Tuesday, November 30, 2010

Lies, Propaganda, and Statistics

As I mentioned recently Chris Whalen, of Institutional Risk Analytics fame, really stirred the pot by saying in a viral video that California would eventually default on its debts.  Seems he was talking out of his hat, and had not done any hard analysis... but was asserting in the rhetorical.

As I said before, and I have no problem saying it again, I would rather slam my wedding tackle in a car door than buy California municipal bonds... California will absolutely, positively default in some shape or form... and a Federal bailout is not going to be forthcoming.

Well, MarketWatch's Brett Arrends took Mr. Whalen to task in this fantastic piece of statistical Horse Sh*#.

This is a prime example of why you cannot believe one f*&%ing word on the web, media, print media... without scrubbing the living h*ll out of it.  Let's take it to task, shall we?
California’s a basket case? The state has one of the highest living standards in the country, yet over the past 10 years the economy has still grown much faster, per person, than the national average. According to the U.S. Bureau of Economic Analysis, it’s up 15% — compared to 8.9% for the U.S. overall.
It’s grown faster than low tax neighbors like Arizona, Utah or New Mexico. It’s grown three times faster than Texas.
And this was from 1999 through 2009: In other words from the peak of the dot-com years through the depths of the recession. It managed this growth despite the double blows of the tech and housing busts.
Most of the states that have grown faster than California during that time are farm states, riding an incredible boom in agriculture prices. 

Fact?  Well, sort of.

Economic growth in Cal this decade was entirely population growth plus uncounted inflation.

Cal's 2000 population? 33,872,000. And in 2009?  36,662,000.  Anybody care to guess at the population of illegal immigrants that WERE NOT COUNTED?  Wanna bet it exceeds 10% of the population? And as we all know, most of that growth came in the past 10 years.


Population growth accounted for 9% of the "economic growth"Mr. Arrends speaks of.... more like 12% if I include my GUESS of the illegal population.

There were states, Connecticut and Rhode Island come to mind, that LOST population during the decade, and still showed "economic growth" (though it was entirely inflation and price appreciation of financial assets in NYC's financial services industry).

Sorry, Mr. Arrends, your assertions are FUBAR. Cal is in terrible shape, and it will eventually default (though they might call it something else), either on their bond OR on their pension and benefit liabilities.

All of your Leftist propaganda does not change the laws of mathematics, irrespective of how little work Chris Whalen did to back up his assertions.  That California is in this position despite all of its natural advantages of weather AND geography is testament to how badly Liberal economic policies served the people.

So Much to Blog... So Little Time

I'll spare you the Thanksgiving story... I traveled for the holiday, and in my own OCD way, I studied my fellow man as he/she passed me by... OMG.... are the American people ever fat!

We all tend to look to the far off for trouble in ours lives... Peak Oil, Iran (well, that IS real trouble), the monetary system, deficits... turns out McDonald's and Coca-Cola were the enemy within (don't miss this excellent article).

The people I took in on my travels are not in any condition to compete with workers in China or Viet Nam... or even Mexico (now that is embarrassing)!  The people I observed were in no condition to put in a full day in a factory or on a farm... many of them had a hard time negotiating the curb in front of the airport.  A country is NOT its borders, nor its political leaders (thank goodness)... it is its people.  Our people have been misled (or have misled themselves) into thinking that eating themselves into oblivion is somehow acceptable.

I can speak only from my experience.  I bought a small farm nearly 5 years ago.  I live half the year on the farm and half in South Florida.  While on the farm, by my best guess about 80% of the calories I consume come from my production on the farm, and in Florida I live an industrialized lifestyle complete with contrived exercise routines (no need for contrived exercise routines on the farm). Within a month of leaving the farm I usually put on 8 to 10 pounds (and that's with me really watching my intake like a hawk), I am softer, and I don't fall asleep the moment I hit the pillow.  After a month back on the farm, I have the makings of a six pack (sort of... for a guy my age... ok, its not that close but it ain't that far), and I feel like a million bucks.  I eat eggs, full fat milk and cheese, butter, bacon every day with breakfast, and at least one full serving of beef or pork at lunch or dinner (all grass fed and raised on my farm)... and I am lean, my cholesterol, blood pressure, and resting heart rate are excellent... and my love life is like a newly wed.

This is not to say that I don't miss walking out my door and down the street to pick up a pizza like I do in Florida, or any of the million other conveniences that city dweller's enjoy... I do (and my wife misses them a great deal more than I do)... but just maybe our lives were NOT supposed to be all that convenient, at least as far as our health is concerned.

Recently Matt Simmons passed away.   A few years prior, Bruce Wasserstein died suddenly of a heart attack.  Most of you know Simmons and likely none of you ever heard of Wasserstein.  Wasserstein was a legend on Wall Street and my personal hero; an investment banker that would have made J.P. Morgan (the man) look slow and dim witted... yet he was not smart enough to notice that he looked like a train wreck waiting to happen, and he died of a massive heart attack at the age of 62 with $800 million in his check book... both of these guys spent too much time at the office, and not enough time doing manual labor, drinking wine, and making love (in my opinion... after all, I wasn't there in their bedroom... but a huge gut is not usually indicative of lots of great sex)... and were likely addicted to the "action" that came  with their jobs as "masters of the universe".

And I understand.  I miss that "action".  But I'd rather live.


President Obama took a pretty good symbolic baby-first-step in freezing Federal Pay... BHO does NOT have to go down in history as another Hoover or Carter... even if he were to wind up a one term president.  BHO can take this opportunity and go down in history as one of the great presidents... what we face now is just as significant a threat as that faced by Lincoln or FDR... history won't give a good fart about Pelosi, et al... it will judge BHO... maybe, just maybe, the President has his ear to winds of history... if he does, this would be an excellent time to sacrifice your political career, Mr. President, and bring those that want to destroy our country from within to their knees.  If you do, you will be remembered as one of the Great Men of American history... if you do not, you will be an unpleasant foot note... I hope you accept the mantle of the former.

