Friday, July 31, 2009

"Believe Half of what you See, Nothing that you Hear"

Quote of the day:

“With inventory levels in an ultra-lean state, businesses should start adding inventories in the second half of the year as the economy begins to show signs of life,” - Ellen Zentner, senior econo
mist at Bank of Tokyo-Mitsubishi UFJ Ltd.

I would be very willing to take the other side of that trade. I bet that inventories, while ULTRA LEAN, will not be rebuilt anytime soon.

No rebuilding of inventories = high probability of a double dip recession.

I do not guarantee that I am correct, but that is how I a playing this (and I will absolutely, positively change my tune if the data changes).

For my money, the opportunity is in the Grain market, 2010 and later. For more than that, you are on your own

Thursday, July 30, 2009

The Numbers NEVER Ad Up

Tax collections are off 25% + year over year.  Sales for companies in the S&P 500 are down over 10% for Q2/2009 versus Q2/2008 and 15% from 2 years ago.

Yet, according to the U.S. Government, the U.S. economy has only contracted 6% or so - from peak to trough.


The era of massive, sustained contraction is probably over (at least until energy becomes the issue, but that ain't for a couple of years, as I will get to shortly).  That does not mean that the Federal or State governments' tax revenues will recover any time soon, nor will the sales of the S&P 500.  

But the guys that measure our GDP growth might say that we are back to 2% growth, perhaps even in Q3 or Q4 2009.

Now let's go to the video tape:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 5.1 million barrels from the previous week. At 347.8 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 2.3 million barrels last week, and are in the upper half of the average range. Both finished gasoline inventories and gasoline blending components decreased last week. Distillate fuel inventories increased by 2.1

million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 2.0 million

barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 5.5 million barrels last week, and are above the upper limit of the average range for this time of year.

Oil AND Natural Gas inventories continue to grow... while at the same time total products supplied via imports and domestic production declines.  And the rate of change does not support the argument that the economy has begun growing - or even ceased contracting.

None of the data that I consider the MOST telling leads me to believe that the U.S. economy has ceased contracting.  I realize that market's tell us what it thinks the future brings, but it would seem to me that I should see what the market appears to be seeing in the energy data - and I just don't.

Just take a look at the Railfax data on total rail car cargo transports.  Year over year it is down 18.8% and the most recent 4 week rolling average is down 18.6%.  Besides the obvious question (how does the government calculate a 6% decline in GDP with goods transport down 18.8%?), while this might argue for a bottoming in the rate of decline, it DOES NOT ARGUE for growth, green shoots, mustard seeds, or any other silly sh*t coming out the media's and government's microphones.

I have supplied the links,  if anybody has anything to add, or if I missed something, well... I am all ears.

In the mean time... until the data changes, I would use the rally to sell equity positions, especially if you are near retirement age (50+)  (I will be the first to admit that I did not get an invite to the "wedding", so I will pass on the funeral.)  As the Mad Scientist pointed out to me, if you subtract the program trading from the volume, what you end up with is some pretty anemic trading volume.  You will likely be better off with mid term, high quality corporate debt as well as Treasury notes than you would be with equities at this point and at these prices.  

Again, if anyone can show me anything in the energy or transportation data that gives ANY hint of a turn around, I would appreciate it.

Libertariananimal (at) gmail (d0t) com

Monday, July 27, 2009

Mystery Rally Explained

We had a rip roaring 2 week rally. Today, the SEC announces the end of Naked Short Selling by Broker/Dealers (this is an operational nightmare, but nevermind... the public has been convinced by media reports that this is the problem)... and what does the market do?


Looks to me like somebody knew about this 2 weeks ago... just not you and me.


In my previous post I said that the worst of the convulsion was behind us. That means that the rate of change will not be as severe (IMHO) for the next quarter or 2. After that... my crystal ball is in the shop.

That DOES NOT mean that I believe the smoke is clearing and it is time once again to man the parapits, far from it.

It is my opinion that the media will be rife with stories that the recession has ended - and officially, considering the way we calculate these things - and that may be "true". Don't believe them, at least as far as the markets go.

I repeat, this is a trader's market. You can trade it, just don't believe it.


The Long Bond continues to get worked over, with the 10 year back to 3.75%, which means a 30 year mortgage of 5.5% for conforming, and 8%+ for jumbos.

Along with Oil prices near $70, I don't see much hope of a recovery gettin going. These 2 forces, higher rates and higher oil are anathema to the U.S. equity markets.


The US$ is not cooperating. If we had another rush to the US$, the Treasury could fund their deficits for a few more years - at the expense of the equity market getting crushed.

The US$ should turn HERE, but if it doesn't... it doesn't.

Libertariananimal at gmail (d0t) com

Saturday, July 25, 2009

My Take

The worst of the convulsion is the U.S. economy is likely behind us.

But where to now?

U.S. economic "growth" might actually occur in Q3 from a very subdued level... but what does that mean?  I doubt it means that tax revenues will increase, or that government spending will decrease.  I also doubt that it means that employment will pick up.  You see, "growth" is in the eyes of the beholder (or the guy measuring it).

If you are trying to make money in the markets, this is a TRADER'S market.  There is no buy and hold, even for mutual funds in my opinion.  If your track record is spotty in the markets, this will be an especially difficult time to profit.

If you are starting a business, the environment could not be worse.  That does not mean you cannot succeed.  It means you are going to have no help from the winds or fate, it probably means "small is beautiful", employees are a luxury, and you are the star of the show.  At times like this I would prefer selling ice cream to broccoli.

If you have a job, hold on to it!  A good friend of mine called me and said he was thinking about leaving his cushy, SALARIED, banking job.  I had to gently remind him:  We are near 50, the age where corporations start optioning guys out the door.  Who is going to hire you EVER AGAIN?  (How's that for gentle?)  

This was one of the things they skipped when he was in school for his MBA.  See, if you go to grad school for dentistry, you can still be a dentist in your 50's.  If you get an MBA and go into the corporate world... it is UP or OUT... and it is a steeply sloping pyramid, there just are not that many jobs in exec ranks for old MBA's.  This is where "Franchise America" comes in. In the past, "Older Corporate Rejects" (late 40's to early 50's) usually have enough corporate stock or severance money to buy a Chic-Fil-A, Dunkin Donuts, Bennigans, or other franchise.  Not now.  These folks have far too much debt for their age and where they are in their earnings cycle, and the incomes from the franchises are not what they were - and are not likely to be in the future.

A similar fate awaits the union factory worker in his 40's and 50's.  Many of these folks skipped college and went right to work for very, very good money.  They were promised a big pension, which gave them a false sense of security and VERY little incentive to save.  

The factory worker allowed themselves to be deceived, just as our MBA's allowed themselves to be deceived.  (My dad was a Union guy.  Worked for Local 553 Teamsters in the Bronx as the modern equivalent of Dickens' chimney sweep.  He was a depression era child, and would no more trust the union (which did pay his pension till the day he died), social security, or medicare... than he would have trusted the Easter Bunny to provide for him.  My parents could squeeze a nickel and give you 6 cents change.)  

