been a time when certain SIG's were absolutely necessary in bringing about social change there will ALWAYS come a time when either the change has already happened, OR the group has been assimilated into the society and now no longer exists in its previous form and there is nobody left that cares, except those in power at the SIG. ( If history shows us anything, it is that groups that absolutely refuse to assimilate into a given society will go through periods of acceptance and oppression - not suggesting that this is right or wrong, just that it IS the human condition - and that the "leaders" of these groups will use this to further their agenda of rejecting the broader society around them - again not attempting to indict nor applaud, just calling 'em like I see 'em - until either they become the dominate group or SIG or die out.)

Things change, people change, data changes, politics change, etc... Each day is a new day - but not for Special Interest Groups.  For them nothing changes.  

Just look at Iran.

Mentatt (at) yahoo (dot) com 

Thursday, June 18, 2009

Why unemployment or GDP are not the best metric

Unemployment increased by 5%, from 4.4% to 9.4% over the past year.  GDP contracted, what was it? 5.4% in Q1?

How can that be?

Because unemployment and GDP are not the best metric to determine the health of an economy - especially in a country with MASSIVE deficits - a better metric, IMHO, would be tax revenues/collections... and they don't look so good.

All of this is from the government department: "If we can't dazzle them with the truth, we'll baffle them with BULLSH*T".

Wednesday, June 17, 2009

Obama no different than any other post war candidate turned president

President Obama, hailed as a "Messianic figure" during the election (WTF??!!) yesterday said he might have to raise taxes on MOST taxpayers if the economy does not grow sufficiently to pay down the deficit.

He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.

I have no problem with a President doing what needs to be done. Of course, Obama is not doing THAT - that would be cutting the federal government expenditures rather than raising taxes (2 sides of the same coin). My problem is that Obama, his campaign, and his supporters, were as miserably deceitful during the campaign as Richard Nixon, Al Gore, GWB, John Kerry, and Lyndon Johnson - all of whom lied through their teeth repeatedly - were during their campaigns. I could list the campaign promises that were either out right lies or complete fabrications but it would take far too long - I don't make a living writing this blog.

Further, Obama's abuse of MONEY during the campaign simply cannot be tolerated in a democratic society - As Chris Matthews (a Democrat) candidly said on his program "Hardball": "the ends do not justify the means". What a terrible precedent you, and especially your supporters have set.

(Frequent commentor Donal Lang recently pointed out that I have a predilection for offending every special interest group I can get my hands on... how very perspicacious of you, Donal!)

Not that the true believers, the Special Interest Groups, would be able to think this through.

Political Special Interest Groups ("SIG"), by definition harm everyone not associated or benefiting from the SIG's efforts. Doubt this? Politics is about control or power, and money. "Control" or power over others that the others did not wish to relinquish, and use of tax revenues to benefit the SIG - there is no other reason for a political SIG to exist! How does taking your money and having someone else use it for their purposes not hurt YOU?

Every political SIG, political movement, cause... will outlive its usefulness. EVERY SINGLE ONE. You might debate the actual date a particular SIG fell into superannuated Limbo, but not that it does, and WILL happen. It is just like death and taxes.

What is the purpose of the NAACP? The President is black for crying out loud, can you get any more "advanced" than that? (What is the definition of "black"? Or as in the case of the NAACP - "colored"? What "color"? My wife is decidedly brown - is she "colored"? Our children are more of a Mocha Cappuccino - are they "colored"? Why should the NAACP be trying to "advance" anything for very, very upper middle class "colored" children? I wrote a letter to the New York Times years ago asking why Jesse Jackson, Jr. the black son of a multi millionaire establishment family should receive considerations unavailable to me, the white son of a furnace mechanic from the Bronx? What are we trying to accomplish here?

What about the National Organization for Women ("N.O.W.")? Women represent more than 1/2 of the people earning college degrees earned since 1990 in the U.S. Women represented only 25% of the people that lost their job in this recession. Women outlive men by 5 years! What is the purpose of N.O.W. in this era? (To be fair, N.O.W. is slipping away, as it should be at this time. It might have a last gasp if it elects a new, young, and BLACK woman as president. What, exactly, does the NAACP want to advance?)

(I can do the same trick with Cubans in Miami, Gays, Little People, Fat People, Smokers, Addicts, Muslims, Christian, Jews, Triple AAA Members, AARP, Mortgage Holders... and all of the other "victims" out there.  Every special interest group uses the same playbook, just some use it a little differntly.)

There was a time when groups like this mattered, when they served a purpose, when they had a use. That is the problem with SIG's. They live longer than they should and frequently cause more damage during their "walking dead" years than they served during their productive years.

But live on they do.  All organizations become consumed by organizational politics and continue to exist only for the benefit of that political effort, but in the end "all revolutions eat their children."

Barak Obama could have done some good stuff. Instead, it appears that his administration will be steared by supporters championing such issues as Gay marriage, abortion rights, and confiscatory tax and spend policies, and that's OK, to the winners go the spoils... but not exactly the stuff of Watershed Presidents. He could have taken on some tough stuff that a white man could not - like calling black men on the carpet about responsible parenting, not dropping out of high school, and the disproportionate level of convicted felons and inmates within the black male community (and I am NO FAN of Law Enforcement).  Now that is the kind of thing that might define a Watershed President. (If a white man from a rich family (GWB) tried to do that, the NAACP would be marching on Washington.) He could have directed the Federal HHS agency, among others, to teach people how to do for themselves instead of counting on a government that is absolutely, positively going to go broke. He could have LED, instead of being pushed around by his supporters - SIG's that only wanted something from him, not for the country.

The U.S. is going BROKE. BROKE! Because of these SIG's (AARP anyone?). (Spare me the "its the military budget" that is causing our fiscal woes... it is part of it, I will grant you that, but it is not the Lion's share, not even the cub's share. We need a military, we just don't need a military big enough to support an empire.)  

The U.S. and its citizens do not appear to be able to see that SOMEONE out there is selling our bonds and our currency and buying Oil, Copper, Gold, etc... A funding crisis could hit the U.S. Treasury market at any time from this point forward - and under no circumstance can I envision that said funding crisis would be more than 3 years hence.

There is no solution possible given the political realities - I am just venting here. Keep your own house in order. It is the best thing you can do.  For myself, I have begun to take delivery of precious metals and I am buying farmland and agricultural investments.  I still believe that the odds of one more serious deflationary scare remain better than 50/50 - so I have made contingencies for that, but I would not stake my life's savings, our family's security, and my children's education on that.