The Following was taken from an email I received from the firm where my good friend and Rabbi (he is a real Rabbi) Mo Silver hangs his hat and was written by Keith R. McCullough:

"You never see the old austerity. That was the essence of civility; young people hereabouts, unbridled, now just want."
 That's an old quote from a famous French playwright who has long been dead. "Moliere" was Jean-Baptiste Poquelin's stage name. His urban legend was born when he collapsed and died in the middle of a play in 1673. He was 51 years old.
 I'll take some editorial liberty this morning and evolve Moliere's quote for the Age of American Millenials and Baby Boomers: 'You've never seen austerity. That was the essence of our grandparents; Millenials and their parents, unbridled, now just want.'
 This is obviously a generalization but, in principle, I can't imagine that an analyst from outer-space wouldn't see the hypocrisy in Americans door busting each other on Black Friday for i-Pads at the same time as their Congress fights to keep interest rates on my savings account at zero percent as a result of an alleged depression.
 Want, want, want. What can I get out of this market? Pretended Patriotism be damned, what's in this for me?
 The good and the bad news on this front is that we have leaders in this country who can enforce change. Some of that change is going to be slow. Some of it is going to hurt. Some of it is needed or what you're seeing in European stock and bond markets is going to be playing at an American "Lifestyle" Center near you in 2011.
 In proposing a 2-year pay freeze for US Federal employees, President Obama did the right thing yesterday in implementing the first stage of what we have been calling for since July of 2010 (when we were short the US Dollar on reckless government spending). Our Q3 of 2010 Hedgeye Macro Theme was titled "American Austerity" and we think that fiscal conservatism is the only path to US Dollar driven prosperity.
 The debauching and devaluation experiments of the Big Government Interventionists have been tested and tried. From Japan to Europe and back home again, they have not worked. We need to fix these deficit and debt to GDP ratios, or the global bond market is going to fix us.
 This morning you are seeing Greece's stock market test its lows from June 2010 when the European Fiats made a conflicted and compromised promise to the world that Piling more short-term Debt-Upon-Debt was the elixir of life. Apparently 8 centuries of Reinhart & Rogoff data has once again trumped political storytelling. This time isn't different.
 Why me? Why now? Shouldn't this be someone else's problem?
 I get that line of thinking, but I also get what wearing a team jersey means  - and, as legend USA Hockey Coach Herb Brooks said:
 "You're looking for players whose name on the front of the sweater is more important than the one on the back."
 Back to the construct of our intermediate-term global macro forecast...
1.       Growth Slowing
2.       Inflation Accelerating
3.       Interconnected Risk Compounding
 We don't have a choice but to do this now. European and Emerging Bond markets are telling you this and so are American Bond yields:
 1.       European Sovereign Debt Yields continue to make a series of higher-highs as concerns push rightly towards Spain and Italy. 
2.       Emerging Market Debt just had its worst month in 2 years (NOV down -2.9% on the EMBI Index with Brazilian and Russian weakness).
3.       US Municipal Debt funds just flashed their 2nd consecutive week of outflows, taking the 2-week total to north of $5 BILLION.
 Yes, we recognize that a BILLION or a TRILLION dollars isn't what it was to our grandparents, but these are still big numbers to consider on the margin. Remember, everything in global macro that matters happens on the margin.

Europe is unwinding at this very moment.  Can anything be done?  Probably not to save the European Union... let those of us on this side of the Atlantic take a long hard look in the mirror and turn our attention to our own Union and our own Republic.

Friday, November 26, 2010

U.S. Cattle Herd

This quote comes courtesy of the University of Tennessee Agricultural Extension Office:

At What Point Do We Run Out Of Cattle? (Cattle Trader Cen‐ ter, 11/15) ‐‐ The U.S. beef cow herd has decreased 12 of the last 14 years, dropping from a cyclical peak of 35.3 million head in 1996 to the January, 2010 level of 31.3 million head. This represents the smallest beef cow herd since 1963. Combined with smaller dairy cow numbers, the 2010 calf crop is expected to be 35.4 million head, the smallest U.S. calf crop since 1950. Total U.S. cattle inventory has decreased by almost 10 million head since 1996 to the January, 2010 level of 93.7 million head, the smallest cattle inventory since 1959.

Cattle, unlike pork and poultry, DO NOT breed very fast.  Total consumption of beef is not falling... ergo the U.S. has come to depend on imported beef and cattle.

It is quite fascinating to watch government policies kerbolix things so badly.

Gold/Cow (or steer) ratio

Here is a data point that, I think, supports my "own livestock over gold" position.

It wasn't always that way. Texas had been known as the "Longhorns" for years, but before a group of students dragged a gaunt, frightened steer onto the field at halftime of Texas' Thanksgiving Day game against A&M College of Texas in 1916, the preferred mascot was a dog. UT alum Stephen Pinckney had spotted the orange-tinged longhorn on a cattle raid in Laredo and bought him with $1 contributions from 124 fellow alumni. It arrived just in time for the A&M game on a boxcar with no food or water.

Steer prices in the early 1900's were 10 to 15 cents per pound, live weight.  The steer in question here was likely a 1000 lbs, give or take, and went for $124.  Gold at the time (let's use the entire decade's range) was $15 to $35, ergo the gold/steer ratio was 3.5/1 giver or take... today it is roughly 1/1.  While this is by no means a perfect metric, if you have significant assets my bet is 1,000 head of cattle and pasture land will be a far better investment (if MANAGED) then would be 1,000 ounces of gold.

In my opinion.... either Gold comes in or food prices leave 100 million "food insecure" here in America because food prices, especially meat, milk and perhaps even eggs, would need to rise a great deal to high support corn, wheat, rice... which in turn have helped drive gold through by signaling inflation... and I really don't think producers are in ANY POSITION to pass costs on to consumers... you can draw your own conclusions.

Oil is still the $64,000 question.

Wednesday, November 24, 2010

Oil prices and inventories

Oil prices continue to disassociate itself from the U.S. inventory picture... Despite an unexpected rise in Oil inventories, Oil is up over $2 as I write this.

