Saturday, April 30, 2011

Bond Market and a refusal to buy my physical Silver

I have a decent amount of physical gold and silver. Yesterday, I took 300 ounces to the local coin dealer - you know, the guy that seems to be in every downtown these days - here in Lebanon, TN. There was a big sign:


So I walk in with a 100 oz. bar, and 200 Silver rounds. I wait 45 minutes, very courteously and patiently I might add, while the porprietor was in the back room talking on the phone. What I didn't know was that he did not want to buy my metal going into the weekend at these prices, so he was calling other dealers.

Guess what?

I left his establishment with the silver I walked in with. None of these people wanted to buy my metal.

This is NOT indicative of anything good for silver. (I think).


The corporate bond market does not appear too concerned with inflation, if I may make use of understatement.  Bonds rally while physical silver dealers refuse to buy? That just does no compute.

Thursday, April 28, 2011

Stock Market

If you take out the financial sector, the stock market has recovered all of its losses - and then some.

You can HATE and gnash your TEETH... but I gotta take my hat of to a number of very unpopular fellows.  Yea, their activities caused some negative consequences... but nothing like what we were looking at just 2 years ago.

The financial and political system has survived - and it almost didn't. From here on in it is all about the rate of change - even the end of the Oil age can be handled if it happens slowly enough.

That means that clothes will need to washed, teeth brushed, and the commodity bubble will have to be unwound (just look at the consumer staples sector - it is above its 2008 high and I think will lead the market higher).  The end of resource constraints this is not - this is merely the "pause the refreshes", one that, I THINK, will provide the entry point for commodities that stocks gave back in 2009. The unwinding will likely take things down further in that space than you thought possible - do NOT try to catch a falling knife, me thinks.

Some things that have surprised me:

1. $125 Oil did not kill retail (forget WTI... it doesn't really exist... average world Oil prices are in the mid $120's).
2. Interest rates around the world did not take off (and I doubt they will).
3. Technology companies still command outrageous multiples.
4. Silver/Gold ratio as low as it is.
5. That the U.S. government could get away with its vast budget deficits for so long (there is NO INFLATION in housing or wages - what you are seeing in commodities is a mirage. A GOOD mirage if you are long, but a mirage non the less.

What I think it means:

A: Commodities futures contracts will need to be unwound. This will be the story of this decade.
B: High quality corporate bonds and Treasuries will do well to well enough.
C: High dividend sectors like consumer staples and utilities will do well to well enough.
D: Commodity equites are going to get murdered.
E: Real Estate will not be coming back anytime soon.

What we don't know: How Oil will be rationed amongst the industrialized powers. How the markets will react to the end of QE2.

What I think I am going to do: Buy the dips in consumer staples, utilities, and other big dividend names. Sell any rally in the commodity equities. Sell dips, too. Buy quality bonds, sell commercial real estate. Buy residential apartments and mobile home parks. Sell precious metals. Even Gold. There will be a better entry point.

It is all back to Oil. The housing crisis has happened. It is not going to get better, but not a whole lot worse for CREDIT reasons. That does not mean that an energy shock cannot make it much, much worse.

It is all about Oil. And unless there is another political crisis in a big oil exporter, my bet is Oil will come in with the rest of the commodity complex.

As always, I reserve the right to change my mind on a freaking dime.

Wednesday, April 27, 2011

Crowded trades always end - and badly

A couple of posts back I mentioned that commodities were, to my mind, as bubbly as NASDAQ in 2000... today, I have been joined by some rather famous company:

As I said before... This does not mean that commodities cannot go higher... but when ALL of the speculators (as opposed to commercial users) are on one side of a trade, when they all try to fit going out the exit door... they can run you over.

You heard it here first (and Grantham second). I will absolutely take positions on the short side, but only after my screen is red. When the sell off in commodities comes, and it is coming, it is going to wipe the floor with speculator and investor alike. Think of how much money the short's made in Oil after Oil peaked in 2008. Play this right and you can score - BIG.

You heard it here first.


Commodities are expensive, and believe it or not some equities are cheap. But not most commodity equities, even if they have incredibly low P/E ratios. 