Mentatt (at) yahoo. come

Tuesday, June 16, 2009

Iran and Law Enforcement

I hope you have seen pictures of those nice members of Law Enforcement in Iran beating people for having the nerve to expect that their vote would count!

U.S. Law Enforcement and Iranian Law Enforcement personnel are of the same mentality - the only difference is the U.S. Constitution.

Ever read the document? It was designed by our framers to PROTECT OUR CITIZENS FROM OUR "AUTHORITIES". Wanna know why? Because we (and every other country) need protection from the "AUTHORITIES”.

Just keep this in mind:

Who fed the Christians to the Lions in Rome?

Who stuffed Jews into the Ovens at Auschwitz?

Who carried out the murders under Stalin, Mao, Pol Pot et al...

Who lynched and used attack dogs and beat Black Americans in the South during the 1960's?

Who ran INTO the collapsing World Trader Centers to save others when everyone else was running out?

The answer to all of the above... "The Authorities", those nice guys with the small wedding tackle that feel the need to make up for their inadequacies by doing the bidding, without doing any THINKING, of whoever is in power, AND doing some good, too. Law Enforcement is a necessary element in an orderly society - and without proper control AND an ethic of humanitarianism, which has been sorely lacking in its ranks, it may be the element that leads to disaster.

(Ever notice that, years later, when the offenders are called on the carpet in public – Nazi prison guards, Alabama police officers, Pol Pot torturers – are all tears and sorrow for their transgressions. “I was just following orders”... Either age has given them wisdom, or their guilt has overcome them, or they are just embarrassed and afraid – whatever – they knew full well that what they were doing was wrong.)

So, what's this got to do with energy? Iran is an exporting nation, right? One of the biggies, right? They seemed awfully flippant about the will of the people, even with a 100,000 man U.S. army right next store.  Getting close to a nuclear weapon, I hear tell.

Just surf the Web and look at those nice police officers in Iran serving the public. Then thank your lucky stars you live in America or the West.

Mentatt (at) yahoo (d0t) com

Monday, June 15, 2009

The End of an Era

It is a sad day around the AEC and Jeffers Farm.

Katherine Grossman, AKA "Granny Miller", has written her last post on 5/29/09.

I never met the woman, but I relied on her blog HEAVILY after I bought my farm.  Her down home wisdom and charm shone brightly through her pleasant prose and detailed instructions.  Granny Miller will be sorely missed.  

I am depressed.  I hope she changes her mind and comes out of retirement after a well deserved rest.

If Sharon Astyk calls it quits, and Dmitri Orlov writes any less... (that is a hint, Mr. Orlov), I might as well cancel my internet connection.  Please Sharon & Dmitri, for the sake of my mental health, keep it coming - at least till I can find a fix to help me get over Granny.

Mentatt (at) yahoo (dot) com

Saturday, June 13, 2009

"Won't be long Now"

While on his deathbed, my late father was receiving a sponge bath from a hospice health aid.  As my father was want to do, he was fussing and complaining and the lady giving him the bath said:

"It won't be long now."

To which my father replied:

"That's what the Moyle said." (A "Moyle" conducts the surgery to remove the foreskin in the Jewish circumcision ritual known as a Briss.)

As far as I know, it was the last thing my father said.  Gotta admire a guy who can crack a joke in that circumstance.

"It won't be long now".

Change happens more slowly than most of us expect (with the exception of how we age), and if the rate of change is slow enough, it appears to us as if everything is "normal" - that there wasn't much change.

If I could load you into a time capsule and head back to June of 2004 and then blink you back to today I bet you would notice a big change.  If I do it over 5 years... yawn....

"It won't be long now."

The next 5 years, and while I think the rate of change will accelerate, will be no different.  You will come to view 2014 as the new "normal".

But what will "change" over that time period?  Will there be an abrupt "change"?  A nuclear explosion on the Korean peninsula?  Or in the Gulf?  A complete dislocation from a currency collapse?  Perhaps, but probably not (unless it does).  These are low probability/high consequence events.  They can happen, but are unlikely - at least individually.  That one of these might occur.... well the probability is somewhat higher.

No, we are more likely to muddle through, with industrial civilization grinding along at a slower, and slower, and slower clip... but 5 years from now, that "slower clip" is going to be significantly slower, especially per capita, for folks in the West, and America in particular.

Imports of Oil into the U.S. have already declined over 10%.  Forget the price; think physics.  Is it possible to get as much "work" done with 10% less Oil?  NAFC. In 5 years the decline, peak to trough, will be more like 30% to 50%.  If you think the Auto industry is hurting now, just wait until there is not enough fuel to wear out our cars.  

Now, think home prices, and their effects on the banking system.  Homes far from employment centers will be abandoned as WORTHLESS.  You don't gain by foreclosing worthless properties.  I could go on and on on the effects PO will have on sprawl, but you guys know the drill.  But the concomitant effects on banking, retail, services, etc... are going to be surreal.

Of course, all of this is tremendously deflationary... but not to worry... the U.S. Budget Deficit is going to more than make up for that.

"Won't be long now."

The economy might be bad now, and it might even improve for a few months here and there, but in 5 years economic output is going to be down - BIG.  There will be winners and losers.  The Leftist PO crowd is out of their collective MIND in thinking that Americans are going to cooperate in huge, politically correct, eco-villages of enlightened former trust fund brats.  Nope, people are going to compete - for sexual partners, for material goods, for land, for political influence - just as we did during Medieval England, Roman Europe, and North Africa's Egyptian empires.  Some of that competition is going to come from some rather unpleasant, non community minded, individuals and groups (MS-13, Russian Mob, La Cosa Nostra, and former police and torture authorities come to mind).

And it "won't be long now".

Could the U.S. plant wind mills and harvest Natural Gas quick enough to offset the decline in Oil imports?  It is not impossible, but the probability is low.  That would require, intelligent, cost effective, not influenced by special interest groups, rational government - have you EVER seen any of that?

It really "won't be long now."

Unemployment, Shlemployment!  What matters is the earnings of the small business owner, and he has NEVER been calculated into the unemployment picture, and those earnings have gone over a cliff and ain't anywhere close to bottom.  Meineke Mufflers, Drive thru Dunkin Donuts, Jiffy Lube Oil Change, etc... there are MILLIONS of these types of businesses, and they are going to go down over the next 5 years like a ROCK IN A POND (much like the car dealers over the last several months).

People will drive less, get in fewer car crashes... not good for insurers or lawyers.  Eat less drive thru fast food... not good for Jenny Craig... Have less and make less money... not good for Tax revenues.