What about the small business man?  More than half of these folks, as counted by the Small Business Administration are nothing more than sub contractors - people that are really employees but without the matching payroll tax contribution or other benefits... but let us speak about the other half.  These folks, and I speak from the experience of a stock broker that called on them, put all of their money "back into the business".  This is a nice way of saying "the business is barely profitable and I have no money", but these folks deceived themselves into believing that they did not need to save, because they would be able to sell their business - you know, the place where they put all of their money into (kind of like a boat, only instead of a hole in the water into which one throws their money, there is this black hole of employee payroll taxes, insurance, regulations, etc...).

So who's left.

Ahhhh.  The government employee.  The civil servant.  Its good to be the King - or to work for him.  The government is absolutely, positively going to continue to extract, BY FORCE, the resources needed to pay these civil servant's pensions from our broken MBA, laid off factory worker, and profitless small businessman.

Oh, but not just to pay the civil servant.  We have millions of older folks on the dole for Social Security and Medicare, people who did not pay anywhere near into the system that they are trying to extract... and they VOTE.  They vote ONE ISSUE.  To continue the JACK.

So, how does our fearless leader, the Wizard of Change, propose to balance this cluster f**k?  By sending our elderly MBA, factory worker, and bankrupt small businessman to community college so that he can get technical training in HVAC, refrigeration, and computer services.

But wait!  There's more!

Isn't the unemployment rate in these sectors over 10%?  Is there any hope in the life time of a 49 year old former Corporate MBA to get trained and seek a new career repairing air conditioners in an environment of 10% unemployment?


But we LIKE to deceive ourselves.  So we are going to give it a go.

And that's the way it is/was/and always shall be.

Libertariananimal (at) gmail (d0t) com

Friday, July 24, 2009

"Dismantling the old economy"

"Dismantling the old economy is going to be the basis for the new economy for quite a while." Dmitri Orlov

Rather than watch an hour of T.V., I highly recommend listening to the genius that is Dmitri Orlov...

I can't help thinking about how perfectly Orlov's forecasts have dovetailed with my previous post.

Libertariananimal (at) gmail (d0t) com

U.S. Cities to be (mostly) bulldozed

This is the very definition of overshoot and collapse.

And it is a very, very smart thing to do. I will be the first to commend this administration if they actually follow through and get this done.

This will NOT be limited to these 50 cities. Within 10 years this will, by mathematical necessity, happen (one way or another) to nearly every major American Metro Center. The question really is, HOW do we want to shrink the sheer size of these metro areas? I am a Libertarian, not an Anarchist. This is GOVERNMENT'S perusal. I hold out little hope of efficiency, competence, or fairness... but the free market is NOT likely to solve this issue in a satisfactory way.

I can't help but think of the words of Dmitri Orlov "Collapse will occur one person, on neighborhood at a time" if memory serves...

Libertariananimal (at) gmail (d0t) com

Thursday, July 23, 2009

Irrational vs Slolvent

"The Markets can remain irrational longer than you can remain solvent."

As the U.S. stock market roared up, so did Oil, while the Treasury Market fell out of bed.

Welcome to the "Long Whip Saw" (my version of JHK's Long Emergency). The equity market will get stopped in its tracks by either higher rates (think mortgage and housing) or higher Oil (think oppresed consumer and industrial sector).

No market exists in a vacuum, and this just gets tougher and tougher every day.

Libertariananimal at Gmail (d0t) com

Powerful Rally Underway

There is a powerful U.S. equity market rally underway.

Though I would continue to use it as an opportunity to sell, I ALSO covered my short positions today (and while that might appear contradictory... discretion is the better part of valor), and won't shore again until the market rolls. The shorts were a losing trade, but your first loss is your BEST loss. When I am wrong, I am gone - I don't stand on ceramony or defend losing positions. The greatest talent a trader can have is teh ability to admit thay were wrong.

There are powerful interests at work here, and it is best not to stand in front of a freight train. Short squeezes result in the most violent of rallies, and that appears (to me) to be the case here.

You can trade this rally if you have the chutzpah, but you should not BELIEVE the rally IMHO.

Open Letter from Shedlock to the President

I was going to write about this in my blogs today, but since Mike Shedlock already said it, and said it about as well anyone could have... I will let him do the talking. The following is an open letter to President Obama on Mike Shedlocks' excellent blog today (Link here to original article). I think it needs to be repeated, and often, and shouted from the rooftops.

I give you Mike Shedlock:

Open Letter to President Obama on Healthcare and the Economy

Dear Mr. President,

Wednesday evening we heard you address the nation on health care and the economy. I was hoping to hear some tough answers to tough questions. Instead we were treated to one hour of tap dancing on eggshells where it seemed your primary intent was not to break any eggs.

You spoke of the need for sacrifices but failed to mention any. You said Medicare benefits would not be reduced and everyone would be covered.

Mr. President where are the sacrifices? By who?

The press seemed concerned with a fear of rationed health care. Some republicans have raised the issue as well.

Mr. President I am concerned there will be no rationing of health care. It is axiomatic that there is unlimited demand for free services.

Here are some tougher questions I am sure everyone would like to know.

Will the plan cover a transplant procedure with a $50,000 cost for someone who is 80 years old with a life expectancy of two years? One year? Who decides? Or is everything free for everyone regardless of the odds of success?

Will the plan cover fertility treatments? Abortion?

Will the plan address issues that arose in the Terri Schiavo case?

To what extent must doctors provide generics instead of prescription drugs?

Mr. President, unless something is done to rein in costs taxpayers will be footing the bill for a lot of things they shouldn't. In every county that has a single payer system, there is come degree of rationing.

Somehow you have us believe benefits will not be reduced, everything will be covered for everyone, there will be no rationing and somehow health care will cost less because of reduced paperwork. Mr. President, no one believes that, not even the nonpartisan Congressional Budget Office.

Mr. President, to prevent costs from spiraling out of control rationing is mandatory. Unfortunately, you do not have the courage to admit it. Yet until you do, it can't happen.

Mr. President, a heart operation in the US might cost $100,000 whereas the same operation in India, in a world class hospital might cost $20,000. Will we fly people to India for non-emergency medical operations if they save taxpayer money? If not, why not? Shouldn't the primary concern be getting the most benefits for the least cost?

Mr. President, you noted that the AARP and doctor's groups were in favor of your plan. You failed to mention the $245 billion "sweetener" it took to get them to do so. Moreover, you did not even count that $245 billion while calling your plan "budget neutral".

Mr. President, with numerous states blowing up over the issue, it should be clear the US cannot afford the defined benefit programs promised government workers. Starting with Congress, what is your proposal pension reform?

Similarly, when does Congress share the pain of this recession?

Mr. President, you called the cancellation of additional F-22 planes a victory. This strikes me as odd given the Pentagon does not even want more of them. Why is canceling a military program that the military does not want such a big victory?

Mr. President, the savings on the F-22 program is $2 billion. The 2010 Pentagon budget is $534 billion, a $21 billion, four percent increase over 2009. Total defense spending is $780 billion. Mr. President, is this sustainable?