The U.S. financial system nearly extinguished itself 3 years ago. While reviving it has caused the US$ to crash, it has been revived and the US$ has already crashed. The reason to own some things has past. Meals will have to be served, healthcare will still need to be provided, people will still need a place to live (and that does not mean a McMansion). My bet is consumer companies (like McDonald's, Coke, P & G), Healthcare (think United Health and Pfizer), Utilities (electric is going to be very important after the age of Oil), and residential apartment properties (rather than farmland, that was the trade 5 years ago) will pick up from the commodity companies... and yes I do think we will devolve into a developing world level of living... but those countries have plenty of people who do very well for themselves... every environment has winners and losers, might as well be on the right side of that trade... in the long run we're all dead anyhow.


There is a big difference between a homestead and investment farmland. Rentable Farmland has risen smartly over the past 5 years, homesteads have been crushed with housing. I absolutely, positively believe that a homestead should be the first investment in a family's portfolio (let's define a homestead: a house on at least 5, very usable acres complete with out-buildings for the purpose of gardens and small livestock). If you don't have a family, you don't need a homestead. The other primary investment? A small business. A SMART small business. One that requires skills, has been in demand forever (plumbers, dentists, masons, etc... come to mind. Dog grooming? Not so much). I know a bunch of people... and I don't know anybody that was able to rely on employment, rather than entering commerce, as a means of providing for themselves for the long term.  Well, that's not true... outside of public servants, that is.

Sunday, April 24, 2011

Saudi Arabia, Peak Oil, Prepping Vs Homestead/ELM-ing

Post has been edited:

Saudi Arabia just said to the world:

"Don't look at me!"

The EIA and IEA prognostications on future world oil production will have to be ratcheted down once again... their "wishcasting" just got scrubbed.

OK. Who cares? The Peaknics were dead right/spot on. Now what?

The "what" is is that you have been put on clear notice that this is the time to spend your money doing all of the things you always wanted to do, and to take the remaining money and buy residential apartment properties, energy equities, utilities, and high dividend consumer product companies... but most importantly a homestead in low tax local and a local, productive, small business.

The world will not come to an end, but there will be winners and losers in all of this. There will be damn few "good jobs". There will always be commerce and small business.  The U.S. will survive, but with a quite a bit of gnashing of teeth by a great many people. Don't let it be you.

There will absolutely, positively be a food crisis here in the U.S. sometime in the next 25 years, probably in the next 10. Will it be next year? I doubt it. Yes, food prices are rising - that's a good thing. It will encourage people to make cuts and adaptions, and to increase efforts to produce. Crop failure will likely not be the problem. The problem will be scarcity. As in a glass of water has no value on the beach at the Great Lakes; a glass of water in Death Valley on the other hand... The food supply's liability is transportation and weather. The weather problem has ALWAYS been there - we have just been lucky - but the transportation problem is going to come to a head in the very near future. Then we shall see what kind of redundancy we have in the system.

Like I said... life will go on. For those of us over 50, you are where you are and you are going to live with your life's vagaries, decisions, and luck (or lack thereof). This is all about the future, and the future belongs to young people. That said, it is hard to find a greater volume of denial than in young adults... these poor people are going into debt for college, spending tens of thousands of $$ on new cars, engagement rings, weddings, honeymoons, travel... even though they are still in debt for their college "education".  They could have developed a marketable skill, got married at the Justice of the Peace for $15, and bought a homestead debt free with the money they spent on the ring, wedding party, and honeymoon... and why not? Because of their own ingrained denial helped in large part by the media.

I often hear the feminists rightfully criticizing the advertising and marketing industry for creating problems (in women's minds) that do not exist and then coming up with "solutions" and in the process  destroying the mental health and emotional well being of their customers. I watch my Amish neighbors have a multitude of children, teach them skills, help them financially buy a homestead... and get going with their lives... all without the assistance of makeup, hair dye, breast implants, high heels, engagement rings (or jewelry of any type), or expensive weddings. Think about it for a minute. These Amish folks at the age of 25 own a homestead debt free, have kids, and have begun to save money to help their kids do the same (America's 25-year-old-"kids" are broke/in debt, living home with their parents, spending precious hours watching TV and playing video games). How do they do it? How much does it cost to buy 10 acres in rural Tennessee or Kentucky? $30,000? They construct the house themselves, no wiring to worry about, and minimal plumbing, all cabinetry and fixtures are made by the man of the house (remember, he actually has skills).... so what does a 1,200 square foot house cost? $60,000? With barns, livestock, equipment and a well, all in its $120,000. From what I gather, Amish men have this in the bank when they marry at 21 because they have been working since 13, and since they don't waste a great deal of money on marijuana, beer, rock concerts, hookers... all they need do is make barely over minimum wage to achieve this.