When "won't be long now" happen?  Soon.  Very soon.  

Mentatt (at) yahoo

Friday, June 12, 2009


Remember GWB?  The Left's Boogey Man extraordinaire?  Remember what a "bad job" GWB did in managing the economy?

Any of you Lefties wanna place a gentleman's wager with me (to benefit the charity of choice of the winner)?  

Well, he is going to be Obama's pick, too.

So much for change you can deceive yourself with!  


Thursday, June 11, 2009

The Numbers Don't Add Up

Japan's Trust in U.S. Treasuries "Unshakable". (perhaps he should have given us his definition of "shake")

The U.S. plans to borrow $3.5 Trillion this year (2009).  The government acknowledges nearly $2 Trillion in new borrowing and another $1.5 Trillion in debt rolling over (bills, notes, and bonds that have matured and need to be refunded).  I have ZERO faith in this Administration's projections - they aren't just wildly optimistic... they border on the absurd... so let's go with $4  Trillion of total borrowing, with $2.5 Trillion being the net number.

“We have complete faith in U.S. economic and fiscal policy,” said Yosano, who is also the minister in charge of Japan’s banking sector and economic policy. “The U.S. dollar’s position as the world’s reserve currency isn’t under threat.”

U.S. President Barack Obama has tried to assuage investor concern by pledging to cut the shortfall in half by the end of his first term. Obama may borrow a record $3.25 trillion this fiscal year, almost four times last year’s amount, according to Goldman Sachs Group Inc.
Well, Goldman is off a little from the official OMB numbers...

Now, here is a quote from my good friend and fellow analyst at the Sleepy Hollow Funds, the one and only Mad Scientist:
Currently the US will issue over 2.0 Trillion USD worth of Bonds over 1 year. That is net. Including the rollovers it will issue over 3.5 Trillion. That is the official line. My estimate is for over 4.0 Trillion total (2.5 trillion net). Over the last 2 years the Chinese have purchased close to 40% of US bonds. To keep this ratio up they will have to purchase over 1 trillion USD Net of Bonds, just this year. Bloating their US Bond holdings by over 125% in one year. But wait...we are not done yet. The rest of countries are in no position to step to the plate here. Many of them have troubles of their own and last year's record Treasury Bond purchases from the Middle East were only possible because of $100+/Barrel oil. With our Bench lineup retired or hurt or just plain unwilling to play in round 2 of "Who wants to be a Trillionaire (sponsor)?, China will have to buy close to 60% of this garbage. Ditto for 2010. China will be a proud holder of over 3.5 trillion USD of Bonds in 2 years. Now this is not a misconception, the Chinese are generally better at math than Americans. I am sure that they can see this as plain as day. I am even more sure they are not running around to their bosses saying "Sir..I figured out a way to solve our 800 Billion USD problem. We will make it a 3.5 trillion USD problem in 2 years and at that point we will sell the bonds and buy General Motors."
(For the record, I have REPEATEDLY asked the M.S. to stop making numerical sense. That just does not fly here in the West, but he insists...)

Got that?  For the Chinese to keep the same level of investment in U.S. Treasury paper that they have had in the recent past they will have to invest $1 TRILLION!  (I feel like Dr. Evil when I say that, "Moo hahaha") in 2009 alone.  What about 2010?  And 2011?  Oh, I'm sorry, I forgot... Obama PROMISED to cut the increased deficit in half by the end of his first term... Anybody out there doubt a politician's promise??  Nah...  Hmmmm, when does his first term end?  January 2013.

Now the Chinese could certainly pull a U.S. and print Yuan - creating worthless money in exchange for worthless bonds... But would they?  I would have to say "NO".  In fact, it is quite possible that the decline in the Long Bond and the rise in Oil is arising from a strategic move on China's part - but let's not go there just yet (that's for a future post)...  No, the Chinese, unlike the U.S., think DECADES ahead (remember Unocal?  China was Peak Oil Aware long before Americans ever heard of the term).  Wanna bet they are thinking out past Obama's first term?  And from a militaristic point of view, China could win a "war" with the U.S. without firing a shot - by letting the US$ fall on its face or by forcing interest rates into the double digits (China's leaders and military have no doubt read "The Art of War... To Win Without Fighting").  No, I am in agreement with the M.S. - China is not going to destroy its currency in order to save its US$ investments.  Not even to save its U.S. export market - they would be far better served to take the hit now, and use the Yuan they would have destroyed to save the US$ to increase exports elsewhere AND TO INCREASE DOMESTIC DEMAND.

Japan may or may not be willing to go down with the ship/US$.  China?  NAFC (nor Russia).

Mentatt (at) yahoo

Wednesday, June 10, 2009

A Bit Lost

I am a bit lost, at the moment.

Mortgage rates have skyrocketed (because the U.S. Treasury market got smoked), leaving mortgage applications to decline smartly.


Now these are fairly important macro events, yet the U.S. equity market is trending steeply upward.  Its times like this that I wish I were a momentum trader.  Oh, well.  Perhaps I have overstayed my welcome in the Bear camp.  Or maybe money managers must indiscriminately put money to work fearing under-performance.  As Mark Twain once said of the U.S. north country, "10 months of winter. 2 months of tough sledding" would perfectly describe working in this market.


I'd like to say that I am enjoying watching California squirm with the highest taxes in the nation, the highest taxes on "the rich", and a budget disaster to prove, once and for all, that the silly economic  sensibilities of the Left will always lead here - to disaster - but there can be no joy in watching governments ruin people.  Way to go guys.  California was not satisfied stealing from their most productive citizens - now they NEED to steal from working folks for the next several generations to pay for their ill-considered political beliefs.  Still, you won't be hearing any "Mea Culpa from this crowd.  They will find a way to blame GWB  or Ronald Reagan or Abe Lincoln(LOL!), and their True Believer followers will fan out and spread the word.

California is the 8th largest economy in the world.  A more perfect environment to test these silly tax and spend economic policies could not be found.  These policies have failed miserably. But not to worry, the gang MS-13 will be happy to show you how its done.

Mentatt (at) yahoo

Tuesday, June 9, 2009

"The Federal Reserve will not Monetize the Debt"

"The Federal Reserve will not Monetize the Debt" - Fed Chairman Ben Bernake testifying before Congress.

And with that 8 word statement, the Fed Chairman announces the end of empire (not that empire was such a good idea), the end of Medicare, Social Security, etc...

The fact that a Fed Chairman has to make this denial should make it abundantly clear that most feel that the Fed has little choice. But what is the Fed to do? Speak plainly and truthfully? The Fed is, in fact, a government agency and a political body, irrespective of its claim of independence. It is not in the business of being truthful. 

