Sunday, January 31, 2010

The Vermont Secessionists...

Time Magazine ran an article on the nascent Vermont Secessionist movement (I am certainly NOT advocating any secessionist talk, which I think to be nothing short of dangerous - a case of "be careful what you ask for, you may get it". In most other countries, these guys would have disappeared already - that says a great deal about our Constitution).

I was struck by a couple passages in the article:

A former Duke University economics professor, Naylor heads up the Second Vermont Republic, which he describes as "left-libertarian, anti-big government, anti-empire, antiwar, with small is beautiful as our guiding philosophy."
With 20 or so mostly middle-aged attendees looking on, the candidates each stood at the podium to deliver a remarkably unified message: The U.S. government, they said, was an immoral enterprise — engaged in imperial wars, propping up corrupt bankers and supersized corporations, crushing small businessmen, plundering the tax-base for corporate welfare, snooping on the private lives of citizens — and they wanted no more part of it. "The gods of the empire," Steele told the room, "are not the gods of Vermont."

Vermont has the reputation (Bernie Sanders and Patrick Leahy are the state's Senators!) as one of the most Liberal states in the U.S.... but does the above quote sound Liberal to you? Naylor's claim of "Left-Libertarian" and "anti- Big Government" is really just LIBERTARIAN with with the word "Left" thrown into the mix for marketing purposes. Heck the "engaged in imperial wars.... private lives of citizens" line sounds like something I WROTE. I mean, come on... when was the Left so concerned about Small Business? Or anti-Big Government? This is a major shift, and one to which I say "Welcome! Come on over! Good to have you here!"

If you have been reading my stuff for a while, you know that I firmly believe that there are not that many issues separating the majority of American's who describe themselves as "Left" or "Right"... actually, I have been saying that for the most part, the VAST most part, that the only issue separating these Americans is abortion (and that the TPTB be are terrified that the non-feminist Left will come to their senses on this issue) and aged American's support of Social Security and Medicare (seniors can't focus on anything else, and understandably so. If you addict someone to heroin or free services... well, what the h*ll did you expect?).

That Tea Parties and Vermont Secessionist Movements are coming into ideological alignment tells me that we are approaching some kind of political tipping point, and it would appear that aging, childless feminists are finally losing their grip on the former "Left".

One can only hope.

Saturday, January 30, 2010

Its the Math, Stupid

Remember that slogan from Bill Clinto's first campaign? "Its the economy, stupid". That was James Carville at his most brilliant.

In real life, not the silly drone of political campaigns, "Its the Math, stupid".

Everything, and I mean EVERYTHING, can lend itself to mathematical analysis to great effect. Everything from the melody of a symphony to the beauty of a woman's face can be expressed, and understood, mathematically. So too can we predict outcomes of government policy.

Perverse Incentives and a Government Doomed to Collapse
(January 14, 2010)

We form and fund governments to solve problems. So what do we do when government devolves to a tangle of perverse incentives?
As I worked through the Survival+ critique of the status quo, it struck me that the built-in incentives in any system are far more powerful predictors than the ideology used to justify the system.

Foir example, the sickcare system (a.k.a. "healthcare") in the U.S. is doomed for a very simple reason: the incentives are all perverse. Care providers make more money by billing for needless or even harmful tests, procedures and medications, patients have no incentive to maintain their health or choose lower-cost care options (nobody even knows how much care costs before "buying" it), and the government systems (Medicare and Medicaid) are fundamentally open-ended--if you qualify, then we pay all your bills, no questions asked (hey, we only glance at 3% of the bills presented, 97% we pay automatically).

Construct a system with these perverse incentives and it is doomed to implode as everyone piles in to exploit the windfall. It's really not that hard to understand.

Another causal factor I cover in Survival+ is the concept of marginal returns. Let's start with the idea that government of any size, shape or form is formed to solve problems inherent to the human condition: the tribe in the next valley is starting to come over and steal our food, if we let this continue we will starve to death, etc.

In areas without government, or with government which does not view this as a problem it is tasked with solving, disabled people who can't work are either beggars on the street or they are cared for at home by their families.

In the U.S. and other wealthy post-industrial economies, government has come to accept disabled citizens as its responsibility.

So government establishes a program to aid disabled citizens who can no longer work (or no longer work in standard settings, for whatever reason: physical or mental disabilities or perhaps a mix of both). Let's say 40 pages of regulations and guidelines are written to define who qualifies and how the stipend/aid is distributed.

Since humans seek to exploit any and all windfalls, then "free money" programs are big targets for exploitation via fraud. So another 400 pages of guidelines are written to set up auditing, tighten the qualification process, enable appeals from those turned down, and so forth.

Since we live in a legalist society, then various legal claims and lawsuits are filed regarding the guidelines, and soon it takes 4,000 pages to cover all the exemptions, exceptions and refinements needed to clarify exclusions and various types of aid for different populations of disabled citizens.