Mr. President, history is replete with examples of great nations spending themselves into oblivion attempting to maintain their empires. It should be crystal clear the US can no longer afford to be the world's policeman. So, Mr. President, when will you start bringing the troops home from Europe, Japan, and the Mid-East?

Mr. President, I did not vote for you nor did I vote for Senator McCain. I voted for Ron Paul. However, I did expect and frequently said that I expected you to get some things correct.

Instead, I see you carrying out the same failed stimulus and bailout plans of President Bush. You promised transparency on spending and did not deliver.

The proposal to Audit The Fed is languishing in Congress even though it has overwhelming support of both Congress and the public. You broke a promise to release details of military torture. Where are significant charges against anyone? I was positive you would handle the torture issue correctly, but I was wrong.

Mr. President, you placed your faith in the same set of folks at the Fed and Treasury as President Bush, in spite of the fact they all failed to see this coming.

Mr. President it frequently appears as if Goldman Sachs is running your administration just as it ran the last.

Mr. President, other than a sketchy health care plane with no details and no cost constraints, exactly what change have you delivered?

Thank you Mr. President, now can we have some answers please?

Mike "Mish" Shedlock


The recklessness with which the Obama Administration has approached healthcare in America is UNFORGIVEABLE. Where is the Cost/Benefit analysis? (I want HARD NUMBERS, not more speech.)

Ahhh, but there will be no hard numbers. This is a POWER GRAB. Numbers would only get in the way of the Agenda of The Powers That Be.

LibertarianAnimal (at) gmail (d0t) com

Wednesday, July 22, 2009

From The Horse's Mouth

From the EIA report of this morning:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.8 million barrels from the previous week. At 342.7 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 0.8 million barrels last week, and are near the upper limit of theaverage range. Both finished gasoline inventories and gasoline blending components increased last week. Distillate fuel inventories increased by 1.2 million barrels, and are above the upper boundary of the average range for thistime of year. Propane/propylene inventories increased by 2.0 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 1.9 million barrels last week, and are abovethe upper limit of the average range for this time of year.

I always skip to the last line of the above paragraph.

That inventories are INCREASING at a time where net imports and total petroleum products supplied continue to decline at an increasing rate says NOTHING GOOD about the economy over the past 4 weeks, and the slope of the various curves leaves me wanting for the next quarter at the very least.

That does not mean that GDP will not have a positive quarter in Q3 or Q4, it very well could. I think it more likely that it disappoints, and with the end of the Stim Pack in sight, another contractionary period should be expected.

Libertarian Animal

at gmail (d0t) com

"US petroleum product demand plunges in first half"

US petroleum product demand plunges in first half"

From the article:

WASHINGTON, DC, July 16 -- US petroleum product demand plunged to its lowest first-half level in more than a decade as the sluggish economy continued to squeeze oil consumption, reported the American Petroleum Institute.

Total product deliveries (how API measures demand) averaged 18.75 million b/d during this year’s first 6 months, 5.8% below the comparable 2008 period’s 19.9 million b/d and nearly 10% below the peak of 20.75 million b/d in first half 2005, API said as it released its latest monthly, quarterly, and 6-month statistics.

Ahh... but there are 3 kinds of lies: Mine, yours... and statistics.

In the 18.75 million b/d quoted above is .75 million b/d of ethanol, a volume that did not exist in the 20.75 b/d in first half 2005. We all know the ERoEI of ethanal, its ethical issues as a food stuff, etc... and the fact that its energy content by volume (and b/d is a VOLUME measurement) is 2/3 that of petroleum... ergo we are not "nearly 10% below the peak", but closer to over 13% below the peak.

If you think I am splitting hairs over 3.5%, I am not. The 3.5% represents about 3 years worth of increased GDP, and if we keep rolling back supplies at 5% plus per year, I assert that we are going to experience ongoing GDP contraction of roughly 2.5% to 3% per year.

And that assures that the pension system blows up, Medicare & Social Security blow up, and the banks blow up AAAALLLLLLLLL over again.

There is NO MACRO SOLUATION. All of the solutions will be intensely personal and local. Power will devolve away from the center, and aggregate locally. I have no idea, exactly, how a currency crisis or other black swan event would impact this... but I can't imagine it would be good.

The EIA Petroleum numbers will be out in a few minutes... so I will be back shortly.

Mentatt (at) yahoo

Tuesday, July 21, 2009

US$ At Crucial Moment

If you are a deflationist, you gotta be worried about the US$. I can absolutely, possitively assure you that the U.S. equity market cannot continue up while the US$ continues down for very long.

Here is a link to the UUP (it doubles the percentage movement of the US$ vs the 6 biggest currencies, but the proportions are correct).

The Dollar Index (trades on the CBOE) is down to $78 and change, and its is only $6, or a little over 8% from its ALL TIME LOW.

My bet is you would be better in cash than equities... and I better be right... because if the US$ breaks below $72.30 in the Dollar Index then our trading partners are NOT BUYING TH B*ll Sh*t. This does not mean that the US$ AND the equity market cannot go down at the same time. The MS thinks that that event would mark the end of the end (or was it the beginning of the end? You'll have to read his blog), and I am inclined to agree.

BTW... you Obamaphiles... Notice anything on the chart? The US$ has been in consistent decline since election day (with a head fake for the stim pack). Does that tell you anything?

I can't give specific trading advice in this forum, but I used this rally to unload my equity positions, and I covered my precious metals with tight or in the money calls... does not mean I am that I am right, but this is how I see the next few weeks...

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Monday, July 20, 2009

RIsk and Reward

Goldman Sachs, the KING of the pump-n-dump, is out this morning with a price target for the S&P 500 for the end of the year up 15% from here.

Goldman has the power to move markets, and that's why I call them the Anitchrist. They move them for THEIR benefit, not yours. It was the Antichrist that pushed Oil from $130 to $147 last year - and then they went short. Great call, or excellent control... I guess its all in the eye of the beholder.

Is there 15% potential upside in the short term? Sure... and 30% downside risk. If you are an excellent trader, by all means, have at it. If you are a retired person trying to survive this market, take your football and go home. The AC runs the table and rules the roost - careful out there.


The US$ is getting crushed... it MUST turn here - OR ELSE.

I am betting that it turns here, but if I am wrong...


Oil is too rich for my blood (or money).

Sunday, July 19, 2009

Libertarian Animal

The American Energy Crisis will come and go over the next decade or 2.  I will continue to post once or twice per week limiting my commentary to the markets and energy.

I have established a new Blog - Libertarian Animal - for purely political commentary so that I may freely disparage and strip the bark off of both the Left and the Right in an atmosphere unfettered by any other agenda, and to try and provide a distinctly LIBERTARIAN slant in the analysis of today's events.

Feel free to join me.


Friday, July 17, 2009

What did the Administration think would happen?

It has been reported that the Obama White House is "very concerned" over the coming WHOPPER bonuses that will be paid to the upper echelon at Government Sachs, er The Antichrist, I mean Goldman Sachs.  The Coup d' etet was just too perfect.  All victorious factions eventually bifurcate into haves and have nots within the faction.

Chess should be an absolute requirement to work in government.  