Governments with massive armies just miles away from their capital cities issue stirring orations of impending victory. Cancer patients speak of "beating this thing". The spouse is the last to know. That is how denial works.

But the emperor has no clothes. What engine is going to drive the repayment of the debt and fund all of those silly programs those dim-witted pols out of San Francisco City Hall thought were such a grand idea?  

The Fed will monetize the debt. It will do it over time, like Chinese (American?) water torture, but in the end the Fed alone has the power to soak up all of that paper.

The truly sad and disturbing thing is that when one states the obvious, and lays it at the feet of those responsible, their minions, the "True Believers" come back with sarcastic remarks that anyone who dares to state said obvious must be a capitalistic pig whorefuses to pay his "fair share", a Nazi, a fire breathing right winger, supporter of Oligarchs, cruel to orphans, not to mention, when all else fails, "stupid".

My apologies to the converse sneaker and hip T-Shirt clad, pony tail sporting, testosterone challenged, trust fund benefited Man from Berkley. (sorry, that one got away from me)


Get a new schtick!

Because once the Fed does its little monetizing trick, all those people your posse addicted to those social programs will not take to the streets to thank you for the wonderful largess you have supplied them with.  But they will take to the streets, to cook trust fund brats over a garbage can fire - medium rare.


Sunday, June 7, 2009

ELP from the guy that thought up ELM

More from Jeffers Farm here for folks interested in self sufficiency and small holdings...

Here is an excellent article from our friend Jeffrey Brown, also known as Westexas within the Peak Oil community...

Jeff is one of those rare folks that is blessed with both the ability to think and analyze abstractly, and to say it out loud when no one else was willing to.  

I give you "Westexas"...

How to Prepare for Peak Oil and Economic Collapse: The "Economize, Localize, Produce" Plan ("ELP")

by Jeffrey J. Brown

I have been advising for anyone who would listen to voluntarily cut back on their consumption, based on the premise that we were probably headed, in a post-Peak Oil environment, for a prolonged period of deflation in the auto/housing/finance sectors and inflation in food and energy prices.

To put our current rate of worldwide crude oil consumption in perspective, during George W. Bush's first term, the world used about 10% of all crude oil that has been consumed to date, and based on our mathematical models, the world will use about 10% of our remaining conventional crude oil reserves during George W. Bush's second term.

First, a discussion of our current economy.

The Current Economy, "The Iron Triangle" & The Mortgage Meltdown

Author Thom Hartmann, in his book, "The Last Hours of Ancient Sunlight," described a high tech company that he consulted for that went through several rounds of start up financing, and then collapsed, without ever delivering a real product. At the peak of their activity, that had several employees and lavish office space--until they ran out of capital. His point was that this company was analogous to a large portion of the US economy, which has the appearance of considerable activity and uses vast amounts of energy, but how much of this economic activity delivers essential goods and services?

I have read, and it seems reasonable, that the majority of Americans live off the discretionary income of other Americans. We are therefore facing a wrenching transformation of the US economy--from an economy focused on meeting "wants" to an economy focused on meeting needs--and the jobs of a vast number of Americans are thereby directly threatened in a post-Peak Oil environment.

I have described three segments of what I call the Iron Triangle:

(1) The auto/housing/finance group (the "Debt" group);

(2) The mainstream media group (the "MSM" group) and

(3) Some major oil companies, some major oil exporters and some energy analysts (the "Energy" Group).

The Debt Group wants Americans to keep buying and financing large SUV's and houses. The MSM Group wants to keep selling advertising to the Debt Group. The Energy Group provides the intellectual ammunition for the Debt Group and the MSM Group, i.e., we have trillions and trillions of barrels of remaining oil reserves, and Peak Oil is something that we don't have to worry about for decades.

Unfortunately, the net effect of the efforts of the Iron Triangle is to encourage Americans to continue buying and financing large SUV's and houses at great distances from their jobs, because higher oil production, and thus lower fuel prices, are right around the corner.

The US Mortgage Meltdown was inevitable, but in my opinion, the trigger for the meltdown was the increase in oil prices in the second quarter of 2005. The US Personal Saving Rate metric is not perfect, but it is a consistent measurement, and in recent years it was positive--until the second quarter of 2005. It has been negative ever since the second quarter (April, May, June) of 2005 .

The average monthly Brent spot crude oil price, in the 20 months prior to May, 2005 (the middle of the second quarter) was $38 per barrel. The average price after May, 2005 has been about $62, within a range of $54 to $74. I believe that this increase in energy prices was the final straw that pushed many US households into a negative saving rate, triggering the current wave upon wave of foreclosures.

Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA), in 2004 predicted that the long term oil price would be $38 per barrel, because rising crude oil production would force oil prices down in order to equalize supply and demand. In reality, flat to declining crude oil production since May, 2005 has forced prices up in order to equalize supply and demand.

Those who listened to the false promises of energy abundance made by CERA, et al, have had considerable reason to regret it.

What have I and others been advocating? Let's start with Economize.

ELP: Economize

For some time, I have suggested a thought experiment. Assume that your income dropped by 50%. How would you change your lifestyle?

Many employees of Circuit City don't have to imagine such a scenario. Many higher paid employees at Circuit City have been fired and then been told that they are welcome to apply for their old jobs, subject to about a 50% pay cut.

In my opinion, the unfortunate new reality is that we are going to see a growing labor surplus--against the backdrop of deflation in the auto/housing/finance sectors and inflation in food and energy prices. By reducing your expenses now, while you can do it voluntarily, you will at least be better prepared for whatever the future may bring.

A key way to Economize is to Localize.

ELP: Localize

I recommend that you try to reduce the distance between work and home to as close to zero as possible, and furthermore, that you live in smaller, much more energy efficient housing, preferably close to mass transit lines.

If you can walk or take mass transit to work, in many cases you can get by without a car, or least fewer cars--and save considerable amounts of money. Currently, it costs about $7,500 per year to drive the average late model US car about 15,000 miles per year. As gasoline prices increase, and as depreciation rates probably also increase, the cost per mile of driving cars will continue to increase.

I would further recommend that you integrate yourself into your local community. Get to know your neighbors. Become involved in local government, etc.

I would especially recommend support of local food producers, perhaps via Community Supported Agriculture, and support of local manufacturing and local businesses.

Finally, the Produce recommendation.

ELP: Produce

Jim Kunstler has suggested that we should not celebrate being largely a nation of consumers. I agree with Jim. We need to once again become a nation of producers. I recommend that you try to become, or work for, a provider of essential goods and services.