Over time, new administrators seek to make their mark by improving service, and more legal challenges result in more refinements. Eventually the full body of documentation guiding the program reaches 40,000 pages, and the costs of operating the program exceeds the benefit of having such a massive body of rules and regulations.

At some point, the program is so rigid and costly than any budget cuts are not just "unfair" but "impossible." Or the cost of litigating the cuts exceeds the savings, and so on. This is the threshold of marginal returns. Put another way: it now costs $10 to "save" $1.

Without conscious design, the system becomes riddled with and then ruled by perverse incentives as various "fixes" incentivize ways to get around the barriers to windfall exploitation. Since the program is open-ended (an "entitlement"), then there is no feedback loop to limit expansion and complexity.

The system is now doomed to inevitable implosion/collapse.

In private enterprise, the company either goes bankrupt or enters a brutal downsizing/ reorganization which essentially throws over the entire status quo.

With government, that is impossible because the status quo is heavily defended by politically potent protected fiefdoms with asymmetric stakes in the game of preserving their share of the tax revenues (and the funds borrowed by government).

Got it? IMHO, that is the most succinct explanation for the surety of the disastrous outcomes destined to come from our "political progressives" and their insane social policies.

No matter what "feel good" status you might get, the outcome is ineluctable, and these programs will inevitably cause far more damage than they might temporarily alleviate, not that you can tell this to a "true believer" to any great effect...

The again, these were the folks that studied humanities in order to avoid Math... with predictable results. Government is run by lawyers (wordsmiths), also with predictable results.

Thursday, January 28, 2010

Supreme Stupidity

I am a registered Republican of the Libertarian stripe, relatively conservative...

and I am APPALLED at the sh*t-for-brains Supreme Court decision on the "Rights" of corporations and how they extend to political contributions. Any Republican that thinks this is a good idea (beyond the next election) has got rocks in his/her head.


Wednesday, January 27, 2010

Inflation/Deflation and market price mechanisms

I have been in the deflation camp now for over a year... my timing certainly could have been better.

I have been pulling the ethanol/corn/soy bean thing apart now for a couple of weeks... and in spite of the U.S. consuming 42.5% of its corn crop for ethanol, the price of corn is falling hard - and that's with fairly high oil prices. Should Oil prices fall, you could see corn under $3/bushel.

At first blush this might not make sense - but that is what is happening. Gold and silver have come in. Oil prices have declined. Ag prices are down. Equities have fallen. Small businesses cannot get loans.

This is what deflation would look like to me...

If this kept up you could have commodity prices fall and actually become MORE unaffordable for John Q. Public.

What a f*&^%ed up set of data... I am thinking of opening a surf/ice cream shop or applying for a job at the Anti-Christ... anything has to be easier than this.

Monday, January 25, 2010

You can tell you are getting close to the truth when...

You can tell you are getting close to the truth when you p*ss people off.

If I said that Scientologists dominated the American Left, and that it was their dogma which controlled the Left's policies... or if I said the Taliban and the Right were working together in order to increase the U.S. military budget... you would roll your eyes and write me off as a NUT of the first order - complete with a polite smile and a sincere hope that I get better soon...

The major political powers in the U.S. really boil down to VERY, VERY few issues... or single issue. The rest is just NOISE, a distraction.

The noise in our American political discourse continues to drown out much that needs to be brought to light, not least because of those in denial that their issues are not THE issues of their respective association.

That energy availability, social programs, the military budget, and the nation's currency are all inextricably linked seems to not register - even among those more than familiar with chaos theory and the butterfly effect - because to acknowledge this might gore someone's sacred cow.

There are no such sacred cows on this blog...

In the aftermath of the Allied victory in Europe, Eisenhower filmed the atrocities of the death camps and brought THOUSANDS of German Civilians to witness the carnage. He did this ensure that the liars of reconstructed history could not deny what had taken place there - and though it was brutal, and some thought a dishonor to the dead on display, it eliminated the risk of DENIAL.

The political and economic environment that led the World back to World War in the 1930's is much closer to today's real circumstances than Western media would lead the public to believe. "History may not repeat itself, but it does echo", is a fair characterization of the current circumstances.

Saturday, January 23, 2010

The Corporations

I get a decent amount of commentary from folks on Corporations.

There seems to be a common thread of Corporate fascism, and how corporate campaign contributions (small time) and money spent on lobbyists (BIG TIME) are the problem.

OK. I'll go with "they" (campaign contributions and lobbyist funding) are part of the problem. Corporate power comes from their ability to collect TAXES. The S&P 500 employs MILLIONS of people and collects income taxes from these folks before they are paid. They pay BILLIONS in corporate taxes, fees, collect sales taxes in the Bizzilions, etc...

And therein lies their leverage and power.