Mentatt (at) yahoo (d0t) com

I received this email from someone I respect. Although he did not write this, and I do not know who to give attribution to, it is worth considering:

To my Friends & Associate Last Monday (June 1, 2009) was a profound evening, hearing Dr. Charles Krauthammer speak to the Center for the American Experiment. He is brilliant, intellectual, seasoned & articulate. He is forthright and careful in his analysis, and never resorts to emotions or personal insults. He is NOT a fear monger nor an extremist in his comments and views. He is a fiscal conservative, and has a Pulitzer prize for writing. He is a frequent contributor to Fox News and writes weekly for the Washington Post. The entire room was held spellbound during his talk. I have shared this with many of you and several have asked me to summarize his comments, as we are living in uncharted waters economically and internationally. Even 2 Dems at my table agreed with everything he said! If you feel like forwarding this to those who are open minded and have not drunk the Kool-Aid, feel free.

Here is his resume from Wikipedia:

A summary of his comments:

1. Mr. Obama is a very intellectual, charming individual. He is not to be underestimated. He is a cool customer who doesn't show his emotions. It's very hard to know what's behind the mask. Taking down the Clinton dynasty from a political neophyte was an amazing accomplishment. The Clintons still do not understand what hit them. Obama was in the perfect place at the perfect time.

2. Obama has political skills comparable to Reagan and Clinton. He has a way of making you think he's on your side, agreeing with your position, while doing the opposite. Pay no attention to what he SAYS; rather, watch what he DOES!

3. Obama has a ruthless quest for power. He did not come to Washington to make something out of himself, but rather to change everything, including dismantling capitalism. He can not be straightforward on his ambitions, as the public would not go along. He has a heavy hand, and wants to level the playing field with income redistribution and punishment to the achievers of society. He would like to model the USA to Great Britain or Canada .

4. His three main goals are to control ENERGY, PUBLIC EDUCATION, & NATIONAL HEALTH CARE by the Federal government. He doesn't care about the auto or financial services industries, but got them as an early bonus. The cap and trade will add costs to everything and stifle growth. Paying for FREE college education is his goal. Most scary is his health care program, because if you make it FREE and add 46,000,000 people to a Medicare-type single-payer system, the costs will go through the roof. The only way to control costs is with massive RATIONING of services, like in Canada. God forbid.

5. He has surrounded himself with mostly far-left academic types. No one around him has ever even run a candy store. But they are going to try and run the auto, financial, banking and other industries. This obviously can't work in the long run. Obama is not a so- socialist; rather he's a far-left secular progressive bent on nothing short of revolution. He ran as a moderate, but will govern from the hard left. Again, watch what he does, not what he says.

6. Obama doesn't really see himself as President of the United States , but more as a ruler over the world. He sees himself above it all, trying to orchestrate & coordinate various countries and their agendas. He sees moral equivalency in all cultures. His apology tour in Germany and England was a prime example of how he sees America as an imperialist nation that has been arrogant, rather than a great noble nation that has at times made errors. This is the first President ever who has chastised our allies and appeased our enemies!

7. He is now handing out goodies. He hopes that the bill (and pain) will not come due until after he is reelected in 2012. He'd like to blame all problems on Bush from the past, and hopefully his successor in the future. He has a huge ego, and Mr. Krauthammer believes he is a narcissist.

8. Republicans are in the wilderness for a while, but will emerge strong. We are hoping for another Reagan, but there'll never be another like him. Krauthammer believes Mitt Romney, Tim Pawlenty & Bobby Jindahl (except for his terrible speech in February) are the future of the party. Newt Gingrich is brilliant, but has baggage. Sarah Palin is sincere and intelligent, but needs to really be seriously boning up on facts and info if she's to be a serious candidate in the future. We need to return to the party of lower taxes, smaller government, personal responsibility, strong national defense, and states rights.

9. The current level of spending is irresponsible and outrageous. We're spending trillions that we don't have. This could lead to hyper inflation, depression or worse. No country has ever spent themselves into prosperity. The media is giving Obama, Reid and Pelosi a pass because they love their agenda. But eventually the bill will come due and people will realize the huge bailouts didn't work, nor will the stimulus package. These were trillion-dollar payoffs to Obamas allies, unions and the Congress to placate the left, so he can get support for #4 above.

10. The election was over in mid-September when Lehman brothers failed. Fear and panic swept in, we had an unpopular President, and the war was grinding on indefinitely without a clear outcome. The people are in pain, and the mantra of change caused people to act emotionally. Any Dem would have won this election; it was surprising it was as close as it was.

11. In 2012, if the unemployment rate is over 10%, Republicans will be swept back into power. If it's under 8%, the Dems continue to roll. If it's between 8-10%, it'll be a dogfight. It'll all be about the economy.

I hope this gets you really thinking about what's happening in Washington and Congress. There's a left-wing revolution going on, according to Krauthammer, and he encourages us to keep the faith and join the loyal resistance. The work will be hard, but we're right on most issues and can reclaim our country, before it's far too late.

There is much here that I see as confirming my suspicians, but his view of the political future is tough to reconcile.

Lastly, I was thrilled to see the U.S. described as a great nation that has made some mistakes, not everything wrong with the world. I value my American experience, even if our military policy leaves much to be desired. That can change.

You may or may not like his opinions. Let us not waste time with name calling ans scathing emails about my lack of intellectual capacities...I look forward to rational and intelligent commentary.

Mentatt (at) yahoo (dot) com

Ron Paul and the Antichrist

Quote of the day:

"We allow Lehman Brothers to go bankrupt to help Goldman Sachs, and then we bail out AIG to help Goldman Sachs." Congressman Ron Paul

Now contrast that stinging, rational commentary with...

"We have to spend money to keep from going bankrupt." Vice-Presidnet Joe Biden on the Administration's health plan.

This excellent clip of an interview with Ron Paul makes me wonder how the Republicans passed on this guy as their nominee. I shouldn't wonder... the Republicans are finished as a party... maybe for a generation, maybe forever. The Democrats, left unchecked are going to finish off the country.

Perhaps great minds do think alike... I wrote the following in my notes to put in this post:

California politics has won with their version of "in order to save the World, it was necessary to destroy the country".


By my measure, Oil consumption, the U.S. economy continues to contract briskly. I know that this is contradicted by other data points... but for every buy there must be a seller, clearly they disagree and only one can be correct.

Note that the rate of decline in imports of total petroleum products has increased and is now down 7.5% in 2009 from 2008, and total products supplied is down 6.4% in the same period. Since capacity clearly is outpacing demand (inventories are increasing), this is not an effect of "Peak Imports" as much as lack of demand from our ailing industrial sector. To my mind, this is actually a good thing vis a vie the various threats from Peak Oil. If industry were to contract in front of the oil supply's contraction, it would be akin to having a hurricane land at low tide - with less consequent flooding than would be the case at high tide.

Of course, if the RotW expands its industrial consumption during the adjustment period, this positive might be somewhat fleeting... but there it is.

I cannot see any reason that Oil prices would not fall, perhaps substantially, unless OPEC does something drastic.