The "recovery" might be anemic, but so are any increase in Oil production.  I spoke at length with The Mad Scientist last night (he thinks I am all wet and Oil will hit $60 before $100... and he may be right... that's why we have buyers AND sellers... if there were only buyers, oil would already be over $100), and while there are a number of dangers to this "long oil" hypothesis of mine, the European debt crisis, a recession in China... it is my assertion is that spare capacity is NOT one of these dangers.

You see, I think the producers are producing FLAT OUT.  I don't think that there is a single drop of "Shut In". Not F%^$#ing one (and if I am wrong I will be gone... eventually I will catch this thing, and until then my mentality is to NOT LOSE). If I am correct, then any further stimulus in the world economy (hint, hint.... QE2) will drive Oil prices higher - perhaps much higher.  The world  economy has been able to absorb $80+ oil for months now... the temptation to produce at these prices is simply too great to be passed on by the producers... ESPECIALLY since these VERY attractive prices have not cut into demand... it would appear to me that oil price elasticity is falling... my bet is that it appears that way to Saudi Arabia, Russia, Iran, the UAE..., too.

I have NO OTHER EVIDENCE other than the price mechanism... its not like I have friends with Aramco... and of course no big producer or big importer is going to say anything truthful... why would they?  Both sides are in a "don't make waves" standard program of denial... and I don't fault them for this in any way.  What should the POTUS do?  Walk up to a microphone and say Oil supplies are going to continue to decline for the U.S.? If he did, Oil would be at $120 and never look back... with all of that outcome's concomitant effect on the U.S. economy and employment.  And the producers?  They never had it so good!

This cannot be analyzed using the disinformation coming out of the big exporters and importers.

North Korea, China and the U.S.

China's favorite distraction/evil doer was it again yesterday... seems sinking a ship was not enough to get the U.S. administration knocking on China's door for help... me thinks yesterday's activities might do it.

Anybody who thinks that North Korea woke up one morning and decided to shell the South's territory or sink its naval ships just for the heck of it just ain't applying themselves... here's the deal... China wants something from the U.S. or wants to influence the U.S... China gets N.K. to agitate... S.K.'s goes to its protector... protector goes to China... China has a much better shot of altering whatever American policy they find offensive with the U.S. knocking on its door asking for help.

As I have said before... a nuclear event ANYWHERE in the world would sterilize the industrialized nation's financial system overnight.  China's government has a far better shot of surviving that then any of the West's governments....

So what does China want?

It would seem to me that they do NOT want the U.S. unilaterally devaluing the US$... and, irrespective of their own monetary moves of late, they CERTAINLY do not want to tip their own economy over into a recession... China has the perfect vehicle in N.K. to continue to tweak policy in D.C... provided that they do not overplay their hand.

Sunday, November 21, 2010

Oil prices

I think we are back to the point where a significant price spike in Oil could happen at any time.

Yea, China is "tightening"... B.S. China is P.O.ed and bluffing/negotiating. The Federal Reserve is going to use every dime they have threatened to... or lose all credibility forever (actually, that might have already happened... and nothing is impossible... but I would not count on the Fed backing down now).  The world ex-U.S. is increasing its demand for petroleum products... and the supply is simply not there.  Consumption within the exporters continues to grow briskly, as it is in Asia and Latin America... could a Europe blow-up throw oil demand off a great deal?  Maybe, but not for long (and probably not).

Ergo, demand will brought into equilibrium via price (spike)... and given prices are already in the low 80's.. . and given the fact that the U.S. unemployment picture is not likely to get much, much worse... and, bad as it is the U.S. is still consuming Oil like it was cheap...

All of the above I interpret as indicating much higher Oil prices sometime in the next 24 months is highly, or very highly, probable.

This is not a market call... In the short term markets exist to make us look dumb... but I am getting long here in the commodity and lightening up on the energy equities...

OK, so that's what I am doing trading wise (if I am wrong, I am gone)... IF (emphasis on "IF") it turns out I am correct and sometime before election-time-2012 there is another move in Oil, say, to a high of $120 to $180 (I didn't say oil was going to stay high...  I said it could spike higher until demand gets chocked to near death...) there will be no place for the U.S. Federal Government to hide.  The IEA is out... the EIA, at the direction of the Feds, is going to come out, too.

The U.S. will be forced to come clean on "Peak Oil Imports" or "Peak Oil" or "the End of Cheap Oil" or whatever label they are going to use.... the point is, in finally acknowledging it for what it is, the Government's acknowledgment that the Age of Oil is drawing to its close will have a profound impact on markets, politics, economics, population, immigration.... just to name a few.  A Profound Impact.

All of those hoping for the Government to "Do Something" are going to get there wish... As always, careful what you ask for - you just might get it.

This time, if I am right about a surge in prices, you might just get it.

So what policies might the Federal Government enact? What can they really do? Not very much... and a great deal.  Over the long term, not very much... in 20 (more likely less than 10) years the Oil age will be all but over if it is measured against our lifestyles now (inflationary or deflationary?  Who cares? I am going to spend any money I have left over after my Oil and farmland investments on one h*ll of a good time).  In the short term?  All manner of huffing and puffing, sucking and blowing, spitting and stammering... is in the cards, I'm afraid.  The propaganda effort launched by various special interest groups in an effort to leave somebody else holding "the bag" will be mind-boggling, and it will absolutely, positively begin in earnest immediately following the next Oil price spike.

Wednesday, November 17, 2010

Peak Oil, The USDA, Warren Buffet and Bob Rubin, not necessarily in that order...

Bob Rubin, former U.S. Treasury Secretary and CEO of Goldman Sachs (but then I repeat myself) was out in the media warning of a coming "Bond Market Implosion.

Thanks, Bob... not really sure what we would do without your top level decision making and informed opinion.  Weren't you Chairman at Citibank when they blew up the f&($#@!! world?