Key recommended sectors are obviously energy--conventional, non conventional and alternative energy production and energy conservation--as well as food production, especially local organic farming close to towns and cities.

Other sectors to consider are repair and maintenance, low cost energy efficient housing, low cost transportation, basic health care, etc.

The biggest risk to family finances is trying to maintain the SUV, suburban mortgage way of life in a period of contracting energy supplies. Beyond that, one of the next biggest risks in my opinion, is excessive and unwise spending--especially debt financed spending--on college education costs.

While we will desperately need engineers and many other technically qualified graduates, we are seeing wave upon wave of college graduates entering the work force with degrees that very poorly prepare them for work in a post-Peak Oil environment. We may ultimately see college graduates competing with illegal immigrants for agricultural jobs.

Perhaps the best education investment that many young people could make is a two year associate degree in some kind of repair/maintenance area, perhaps with summer jobs in the agricultural sector.

I would especially recommend that you consider buying, perhaps with a joint venture group, a small farm, either currently organic, or that can be converted to an organic farm. In the short term, if nothing else you could lease it out to an organic farmer. Longer term, you might consider building or moving a prefab, small energy efficient house to the farm. If nothing else, this plan may provide a place of work for your unemployed college graduate.

I think that "Tiny Houses" will become more popular, as larger homes are no longer viable. Where there are jobs nearby, many McMansions could be subdivided, but absent local job centers, I expect large swaths of American suburbia to be essentially abandoned. As Jim Kunstler warned, American suburbs represent the "Worst misallocation of capital in the history of the world."

Very small (250 square feet or so), highly energy efficient, perhaps prefabricated housing makes a lot of sense, and this may become a growth sector.

I should confess that I in no way have a green thumb, but others certainly do, and there are some very encouraging case histories of Americans doing quite well with their own "Victory Gardens" so to speak, such as this case history: "Berkeley: Urban farmers produce nearly all their food with a sustainable garden in their backyard."

How have people responded to these recommendations?

The Responses Thus Far:

Two responses, from recent years, are illustrative.

First, the West Texan. After outlining my plan, a friend of mine from West Texas thought about it for a moment and then said, "But if we stop borrowing and spending, what will happen to the economy?"

Second, the Dallas socialite. Again after outlining my plan, this lady said, "You're not from Dallas, are you?" I replied that I was not. To which she said, "No one raised in Dallas would ever talk about living below their means."

So, living below one's means, at least in years past, was somehow considered vaguely un-American and socially unacceptable.

However, recently people who have followed some version of the ELP plan, either because of my recommendations, or based on their own evaluation of the present environment, have had considerable reasons to be glad that they voluntarily downsized. So far, I have not heard any regrets from anyone who downsized.

Or, turn it around. Does anyone now wish that they had bought a large SUV and large suburban McMansion--all with 100% financing--on January 1, 2006?

Finally, if we are wrong about Peak Oil, and if you followed the ELP plan, you will have less--or no--debt, more money in the bank, and a lower stress way of life.

Please note that the next essay in this series probably won't be posted until the week of April 16th. I will be doing ELP research, checking out post-Peak Oil locales.

Jeffrey J. Brown is an independent petroleum geologist in the Dallas, Texas area. His e-mail address is
I have been reading Jeff's stuff now for over 3 years.  "Reduce your need for income", "cut your overhead now, voluntarily before you are forced to", and "get to the essential production side of the economy" were his mantra long before the "Great Recession" reared its ugly head.  At the time, 2005-06, the economy was going gang busters and he appeared to many in the MSM to be alarmist, if not shrill and a bit laughable.  NO ONE IS LAUGHING NOW.

People from very diverse backgrounds - the Mad Scientist, The Jewish Farmer (Sharon Astyck, my favorite blog), Westexas, Mentatt (yours truly), JH Kuntsler, Matt Simmons, Congressman Roscoe Bartlett, the Juris Prudence of Doom (Matt Savinar), et al, have all contributed significant (and free) research and critical thinking on the subject - and most have come to very similar conclusions (although that might not necessarily be a good sign... in the immortal words of Mark Twain: "Whenever you find yourself on the side of the majority it is time to pause and reflect").

In any event, I enjoy Jeff's take on the subject.

Mentatt (at) yahoo

Saturday, June 6, 2009

The Mad Scientist takes a Bow

It was the Mad scientist that told me months ago that the rate of change in the unemployment picture would begin to change right about now - that corporate America did not have many folks left to lay off.  Great call.  He also called the decline in the US$ during this recent period.  I should have made some bets accordingly.

I won't get into all of our discussions or his calls as you can read them for yourselves at his excellent blog:

But my hat is off to him and his incredible ability to connect dots mere mortals just can't see.


Thursday, June 4, 2009

Social Program Spending Hit's $2 TRILLION in '09

Before I get to my short rant, those of you interested in small holdings and self-sufficiency can read my most recent Jeffers Farm post here.

I have been pounding on the unsustainable social program spending in this country, and the mutually exclusive issue of providing food assistance to families with children and elderly.  I was thrilled to see Mike Shedlock addressing this in his excellent blog today.

I don't have to repeat it, just click the link.

Bottom line: In a $14 Trillion economy, $2 Trillion is being spent on entitlements and the annual  interest expense on the national debt is greater than the average increase in GDP for the past 150 years.  I hope FDR has gotten over his guilt about being born into privilege.  Oh, I forgot, he's dead.  In that case I hope he is turning over in his grave.  Thanks, Franklin.  


Wednesday, June 3, 2009

Today's EIA Report

Today's EIA inventory report today would not suggest that the U.S. economic recession has lessoned very much, nor that Oil should be much above $50 per barrel.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.9 million barrels from the previous week. At 366.0 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 decreased by 0.2 million barrels last week, and are below the lower limit of the
average range. Finished gasoline inventories fell last week while gasoline blending components inventories rose during this same time. Distillate fuel inventories increased by 1.6 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 1.9 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 15.1 million barrels last week, and are above the upper limit of the average range for this time of year.
That last line: "inventories increase by 15.1 million barrels" is a biggie.  Please note table 1, first compilation "Total Net Imports" for the year is down 4.5% for the first 148 days of 2009 compared to the same period from 2008.  For all of 2008, imports were down 8% from 2007.  

Should this trend continue, and I think it will, industrial production and real economic output will decline at the same time that money supply increases from the Federal Reserve buying Treasury paper... will lead to one heck of a blow off.