The U.S. equity markets have had a tremendous run in the past week. I sold substantially all of my equity positions, and sold covered calls on my precious metals (but only out 1 month since I do want to own them). Call me crazy, paranoid, perma-bear... but I think that there is too much hope and not enough data to support the "green shoots" theory. My bet is the U.S. equity market will be substantially lower than here sometime later in the year and that I would be better served at those prices than at these, especially if Oil should fall hard. If Oil were back in the 30's and Nat Gas in the 2's and 3's, my bet is this fall/winter those equities might have been beaten enough for me to get re-excited again (although I was close to excited about energy equities but then I went and laid down until the feeling passed... I think I will get better prices).

Of course, for every seller, there is a buyer. Only one of us is right.

Mentatt (at) yahoo (dot) com

Monday, July 13, 2009

Goldman Sachs, the modern day Anti-Christ

Since I won't be looking for a job on Wall Street anytime soon, nor running for office... I will say it.  Somebody has to say it.  It has to be said:

Goldman Sachs is the Antichrist.

That's right.

If you wanna see the personification of evil in the modern world, look no further than lower Manhattan to Blankfein and Co.  I am not saying they planned the entire thing from the beginning - from setting up the Fed after the Tech market fiasco to blow the housing bubble that they profited SOOOO handsomely from... from pulling the plug on the CDO market, shorting the snot out of those securities while Bear Stearns and Lehman Brothers stood there up a flag pole, twisting in the wind.  Now, the Antichrist, er, I mean Goldman Sachs is the only game left.

Did I mention that they are a LIBERAL DEMOCRAT bastion of extreme resources?  Robert Rubin and Jon Corzine anyone?

I am only half tongue in cheek when I say that the Democratic sweep and Goldman's ascension was a Coup d' etat.

There is an old saying that comes to mind... Dear American Left: Be careful what you ask for, because you just might get it.

Mentatt (at) yahoo (dot) com

Saturday, July 11, 2009

Today's Quote:
“The chains of habit are generally too small to be felt until they
are too strong to be broken.” Samuel Johnson

I received an email recently from one of my regular readers, excoriating me for being such an idiot.

The fact that California is known as a liberal state is not causing their budget problem. It is the fact that they have a conservative Republican governor. The federal government has offered to bail out California and solve their immediate problem. Schwartzenegger turned the money down. he is an arrogant incompetent asshole who thinks because he is married to a Kennedy he deserves higher office.Get the facts straight before you diagnose the problem. meanwhile, gold is crashing, oil is collapsing and the dollar is strengthening against other currencies as demand for our treasuries is higher than ever, despite idle threats by the chinese to diversify.

See? Just take money from Tennessee, Texas, Illinois, North Dakota, etc... and give it to California... and presto! Problem solved.

Does anybody over the age of 7 really think Arnold did this? This is a perfect example of the problem with our body politic - Anger. Not a shred of rational thought.

Oh, and BTW dear reader... The US$ is near a 9 month low, and not too far from its all time low. And while I think it may rally here, I better be right - or this is it.

Gold crashing? Hmm..... 10% form its all time single tick high? Talk about getting your facts straight...

Oil crashing? I guess if you compare WTI to its single day high of $147... but commoditiy prices as far as economic impact goes are measured in average price per YEAR, and by that measure Oil in 2009 is at its 3rd highest - ever. And this is during the worst recession in nearly 100 years...

I have sent out ticklers to all of my Left leaning friends, Wall Street associates and contacts, and my readers (about 2000 unique visitors per month) asking them how to fix California... so far I have recieved 2 responses... both say to have Obama bail California out.

California over taxed its population to give "fair" compensation to its state employees... and they have bankrupted the system. Please, PLEASE!!! Show me how to fix it! Show me how its done!

Sometime in the next few years, the US$ will lose its reserve status. Then we will find out what WE truly wish to pay for, and what we can afford.

Manufactured Issues

Quote of the day:

“Everyone has a lesson to learn here, including you and me. We have to live within our means.” - Dr. Mark Dotzour, PhD., chief economist and director of research for the Real Estate Center at Texas A&M University.

I know that we all have some hard positions formed on issues like healthcare, energy, taxation, etc... but just for a moment, loosen up, work with me...

Imagine for just a second, that Americans, and Westerners in general, actually SAVED MONEY.  I am not talking 3% per year in their 401k.  I am talking Asian style saving, 12%, 15%, even 25%.  Just kidding, let's go with 12%.

Now let us take healthcare.

In an environment of 12% savings, how many fewer medical bankruptcies would occur?  I will give you a "guesstimate" - OVER 90% OF BANKRUPTCIES DUE TO MEDICAL BILLS WOULD NO LONGER BE NECESSARY.  

Let me give it to you straight.  This is not empirical, but there was enough data for what I would be willing to bet would turn out to be a pretty accurate hypothesis.  Just from surfing the web and reading, it seems to me that the vast majority of bankruptcies were for less than, get this, $35,000!  The 3 major reasons for bankruptcy were unemployment, divorce, and medical bills - and not necessarily in that order.  

People under 40 have fewer health problems than people over 40, so it is a reasonable assumption that more of the over 40 bankruptcies would be for medical debts, but the amount of debt being discharged did not vary much with age.  It seems that there is a point of hopelessness at about $25,000 of debt.  It also makes sense that the total debt to be discharged would be capped by market forces (inability to borrow more) and government programs like Medicaid and Medicare Disability (don't understand how these programs work?  Neither do most Americans - but that does not stop them from having some VERY HARDENED POSITIONS on healthcare...).

If Americans had a culture of savings (and savings are for rainy days, no?), and saved 9% to 12% of their household income, and did not view savings ONLY for vacations and other consumer items, the issue of healthcare bankruptcy would be next to ZERO (as savings at 9% to 12% of average household income would pile up many multiples of $35,000 by the time people reached 40).

I can do this same trick with Social Security, College, your daughter's wedding, etc...

The problem is that as a society, we are all debtors, not savers, and it will take some time and continued forced adjustment of expectations to fix it... but every government policy we have rolled out has been designed to increase your debts - NOT YOUR SAVINGS.  

The vast majority of our issues would be cured, over time, by increasing our savings rate and accepting that we must all live within our means.  The problem with our political system is that our politicians must tell voters what they want to hear, or already believe, in order to get elected.  Americans do not want to have to save (savings means delayed gratification, and even when we do save we don't it to be for securing life's risks, we want it for consumables).  They want to run their lives right on the edge of financial disaster and then gnash their teeth if one of life's wheels runs off the road.

I have an idea... if government really feels the need to interfere with the free market... Let it limit Law School slots and INCREASE Medical School and Nursing School slots. The increased number of physicians will increase competition and drive down prices.  In addition, government should create tax free medical savings accounts that people get to KEEP if they do not use them, while at the same time decriminalize drugs.  This would give folks serious incentive to keep fit and not abuse tobacco and alcohol and drugs, and the savings from law enforcement for drug prohibition could be used to expand Medicaid and Medicare Disability for people who exhaust their Medical Savings Accounts.

Or we could just keep doing what we are doing, and have a bunch of innumerate lawyers (the mathematical equivalent of illiterate) coming up with policies without doing a SHRED of cost/benefit analysis.