Every day that I wake up and don't read about a "crazed gunman" (or gunmen)  at Goldman Sachs et al I am pleasantly surprised... Even Warren Buffett is getting into the act of opening his mouth when he should keep it shut.  Seems Warren was out on the news wires today thanking the Federal government for all those bailouts.... Warren, didn't you learn ANYTHING from your nit-wit-curmudgeon-partner Charlie Munger? Ya know.... I even went with the TARP... even though I knew it would save many that deserved to blow up from blowing up... because it was better than the alternative - martial law.... but this has gotten ridiculous.  Not only have we kept the establishment jag-off-emporors-with-no-clothes in f&*^ing power... we are handing them bonuses and helping them refi their luxury diggs in Manhattan (not that those diggs will be worth 2 nickels rubbed together).

WTF is with TPTB?  I thought they were educated... knew their history... this "Let them eat cake" talk is a really, really dumb idea at a time when 50 million Americans are food insecure.  Here's my response as to what the establishment should eat: "Let them eat S!#!".

The USDA has the freaking gall, the b@11$, to come out with that?  More than half of those 50 million food insecure folks live in rural America - the same rural America that has been destroyed by government policies emanating out of the very same USDA that brings this to our attention.  These knuckle heads have reduced working class people in rural America to Food Stamps/SNAP... and with the same policies encouraged the wave of illegal immigration our country does not know what to do about.  Read this thoughtful article at Sharon Astyk's excellent blog.  The USDA has conceived and enforces regulations that came about in the time before refrigeration and germ theory.  We have 50 million unemployed Americans... but if one of them wants to go into the home dairy business they can't - unless they have $16,000 for a pasturizer.  You mean Americans can't heat milk up to a certain temperature on their stove? Really?? We have 50 million unemployed Americans... but if one of them wants to open a butcher shop or a slaughter house they have to build a facility that includes all the comforts of home, including a PRIVATE BATHROOM, for a USDA inspector?  And the purpose of this is to protect us?  Or is it to provide a monopoly to the industrial food giants?  It certainly isn't to protect us... last time I checked thousands of Americans were sickened or killed by eggs, cheese, spinach... just last year.

The regulators have made it IMPOSSIBLE to open a business, in food or anything else.  The regulatory compliance our government's have created has hamstrung American entrepreneurship... and at a time when Corporate America isn't hiring, well this is baaaaaad JuJu.

Because Peak Oil is here.

That's right.  As it turns out, despite all of the public denial from Big Oil, the MSM, world governments, and the rest of the establishment, after further review the IEA is out in print saying that 2006 was the peak in  conventional Oil production... BUT we don't have to worry because Saudi Arabia's production will increase by 50% and the Canadian Tar Sands along with the Orinoco Tar Sands will save the day...

I got a better shot at getting pregnant.

Forget the IEA's silly assertion that we will find and then produce 50 million barrels a day from fields we don't know of by 2030... WTF is up with their models that say the exporter's will continue to export to us right up until they can't?  What, they have no internal political debate? Those nation's will just altruistically keep sending their oil abroad when it is obviously in their best interests to retain the oil domestically?  Or does somebody really think we'll send the military "over there"... and just steal it?  Yea, those wars in Afghanistan and Iraq went sooooo smooooothly that we just can't wait to do it again.

Oil imports are down 3.5% this year from last, and down a little over 20% from their peak in 2005 - 20% in 5 years - and our body politic thinks the best thing to do is to print MORE money to try and grow the economy.... without Oil?  And then.... what if?  What if Saudi's ruling family falls in a revolution? What if Iran sinks a couple of tankers in the Straight of Hormuz? What if Nigeria decides they want the Oil internally?  What if.... a lot of things...

There are no macro solutions for a system predicated on ever increasing oil imports... there are only individual solutions... every time I read one of those sob story pieces in the New York Times about some middle class person falling into poverty I want to reach out to the writer and say: "soon you too will be in the same fix... you and everybody else". This is not a problem with a solution.... this is a condition to be managed and lived with.

50 million Americans are "food insecure", according to our government, and; Peak Oil is 4 years in the past, according to the International Energy Agency... its all about you... its never too late to do something smart.

Tuesday, November 16, 2010

Meanwhile, back at the Ranch....

This is my new breeding hog, Otis.  He is only 50 pounds and less than 3 months old, but he should weigh in between 500 and 750 lbs of twisted steel and sex appeal when fully grown.  I plan on keeping 4 sows and breeding Otis, a Hampshire hog, and raising a bunch of hogs.  

This is Bonnie's new friend Naomi.  She is providing the extra milk, along with the goats, to help grow those young hogs.

The USDA says that over 50 million people are "food insecure".  It never seems to occur to the USDA that it was THEIR REGULATIONS that have caused much of this disaster in rural communities across the country.  They are lower than pond scum.


I don't know who Chris Whalen is, but it appears that, like me, he thinks California, New York, and a few other "Blue States" will absolutely, positively default on their debt.


Looks like deflation is gaining the upper hand to me.

Municipal Bond Massacre

Municipal Bonds don't make the news like the stock market.  The total market cap of the U.S. market is just over $13 Trillion, and the total market cap of the U.S. Muni Bond market is just under $3 Trillion.

Well, it was just under $3 Tril.... yesterday and a few days last week saw that market lose 10% to 12% of its market value by my crude reckoning (because the vast majority of bonds don't trade on a regular basis I used the big closed end muni bond funds as an indicator).  BTW.... in the last 2 months the U.S. Treasury Long Bond is down about 15%, and the 20 year (as measured by TLT) is down around 13%.  Care to guess how much more the MBS bonds are down?  Hard to tell because it seems the government owns them all and they ain't (can') selling.

If the goal of QE2 was to bring down interest rates (which means raise bond prices) by any objective measure it has been an abject failure (actually, it has been an unmitigated disaster).

Why all of this has not leaked into the U.S. equity market is beyond me... but I would not be a hero.  Kinda sorta feel the same way about commodities here, too.