On the other hand... There is a non-Amish family farm across the street from ours... and we have been friendly with their kids ever since we moved here and they were little.  The farm had been in the family for generations and had all the stuff you'd think you would need - a barn, a well with a hand pump, fruit bushes and trees, gardens and pastures. The place is falling down, the grounds are unkept, weeds choke the garden and the pastures... they have 4 kids and receive food assistance (they aren't married). My wife brought them some "Easter bunny cup cakes" yesterday. Now mind you, I have been working diligently at my garden, fruit patches,  and crops every hour that the sun is up for the past 6 weeks.... know what the man of the house was doing when my wife stopped by? Watching T.V. The place is in complete disrepair, they have room to grow food and keep livestock but instead opt for government food assistance ... and he is watching T.V... and receiving food assistance (yes, I am repeating myself...).  Did I mention that the property is in foreclosure? For well over 100 years that property provided for that family... and then the government showed up to "help". The oldest, a young man of 20 or so, has been in and out of jail on numerous petty crimes.

And the hits keep coming.

Our systems, not system, are broken. Our financial system, our food system, our family system, our political system - all broken. But you don't have to participate in ANY broken and enslaving system if you don't want to. All you gotta do is not want to. Some young people are getting this and are putting off adulthood as their response. Don't, you will regret that strategy.  Do reject all of the norms that will lead you into "a life long hell of debt and indecision". Because there are no norms anymore.

to be continued...

I use isolated groups as control groups, not because I intend to start wearing straw hats and eschew bathing during the week... I make no assertion nor have any opinion on the philosophies, religious beliefs, political views of my control group... only that they seem to be thriving and I want to know why. I assert that our culture has been eviscerated by the education establishment, the political establishment, the entertainment and media industry... as proof, I am discussing their reproductive history, debt levels, and age of attainment (homeownership, marriage, children), etc... when I said that the future belongs to the young, that's only the immediate future - today's young will age, too. The longer term future belongs to those that breed - "those who breed, succeed". And what is standing between today's young people and their future? Debt and/or a lack of savings/resources. There are only 2 ways to fix this: increase net income or cut expenses. There's no mystery here.

I have considered our system ad nauseum. We keep our future young couple in school until they are in their mid - twenties, on average... then we have them buy separate houses (big expense here), cars etc... (keep this in mind: Society NEEDS a new crop of human babies every day - PERIOD - and we have established cultural systems to see that this gets done (although the quality of childhood of these babies needs be considered, i.e. manufacturing less criminals would be nice)... I am merely dissecting that system... just observing it and making notes...) our well-educated marry late, often times not having children until well into their late 30's or 40's and even 50's. This was all done ostensibly so that these people could become established and provide a bette life for their progeny, right? OK, SHOW ME THE MONEY!! American's are NOT better off financially than their parents despite all of these efforts, or am I missing something? If that is true, and we want to know why... we gotta go back to the video tape. My favorite "video tape" in this circumstance is the individual's personal calendar AND their personal checkbooks/financial statements.

Now guess what we find? There, imbedded in all of the minutia of the details of our lives that most people do not look at is the freaking TRUTH of your life. How much gasoline one burned. How much money one spent on drugs in college. How many days one slept in rather than "making the donuts".  How many years one "wasted" (from a resources point of view) before actually settling down to the business of Life. Nobody wants to look at this stuff... it is just too painful. They'd rather blame a politician!

And what are the big expenses that prevented our future young couple from achieving some level of financial security? Tuition expenses (not just debt!), automobiles, living separately, engagement rings, weddings, and honeymoons, and divorce - the education/industrial complex and the marriage/divorce industrial complex. Remove that complex from the lives of the young middle and working class people and - Viola! Financial security.

This is not to say that society does not need educated professionals! It certainly does. My bet is that that could be accomplished FAR more efficiently if reconstructed under a vigorous cost/benefit analysis. Until that time, you will have to do that cost/benefit analysis for your own circumstances, because the end of the Oil Age is upon us!  The debate is over. Peak Oil won. Now what? Whatever that "what" is for today's future young couple, it ain't the same "what" that worked for the older Boomers.

Friday, April 22, 2011

Why Housing will NEVER come back

Today's quote comes from Charles Dickens:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."


U.S. Housing is dead, and it ain't never coming back. Aside from Oil, the reason for its absolutely, positively sure thing ongoing demise? Property taxes.