"The first years of man must make provision for the last."   Samuel Johnson, 1709-1784

Mentatt (at) yahoo (d0t) com

Friday, July 10, 2009

The "Mirror"

In economics, trade, taxation, healthcare spending, transfer payments, marriage etc... in any transaction... there is a "mirror", often more than 1, sometimes many - like in an amusement park's "House of Mirrors".

Newton's Laws stated that "for every force, there is an equal and opposite reaction".

If we raise taxes on the "Rich", they spend less and have less incentive to work at the margins (say you put in a 10% surtax on income above $250k per year... many of the folks making $251k to say, $500k might decide that is better to go fishing than to work the extra hours only to pay far more in taxes. No, this won't disincentive a $10 million per year pro baseball pitcher or movie star, but their contribution to the economy is not as great as the multitude of high earning little guys and their $300k incomes). They spend less on EVERYTHING, and this in turn harms the business and incomes of all of the businesses that serve these people AND the TAX REVENUES the taxing authority was trying to enhance.

If you increase payments to people for unemployment, etc... they have no incentive to take a lower paying job. In my life I have worked as a garbage man, building painter, gas pumper, landscaper, driver, ditch digger for sprinkler systems, repo man... I did what I had to do in order to make a living. I have been broke twice and "rich" 3 times, and if I go broke again, I will do whatever it takes to make a living. None of these "menial" jobs were all that bad, and most paid a living wage (though I never had a "wage" with the exception of being a garbage man and paper collator, mostly I just hustled to turn my hand at what ever someone was willing to pay me to do.) Being from the working class, I never turned my nose up at anything.

(Where is it written that you are guaranteed to make $40 per hour for no skill and less risk, with 5 weeks vacation, get as fat as a house, smoke, drink, do drugs, have your healthcare paid for (by whom?), fail to save for a rainy day and then complain about your life becasue it is raining? Let's face it, this describes a large percentage of the unemployed industrial AND financial services workers. Clearly, I am not running for office... and if you were looking for feel good, politically correct discussion... well, you came to the wrong blog.)

The cure for all the West's economic problems is to let the correction (in the larger sense of the word, not the stock market) run its course. People's expectations NEED to be corrected. If that were to occur, we might actually get through Peak Oil, Climate Change, the housing crash, and all of the other myriad and self created issues that the collective WE have done to ourselves.

But talking like that ain't going to get people elected. Guys who want to get elected need to "Keep Hope Alive" (hope for what?), "Feel Your Pain" (then you are not doing it right), and promise "Change" (fear not, "Change" you can believe in is coming).

Mish Shedlock recently posted an article saying that "Deflation is the Cure", and needs to be embraced - though I doubt he will be elected anytime soon, either - and I believe his point to be essentially correct.

The folks on the Left want to deny Newton's Laws and the guys on the Right lied to us about everything and spent like the Left would have. The bill for the "Free Lunch" just arrived at the table - and both sides are pointing for the waiter to give it to the other.

The People's Republic of California is going to go the way of the Soviet Union.

BTW... So far, the only idea I have received of my challenge to the Left as to how to save California is that Obama Administration is going to bail them out. I hope you guys can do better.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Wednesday, July 8, 2009

U.S. Oil imports Decline Rate Accelerates

Quote of the Day:

"The devil is in the fact that there is not enough economic output in the US to support all of this. We have floated on a real estate bubble for 35 years while we have deindustrialized. The private economy is not big enough at this point to support all of this spending. Tax revenue plus government borrowing won't cover it anymore." AEC commentator "Coal Guy" (emphasis added).

I was going to write a quick post about that last line from Coal Guy, but since he stole my thunder... What "Coal Guy" is referring to is a fairly simple and obvious metric:  A government can only spend what it receives in taxes, borrows, AND/OR PRINTS.  We have come up against the upper limit of taxing and borrowing.  If the Government tries to increase taxes as a method of increasing revenues in a recession the unintended consequences can be rather dire - and not just economic.  Make things bad enough and an economic crisis can morph into a political crisis.  It is the folks that deny this possibility that are willing to push the envelope... perhaps just a bit too far.


Total petroleum products imported into the U.S. is down 6.9% for the first 183 days of 2009 vs the first 183 days of 2008.  2008 total petroleum imports were down 8% from 2007.

We are being told that the reason is the recession has caused Oil demand to fall. Fair enough.

But 15% in 2 years!?  Still, could be...

So I was bouncing this off the Mad Scientist, who had been doing some research into the world auto market.  His research appeared to show that car sales were actually UP in many parts of the world, year over year.  Not enough to sop up all of the unsold car inventory piling up around the world, but that ain't the point.  The point is that as the international auto fleet expands RELATIVE to the U.S. auto fleet, the competition for petroleum products will increase for the U.S., which can cause the rate of decline of U.S. petroleum imports to really accelerate.  


Pickens' Plan to save the U.S. from having to adjust to a non car-centric society is no more.  Simple physics says that without increasing electricity generation the U.S. is not going to move significant amounts of payload in electric vehicles (cars).  Either we burn more Coal, Nat Gas, or increase Hydro, or Wind/Solar/Tidal... or the required increase does not happen.

Well, Wind just had its bottom reddened in front of the class...  Rig counts for Nat Gas have fallen below 700, far below the absolute minimum needed to maintain production over the medium term... U.S. Oil imports are down 15% in less than 550 days... That leaves Coal.


I have been following the 'Food Stamp Metric" for several years, as my long term readers know.

I regret to inform you that 11.5% of the U.S. population is now receiving assistance for food. Some might argue that food prices have come down - clearly not enough to make food affordable for the wages these folks earn.  When I began blogging in 2005, the number was just under 8%.  I had previously posted that a sustained  "food assistance" rate of 15% would be untenable politically, and 20% would lead to an outright constitutional crisis.  I picked those numbers out of thin air - and unfortunately I think we will see how close my "guesstimates" where.


California!  Agh!  The word alone makes me happy.

I am looking for a guest post from an Obamaphile, clueing me in on how your gang is going to save California from the fiscal incinerator.  I await your tretise with great anticipation.  Please email me at:

Mentatt (at) yahoo (d0t) com

Ron Paul vs The Fed

He should have named the rest of Democratic Leadership as well as the Obama Administration.

Congressman Ron Paul wants to audit the Federal Reserve.

Can you imagine? The nerve of the guy. You mean to tell me that a Member of the People's House wants a full accounting of Fed activities and its balance sheet?

You mean to tell me that this isn't public information?  Yes, that is EXACTLY what I want to tell you.

99.9% of Americans have not read the Federal Reserve Act of 1913.  It would also appear that no presidential candidate since Woodrow Willson has, either - considering the claims of job creation and management of the economy these nit wits promise to an even less informed electorate.

The fact is this: The Federal Reserve is not audited by Congress, is completely independent (lol!), Bank Presidents cannot be fired (merely not reappointed), and for those of you busy looking for an economic boogey man - The Fed is as good as it gets.  The Federal Government does not even own the Federal Reserve (which begs the question - who does?).  (Feel free to Google away, I am not going to provide sources for such common knowledge stuff.)

