Friday, January 8, 2010

Nobody Left to Fire

"Even the worst days on the farm are better than the best days in a factory." Gene Logsdon

The Financial Media is telling the markets it is time to celebrate - job losses have ended in the U.S.

There is nobody left to fire in Corporate America or Small Business. These sectors had cut into bone long ago. Now government, on the other hand...

I don't have to tell you that we need 100k per month job growth just to keep unemployment where it is because of population growth. Having nobody left to fire is not the same as hiring.

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The Financial Media is out there pitching the "The U.S. needs more refineries" story again. If that were true, why the hell do we need all of these ethanol plants? Why are we bothering with wind, solar, tidal, etc...? Who plants these stories, anyway?

Stories don't just magically appear in the media. There is a very good reason the U.S. has thousands of PR firms. You're an industry player and you want a story on widget production issues. Voila! PR to the rescue.

"Believe nothing that you hear, and only half of what you see."

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The worst Recession since the depression with double digit unemployment... and Oil is at $83 per barrel. Where would Oil be if unemployment was 5%? Or is unemployment at 10% because Oil supplies are off 10%?

The decade ahead will be a game changer. How old are you? Do you have any resources with which to do anything about it? I got an email from a young person with no money but real brains asking what I would do if I were him. I said "Move South, its going to be awfully cold up there" (he was from the Northeast). George Soros recently said that it is going to be very difficult to preserve wealth in the years ahead. Amen. Still, that depends on your definition of wealth... and how wealthy you are... as well as how old you are... and how flexible you are.

The U.S. is in the grips of a serious cold snap. Imagine life at these temperatures with no heat. (Please spare me the wood stove illusion... There would not be a tree, bush, or piece of furniture within DAYS if the 50 million people in the U.S. Northeast were forced to heat with wood.

No, not tomorrow, but as sure as the sun rises this outcome will arrive within the lifetimes of those reading this. You save for your kids (or grandkids) education... what are doing about this?


1. Faber: The 'American Empire' has peaked, is on a decline

Hong Kong economist Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."

2. Grantham: Learned nothing, doomed to repeat past, only bigger

Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future."

We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing."

3. Stiglitz: Wall Street creating short respite before next crash

Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, "the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis." Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.

4. Johnson: Running out of time before Great Depression 2

Yes, "we're running out of time ... to prevent a true depression," warns former IMF chief economist Simon Johnson. The "financial industry has effectively captured our government" and is "blocking essential reform," and unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.

5. Ferguson: Fed's easy money fuels new bubbles, meltdowns

In the 400-year history of the stock market "there has been a long succession of financial bubbles," says financial historian Niall Ferguson. Who's the culprit? The Fed: "Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks."

Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.

6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics

When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of "The Black Swan," warned of a new disaster: "The world has never, never been as fragile," yet Obama reappoints an economist who "doesn't even know he doesn't understand how things work." New proof? At last week's American Economic Association, Bernanke was still shifting the blame: "The best response to the housing bubble would have been regulatory, not monetary."

Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown

7. Soros: Dollar dead as a reserve currency, nest eggs dying

Billionaire investor George Soros' "New Paradigm:" America's 25-year "superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns" and a "shadow banking system" of derivatives.

"The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency," warns Soros. "We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances."

8. Hedgers: make billions shorting stupid politicians, bankers

Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 "managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth."

9. Shiller: Dot-com, subprime meltdowns, 'third episode' next

Economist Robert Shiller a "Dr. Doom?" Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."

10. Kaufman: Irrationality replaced reason, science, technology

Henry Kaufman was Salomon's chief economist and "Dr. Doom" for 24 years: "Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"

Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.

11. Biggs: Sell everything, buy guns, food, head for the hills

In his 2008 bestseller "Wealth, War and Wisdom" former Morgan Stanley research guru Barton Biggs warns us to prepare for a "breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Biggs sounds like an anarchist militiaman.

12. Diamond: Nations ignore obvious till it's too late, then collapse

The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.

It ain't just me.





19 comments:

Anonymous said...