You see, it is all about ratios.  The absolute number of dollar units means little without its relationship to the economic out put of the system.  If GDP contracts and money supply remains the same, well... that's inflationary.  If GDP contracts and money supply increases dramatically...

This is not to say that one more wet-your-pants, sh*t-the-bed kind of deflationary scare is not in the offing - in fact, I am betting that it is - but my bet is that it will be the last.


That 50% of my fellow citizens said that torture was acceptable in certain circumstances is beyond my comprehension.  Only the pea-brained fail to make the connection that torture, besides being unconscionable, is a 2 way street?  If one side tortures, the other side will do the same to you and yours.

I have ALWAYS had a very dim view of the mentality of people in Law Enforcement ("The Authorities") of all stripes.  Anybody that WANTS to carry a firearm and a club (and is willing to point that firearm at someone for say, smoking pot), and walk around in an outfit that by all appearances looks like they are about to invade Poland should be summarily disqualified from working in Law Enforcement as they are mentally deficient as a human being.  Law enforcement personnel should be DRAFTED from the general population, with extra effort deployed in drafting philosophy students from the major universities, and rotated out of Law Enforcement after a several year stint.  After all, ANYONE working in a sewage plant and given enormous powers will shortly stink to high heavens.

Think about who the people carrying out the torture are:  They are the "Authorities".  Did they kiss their wife and kids good-bye that morning, drive to the office, warm up with some Nazi S.S. videos to set the mood and then step into the torture chamber ready to physically harm a helpless and restrained human being (enemy or no)?  Do we want these torturers then walking around in society?  WTF??!! I know that I am not the only one that sees a problem with this, but the fact that half of our society DOES NOT does not leave me with a warm and fuzzy.

This is not to say that Law Enforcement is not necessary. It is.  But it is important to recognize that while it is necessary, it is also an "evil" of sorts, a necessary "evil" that we have let run amok.  How many Law Enforcement personnel and citizens have to die each year in confrontations that just were not very important?  Clearly, thousands - but my bet it was the half that think torture is a good idea that also find this acceptable.

To the nit wits that think torture is acceptable:

The U.S. has hundreds of thousands of people serving in our military overseas.  Your inability to engage in abstract thought has left them vulnerable to the only fate worse than death.

I would have made a shitty politician.

BTW, I will be back to my usual assaults on the ridiculous sensitivities of the Left shortly, but the Left got this one spot on.


The world ain't coming to an end - even if the US$ gets mushed, and people have to walk more, and have to grow a victory garden, and give up their cell phone and cable T.V.,  and can't afford a car, and have to live in smaller homes, etc... - unless people insist that they would rather the world come to an end than make these compromises.

I am not a doomer.  There will still be a stock market, a fish market, a meat market, an Ag market, etc... The sun will come up, the surf will roll in, wine, women (or men, or.... whatever) and song will still be the stuff we live for... but you ain't getting that pension you were promised, so you "are going to have to make other arrangements".  

We are going to have a currency crisis, an entitlement crisis, an energy crisis... those are not really crisis's.  Not enough food to go around, now that would be a crisis - as it is in fact a crisis in many parts of the world.  Well, each country is going to have to look out for itself first in this regard, and the U.S. should spend a great deal more of its resources on food security than it is doing at the moment.  The U.S. has spent multiples of THOUSANDS more on securing its financial system than it has on its food system.

Does that sound proportional to you?

The fertilizer industry has been warning the American political establishment for some time that the U.S. food system has zero room for error - crop failure, drought, storm, whatever.  

All those other issues?  They only affect your convenience.  That just ain't the case with food.


Tuesday, June 2, 2009

2 Years Ago...

2 years ago this week I had this to say in my May 28, 2007 posting:

Denial II – Why we deny our Energy Condition

“Denial is the psychological process by which human beings protect themselves from things which threaten them by blocking knowledge of those things from their awareness. It is a defense which distorts reality; it keeps us from feeling the pain and uncomfortable truth about things we do not want to face. If we cannot feel or see the consequences of our actions, then everything is fine and we can continue to live without making any changes.” - CAIP website, author unknown

Before I delve further into the psyche of our national denial I want to make clear that I am not hoping for an energy crisis, population decline, financial crash, or even a date with Jessica Simpson (I'm happily married). I just call it as I see it. Further, I am more than willing to change my conclusions and assertions the VERY MOMENT THAT THE DATA CHANGES. I merely wish to explore the truth. That said, let's get to it.

Our collective denial regarding our society’s energy situation begs the questions why and how (or, more precisely, the process of how)? The “why” is, perhaps, more simply explained. The “how” is somewhat more complicated.

I am often asked: Does the “government”, or “the President”, or do “They” know about “Peak Oil”? And, “if this is true, why haven’t I/we been thoroughly informed”? Though the United States federal government has funded and received detailed reports on the issue from the U.S. Department of Energy and the Pentagon, the American body politic, and the American people, have and must continue to deny the reality of a permanent and accelerating decline in energy supplies – if we do not continue this denial WE WOULD HAVE TO ACTUALLY DO SOMETHING ABOUT IT. And those “somethings” are going to have real and immediate intended AND unintended consequences, much to the chagrin of our political leaders.

Why isn’t this front-page news? Why, indeed. It is not a conspiracy. The mainstream media is in the business of selling advertising, not public service. While they delight in the opportunity to bleed one unfortunate sot or another on the rack, they have little incentive to gore their holy cow(s) – the energy intensive industries that make up the backbone of their advertising revenues - residential real estate and automobiles.

Don’t count on Big Oil to be forthcoming on the issue. The executives at Big Oil are pulling down as much as 9-figure (that’s over $100,000,000) yearly compensation, and not for their brilliant execution (although that’s what the press releases claim). The record profits these corporations are enjoying at the moment have nothing to do with executing and everything to do with commodity prices (which these executives have no control over and have provided no value added, although they have been paid as such), but if you were in line for a $400 million compensation package, would you let ”Peak Oil” and high commodity prices take credit?

Corporate America outside of the energy sector is in no mood to be a hero (martyr). Once this issue breaks into the national dialogue corporate America’s stock options and 401k’s are going down like a rock in a pond.

If the media, corporate America, and our elected officials are disinclined to bring this issue to the fore… why would John Q. Public? It is far easier for John Q. Public to use his highly developed sense of denial (the same technique he uses for his obesity, smoking, drinking, lack of savings… we might not be able to save for the future but we sure can work the denial button).