Its hard to believe, but the Democratic Leadership in the Senate today used procedural techniques to stop the Audit of the Federal Reserve.  I wonder why.

Tuesday, July 7, 2009


T. Boone Pickens has thrown in the towel on his plan to save America through wind energy.

I took some heat last year when I mentioned that building the transmission lines from the wind to the coasts and big cities was a fraught with logistical issues (not to mention the financing for the construction of what would likely have been a project that would have DWARFED the U.S. Interstate Highway construction project of the 1950's and '60's).

Don't let the specious reasons for "shrinking" the size of the project fool you... this thing is done; you can put a fork in it.


The Natural Gas guys are claiming they can arrange the Second Coming with hydro fraction and horizontal drilling.  I don't believe their claims are supported by the data just yet... and it may well be little more than an attempt to gain cooperation for the industry's projects (I think this is very likely the case, but that is just my cynical, questioning, cut-the-cards curmudgeon style talking).  This is not to say that the U.S. won't go into winter with NG storage filled to capacity - I think we will.  I think, too, that this will likely prove to be the bottom for NG in my lifetime (and I reserve the right to change my mind and eat those words with something good to make them go down easy).




Sorry, that got away from me.


Tidal, Geo, Methane Hydrates, etc... see Hydrogen above.


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

Any of you Obamaphiles notice my commentary re: GWB? Nobody gets a pass around here.

Funny I mentioned how hard it was going to be to get those big paying jobs at Bear Stearns and Lehman Brothers!

As I said before, we are 40% through the shock, with another 3 years or so to go to get to the long, grinding wipe out of the industrial age, which will last no more than 30 to 40 years, at the end of which 40 acres and a mule will be about as good as one could hope for (just kidding, it will be much worse than that... just divide human population by the world's land mass after subtracting Antarctica... 40 acres would be quite the luxury...

Anyway, the good news is that it won't happen all at once.

40 % through the shock period

The West, and especially the U.S., is about 40% through the shock period of declining Oil and declining credit. As I said in my in November 28, 2007 post, the shock will occur and unwind over a 5 year period to be followed by years of grinding and slogging until the "alternatives" materialize - or we shrink population and GDP to fit within the new environment. We are nearly 2 years into the 5 year shock period (40%) - there will be more jolts - big ones - coming, and it is impossible to know what they are or when they will occur.

For folks that still have money: You might think you have dodged the bullet, and you are right - sort of. You have dodged A bullet, not THE bullet. There are more bullets coming your way.

I have written many posts about California, how they got to the end of their fiscal rope and why California could easily drag the U.S. currency off the proverbial cliff... but this was on the front page of Bloomberg today:

With California mired in a budget crisis, largely the result of a political impasse that makes spending cuts and tax increases impossible, Controller John Chiang said the state planned to issue $3.3 billion in IOU’s in July alone. Instead of cash, those who do business with California will get slips of paper.

The California morass has Democrats in Washington trembling. The reason is simple. If Obama’s health-care plan passes, then we may well end up paying for it with federal slips of paper worth less than California’s. Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.

It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.

California has engaged in an orgy of spending, but, compared with our federal government, its legislators should feel chaste. The California deficit this year is now north of $26 billion. The U.S. federal deficit will be, according to the latest numbers, almost 70 times larger.

Bleak Picture

The federal picture is so bleak because the Obama administration is the most fiscally irresponsible in the history of the U.S. I would imagine that he would be the intergalactic champion as well, if we could gather the data on deficits on other worlds. Obama has taken George W. Bush’s inattention to deficits and elevated it to an art form.

The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals. Ronald Reagan ran up big deficits in part because he believed that his tax cuts would produce economic growth, and ultimately pay for themselves. He may well have been excessively optimistic about the merits of tax cuts, but at least he had a story.

Obama has no story. Nobody believes that his unprecedented expansion of the welfare state will lead to enough economic growth. Nobody believes that it will pay for itself. Everyone understands that higher spending today begets higher spending tomorrow. That means that his economic strategy simply doesn’t add up.
For the James Carville wannabee's out there, responding that Ronald Reagan, or GWB, or Abe Lincoln, did this, that, and the other thing, I want to share with you something that I learned from Sister Mary Ancilla at Transfiguration grade school in 1966:

"Two Wrongs don't make a Right."

I will GRANT you that history is replete with dumb ideas and mistakes. But we are here, NOW. And what this administration is doing is going to have unintended consequences that are going to blow your mind. I sincerely hope Obama and his team know what they are doing, but it does not look like it to me.

More from the article at Bloomberg

Character Deficit

Back in the 1980s, Reagan’s own economist, Martin Feldstein, spoke up when he felt that the Reagan administration was pushing the deficit too far. Where are the economists with such character today? Apparently, the job description for economists has transformed from recommending policies that are defensible to defending whatever policies that the political hacks in the West Wing dream up.

As bad as the California legislature has been over the years, it has never entered a fiscal crisis like the one that we face today and then doubled down with a massive spending increase. In the end, when times got tough, patriotic and sensible Californians of both parties stood up and began acting like adults.

Maybe the same thing is starting to happen in our nation’s capital. The key players in Washington are Senator Evan Bayh and 15 Senate Democrats who joined him this year in forming a coalition of moderates. One thing that has distinguished moderate Democrats from the garden variety of the species is heightened concern about fiscal responsibility.

Off a Cliff

With the price tag of Obama-care likely to exceed $1 trillion, moderate Democrats face a simple choice. They can jump off the cliff with the president, or they can stay true to the principles that they have espoused throughout their careers.

There are reassuring signs that principle is winning. One of the most expensive components of the Obama plan is the so- called public-insurance option, which opponents fear would result in massive government subsidies. Senator Mary Landrieu said that she is “not open” to a public option that will compete with private insurance.

Many other Democratic Senators, including Ben Nelson, Blanche Lincoln, and Tom Carper, also oppose the public option. As the cost estimates increase and support wanes, the Senate Finance Committee is even going as far as to pursue its own health-care plan, meaning that the health-care end game is now in sight.
$4.5 Trillion of deficit spending over 2 years is going to yield another 2 year, $5 Trillion deficit. Obama is going to have a $10 Trillion first term deficit. That will be nearly 70% of GDP in a 4 year period!!

I beg the Liberals and Democrats that read my blog to contact their representatives and sphere of influence - don't let this happen.

The alternative is not pleasant - but at least it is something we may recover from absent something far less pleasant.

Saturday, July 4, 2009

Libertarian America

Happy Independence Day, 2009!

I want you to know how much I appreciate our American freedoms - like the one I have been exercising in this forum - outright criticism of their government and political leaders is simply not possible for BILLIONS of human beings the world over.

Politics in the United States needs some new blood, a fresh cool breeze of REAL change.  The politics of the Republicans has been rejected by the majority of the people - though I have been a life long Republican, a Yankee Republican if you will, they appear to me to be winding down as a political party.  The politics of the Left has brought the American people to fiscal ruin, and to an indefensible ethic of NO personal responsibility.  Just take a hard look at the Center of Liberalism in America - California - as well as the Budget Deficit of the United States Federal Government.  We must find a better way.