Over the past couple of years tons and tons of money has come into these bond funds from investors trying to acquit themselves of the equity market's volatility... when they get their statements over the next month or 2 there's a pretty good chance some of what's left of that money (about 88%) is going elsewhere.  This will cast a further cloud over the QE2 nonsense... not to mention create quite a headwind everywhere else.

Forewarned is forearmed.

Sunday, November 14, 2010

Municipal Bond Market is Coming Apart

The U.S. municipal bond market started to come apart last week.  I think this is being led by the big California Muni Bond funds, but it has dragged all of them into the vortex.

This bears close watching.  As I have said many times before... California absolutely, positively does not make it to the end of the 2nd quarter, 2011 without needing a massive Federal bailout... a bailout that, given the new makeup of Congress, I do not think is forthcoming in the way we typically define "bailout".
How this shakes out - inflationary, deflationary, good/bad for Gold et al... I just have no idea at the moment.

Do not believe for ONE SECOND any of the planted propaganda that this is going to "work itself out", or "muddle through", whatever silly BS the folks that need to manipulate the masses come up with.  Many of these bonds are going into default, and many of the non-G.O. bonds are going to end up settling for pennies on the $, and considering the costs of future borrowing, states like Cal and NY are particularly bad shape... given they cannot pay their debts now with surreally low interest rates... what do you think happens when they have to pay a rate commensurate with the risk?  Are you listening U.S. Treasury Bond investors?

There is a significant political aspect here, too.  California has 55 members in its Congressional delegation, with 40 of them Democrats.  New York, the other cluster f**king disaster big state, has 31 members in its Congressional delegation, with 29, or 93%, Democrat.  This is NOT A COINCIDENCE.  The same lame-brained, nit-wit, jag-off believers in something-for-nothing, the Left, have destroyed their very seats of power - both New York and California are at the mercy of the Federal Government... if you look at the House of Reps WITHOUT THE NEW YORK AND CALIFORNIA representatives, the House is something like 70% Republican and 30% Democrat, and those non Cal & NY Dems (other than the completely out of their mind's Mass. Caucus) Dems are going to have a hard time voting for a Cal & NY bailout and remain employed as Representatives (Oh, and in 2012 out of 34 seats in Senate up for election, its 12 Republicans and 22 Dems running for re-election... the Dems have a better shot at holding a tiger by the tail than holding the Senate... EVEN IF Obama gets re-elected, and that is by no means assured, either).

It would appear to me that the individual State's financial crisis is here, with California, New York, Massachusetts, and Illinois (all very BLUE STATES) going up in mushroom clouds.

Thursday, November 11, 2010

Thank You, Veterans

I want to say THANK YOU to all our American Veterans.

I want to say how disappointed I am in the American Body Politic.  Those serving in our military did not do so to maintain your position or the position of your "special interests".  I'd be willing to wager they did not risk life and limb, and many LOST life and limb, so that the political class could pander for votes and destroy the Republic from within.

If I had the power to express my thanks to you Veterans, I would do so by bringing our military personnel home from around the globe and reuniting them with their families.  Unfortunately, I am a powerless blogger shouting into the wind of the Internet... but you will always have my sincere thanks.

Social Security De Facto Default!

I don't get them all right.... but the Social Security/Medicare ("SSM") call was the easiest in the history of forecasting.

69 the new retirement age?  The panel just couldn't bring itself to put a "7" in the front.  The fact is at today's tax rate (I know some innumerate, middle-aged-teenager is going to suggest raising taxes... like I said... "innumerate" is the operative word) and longevity that number will needs be moved to at least 70.5 and perhaps as high as 73.  The other fact is that I am only talking about Social Security.  The Medicare portion is SO BAD that there will be some sort of brutal rationing.  This would be an excellent time to get in great shape, eat your veggies, have lots of sex (for your prostate), breast feed (for your breasts) and no matter what - do not sell your health tomorrow for a couple of dollars today - the ROI (return on investment) is inexcusably bad.

If you are 55 and under YOU WOULD BE OUT OF YOUR MIND to let the government continue to confiscate your assets AND NOT CUT THE BENEFITS OF THOSE RECEIVING BENEFITS!!! OUT OF YOUR MIND!!!

Throughout history, parents left assets to their offspring... but not the "Greatest Generation".  Nope.  They have left their offspring, the baby boomers, in debt up to their eye balls, with no savings for retirement, and unfunded pension liabilities left to the "Gubment".  Yea... they are "Great" alright.... "great" like "The Great Train Robbery" kind of "Great".

There is a very good reason why 90% of boomers do not have enough savings for retirement, and it isn't all because they bought granite counter tops.  They have been systematically robbed by politicians who bought the votes of the AARP set and the public employee unions.  Of course, some could argue that they deserve what they got for being stupid enough to fall for the propaganda these groups planted in the media...


Here's a link to an excellent article that describes how "capital flows", i.e. money creation by the various central banks, over the past decade or 2 have put us in disaster mode.  Worth every minute.


The trashing the Dems and the RINO's received on election day (and for the RINO's in the primaries) was not enough to help them see the light.  They have been rocked, but they are not out of the fight to destroy the country...  Read this article.  Here you have elected officials saying they can't vote for deficit reduction because it will hurt somebody???!!  Cutting the deficit is going to be BEYOND painful. If done correctly and sufficiently doing so will cause the Mother of All Recessions.  This is like bariatric surgery on 1,000 lbs patient. These next couple of Congress' are all we have between us and the F&*^##!! abyss.  The Republicans had better pick themselves another "Great Communicator" to make this sale to the American people or all will be lost.

A sad observation of mine comes from the Facebook exchanges of my Liberal leaning friends... listening to their banter leaves me saddened for just how impossible this will be. It seems we have a massive minority of highly educated people that have NO IDEA just where the U.S. is terms of State & Federal budgets and the pension liabilities of the local, state, and federal governments nor just how bad our energy situation is... and though they have NO IDEA, they do have ROCK HARD OPINIONS that they are willing to die for.  I'd like to ask them: "Does the Republic have to die, too?" But they only roll their eyes and glance at each other knowingly... that they are the enlightened ones.... and I am nothing more than a Proletariat... (which is true... but I would be better described as a highly numerate proletariat).