Consider what might result should a sitting President (I should say "when", because this speech is coming, relatively soon) of the United States hold a news conference and state:

"My fellow Americans. It is my unfortunate duty to inform you that our petroleum supplies have entered a period of sustained and accelerating decreases in supplies. Within 15 years America will have 50% less oil available to its citizens than today, and within 30 years approximately 90% less….” (This speech does not have to take place all at once… it might be delivered over the course of several years by many political leaders. It might have already begun with the “America is addicted to oil” line in the last State of the Union address.) The speech will be entirely reactive. Most informed people will already know that we have entered terminal decline of energy supplies, and the uniformed will just be angry.

Of course the speech would be much longer and filled with pointless platitudes about the American people’s ability to handle adversity, blah, blah, blah… but then things get interesting. Upon waking from their denial, and once the idea is in the public domain and now without fear of ridicule, the American inteligencia would begin to explore the ramifications, combinations, and permutations of all of the possible outcomes, as well as the timing, of the overwhelming impacts that energy descent will have on our political, social, and economic structures, and they are going to do it OUT LOUD. Denial is going to evaporate instantly, only to be replaced by something worse – panic. Right now there is the heavy brake of denial slowing its momentum, but once we reach critical mass, nothing, and none of us, will be able to stand in its way.

The inteligencia will be the spark - but it is “middle management” on down to migrant farm worker that will become the fire. The lumpen masses will figure out that their ship ain’t coming in, and some might even be bright enough to figure out that they were the victims of societal propaganda, and that their ship was NEVER going to come in – and then they might get mad (more on that in the next article in this series titled ANGER). But first they will hoard.

They will hoard gasoline, propane, kerosene, etc… they will hoard food, water, and medicine, etc… they will hoard gold, silver, diamonds, etc… they will hoard weapons, etc… THEY WILL HOARDE EVERYTHING (everything except US dollars). This is the point when systems will likely begin to break down. But I digress; we are talking denial here…

I received more emails about the implications of declining energy availability and population on the housing market than anything else! What happens to housing when people can’t get to their second home in the mountains or at the beach, and there are less people in the society in the first place? Talk about denial: This is barely worth discussing – we have much bigger problems, folks.

Can the U.S. fiat currency system survive the knowledge that most fossil fuel energy supplies will dwindle to nothing before my infant son reaches middle age? NAFC (Not A Freaking Chance). Will people continue to pay back their 30-year mortgage? They won’t be able to (and will have no incentive to do so). So what happens to the financial markets and the banking system if people do not pay back their loans and the currency collapses? Nothing good. Unemployment in this environment would make the 1930’s look like a prom date.

Just “how” did we get to this level of denial? Not enough space here to do that justice. It was not some great conspiracy; more of a phenomena. Our method of government is purposely decentralized and its missions fragmented, our corporate institutions were not charged with saving us from ourselves, the media is there to entertain (after all, how can the media explain such a complicated issue in 12 minute segments punctuated by 3 minutes of 30 second distractions extolling the virtues of eating, driving, and then dieting, with the occasional “hope in a bottle” pitch?), and our educational institutions were too busy deceiving the American proletariat into believing that if you spent 10% of your working life and several hundred thousand dollars at their schools getting a certificate that says you were competent in sports massage therapy, art appreciation, or sensitivity training, or some other impossible to measure, nearly worthless “skill” (easy, if you think the skills have value, why are their compensation rates so low?), that you could compete with Ivy League graduates from establishment families, get a job at a Goldman Sachs, Lehman Brothers, or Bear Stearns (where the AVERAGE employee compensation, including secretaries, is over $500,000 per year) and live in a mansion in Greenwich, irrespective of your families social position.

I am not suggesting American life is, or should be, fair. Only that we have deceived ourselves into believing that it is. Life has always been a competition with its resultant “winners” and “losers”. If you are a self-made “winner” that came up out of the muck and mire, you understand this without further explanation. If you were born into a “winner” family, advantages such as private schools, summers on the Vineyard, a semester abroad, before beginning your career on Wall Street, the Law, or Medicine were the norm. Our very own George W. Bush, an admitted “C” student, was accepted to the prestigious Harvard Business School. Considering how limited seating was at HBS my bet is that some less-well-connected straight “A” student was the “loser” in that competition (it gets even better… “W” once said in commenting on performance enhancing drug use by athletes that “there are no short cuts to success” – "W" was a Yale legacy student (his family were Yale Aumni)! Hypocracy knows no bounds.) If you were born into a “loser” family, your experience was somewhat different than W’s. Still, “losers”, at least in America, did not starve. The rest of the world’s “losers” have not been so fortunate.

The definition of “winner” is going to be markedly different in our new environment: your progeny will survive. “Losers”, in the 21st century, will get a far less satisfactory consolation prize than the “losers” of the 20th century. That’s what population decline means. It’s just that when the U.N. says it, it sounds nicer.

We were all too busy with our nose to the grindstone to notice that the scale of growth in our population, energy, food consumption, and environmental impacts (over-fishing, anyone?) had grown beyond our ability to sustain them. Well, not everybody. SOMEONE OR SOMETHING spent an awful lot of money to dissuade Americans from accepting mankind’s contribution to climate change and that they could pump CO2 into the atmosphere with reckless abandon and without consequence. It wasn’t until the Chinese threatened to usurp our position as the CO2 emission leader that we began to realize that, while it is OK if WE do it, everybody can’t live like this (and by the way, why are you guys trying to steal “our” oil?).

I continue to maintain that there is no macro solution to this condition - and it is a condition, not a problem; problems have solutions - any more than there was a solution to the Tsunami of 2004, or the 1918 flu pandemic. You either survived these challanges or you did not, you were either a "winner" (survivor) or a "loser" (casualty). There will be "winners" and "losers" in the new paradigm brought to you courtesy of energy descent, and all of our denial in the aggregate will not change that outcome.

My infant son, born earlier this year, will likely never need a driver’s license. His children will not experience air travel. My older son’s first car will survive its fuel supply. Our denial is most prominently displayed in the way we prepare our children for their future – a future that will not exist.

End of post from May 29, 2007

Not bad, if I do say so myself.


Monday, June 1, 2009

Couldn't have said it better myself

I couldn't have said it better myself - so I didn't:

Commentary by Kevin Hassett

June 1 (Bloomberg) -- There is an old joke that a borrower dies if everyone stops believing in him. A look at the history of financial crises suggests there is a kernel of truth in this.

That’s why the California budget crisis may well lead to a second financial calamity that would be far worse than anything experienced over the past 18 months.

California is, of course, facing a debacle. Voters rejected a series of ballot initiatives designed to restore some sense of sanity to the state’s budget. As a result, California is more than $21 billion in the hole.