(Now guess who benefits the MOST from the tax collections? Tax Receivers. You see, in our democracy ANYBODY can vote, but not everyone is a Taxpayer. In fact, more than half of the voting age population, and 100% of the student voting age population, is a net Tax Receiver - they receive more in government assistance than they pay in taxes. No wonder student protests always seem to lean a certain way...)

Corporations are the efficient tax collection machines that have enabled (as in enabling an alcoholic) the U.S. social programs to get to sufficient size to bring down the entire system. Argue all you want, but America will be undone by Medicare and Social Security before the end of the decade, about the time my younger son will be entering high school... to put that in a time perspective. Our social programs will accomplish what Nazi tanks and Soviet missiles could not do, and these programs could NEVER, EVER have been funded without payroll tax withholding by the large corporations. Particularly by the big, polluting, environmentally destructive industrial corporations that the supporters of these programs pretend to HATE.

Talk about FOS (for a better explanation of FOS, please see George Carlin video I posted earlier).

The Definition of Insanity

Ben Franklin's famous quip - "The definition of insanity is doing the same thing over and over and expecting different results", while accurate could do with a little revision.

Seven American's working for the CIA in Afghanistan were killed by a double crossing, suicide bomber several weeks back. My heart goes out to their souls and the families they left behind. But killing people from afar using less than perfect identification methods to determine friend, foe, or innocent bystander smacks of insanity to me. The "collateral damage" of killing 10 innocent travelers in order to "terminate" 5 "suspected militants", besides being completely unacceptable and disgusting, only leads to a desire for revenge amongst their people.

But maybe this is what somebody, somewhere wants very much? The gift that keeps on giving? A multi generational struggle is very, very profitable for some.

No power has been able to pacify Afghanistan in recorded history. I realize that Pakistan is a nuclear armed state, but somehow I don't think killing hundreds of people by "remote control", many of whom are likely to have been non-combatants (the same category as those killed on 9/11), is going to solve that issue - but it will endanger every Westerner in the region or traveling in the Muslim world, especially Americans.

I have no solution for militant Islam, or militant anything else for that matter... But this seems a terrible waste of resources and human life. Call me crazy, but the Right to Life extends not only to the unborn, but also to innocent peasants living in Afghanistan and Pakistan. Of course there are some huge risks associated with Pakistan's nuclear weapons... but is that really best handled by remote control bombings?

Isn't this the behavior the Left castigated the living sh*t out of GWB et al for? Where is the outrage at the current administration? I will tell you where it is... the American Left's agenda is being met - the socialization of the American economy and the continuation of the Abortionists to slaughter the innocent. In the end, these are the ONLY ISSUES that matter to the Left, and the faster the Left bankrupts the nation the sooner they can get to their ultimate goal.

The Right might be mean and stupid, but the Left is mean, stupid, and FOS.

Friday, January 22, 2010


Somebody has to die. The Roman Mob wants somebody's head on a platter...

The indictment of the Bear Stearns' hedge fund managers and the government's stinging loss at trial (The conviction rate in Federal Court is 94%. This includes grey area cases, not cut and dry 10 Commandments stuff... and you better be RICH, because there is NO JUSTICE in Federal Court, only multi $$$$$$ million dollar trials) was a very unusual thing in that innocent people were found innocent - but only because they had the money to fund their defense.

There is a WITCH HUNT going on in the U.S. securities markets (this poor sot is going to jail because his clients lost money, not because he STOLE money - folks, if you invest in the stock market you are taking a risk. Who does not know that? This guy pled guilty because he lacked the money to defend himself and there was no way he was not going to be convicted at trial, even though he committed NO CRIME. Americans think our jury system protects you, and nothing could be further from the truth.) In fact, I withdrew my membership in FINRA (Financial Industry National Regulatory Authority) late last year, returned my clients capital to them, and told them flat out: I cannot be held responsible for YOUR money at this time - there will be more conflagrations in the U.S. financial markets, and I will be no better at seeing them in advance than you are. The U.S. equity market enjoyed one hell of a run in the second half of 2009 for a number of reasons - but in my opinion, positive fundamental change was not among those reasons. Too, although I believe deflation will carry the day initially... inflation may in fact win.

Should I go to jail for making a wrong market call? Should my children grow up without their father because the government needs someone to blame? Should I spend their college funds defending myself? No, thank you. Before the market blows up and the boyz in D.C. need another victim to feed to the Roman Mob... I decided I would rather work at a car wash than run a brokerage firm or brokerage accounts (at least for the time being... and yes, I still run my hedge fund, but that is for big boys only).

This is a time to be very, very paranoid. People ARE going to lose money, that's what happens in deflation AND high inflation. Not to worry though... some nice, ambitious prosecutor (Mike Nifong, anyone? The Duke LaCrosse players got LUCKY - many others innocents are sitting in prison RIGHT NOW) will be happy to spill your blood all over your family's living room if it helps to advance their career or make a constituency happy. (I think back to Ruddy Giuliani and his prosecution of Wall Street in the 1980's... here's a fun fact to know: Each and EVERY conviction was overturned on Appeal! In other words, those juries were only too happy to lynch people they hated irrespective of their innocence or guilt! "And Justice For ALL!!!")