The politics of the Looney Left and the Whacky Right should not be, MUST NOT BE, the only game in town/nation.  These 2 groups represent 15 % or so of the U.S. population, yet they have the rest of us by the g!shg@s.

AMERICAN culture and history is uniquely suited for our own brand of Libertarianism - American Libertarianism if you will - consistent with U.S. Constitutional rights and protections, and completely rejecting the idea of Government intrusion into our personal lives, a Government that maintains order and defense but does not legislate morality, a Government uniquely concerned about INDIViDUAL rights rather than special interest groups, and a society that preaches AND practices an ethic of work, frugality, self-reliance, and personal freedom and responsibility.

The alternative will be a "Tyranny of the Majority" or a "Tyranny of a Minority", but a Tyranny nonetheless.  

So happy 4th of July to my American brothers and sisters, and happy freedoms to my international readers not censured and able to read this.  We have crossed some strange dividing line these last few years, and have entered the land of the surreal.  I think now is an excellent time to bring it on home politically and socially.  To end the Tyranny of Left and Right - hypocrites, liars, and human beings all - and truly "Let Freedom Ring".

Yours for a better world,

Greg T. Jeffers

Wednesday, July 1, 2009

Blast from the Past

I wrote this in my post of November 28, 2007:

An Apocalypse NOT!

I get a decent amount of email from the “doom and gloom” folks asking me when I think the “collapse” takes place. Collapse? What collapse?

The decline in oil availability will be a slow, grinding process (in my opinion) that will not fit nicely in a 2 hour movie, 3 minute pop hit, or 15 second political sound bite mindset. I hope I can disabuse the doomers that visit here that they need some kind of bomb shelter. Although I fully appreciate your point of view, my commentary is directed toward how one might direct the investments that they have worked so hard for. I sincerely believe that the U.S. oil supply situation will have profound effects on our financial and real estate markets and currency over the next 5 years, but I do not think this will happen on a Tuesday afternoon. Nor do I believe that we will descend into anarchy. Are not resource wars (starting with Iraq), and the prospect of hyperinflation, and stagnant or declining GDP enough? Well, at least I hope they are.

My issue is this: Why should you work so hard only to pour your investment dollars into a leaking bucket? You would have been better off spending those shekels on vacations, expensive wine, and song. (Actually, that sort of appeals to me.) Some might find that pecuniary, but those that do probably did not spend a career doggedly pursuing some level of financial independence. Actually, I am quite sure that on some level the tied dye set is HOPING for a collapse. Teach those yuppie pricks a lesson.

I know that a lot of the peak oil blogsphere is filled with disaster scenarios, but I sincerely doubt this is the most likely outcome. That argument that we will experience immanent agricultural disaster due to declining energy inputs is just not that likely. The markets are efficient enough to redistribute those inputs away from Suzie-Cuzie’s trip to the mall and into the farmer’s tank and fertilizer bin. Yes, food is going to get much more expensive, and yes, this will fall disproportionately on the poor. But the aggregate AMOUNT of food available to Americans is not the problem, but rather how to pay for assistance to the poor.

This is not to say that our agricultural exports won’t decline and harm others. I sadly think that is a rather likely outcome. Those of you that have been following my blog know that I have great concerns in this area. Wheat and corn production will become an increasingly expensive proposition, and that will negatively affect aggregate crop production, just look at wheat inventories, and in turn available exports and domestic meat production, but the lesson of history is that people will be “incentivized” to produce some of their own food. As an avid gardener, I can tell you that a simple kitchen garden can overwhelm your ability to consume all that is produced at harvest time, the surplus of which can certainly be preserved. It will not be necessary to produce ALL of our own food (at least not for 20 or 30 years, all bets are off at that point in the oil production curve) just enough to bring the marginal scarcity food cost down to an affordable level.

I get email from one dour fellow who tells me that we have lost all of the knowledge to do this. What knowledge, gardening? Get a grip, and join my garden club. You would be impressed with what these folks know.

As my friend FireAngel from likes to point out, if India can feed over 1 billion people with less arable land and far less fossil fuel imports, North America certainly can feed its population.

There is also some slack for the economy in the wasteful way in which we use oil. FireAngel recently pointed out that driving around in circles does not increase GDP.

If it were going to be Armageddon, what would be the point of investing? Better to blow it all on a trip around the world.

No, the Apocalypse won’t be arriving anytime soon, but a paradigm shift is, in my opinion, underway as I write this. In this paradigm shift, there will be winners and there will be losers. Not much different than our current reality. It is the INSISTING that things be a certain way that will get you into trouble. Flexibility and adaptability will go a long way in the environment I foresee.

No, it won’t be business as usual. We are likely to be a whole lot less mobile, live in smaller homes, and consume less frilly BS. We won’t be commuting as far, be more involved in our communities and our children’s lives, and we even might all have a new hobby – gardening. But I ask you: Is that really Armageddon?

End of 11.28.2007 post

Today, somewhere in Rural Tennessee... (with the theme from "Terminator" playing in the background....Oh, and BTW, in the post..."Fireangel" from I renamed him the Mad Scientist (he really is a scientist) and retained him as an analyst at the Sleepy Hollow Funds.)

I am still of the belief that there will be no Armageddon, with mobs roaming the streets looking for people to eat. I do think that there will be incredably rough patches, and that the legions of "the poor" will grow fantastically, the economy will not cooperate as projected to fund the anticipated tax revenues, which will lead to issues with the currency and the various social programs.

The biggest adjustments are going to have to be made by the folks depending on transfer payments and benefits and the upper middle class to semi rich, as the later groups benefit from credit and leverage in ways they are completely unaware of.

(I was speaking with a buddy of mine this morning. He's my age, has a son my son's age, a Middle Class millionaire (I love that term... I use it to describe guys with a few million bucks that everyone thinks are "rich", but he has to get up early tomorrow to go to work to keep the managerie going... he grew up in a 2 bedroom apartment in working class New York City neighborhood (and no, it isn't me), and if you asked him back then what "rich" was he would have described his current circumstances... he reads my stuff, so.. .Hey, bro, ain't life grand? Now, get back to the grind!), and we were discussing expectations - ours, our wives, our children's, as well as our efforts to provide for those expectations - and how difficult it was to feel secure that we have been and are continuing to do the right thing (in working to secure our family's futures). The problem is in the "expectations". "Expectations" can prove bothersome in such disparate fields such as Politics, Marriage, and Commodity Price Forecasting. )

The Peak Oil "Doomers" had it wrong in that the system was to be compromised not by fire - but by ice. I have commentors informing me that the price of grains is down, therefore my concerns ar unfounded. That just isn't how the commodity cycle works, and grains are a commodity, perhaps THE commodity. They also had it wrong in thinking that the change would be sudden and violent (although it could happen that way, I would describe it as a low probabiltity/high consequence event).

No, we will constantly accept a "new normal", that will come upon us in stages, with the greatest change in the economic and energy landscape occuring during the 1/2008 to the 12/20012 or 13 period. It will be interesting to see how grain (corn) prices react to a 4 million bpd oil import decline during that period, as well as how the U.S. economy and tax revenues hold up.

Mentatt (at) yahoo