Property taxes were the vehicle for government extraction of any gains one might have had in their house during the housing boom.  The boom is gone, but the property tax remains... and its like a chronic disease... home owners cannot get rid of it. In most locals (not Cal, but they screwed themselves anyway), these property taxes were the means with which local politicians paid for the votes of the public employees through their unions.  These liabilities are never ending. Property taxes have been combined with the lessons learned by people regarding debt and not saving to doom housing for a generation.

Yes, people need a place to live. "A place to live" is a far cry from the mal-investment that housing has become over the past 30 years. Housing will be redefined very brutally over the next 20 years.

Stay clear of home builders and regional and small banks. Any reported improvement in housing will prove to be a mirage. But there will be reports. Propaganda never sleeps. Those that benefit from enslaving you via property taxes will not die without a fight. They will endeavor to place you in debt (what do you think QE2 is all about? An attempt to lure you into enslavement with cheap and easy terms... but once you sign on the dotted line the monster shows himself) by any means necessary. Young folks! Don't fall for it! Old folks, help keep your young from enslavement.

Oh, and by the way... Employer provided health insurance? Just another vehicle of enslavement. Anybody thinks the Obamacare helped them has rocks rolling around their head... then again, anybody who believes Obamacare will help them is likely incapable of grasping anything I have proposed here.

(I was watching a clip on Yahoo finance with James Altucher. All my life I felt that corporations were behind home ownership for the purpose of creating a barrier to moving, leaving the homeowner/employee stuck, toiling forever in some factory or mining town, unable to move easily to take advantage of new opportunities... most people thought I was nutty ("its the American dream"). And then Altucher, unprodded and out of nowhere and hardly germane to the conversation at hand expresses the same sentiments! Vindication! Shortly there after, Coal Guy makes a comment about the "company store" in the mining towns... think about it... the "company bank" lends the worker his mortgage, the company store sells him all his consumer stuff, and the property taxes finish him off. After a life time of enslavement, what exactly does this poor sot have to show for all his efforts? Not a f*&^ing thing. Is my absolute disdain and hatred for this system showing through yet? Perhaps its my working-class-self-educated-white-trash underbelly showing.)

More soon.

Thursday, April 21, 2011

Commodity Bubble almost as big as NASDAQ 2000

The US$ has already crashed. Commodities are in a bubble.

That doesn't mean that the US$ can't go lower against the other major currencies... nor does it mean commodities cannot go higher... Some things take longer to pan out than we'd like to think, but this has gone on far longer than many though possible... and we have the added impetus of the end of QE2.

I like to buy things after they have been mushed, and I like to short things that have gone ballistic but are currently falling (there is an old saying on Wall Street "buy green, sell red" that my desk partner from my  Bear Stearns days reminded me of last week when I complained about losing money shorting something that was still going up... NEVER call a top or a bottom... never grab a falling knife or step in front of a freight train).

We are in the 8th or 9th inning for commodities. Oil might be different (MENA and Saudi Arabia will have their say), as might Ag commodities (it is impossible to call the weather)... but that's my story and I am sticking to it.

Good luck.

"A Little Bit Pregnant" - cont...

In every case there is a best possible outcome and a worse possible outcome. Assuming that it is all pointless is the expression of despair, and despair is hardly the mindset most often associated with figuring out the actions that will lead to the best possible outcome.

Life is to be enjoyed. Running around trumpeting doom has little upside going for it. Going about your life in such a manner as to avoid debt, own a home free and clear, raise children, build a business, and grow food (whether by hobby gardening or homesteading) will hardly be detrimental to your future. Ignoring the future by spending money one doesn't have and going into debt and complaining about the political zeitgeist has not shown to be a winning strategy for personal advancement (however you define that).

Life is about enjoying it - and taking responsibility for yourself, me thinks.

Life as we know it is going to change. Perhaps that rate of change will be slow enough that we won't notice. I reject that out of hand, but you never know.

I am interested in hearing from people that are running a homestead with their families. I am particularly interested in empirical data on the economics of each and every project or product you are involved in. "That which is not measured is not managed."

So let me hear from you.


For those of you watching the US$ and the commodity markets:

It seems that either the US$ collapses, or the commodity market does. This is NOT A TIMING CALL.

My bet is on the US$ NOT COLLAPSING (yet). But I could be wrong. We shall know soon enough.
Perhaps it is just me hoping that that is the case, but I think the end of QE2 will change the tone of things somewhat.  As always, I reserve the right to change my mind on a dime.


I don't hold out much hope that our political leaders will be able to fix that which they cannot understand. So I am going to go out and get my everbearing strawberries in. Hey, its all about priorities.