If you work in the financial services industry you should heed this warning. It might be your a$$ burning at the stake next.

Thursday, January 21, 2010

Natural Gas Glut Over

It would appear that the "Natural Gas Glut" you have heard tell about in P.R. planted stories in the Mainstream Media (MSM) is over.

U.S. inventories of Nat Gas are less than 1% above last year at this time, and .2% below the 5 year average - (just look at the slope of the graph) that's what happens when you have 2 weeks of record cold combined with the inventory system the U.S. now employs (woefully inadequate). This, during a period of NO DEMAND from the industrial sector due to the economy... If we had a new 2 week record cold snap we would be in deep, deep doo-doo (that's a technical term used by analysts to connote a difficult operating environment). So much for the glut...

Should make for an interesting "shoulder period".

"Just In Case"


Regular commenter here at the AEC, Kathy Harrison of History Channel fame, has an excellent best seller called "Just In Case".

We bought the book last year, and have just gotten around to reading it (we have been somewhat overwhelmed by the recent additions to the family, both of whom are still in diapers). Actually, to be fair, my wife (who lived in Kobe, Japan during the 1995 earthquake that killed 7,000 people in that city and left them without water or electricity for over 3 months - this has left her very motivated to have preparations on hand) had pointed out that while our farm is about as well stocked as it gets, our florida home was not prepped at all (and we live in "hurricane alley").

Stay with me, I am getting to the point...

During the big hurricane seasons in the middle of the last decade we saw people in lines for water and food the very day after the hurricane struck. Even our officials, who normally don't require much in the way of personal responsibility, were dumbfounded that so many people did not have any ability to provide for themselves for even a few days until emergency crews could get on the ground.

Like them, I was dumbfounded too - until I spent the last few days making sure our Florida home was properly stocked:

To prepare a home for a family with children in a hurricane vulnerable area like Florida will cost between $1000 and $4000 (and that's the bear minimum; I am not talking comforts and generators and such) and will take you several days of time. In a nation with 17% REAL unemployment and ZERO savings this just ain't gonna happen, and can you imagine what would happen to food supplies, etc... if millions of people decided to have several months worth of supplies on hand? That means storing propane, food, water, fuel (gasoline or diesel), first aid, emergency lighting, etc... Our "just in time" retail distribution system has 3 days of consumption in inventory. So, even if the government sent every home a check and people actually complied with the spirit of the check, it could not be done.

The military has a saying that goes something like: "Amateurs talk strategy; professionals talk logistics". Or as Napoleon famously quipped: "An army marches on its stomach."

Every talking head on TV gives air to the idea that the response to Haiti or Katrina or the next disaster was fumbled by incompetent, bumbling idiots... and that is not the case at all... responding to events of this magnitude is simply not going to happen in a time frame that will ensure that the next meal won't be somewhat late... or even to ensure that the next 21 meals won't be missed entirely. Think about that.

If you have children or seniors depending on you, this is something to take into consideration.

Tuesday, January 19, 2010

Scott Brown, Republican Senator for the Peoples Republic of Massachusetts?

To say that I am thrilled to see the rejection of "The Kennedy Legacy" and Obama's false promises and exaggerated claims during the election would not do justice to the term "understatement". The vast majority of the knuckleheads voting for "Obamacare" did not even READ the legislation. Now, the first big vote on Obamacare is in the history books... its dumb law, folks! It takes a screwed up system, and instead of fixing healthcare - it destroys the country, the currency, and our competitiveness!

The Republicans deserved getting their clock's cleaned last year, but not by the current crop of scum sucking, dirt bags in Washington.

I LONG for gridlock. Both groups are locked in a death grip of tax and spend destruction of our country. A new solution can't come soon enough.

Libertariananimal (at)

Monday, January 18, 2010

Channeling George Carlin

I write this Blog to vent my spleen at the constant stream of B.S. coming my way.

George Carlin sums it all up for me very nicely.

I view our future through the prism of declining petroleum availability. Cheap oil smoothed over many of the mistakes and imbalances of the past 30 years. Expensive Oil, along with our silly social programs are going to magnify these mistakes and imbalances in the years ahead.

WE... are constantly under attack from the B.S. artists everywhere, all of the time. The Media, the True Believers (that's the Left), the education establishment (just more of the Left), Law Enforcement, Professional Politicians, Corporate Executives (who gain their "Right to Rule" from the education establishment and absolutely, positively represent the Left... All those guys that blew up the Financial System last year? 95% of them received their Right to Rule from only 4 Universities... are there really no smart people at Penn State, William & Mary, Auburn, Colorado School of Mines....? If this were the Military these guys would have been court-martialed and any body that was even near them would have their career effectively ended... Not so here, these folks will wind up working for the Department of Treasury).