Tuesday, November 9, 2010

Imbalances will be Re-Balanced

I went to a cattle auction yesterday in Trousdale County, Tennessee. The first offering was a breeding pair of Buffalo.   Taken with my phone camera.

The Grains, Oil, and precious metals are all going ballistic.  Yet beef, pork, and poultry prices are trailing by a wide margin.  The average price for over 50 head of cattle sold yesterday at this auction was only 41 cents ($.41) per pound, less than half the price of the Live Cattle Futures traded in Chicago.  

There were 40 or 50 farmers in the bleachers and I spoke to a number of them.  Every one of them said that with feed prices being so high they were selling off their marginal animals for slaughter.  This is not indicative of higher meat prices in the near term, but might be more constructive next year.  As for grains... the U.S. cattle herd head count is at its lowest in years, and it would appear that it is headed lower.  Yes, this could easily be offset by cattle head count elsewhere in the world... but I have lost my bullishness for grains (though Oil price could force ethanol higher).  Cattle, unlike hogs and poultry, cannot be bred quickly.... more importantly, it appears that producers (cattle farmers) are not able to pass costs onto (beef) consumers.

Precious metals are still going ballistic while housing continues its price decline.  Silver has caught somebody BIG in a short squeeze I' wager... while Gold seems unstoppable.  Short squeezes always end up in the same place - though I have no idea how to trade this one.  Gold may not be finished, but it ain't cheap.  In 2008 when Oil was at 138, Goldman came out and said it was going to $200.  I called the Mad Scientist and told him on the next time Oil started to pull back I was selling every last contract we had.  Gold could go to $2,000 for all I know.  It could go to $1,000, too.  Sometimes when trading you get an unexpected "kiss".  

Every commodity has a historical ratio with every other commodity. Gold/Silver, Wheat/Corn, Gold/Oil, Gold/Dow.... I like Gold/Food.  My favorite?  You are going to laugh... Gold/Cow (Beef).  The Gold/Cow ratio is all out of whack.  Remember, Gold has been used as a store of value for centuries... but it has little industrial or practical value... and Cows do - milk, meat, leather, bonemeal.... stuff that is actually sold to consumers.  As of now, those consumers have been unwilling in the extreme, or unable, to absorb producer's increased costs... not exactly a sign of inflation... just something to think about...

Of course, markets have been known to stretch ratios to the outer limits... remember a 125 p/e NASDAQ in 2000? Those that sold (or worse, shorted) at 75 p/e were ready to kill themselves.


Energy equities rise or fall on the price of Oil and Nat Gas.  Keep that in mind if you trade this market place.


Got a cool link from one of my buddies working on Wall Street: "Preparing Kids for the Unknown".  

The best passage from the article (if you are a parent):

“When education started in this country, the goal was to round off people who were already practically skilled,” McKibben says. “Most people grew up knowing how to do things like raise their own food and an astonishing number of tasks that we no longer know how to do. You went to school to read the classics and get some polish.
“We’re now kind of in the opposite situation, where kids spend 100 percent of their time in a mediated environment. We learn about the world through one school or another. So we might need to be thinking more about using school to introduce us to those practical things that we don’t know how to do anymore."
Of course, the article goes on to suggest the laughable - horseback riding and archery are just as silly as it gets - but the larger point, that as a society we have arranged our children's experiences in such a way that they usually come of age having literally no idea how to swing a hammer, weed a garden, repair a roof or deck, or change the oil in a car (but they do know how to download music to their I-Pod)... and I am speaking from personal experience... I grew up learning how to play the violin and how to play football... and in my 40's I bought a small farm only to learn the hard way that I did not know even basic carpentry or animal husbandry. 


Even the well-to-do are shopping at Good Will and other second hand stores?  Join the club!  I had never been in a dollar store or second hand shop in my life until I bought my farm.  Now, I don't buy anything new.  I outfitted my workshop and got all of my farm implements from Craigslist.com, and ONLY buy my books at the multitude of second hand shops around Nashville.  I'd be only too happy to buy my clothes there, but at my height that just isn't much of an option.


A healthy second hand market is not indicative of an inflationary environment, either... so what's up with the commodity market?  In a word - the Fed.  As I have said a bizzilion times before, if I knew for sure what the policy response was going to be... my predictions would get a whole lot better.  

Who knows what the change up in Congress and posturing for the 2012 elections means for the Fed?

Not me.

Sunday, November 7, 2010

In Review

The elections are done, and we are now in full swing for the 2012 presidential election.

In one of my recent posts I mentioned that although the Left got its head handed to it last tuesday they still DOMINATE the Political Science and Humanities departments of most of the establishment Northeastern private universities... and I mentioned that from those positions they were able to continue all manner of mischief...

So.... I get an email from a friend from my home town... a guy I went to high school with... I emailed him back to ask him if I could quote him here on my blog, to which he replied "OK by me."

Greg, What's up brother?
I try to read a few bits of your blog when I get the chance, and you have a pretty cool view on things. Granted, I'm not any type of analyst on markets or any of that ilk, but I find it all pretty damned interesting, I'm just a regular guy trying to get the bills paid.
I've been driving a limo for the past few months because nobody has the money to do any work on their homes, and I'm tired of dealing with deadbeat assh***s.
Anyway, I end up picking up a lot of ******* College faculty, and they're a bunch of lefty liberals. It was election night, and they were so wrapped up in the losses and talking all their planning for more liberal agenda at the school (liberals in training). Listening to them in the back seat made me want to spit nails in their eyes. These are some seriously scheming pre-planners. This is a liberal arts college, and it's like they want to groom students in college to fit their agenda....God they piss me off! No wonder this country is so screwed.
Hoping for a better tomorrow...
I redacted the name of the institution to keep my friend out of the line of fire.