Tuesday, April 19, 2011

You can't get a little bit pregnant. Or prepped.

An anonymous commenter on a recent post said that land was $40,000 an acre in California... therefore he/she could not have livestock... his/her garden would have to suffice.

There has been a great deal of debate around the web... "adapt in place" or migrate? I chose to migrate. The Universe does not give a good fart about what is convenient for you. I want to say this very nicely... If you think there is going to be challenges and troubles and you think you are "prepping" because you bought some silver bars and a gun... well, my sense is is that your analysis is all f*&^ed up.

I tend to look at things in terms of return on investment, if you will. I think things are going to be very, very different 10, 15, 20 years from now. Where should my children come of age? What experiences will they have that will help them? What will hold value? What provides security? Each of us has to make our own judgement call about what the future will bring and how best to meet that future. For me, it was life in a small town on a family farm (near a hospital, university, and train station) with enough land, fencing, and barns to grow substantial food stuffs, and enough advance time so that I could learn what I needed to learn. I did this because I don't think you can prep in L.A. Or San Fran. Or New York City. Irrespective of how much silver you have or what guns or how many cans of Dinty Moore's beef stew. The Amish are prepped. Very few others are.

Gardens are for growing vegetables. Tomorrow morning, when you are eating breakfast, do a quick count of the vegetable matter you are consuming. Not much, huh? Oatmeal? You ain't growing that in your garden. Bacon & eggs, coffee with cream and sugar? Nope, not from the garden. How about lunch? Take a hard look at how much vegetable matter you are consuming at lunch... my bet is it just ain't that much. Same with dinner. Fact is, most of the plant matter we consume is not "garden" material. Corn? In volumes that matter corn, like other grains, is grown in large fields. Potatoes? Same drill. Pasta? From wheat (in fields).  Dairy? Eggs? Meats? Poultry? These require animals, and animals require pasture, fencing, care, feed...

Take stock of what you eat. That's what you have to prep for... "by any mean necessary".

It takes money, it takes time, and it takes effort.  That's why few people actually do it. Carrying capacity is carrying capacity, not a lick more... nor a lick less.  The markets are telling us that something is incredibly f***ed up. How it all gets reconciled is anybody's guess. One thing for sure, life will go on and meals will need to be served... preferably hot, plentiful, and on time.

To paraphrase Vince Lombardi: Prepped is not a sometime thing. Prepped is an all the time thing.  You can't get a little bit pregnant... and you can't be a little bit prepped.

Saudi Production, S & P's Cut...

What a coincidence that S & P would downgrade the outlook on American debt during budget negotiations. Japan can run a deficit up to 200% of GDP, with far worse demographics, before getting such downgrade... but not the country that prints the world's reserve currency.

Something - someone, some group.... however you want to define them... Bilderberg, Pimco, the Chinese, the Pentagon... maybe all of the above - very powerful "motivated" S & P to make this decision and announcement now.  There are NO COINCIDENCES. And not that it isn't the right thing to do... it is. But it ain't a coincidence.

So what are the ramifications? I believe (at least for the moment, and reserve the right to change my mind) that this incident was designed to prod the parties along. And if I am correct, this is what comes to my mind:

  1. Any hint of success at cutting spending will send commodities down, perhaps hard. Commercial real estate and housing, too... though perhaps not as hard from here as commodities. Bonds might surprise you with interest rates heading lower and bond prices higher. Stocks not so much.
  2. A real cut in government spending would mean that  deflation and recession would be in the offing - and that's a good thing. In this case its the cure that is far more preferable to the disease. (Americans would start to save and invest rather than consume and go into debt.) Can the economically and  mathematically challenged members of the Left get it and cooperate without causing a political or constitutional crisis? I have my doubts. Can the people making bizzilions on pentagon and weapons programs accept the new reality without causing their form of mischief? I have my doubts there, as well.
  3. Any cut in entitlements and military spending would be an incredible move in the right direction, but a meaningful cut will be necessary to bring confidence back to the system. Should this happen, the U.S. would be giving itself its best opportunity to deal with Peak Oil, but it would be very painful for an electorate that has come to view something for nothing as a natural law of the universe.
  4. This would also likely be the beginning of an incredible contraction in the financial services industry - and that's a good thing, too. That industry has been far more destructive of the average American than gambling, Las Vegas hookers, illicit drugs, and McDonald's combined (and 3 of those 4 are illegal). The industry encouraged self-destructive consumption and debt, in the extreme, with its easy money loans and services. What does America have to show for all of that "Financial Service"? Cookie cutter McMansions and shiny Cadillac Escalades complete with spinning hubs (machine gun turrets are extra) that consume dwindling Oil supplies like mad but do pollute like crazy... so they got that going for them...
I look forward, with great anticipation, the next move in this unfolding chess match.

