Tuesday, May 11, 2010

"Postcards from the Edge"

Gold had a record close today. Don't know what it means, but it is certainly not cooperating with folks at Elliot Wave. That's OK with me, precious metals are one of my biggest holdings (unfortunately, I sold my paper metals 10% ago... nobody's perfect). My other largest holding, Treasury paper has also done well of late. This should not be the case, but it is at them moment. I had these to hedge the other... sometimes hedges don't work out as planned, and sometimes its to the good (though not usually).

Europe "creates" a $1T Euro fund... the U.S. had its own bailout funds... Me thinks this is not a solution. Me thinks this will blow up, and as I have said before... sometime before 2018 even if there is NO problem with Oil imports. At that point the U.S. public debt will be well over the 100% mark, and that does not include the Medicare and Social Security deficits that will really be coming to the fore at that time.

Although it does not mean anything, I like it when somebody out there agrees with me (don't we all?). IBD's Jed Graham thinks 2013 at the earliest and 2018 at the latest... I think that is a reasonable projection - provided that the rate of decline for Oil imports falls to ZERO and imports level out here. If the rate of decline continues at the current .7 to 1% per month... well, feel free to move that timeline up a bit.


I can't help but read stuff people link to me about the Oil well leak in the GOM. Every single special interest group, particularly those Left of center, are trying to make political hay out this in the worst way. I note with interest just how few Lefty bloggers and journalists have backgrounds as engineers and mechanics and geologists (as well as State Troopers, FBI agents, SWAT snipers... positions which I think should only be staffed by folks that graduated from the best university philosophy departments and it should be done so by use of a DRAFT. In fact, I would disqualify ANYBODY that WANTED to be in Law Enforcement, Prosecution, Regulation, Judiciary, etc... and, just as is done in the military, after the period of their initial "induction" I would discharge these philosophers back to civilian life. My bet is we will have a much better societal experience and far less pension liability... Anyway, its a nice thought).

But I digress...

If the world closed down its offshore rigs right now, we would lose over 25 million bpd of liquid petroleum production. Be careful what you ask for.... in an effort to eliminate environmental risks in the world's oceans you would instead "eliminate" a couple of billion human beings in the resulting wars, famines, and economic collapse. Me thinks the cure is somewhat worse than the disease.

Informed folks on both sides of the aisle know this, but that does not stop them from trying to make political gains in the seemly and unethical fashion.

Things break. Mechanical equipment fails, events uncontemplated unfold. For better or worse, we have painted ourselves into a corner and we must continue to explore and produce oil under the world's oceans, even IF we are smart enough to realize that we must find another way - that will take time. In the meantime, this is where we are. Note to the environmental Left: If you think things are bad NOW, just nationalize the offshore industry. Can you imagine how many leaks, explosions, spills, et... that would ensue if the government were running things off shore?

This is not to say that I don't think there are some legitimate environmental issues that simply must be addressed. The problem gets back to special interest groups and their efforts to massage an issue in every conceivable way in order to benefit politically.


Dan said...

The Euro Area’s problem is too much debt; so to alleviate the symptoms, they are going to quickly assemble an awe inspiring amount of debt. We’ll all be shocked and awed at the results of their insanity. I’m betting sooner rather than later for Europe. Everyone in the other PIIGS countries is watching Greece’s response to austerity- and noting that it is working.

bureaucrat said...

Goes back to those "new rules." Gold and Treasuries aren't about inflation and "investing in your country's development" anymore. They are places to run to when the financial environment is hugely volatile. And THEN, we'll someday have even more "new rules." Since the Federal govt. cannot borrow larger and larger amounts forever (especially with an aging workforce), and since you can't eat a gold bar, we'll have to watch in the mail for the new, new rules, whenever they arrive. :)

Anonymous said...

The CAVE men are an irrational lot. They want no nukes, no coal, no oil, no gas. Yet, they leave their air-conditioned homes every morning and climb into their cars to drive to work. The logical disconnect is beyond comprehension. Still, they gain political traction with their insanity!

To the point of fiscal and monetary policy, the debt problem cannot be cured by creating more debt. That is for sure. Quantitative easing ( nice euphemism for printing money ) seems to be the right thing to do, IF coupled with fiscal restraint. As the debt bubble unwinds, money needs to be created to replace the money that disappears as debt is paid down and defaults. Without it, at some point, all the cash disappears, the markets seize and we undergo a complete deflationary credit collapse. Payrolls are not met and debt backed savings go to zero. Not a good outcome.

The present approach is to increase both debt and base money. This is foolish in that the basic problem of too much debt is never addressed. Now that the piigs have the ECB, the IMF and the rest of the Eurozone on the hook, don't think for a minute that any meaningful austerity will take place. The public employee's unions will riot an that will be the end of that. It's no wonder the Germans are p!ssed. Their government is expected to sell bonds to raise the cash to buy Greek, Spanish, Italian and Portuguese bonds at a discount. Yeah, right!


Coal Guy

Anonymous said...

Those managing the $T Eurofund have interest rates that they would like to maintain for the PIIGS's bonds. Just how long it takes to eat through the $T is the question. If I held any of those bonds, I'd sell NOW and let the Eurofund hold the bag. It won't take long.


Coal Guy

Anonymous said...

So this chart from the US EIA is meaningless?


Greg T. Jeffers said...

Dear Anon:

I do not accept unidentified commenters here. Either register or use a nick name that you stick with if you wish to join the conversation.

BTW, was your question directed at me or Coal Guy?

Anonymous said...

Hi Anon,

That chart looks optimistic, especially on the oil import side. Google Export Land Model.


Coal Guy