(Now, as you can tell, my friend is a no BS kind of guy... he comes from a very, very large (I think they were one of the few families in town that had more kids than us) working class Catholic family, served with distinction in the military, and wouldn't say "sh#!" if he had a mouthful. He does what he has to do to make a living in a crazy world. The folks in the back of that Limo can't stand people like him (and me).)

Anybody that would pay $50k per year to send their kid to a school like that for a humanities major and  a cluster-f**king indoctrination deserves the outcome.  Theses people exist and their agenda doesn't include a deep an d abiding respect for our nation's Constitution.  More importantly, the rest of us need to put on our pointy toe boots so we can stomp these f*&%#ing cockroaches into oblivion in every corner we find them.


The Federal Reserve has clearly decided to abandon the US$ in favor of the banking industry and housing prices.  Never mind that cheaper housing is a windfall for young families and working class folks... nor that inflation helps the "haves" to keep having while keeping the "have nots" from having.

This has done wonders for the precious metals... but what nobody seems to have noticed is that Oil is closing in on $90 per barrel for winter delivery.  The more the Fed tries to inflate asset prices (housing) the more it blows other bubbles... problem is, our economy cannot withstand $100+ per barrel oil prices without imploding again  -  and I doubt China can endure $100 oil, either (though better than the U.S.).

Look, having never navigated the end of a financial system and reserve currency, I make no claim on how best to handle this.  I will say that at these prices vis a vi Oil, energy equities are the cheapest asset class on the board.  If Nat Gas catches a bid, U.S. energy equities could rise quite a bit (keep in mind that Nat Gas and winter weather are highly correlated, if I may make use of industry jargon... if winter fails to show up, Nat Gas could get even uglier... but a tough winter, given how low Nat Gas prices are compared to the past 5 years, could really push the peanut forward.... keep in mind, betting on winter weather is a lot like betting on hurricanes... well, not that bad, but you get the idea.)  Needless to say that a drop under $75 for oil would change the game somewhat... on the other hand, Oil prices need not move any higher... prices are high enough that should they just remain here, the big integrated Oil Co's will be printing money... and not Federal Reserve style.  I like the big names... and no, this is not investment advice (oil prices could fall), just an observation.  Also, in the short term, equities (including energy equities) could pull back even if Oil does not.  But I like them from here and for the next 10 years or so... unless we get another spike like 2008, at which point I would be only to happy too unload them.


Several months ago I posted a link to Stu Staniford's excellent blog about potential Oil production in Iraq.  I forwarded Stu's piece to Jeffrey Brown, better known as Westexas, a geologist and regular commenter here and the man who developed the term and model known as the Export Land Model.  Jeffry was kind enough to email back saying that while anything is possible, nothing of the scale mentioned had ever been done before - and given Iraq's poor political structure, instability, violence, and infrastructure... Jeff doubted that they would be the first.  As it turns out, the IEA is out in print supporting Jeff's position (btw Jeff, I supported your position... but it never hurts to vet out all challenges, especially when one has real money wagered in the game).  Just over a year prior, Jeff sent me his (assisted by Sam Foucher) math and graphical projections for the world export markets.  So far, Jeff's model continues to be born out by the data.  Should that model continue to prove accurate, or as accurate as it has been so far, my bet is that a significant price shock could hit the West, and the U.S. in particular, at anytime between tomorrow and the end of 2013.  If you are reading here Jeffrey, I would very much wish for you to put in your two cents on the matter.


Its not the number of people bullish or bearish on a market that move prices.  Its the number of "dollar votes".  The Federal Reserve has voted with one hell of a lot of "dollar votes" - far more than I had thought they would have been willing to have done.  I think we have crossed some surreal boundary.

More soon.

Wednesday, November 3, 2010

Fighting the Last War

The Left and the RINO's have been locked in a death grip, battling to the ends of the universe to control the American people - and the American people have come to terms with this and last night dealt with it accordingly.  The folks continuing to support these 2 groups are out-dated misfits fighting the last war.

The RINO's are done. You can stick a fork in them.  The survivors will "evolve" their views, me thinks... or die.  The "Social Conservatives" that dominated the RINO's are as dead as fried chicken.  Good riddance (unfortunately, these guys have been like "Night of the Living Dead", but I think they are dying off and drying up). The Social Control Left got its socks rocked last night - the electorate put a rocket in their pocket (unfortunately, these folks are still pretty dangerous... they are firmly in control of the humanities and political science departments at the nation's universities from where they will continue to launch all manner of mischief).

The American electorate is waking up to its birthright - a government respectful of the U.S. Constitution.  A government that respects the people's property and privacy - and keeps its hands off our checkbooks AND the doorknob to our bedrooms.

How can one group claim their freedoms are being infringed while in the next breath demand that the government infringe on the rights, freedoms, or property of another?  The Left and the Social Conservatives have been locked in that battle of hypocrisy for decades.

We don't need either party to move to the "center".  There is no such place.  The Republicans have done quite a bit of evolving lately, and it has allowed them to arise from their near-death experience.  The Democrats would do well for themselves and the country if they were to evolve as well.  Peak Credit and Peak Oil are absolutely going to shrink government services, social programs, and the military budget one way or another... this would be an excellent time for the Federal government to begin the transition of power back to the states (who will in turn share a great deal of that new found power with local governments) in an orderly fashion.

America and its Constitution will survive Peak Oil and Peak Credit. Even in the energy constrained future America can thrive and our lives can have meaning and purpose... provided we continue to respect the rights and freedoms of the individual so poetically enumerated in our founding documents.


From the department of ridiculous stories planted in the media in a bald attempt to manipulate the public... "Tea Party offers GOP a mixed Bag".


It is almost embarrassing listening "true believers" at times.    Christine O'Donnell was/is an embarrassment... and Barney Frank ain't?  Everyone has a kook or 2 in the family.