Whenever I sit through a Wall Street conference or presentation, or my son's college night, or the pitch for "Money for the Catastrophe de jour", or ANY speech by Barak Obama... I hear George Carlin's remarks booming through my head.

Don't buy the Bullsh*t. (That may or may not include mine...)

Sunday, January 17, 2010

College Night

I sat through a "college night" recently at my son's high school.

It was much more enlightening than I was expecting, but not for the reasons one would hope.

First, let me say how much removed from economic reality the college reps were. One of the colleges represented was a $50,000 per year private, liberal arts college. For a $200,000 and Bachelor's degree in nothing you can make a living at, you too can get a job making $32,000 per year, with upside to $50,000. After taxes, you MIGHT be able to pay back your student loans (if you are poor) or trust fund (if you are rich) in 20 years or so, but only if you scrape and save and struggle. Thanks! I needed that!

Then, the rep from an extremely selective school spoke. Also $50,000 per year, but at least you had bragging rights, and at this university you could get a degree in nursing, social work, history, english lit, art appreciation, education and host of other educational opportunities in which a graduate could expect to make $32,000 per year to start IF they could find a job (ok, you can always find a job in nursing, and probably for more money... but, to spend $200k for it?).

I wanted to stand up and ask the representatives if their institutions would still be around in 20 years, but since I am quite sure that more than half of them will not be, I did not wish to "rain on the parade".

You see, most of the parents in attendance had already invested $200,000 in their children's primary and high school education, and were now finding out just how poor of a return they had gotten for their investment. But, like any other environment where the masses can see clearly that the "Emperor has no Clothes", we sit there and nod politely in agreement while we are being Bullsh*ted. We LIKE a healthy dose of social approval with our Bullsh*t.

In truth, what option did we have? To send our kids to a public school with 40 kids in a classroom, 50 different kinds of drugs, several guns and knives... and 1 teacher? (We can thank the NEA, as well as other local teacher's unions for this sorry state of affairs, but that is another matter. Since they are staunch supporters of the Left, they will blame it all on GWB.) So we were stuck.

But I digress. Back to the economics of it all....

The increase in the costs of educational institutions has come at double or triple the rate of wage and price inflation. At this pace, if it were possible, within 20 years education would consume well over 100% of average family income... but that ain't what is going to happen.

The price bubble for education was blown by easy money and the Federal Government's Student Loan Program - "Sallie Mae". Sallie Mae performed the same function that Fannie Mae and Freddie Mac did in the housing market - they provided easy loans that enabled the industry to pass on ridiculous price increases. Young graduates will be no more able to pay off their student loans than the sub-prime market was able to pay off its mortgage debt. It sounded noble - "Everyone a homeowner" and "Every one a college graduate"; but any rudimentary top down analysis will yield the ultimate outcome - each credit market will eventually collapse, and with it the industry it supported.

So here I was, watching these colleges pitch 50 year old couples', with 2, 3, sometime 4 children (rich people generally don't have 7 kids but I guess there could have been an outlier present), most of whom are middle class millionaires why they should invest 1/3 or 1/4 of the family's net worth in said private college (for the 2 or 3 kids). Meanwhile, most of these folks have a lifestyle overhead that requires them to not only keep working forever, but to be as productive at 65 as they were at 40. Since we all know that ain't what's going to happen... what is going to happen is that many of these millionaires will eventually be a burden, rather than a blessing, on their children. Rather than being in a position to buy our children a home and start them in business, we have been conditioned into believing that $400,000 for private school and private college is the better investment. (But who says I'm so smart? What do I know? Nothing more than I have more experience with being poor and getting going then most of those present.)

This is insanity at its best.

The high school had built a monument to itself, yet requires that all of its students be dropped off and picked up, leaving the parents 2 round trips per day BY CAR. I often wonder what THAT looks like at $8 per gallon and 20% unemployment, and it is depending on the ability of parents to bear 5% -10% increases in total costs in a deflationary environment.

But I digress... (again)

I also wonder how this might have been improved upon. Since it cost over $400,000 to educate each child at private school and then private college, wouldn't it have been better to use that money to buy them each some income producing bonds or property and send them to public schools? Of course it would... but its too late now. (If you want to get REALLY, REALLY politically incorrect, all I have to do is bring up the family dynamics that led to this REALLY , REALLY bad decision.) The psychology of investment dictates that since we are "in for a penny, we are in for a pound". No matter how clearly we see the mushroom cloud over our kid's shoulder...

But I am not allowed to bring this stuff up. I am already persona non grata at the school because I have pointed out some silliness in the past. After all, these institutions do not want anybody directing any independent thinking in THEIR direction.