Greg,

Regarding the "tree,shrub,furniture in sight for days" piece. I have often noted to myself the lack of said in old photos from the 1800's. Not a single thing around homes,maybe a large single tree with a swing, and that is it. Those days the population was but a fraction of todays,and fuel was scarce.

My solution: good sleeping bags, wool blankets,and cold weather clothing.

I would not even consider a wood stove use in the beginning stages of such an event. Your home would become a human roach motel. Better to blend in,and suffer a little.

Know of any good books on early Ameican living?

peace

Publius said...

Wood for heat:
Well, I disagree a bit here. A well-insulated cabin/structure will get incredibly warm from burning one log, and a well-designed stove can also store the heat in stones and slowly release it.

Second point: an "earth-berm" or almost-underground house needs VERY little energy to heat.

I would posit that in the event of true collapse, the north will have a lower population and therefore be safer from crime and depredations. If you survive the transition, and have an earth-berm home or something else with a lot of insulation. Or just good sleeping bags.

There is no easy solution, no easy way out, other than the most common solution: delusion (we are on the road to recovery, and unlike all previous civilizations, ours will not succumb to decay and decadence).
So it goes.

bureaucrat said...

Off to the races ...

1) The ethanol plants were constructed mostly in the last few years because over-excited 42 year olds like me wanted to finance and profit from "the investment of the century." They assumed that an oil shortage was right around the corner. Lots of cheap money and dreams of Apocalypse made for speedy ethanol plant construction. Hell, even I was excited by it all. But the numbers are simple: there is not enough corn, nor will there ever be enough corn, to displace any more than 15% of the gasoline & diesel BTUs we burn every year (with perhaps food-supply issues emerging as well).

2) The answer to life is cycles. There is no true beginning or end to anything, just movement of states. Anyone watching the interest rates knows we had dropping interest rates for 30 years (1950-1980), then rising interest rates for 30 years (1980-2010), and now the rates are going to go back up again.

3) Burning wood for heat is, as you mentioned, impractical. While there wouldn't be a tree left for miles, there also is a storage factor. I have a 4800 square foot building, and I would need the equivalent of 12 cords of wood to heat it. A cord is 4' x 4' x 8'. Where the hell am I gonna store all that fiber in Chicago? It's an entire basementfull! :)

4) The Roman Empire lasted 800 years. All empires die, including the empires before the American empire (Portuguese, Spanish, Dutch, Russian, Japanese and British empires). Problem is, after the American empire, what comes next? I sure as hell don't want to bow to the Chinese Empire! I think America and its dollar has a ways to go yet.

5) You know, the destruction of American finance comes back to the old-age expenses for the baby boomers. They aren't going to be around forever.

6) There isn't going to be an American breakdown anytime soon. For one thing, no one wants it to happen. For another, there is nothing to replace us with. Further, U.S. waste is so significant, that we could live off our own fat for decades. :)

bureaucrat said...

Ooops, #2 should be rising then dropping then rising

Anonymous said...

Didn't George Soros buy a ridiculous amount of farmland in Argentina?

Dan said...

There is no reason one couldn’t build a hybrid house such as the Romans did in North Africa. The ground and upper floors were pretty standard but the basements were well appointed and were well insulated against the surface but not the floor. It was quite an enigma until archaeologist realized the basement was used by the owners to escape the heat and not the slaves as was typical. Such a structure would work just as well to protect against a lack of heat. In most of the south you are looking at ground temperatures of around 60F at around 6Ft.

Bureaucrat, insulate a couple rooms at the center of the house then seal off the rooms you are not using and don’t heat them. We don’t usually think about insulating the interior walls or putting weather stripping on interior doors, but it will work.

Greg T. Jeffers said...

Pub:

On a macro basis... the population will migrate. Best to be there first.

India has little heating needs... yet people are prohibited from cutting down trees for cooking because if the impact on desertification, the watershed, etc...

Anonymous said...

There will be a more of liquid fuel shortage than an energy shortage. We will not run short of electricity, except for political reasons. We will stay worm even if gasoline is short. I agree with MS on this.