Meanwhile, back at the ranch... Crude cleared $85 this morning for front month delivery, and the US$ Index is coming in on multi year lows.  Coincidence?  Somebody, PLEASE, forward my blog to the dip-sh#!'s at the Fed.  $100 Oil will undo EVERYTHING you guys wasted so much money trying to accomplish in the first place... leaving just the debt and bad paper.  And you guys learned this at Princeton?

Tuesday, November 2, 2010

Yes You Can

I copied these words from the comment section of my previous post.  They were written by Michel Petit.

. learn
. work better
. take care of your health
. share your knowledge
. provide tools to those in need
. think and innovate
. diversify your skills
. treat every individual with dignity
. contribute to create a better world

Yes You Can.... take responsibility for your own life and do all of the above without the permission or assistance of any government.  Being a good person is the ultimate political statement.

Thank you, Michel.  Great stuff!

From "Yes We Can" to "Yes You Can".

The new political slogan for our time is in, and it was coined by Michel Petit, noted Peaknic, on my Facebook page.

Michel's off the cuff remark "From 'Yes We Can' to 'Yes You Can' " in under two years will, by necessity be the rallying cry - one way or another - of the American people and the rest of the Welfare West from now until the end of Oil.

I can hear it now:

"Yes, you CAN America! YES! You will find a way to provide for yourself and your family! YES! You will find a way to put food on the table!  YES!  You will find a way to be happy in your lives! And YES! The government will get out of your way so that you may find your way..."

Yes you can...


Why is it that when the Left and the Liberal establishment get destroyed in an election it is because the other side is "stupid" and that when they win it is because the other came to their senses?

Oh, and by the way dearest Elite (and Jimmy Kuntsler):  I am not fat, religious, nor angry... I do not pronounce government as "gubment"... and I look forward to wiping you off of my shoe on the nearest electoral curb.

America will not roll over into an "enlightened" socialist Euro satellite anytime soon, dear Jimmy.  Most of us will figure it out.

Monday, November 1, 2010

What It Means - Part 3

Continued from previous post....

And here comes "The Tea Party" ("TTP").  The Liberal Elite and other members of the looney Left tell us that all members of TTP are white, fat, old, racist, uneducated hypocrites that want to keep the "gubment hand's off our social security" - anybody remember the African American Congressman that swore he heard the "N" word at a rally with THOUSANDS of video cameras?  Haven't heard much about that silly accusation lately, have we?  Because it didn't happen... and neither has the Media's attempted character assassination of TTP... didn't happen, that is. For all of the disinformation coming out of the media, the Libertarian insurgents within the Republican party were about as welcome by the establishment RINO's as the proverbial turd in the punch bowl. What the 2H1P just can't seem to understand is the desire of the Tea Party folks to power down the Federal Government's power in favor of state and local government.  Is the Tea Party really the Libertarian take over of the Republican party, or will it be a case of "I thought I heard the voice of the people..... must have been something else"...

And while the Tea Party may not push the Republicans over into power in the Senate, I am not sure that that is the issue (or should I say that I HOPE that is not the issue).  Maybe, just maybe, we now have 51 Democrats, 44 RINO's, and 5 Libertarians.  What the 2 headed 1 party ("2H1P") desperately tried to extinguish - the potential for a "new party" to emerge - now might in fact be a fait accompli.  (To my mind these folks would be better off caucusing separately so that they are not cast aside in the next election... our electorate still seems to believe that there is a political answer to our economic problems.)

As for the House, the drubbing that the Dems are going to take will be without precedent.

As Scott Rasmussen said in his excellent WSJ piece yesterday, tomorrow's vote is not a vote in favor of RINO's as much as it is a rejection of the 2H1P (yea, I know I was a little liberal translating his title... but  I think that statement is closer to the meat in his article).

But none of this means that Republicans are winning. The reality is that voters in 2010 are doing the same thing they did in 2006 and 2008: They are voting against the party in power.
This is the continuation of a trend that began nearly 20 years ago. In 1992, Bill Clinton was elected president and his party had control of Congress. Before he left office, his party lost control. Then, in 2000, George W. Bush came to power, and his party controlled Congress. But like Mr. Clinton before him, Mr. Bush saw his party lose control.
That's never happened before in back-to-back administrations. The Obama administration appears poised to make it three in a row. This reflects a fundamental rejection of both political parties.
More precisely, it is a rejection of a bipartisan political elite that's lost touch with the people they are supposed to serve. Based on our polling, 51% now see Democrats as the party of big government and nearly as many see Republicans as the party of big business. That leaves no party left to represent the American people.
Voters today want hope and change every bit as much as in 2008. But most have come to recognize that if we have to rely on politicians for the change, there is no hope. At the same time, Americans instinctively understand that if we can unleash the collective wisdom and entrepreneurial spirit of the American people, there are no limits to what we can accomplish.
In this environment, it would be wise for all Republicans to remember that their team didn't win, the other team lost. Heading into 2012, voters will remain ready to vote against the party in power unless they are given a reason not to do so.
Elected politicians also should leave their ideological baggage behind because voters don't want to be governed from the left, the right, or even the center. They want someone in Washington who understands that the American people want to govern themselves.

"And therein lies the rub"... The Tea Party needs a "Great Communicator" now more than at anytime in our history - including 1860.  If the electorate is expecting anything other than a deeper recession than we now have should the Tea Party succeed in shrinking the Federal Budget to a manageable size... well, it would be inevitable that they would be the shortest lived political party in the history of the Republic.  The electorate needs to be informed, challenged, and cheer-led onward,  A coupe of good slogans wouldn't hurt "All we have to fear is fear itself" combined with "Ask not what your country can do for you - ask what you can do for your country" into fill-in- the-blank (I will take a stab at coming up with a new slogan over the coming weeks).

The American people will needs be better acquainted and educated with the issues of economics and energy.  There are good reasons why Oil is $83 per barrel in the middle of the worst recession since the 1930's and no one wants to get into the bond insurance business - Peak Oil and Peak Credit cannot be "artfully dodged" any longer.  The Tea Party would do so at its peril and to its detriment.

Let us hope that is not the case.