The "State University" rep was even more interesting. After being led to believe that going to a private school for high school would be helpful in getting their children into the more selective state schools, the State U. rep said that the State required the admissions officers to go strictly by the numbers - GPA and SAT or ACT scores. In other words, not only did we parents spend a great deal of money on private school, it actually HURT the student's chances of getting of getting into our state's most selective state school because of the "rigor" of the school's curriculum; student's in "less rigorous" programs have a better shot at a higher GPA, all else being equal.

My jaw hit the floor (this would partly explain how the Valedictorian of the school a couple year's back was rejected by the University of Florida). Thereafter, he tried to cover what he just said by telling the parents that while the "school did not take XXX school's" program into account, he did. But then he went on to say that it was again, strictly by the numbers because of Florida's "Sunshine Laws".

And there you have it.

Saturday, January 16, 2010

Haiti, Easter Island, and Denial...

First, I will express my public sorrow for the suffering in Haiti. I am powerless to do anything beyond that, and, to date, it appears that despite massive political interventions and international aid, the world community has been powerless, too.

Take a hard look at Haiti. Nope. HARDER. (Haiti has been a humanitarian crisis for centuries. The earth quake only brought it to the front pages.)

What do you see?

Read the history available on the web on Easter Island.

What do you see?

Here is a sad indictment... but before I get to it, I want to disabuse you of thinking that the Dominican Republic, with which Haiti shares the island of Hispaniola is somehow better at handling their allotment of the island's land (in truth, DR's population is half that of Haiti per square mile). They are not. They are just better at the tourist trade.

Take away Oil imports from ANY (or all) Caribbean island, and in time you will have a humanitarian crisis of Biblical proportions. Without Oil they cannot support their populations under ANY circumstance with the possible (but doubtful) exception of Cuba (and Trinidad, but they are not technically in the Caribbean). Within the decade, Oil imports into most of these islands will approach zero.

And there is nothing we can do about it.

What was the difference between New Orleans and Haiti? Not much. A natural disaster visited each city and the only reason the loss of life was not in the 10's of thousands in New Orleans was because of the resources of the U.S. Take away U.S. oil imports, throw in a L.A. earthquake or a South Florida hurricane... and Viola! A humanitarian crisis EVERY BIT as f***ed up as Haiti. "There but for the grace of G-d go I", but eventually it will be us, too.

Living in places with 10 - 30 million people at the intersection of an Act of G-d and Nature's Fury is sure to give you your money's worth at some point in the future.

Nature is a b*tch, and it is impossible to know the mind of G-d.

Take a good, hard look at Haiti...

What do you see?

Tuesday, January 12, 2010

Do Gooders and Terrorists

The old saw: "What's the difference between a do gooder and a terrorist? You can negotiate with a terrorist" just couldn't be more accurate...

I am going to meander, but stay with me... I am going somewhere...

Last year we had some hysteria in our local newspaper that someone was shooting ducks with arrows, and that somebody should do something about it... as in 100k per year law enforcement personnel with a pension that will last longer than the time they spent working should go out there and find this cruel and inhuman person... did anybody do a cost/benefit analysis on ducks?

I wrote a letter to the "journalist", in which I pointed out that we have a VERY high percentage of folks with no place to call home and HUNGER here in South Florida - could it be that somebody was trying to make a meal out these ducks? I mean, they are Muscovy Ducks, aren't they? The very type whose flesh is served in the best French (and Cuban) restaurants in Miami?

You hear a great deal of B.S.! about eating local, locavores, etc... yet it is almost impossible to consume "local" meats. That is because of rules put in place by the U.S.D.A., ostensibly to protect the public from "off" meat, PRIOR TO REFRIGERATION BEING WIDELY USED!!! In fact, livestock might well be grown in one place, trucked 500 miles to be processed, and then have the meat trucked 500 miles BACK to the town that produced the livestock in the first place... all because the U.S.D.A. has made it essentially IMPOSSIBLE for a small businessman (woman) to open a slaughter and processing plant. In fact, 4 HUGE companies (all of whom are MASSIVE contributors to the Democratic party... and why not? That political party HATES small business) process about 85% of all of the meat sold at retail in the U.S., at plants that are very far away from the ultimate consumption point of the meat. Does this sound like a very sustainable, environmentally friendly way to distribute food?

Of course, nature, and markets, abhor a vacuum. Black markets will spring up... So, today in South Florida 100 of our finest and most expensive public employees fanned out over much of west Dade county with guns and badges to put a stop to the illegal slaughter of livestock. I can just see it: "Stop cutting that chicken's head off you human being, or I'll slaughter you with my service weapon."

Our local governments are extracting extreme levels of property and sales taxes to fund the pensions of folks that are hard at work making sure people have to buy their food from the RIGHT CHANNELS, but have no money to prevent people from freezing to death in their own home. Better yet, if I kill a chicken for dinner in my back yard here in Boca Raton, FL, I could be charged with a FELONY for animal cruelty BUT... if I kill a chicken in my back yard in Lebanon, TN the local police chief will be happy to share his mama's fried chicken recipe with me... so long as he's invited to dinner.