Regards,

Coal Guy

bureaucrat said...

For you housing analysts out there, this is a three-level, three unit "house," that is 100 years old and never had insulation installed. $100,000 per floor to put in new walls and electric. I'm getting there, I'm getting there. :)

Dan said...

Bur:

Something to consider…

Anonymous said...

Greg
found a blog you might be interested in. Check out some of the post on ethanol and nat gas.
i-r-squared.blogspot.com

Greg T. Jeffers said...

Anon@4:44:

I read Robert Rapier's blog fairly religiously, and have on occasion communicated by email.

I pretty much left The Oil Drum when he did, about 2 years ago.

I agree with RR about the "rate of change" - that it won't be as steep as the "doomers" seem to think - and that what the doomer's thought would happen in 2 years I felt would take 10 years or so. Considering the outcomes that is not such a big difference in time.

In the short term, Everything does hinge on Saudi Arabia. So far, SA has been more reliable than Simmons et al (this does not mean I do not have a great deal of respect for Simmons... I do) and that is the problem with forecasting - it tends to be failure prone.

bureaucrat said...

Saudi Arabia isn't exactly pumping like mad much anymore. Starting with 2009, and stretching for four years (predicted), I don't think they will be able to pump much more than 8 mbpd, significanty less than the 10-12 mbpd they keep saying they can produce.

I think we are also going to have to give Iraq their shot at becoming the next "Saudi Arabia." Iraq wants to do 12 mbpd in 6 years (up from the historic 2-3 mbpd). There are both reasons to support their prediction and reasons against. If Iraq winds up producing all that oil, they may become a game changer for peak oil in the near term. Problem is, governments in that part of the world have overpromised everything since day one.

kathy said...

Even in the Northeast, few are really equipped to heat and cook with wood. It takes an established house infrastructure. That lets out most suburban Mcmansions, all inner city apartment buildings, all municipal buildings, mobile homes and tract houses. Next come the need for chainsaws and fuel (have you ever cut wood by hand?)and way to haul it to where it's needed. Building underground homes? A few maybe but it takes advance planning. I agree. People will move to warmer regions. That works for those of us who are prepared with the woodlot and the stoves and the chimney system to use wood. I expect you would lose a lot of families to carbon monoxide poisoning the first time they tried alternative heating when they were clueless about the process.
I wonder where all of the refugees will end up. Not in a place where there is no water. Not in a place where the temps are too high in the summer to be comfortable without AC. It's as dangerous as no heat.

Donal Lang said...

Greg; looks like you had too much time on your hands over Xmas to do depressing reading! ;-)

Interesting to note that, as oil has replaced human (and animal) labour, then a future economy will need many more people to do and make things the 'hard' way, soaking up unemployment. Eventually people as labourforce will become valuable again, although its hard to work out how big the economy will be.
Farming without megatractors, for example, will have to change to smaller farms and lots more people growing local food again. A new agricultural revolution.
Of course, kids will need both retraining and some aspiration-adjustment!

Greg T. Jeffers said...

Donal:

Ya think?

My concerns are more economic/social (as an investor/saver/family man) than energy. I am very hopeful that the rate of change will be slow enough that there will not be any refugees - just an aggressive migration to warmer climes. This, along with decreasing financial activities in the markets, will have a profound effect on housing and employment in the NE US over the next decade or 2 - hence my suggestion to the young man just starting out that he make his move now - before the Christmas rush...

oOOo said...

Out of curiosity, why did you leave the oil drum?

Greg T. Jeffers said...

oOOo:

I did not "leave" the oil drum... I just ceased commenting and contributing... not that I did much of either. I was not a "staff member"

I felt that the doomer mentality was overwhelming the data.

I still value much of the work they did and do there, and I think very highly of Stu Staniford et al.

oOOo said...

http://finance.yahoo.com/tech-ticker/survivor-america-%22it%27s-only-going-to-get-worse%22-gerald-celente-says-401199.html