Governor Arnold Schwarzenegger is struggling to find enough spending reductions to close the gap, but investors are skeptical. According to Fitch Ratings, which in March downgraded California’s general obligation bond rating, California has the worst rating of any state.

Even amid economic calamity, the people of California are relatively wealthy, and the state’s economy is an impressive engine. If California were a country, it would have the eighth- largest economy on Earth. Given those advantages, the notion that California might default on its government debt might seem farfetched. After all, the reasoning goes, they can always raise taxes to pay off debt. Even a gridlocked legislature might act if California gets too close to the edge.

The problem with that line of thinking is that California’s politicians might get little notice that desperate times are at hand. For some borrowers, the first sign of problem is their inability to make an interest payment. For others -- and here lies the nightmare scenario -- the problem first becomes visible when all the lenders disappear.

Lenders’ Response

Imagine, for example, that California returns to credit markets in the coming months simply to roll over some of its expiring debt. Maybe the state borrowed money from China for two years back in 2007 and now has to borrow again to give the Chinese their money back. What happens if, seeing the catastrophic budget situation, lenders decide to shun California altogether?

If that happens, California would have to default on its obligation to give the Chinese their money back. It might do so by extending the terms of the existing debt, but that would be, nonetheless, a default, and a run on California debt surely could ensue.

Once a panic occurs, similar assets tend to be swept up in the wave. Bad news spreads. Witness the run that occurred during the Asian financial crisis of the late 1990s.

So if the unofficial eighth-largest economy fails on its debt, might the debt for the largest economy go with it?

Deficit and GDP

A look at President Barack Obama’s budget suggests that the U.S. government’s fiscal situation is in worse shape than California’s.

The deficit relative to gross domestic product for the entire U.S. this year is 12.9 percent, according to White House estimates released last month. If California had the same deficit relative to its GDP, it would be short about $230 billion -- 10 times the size of its current shortfall.

What’s worse, the Obama administration’s attitude toward economic policy comes right out of the California playbook.

Notwithstanding White House claims that the federal deficit will drop to 8.5 percent of GDP next year, there is little cause to believe that the U.S. faces a brighter future than California. That shouldn’t come as a surprise.

The Democrats have controlled the California legislature for most of the past four decades. In spite of protestations by the occasional powerless Republican governor, the Democrats adopted economic policies that define left-wing nirvana.

Top Tax Rate

Roughly 40 percent of California’s income-tax revenue comes from the much-harped-upon top 1 percent of earners. Thanks in part to the “millionaire tax” approved by voters in 2004, California’s income-tax rate has reached 10.55 percent on the highest earnings -- second only to Obama’s native Hawaii, which taxes some income at 11 percent.

High tax rates on individuals, of course, hit many small businesses hard. If you wonder why the California economy is going so much worse than most of the country, this is a good place to start.

California has to answer for its treatment of corporations as well, socking them with an income-tax rate that is just shy of 9 percent. Since the U.S. federal rate is so high relative to our trading partners, corporations that operate in California face a combined local and federal tax rate higher than that of any other country. (Japan is a distant second.)

In case you wondered, California’s sales tax is high, too. Most places in California, the combined city and state sales tax rate is more than 8 percent.

California is in crisis because state spending is so high that even those hefty taxes aren’t enough to balance the budget.

California in D.C.

Except for the sales tax, the Obama administration’s plan is to copy California’s policies.

Obama has proposed a massive tax increase on U.S. corporations by curbing the deferral of taxes on corporate income earned abroad. He also has advocated higher marginal tax rates on the rich, by letting George W. Bush’s tax cuts expire.

Even with those tax hikes, Obama projects that deficits are here to stay because, like California’s Democrats, Washington’s can’t resist increasing government spending.

It is easy to see how investors might stop believing in California. If they do, it would be rational for the U.S. to be next.

OK. Now what? California has been the Left's Little Utopia for, what was it, 4 DECADES!!?? And with the highest taxes in the F&^%^$!!!! country, California is very near a massive default!!?? Substantially ALL of California's insanity was covered up by the very credit bubble the ignorant Left claims Bush created. Let me ask you guys on the Left something: Have you EVER read the Federal Reserve Act? What makes you think ANY sitting president has control over monetary policy? Yes, Obama could refuse to reappoint Bernake... and I got a better shot of having black hair again. Obama IS going to reappoint Bernake. Does he now get the same beat down you guys laid on Bush for his economic policies (I know, Iraq... a superbly dumb idea... but we are talking economic policies here).

The truth is BOTH parties, and both extremes of political philosophy have led the U.S. to the precipice.

The U.S. appears to me to have entered an era where interest costs on the debt will grow faster than real GDP. As I see it, the Administration has 3 options (much of this influenced by the Mad Scientist) to deal with an exponentially increasing budget deficit and a massive Treasury debt funding shortfall:

1. The U.S. could default outright on its debt. Pull a Russia or Argentina. Politically, this is at once the most unthinkable, but probably the best possible thing, that the administration could do to protect the U.S. from an internal political crisis. I also give this no shot of occurring (The MS gives this a greater, albeit small, chance of occurring).

2. The U.S. could engage in a one time currency devaluation. All debts would remain constant, but each dollar or deposit or Treasury bond would increase by a factor of "X", i.e. if you had $1 million in the bank yesterday, today you now have $2 - which would mean a 50% devaluation of the currency. I give this a very low probability of occurring.

3.. Monetary (and price) inflation by means of the Federal Reserve buying the Treasury's debt from money created out of thin air. I give this the highest probability of occurring, and the most likely to be tried first (if this does not succeed then choices 1 and 2 obviously become very probable - we will have little to lose).

The U.S. bond market is already beginning to show signs of distress, with long bond prices down over 25% for the year. Higher interest rates, together with front month Oil having risen back to nearly $70 per barrel, will in the very near future be quite challenging for the U.S. economy and equity markets, and somewhere in this confluence of events we hope an opportunity is created.

The equity market appears to believe that a "V" bottom is in, primarily because the data of late is "less bad" than it had been (said data is still getting worse, but at a slower rate). The U.S. equity market lost nearly 8,000 Dow points, peak to trough, and has since gained back 2,400 or so of those... so, only 5,600 or so to go, right? While this might actually occur as a result of hyper-inflation (a case where it was necessary to cure the fever by killing the patient), I think the U.S. equity market will present better entry points before the end of the year, and will not see the "benefits" of hyper-inflation until well after the fact.

Of coursed, I could be wrong... but no where near as off as the MoRons that came out of San Francisco city hall... I want to congratulate those nitwits on the coming unimaginable unintended consequences.