Did it ever occur to the Jag Off's in Law Enforcement to do a cost/benefit analysis on illegal slaughtering houses and freezing old men? Did they consider that MAYBE, just MAYBE, the people patronizing these illegal slaughter houses might not be able to afford meat in the quantity they require from WalMart? NAFC. Hell, 20% of Dade County is receiving Food Stamps from the government, and our charity food kitchens are unable to keep up with demand here in South Florida.

In the aftermath of WWII in Europe there was a conspicuous absence of pets. There was no dog or cat food - dogs and cats were food.

We have crossed some strange boundary here...

Saturday, January 9, 2010

Rate of Change

One of the commenters mentioned Robert Rapier's excellent blog in my last post. I recommend his blog highly. Robert is a chemical engineer, with excellent math and analytical skills. I read his stuff on a regular basis.

The ongoing debate between Stuart Staniford, Jeffrey Brown, and Robert Rapier has been lively - sometimes a bit too lively for Rapier's tastes, and perhaps rightly so.

For my part, I am not a physicist, geologist, or chemist as the above mentioned are, respectively. I read their stuff, and a great many others, and then try to make sense out of it all with the help of the market's price mechanisms. I see the debate between them as one over the "rate of change", and I have been on the "slow and steady" rate of change for Oil import decline (wrong for 2009 where U.S. imports declined 11.5% and I had thought 6 to 8%) and increasing deflation (wrong for 2009). That is the problem with forecasting - you gotta be willing to admit error when the data does not support one's assertions.

So far, the rate of change projected by the doomers since 2005 or so regarding Saudi Arabia production capacity has been wrong - and the decline in Mexico's production was much worse than projected by all but the most doomer of doomers; meanwhile the U.S. surprised to the upside (although not for those who knew that Thunderhorse was coming on line).

Several years ago I made a call to the author of "Out of Gas", David Goodstein. He is a world renowned physicist and the provost at Cal Tech. Imagine my surprise when he picked up the phone and chatted amiably with me. I remember very clearly his idea of margin of error in making projections for world wide oil production - that it was best to use a decade, or even 2 decades. Most of the debate in community uses a 3 year margin of error, and I understand why - that gives one a 100 billion barrel margin of error. Goodstein obviously felt that a 300 to 600 billion barrel of error was more appropriate. Of course, folks with Dr. Goodstein's reputation are more circumspect about putting it on the line - and that is quite understandable (btw, I recommend his book VERY highly. It is no more than an afternoon's read, and very much worth the time for a any layman investor).

At first, I was convinced by Staniford's arguments - until it didn't happen. Remember my old trader's maxim - "when I am wrong, I am gone." But Stuart's assertions were primarily around production, particularly Saudi production. Jeff Brown's assertions were built around exports, and so far, those assertions have been borne out - whether by the mathematics of the "Export Land Model" or because of economics I cannot say with any authority. Which brings me to my point. "The truth will out." By the end of 2012 we will know which it is to be (well, at least I think so). This is not to say that Stuart Staniford will not eventually be proved correct, only that it did not happen on the time line projected. To be fair, every analysis of this issue is working with very incomplete data, to say the least. On the other hand, if you think like an actuary or pension fund manager, with 10 year horizons, the probability is a near certainty.

Which is why I always ask someone: "How old are you?" If you are 70+, own more bonds than equities, some gold, and go play golf! If you are 45 with kids and a family to provide for... well, its a whole different ball game than your father's experience. If you are 25! "Rejoice in thy youth!" But recognize that the rules governing your economic existence are going to be very different than mine.

It seems to me that many in the "doomer" camp at places like were rooting for the end of the world for the sake of getting it over with, and because they HATE the current system. For me, the energy issue was always one of economics/politics - I am a capitalist, which is a dirty, dirty word with that crowd, and look to profit personally by betting on the outcome.

2009 turned out to be a year where EVERYBODY was more than a little bit wrong - some years are like that, as they said in my hometown when I was a kid: "sometimes it just bees that way". But the markets are still speaking. Inventories are still speaking. And they are at odds with each other. If you are an investor, this is no time to throw your hands up in the air and walk away.

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.


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."


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.

Wednesday, January 6, 2010

State Tax Revenues

If the U.S. is experiencing economic growth (the end of recession by necessity is determined by economic growth) then why are state sales and income taxes down by record amounts in the first 3 quarters in 2009?

For the same reason you should let ME keep score should we ever play a round of golf together - never let reality stand between you and what someone wants to hear.

Economic growth and declining states tax revenues? These are mutually exclusive events, if one outcome is true than the other outcome cannot be true.

If you read on in the story you will find where most of the "stimulus money" went - it went to pay off state budgets in states that supported the current administration. This is not an attack on Obama - had McCain won he would have done the very same thing. This is an attack on our system (and those that actually believed that Obama had the chutzpah to really change anything).

The states are going broke because their tax revenues are declining while their payroll and pension benefits for municipal employees are rising. This is not a hard X and Y graph to configure, and its outcome is ineluctable.

And the hits keep coming...

The price of Oil is now back above $80. I read many reports that $80 is the magic number that will cause the U.S. to tip over into recession... well, sort of. The number the journalists where trying to put their pea brains around was the percentage of GDP spent on petroleum. As any reader of the AEC knows, total availability of Oil is down around 10% peak to trough (if you include ethanol as petroleum), and it was true that at the peak of availability $80 Oil would do the trick... my bet is that that number is now $88 per barrel or so (and if actual supply is not the culprit).... Oil is $83 now, so we are certainly in the danger zone.


Every where you turn in the film media there is a new film, documentary, T.V. production... on the apocalypse. The History Channel has been running one depressing show after another all week about this, that, and the other thing one should do when the system breaks down. Its "2012" and "The Road" in the movies (2012 was good for some pop corn popping silliness; "The Road" did not do justice to the book and was so very disturbing and depressing - don't bring a date to that one as it will certainly kill any and every carnal desire).

It seems to me that there certainly is something in the air. A catch in the back of our collective throat, some kind of primal or animal instinct that is finding its relief in the media... What a fitting way for a fat, soft, bunch of weenies to express themselves in order to cope with some very adverse upcoming circumstances coming our way.


Sorry, back to the data...

Tax revenues don't lie.

Monday, January 4, 2010

Grass Fed Beef - Its what's for dinner

The rate at which the corn to ethanol processing industry has scaled up is nothing short of the kind of thing the U.S. did for armaments in WWII.

(I highly recommend Michael Pollan's "Omnivore's Dilemma". It provides an excellent history and prospective on U.S. farm policy and food production.)

My best guess is that number 2 Field Corn, directly or indirectly, provides over half of the calories Americans consume. Meat, milk, and eggs are primarily corn derivatives... as is most of the caloric content of processed foods. All this talk about grass fed beef and other meats? Though a very good idea, the long and short of it is that at the pace we are going there will be no alternative.

There is a collision in here somewhere. Going from ZERO to 787,000 bpd of ethanol in less than 5 years, consuming 42.5% of the U.S. corn crop in the process, is a rather brisk rate of change - particularly when talking about a nation's food supply. Of course, the U.S. has some wiggle room as it is still an exporter of corn. But that is on an absolute basis - the issue will be the effect on price... particularly in a nation where 1 in 8 depends on food assistance from the federal government.

The USDA is NOT the U.S. Department of Energy. The USDA is charged with assuring America's food supply is secure and safe. To say that they have been derelict in their duties does not begin to describe the situation.

You see, the risk to our food supply was, is, and always shall be THE WEATHER. The USDA seems to be OK with a "Just In Time" delivery and inventory of U.S. grain crops. This is BEYOND dangerous. If the U.S. experienced a 1936 style drought and heat wave during the next growing season the consequences would be catastrophic.

The administration has its eye on the money supply rather than the food supply. They are playing with fire.

Libertariananimal (at) gmail (d0t) com

Sunday, January 3, 2010

Christmas is over, and business is business. Let's out the new new Anti-Christ

I know I have called Government Sachs the Anti-Christ in the past. I find that I must now demote them to common "evil doer", or maybe a triumvirate in the Wall Street axis of evil... as soon as I figure out who the other 2 are...

Anyway, the NEW NEW Anti-Christ, "AC" for short, is the USDA (With the FDA as its Dark Arch-Angel). The U.S. Department of Agriculture. It is going to take several, perhaps even many posts to flesh this out - it is just not possible to heap enough scorn on these Sc*m B*gs in a single post.

The U.S. faces some SIGNIFICANT food insecurity. I know the loonies on the web have been pumping this for several years... but they got it wrong for the right reasons. Just kidding... they just got it all wrong.

The U.S. food supply depends on Corn and Soy Beans.

U.S. Corn production 2006 = 270,000,000 Metric Tons. That's 10,530,000,000 Bushels. 28,431,000,000 gallons (at 2.7 gallons per bushel), 676,928,571 Barrels per Year - 1,854,599 barrels per day (feel free to check my math). Even if the U.S. could consistently produce 300,000,000 metric tons, the barrels per day would only rise to 2,060,665.


During the most recent 4 week period the U.S. Dept. of Energy says that ethanol production was 787,000 bpd! In other words, the U.S. is currently using 42.5% of its corn crop to produce ethanol. Worse, while I have not found the smoking gun, it is my sense that I will find we have been drawing down our stocks of corn here in the U.S. If that turns out to be true... I'll skip the hyperbole (for now).

So where is the USDA in all of this? Have you seen any warning shots fired across the bow in the media? NAFC. The USDA is our first line of defense for food security - there is NO national security without food security.

More soon