Monday, April 18, 2011

No such thing as a secret

Standard & Poors' downgraded the outlook for U.S. Treasury paper to "negative" this morning.

The action in the precious metals market, and particularly the Silver market, in the last couple of days makes me think that this downgrade was "released" before this morning.

I don't have time to tear it apart here, but there are a couple of doozies (warnings about assumptions) in there.

Here is a copy of S & P's release:

Standard & Poor’s Ratings Services said today that it affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the U.S. Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable.

Our ratings on the U.S. rest on its high-income, highly diversified, and flexible economy. It is backed by a strong track record of prudent and credible monetary policy, evidenced to us by its ability to support growth while containing inflationary pressures. The ratings also reflect our view of the unique advantages stemming from the dollar’s preeminent place among world currencies.

“Although we believe these strengths currently outweigh what we consider to be the U.S.’s meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the ‘AAA’ level,” said Standard & Poor’s credit analyst Nikola G. Swann.

“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” Mr. Swann added.

In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.

On April 13, President Barack Obama laid out his Administration’s medium-term fiscal consolidation plan, aimed at reducing the cumulative unified federal deficit by US$4 trillion in 12 years or less. A key component of the Administration’s strategy is to work with Congressional leaders over the next two months to develop a commonly agreed upon program to reach this target. The President’s proposals envision reducing the deficit via both spending cuts and revenue increases.

Key members in the U.S. House of Representatives have also advocated fiscal tightening of a similar magnitude, US$4.4 trillion, during the coming 10 years, but via different methods. House Budget Committee Chairman Paul Ryan’s plan seeks to balance the federal budget by 2040, in part by cutting non-defense spending. The plan also includes significantly reducing the scope of Medicare and Medicaid, while bringing top individual and corporate tax rates lower than those under the 2001 and 2003 tax cuts.

We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible.

Standard & Poor’s takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate.

But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both political parties. If U.S. policymakers do agree on a fiscal consolidation strategy, we believe the experience of other countries highlights that implementation could take time. It could also generate significant political controversy, not just within Congress or between Congress and the Administration, but throughout the country. We therefore think that, assuming an agreement between Congress and the President, there is a reasonable chance that it would still take a number of years before the government reaches a fiscal position that stabilizes its debt burden. In addition, even if such measures are eventually put in place, the initiating policymakers or subsequently elected ones could decide to at least partially reverse fiscal consolidation.

In our baseline macroeconomic scenario of near 3% annual real growth, we expect the general government deficit to decline gradually but remain slightly higher than 6% of GDP in 2013. As a result, net general government debt would reach 84% of GDP by 2013. In our macroeconomic forecast’s optimistic scenario (assuming near 4% annual real growth), the fiscal deficit would fall to 4.6% of GDP by 2013, but the U.S.’s net general government debt would still rise to almost 80% of GDP by 2013. In our pessimistic scenario (a mild, one-year double-dip recession in 2012), the deficit would be 9.1%, while net debt would surpass 90% by 2013. Even in our optimistic scenario, we believe the U.S.’s fiscal profile would be less robust than those of other ‘AAA’ rated sovereigns by 2013. (For all of the assumptions underpinning our three forecast scenarios, see “U.S. Risks To The Forecast: Oil We Have to Fear Is...,” March 15, 2011, RatingsDirect.

“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

Some compromise that achieves agreement on a comprehensive budgetary consolidation program--containing deficit-reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013--is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.

Sunday, April 17, 2011

"U.S. Economy hits a Rough Patch"?

"The U.S. Economy hit a Rough Patch"?

Holy Christmas! I'll alert the media! Oops.... that was the media....

Q1 2011's rough patch has very little to do with weather, and everything to do with Oil... and to a much  lesser extent, Japan.

Economists predict? Who gives a good fart? I am far more interested in what the Saudi's have to say.

Anybody here believe a single word the Saudi's have to say (other than the actual number, which will be easily verifiable in the near term)? They decided to cut production because of a glut in Oil at the same time Libya ceased exporting and prices spiked 17%?  In what f&@%ing universe doe that make sense?

More on this soon.


So, I am an experienced homesteader now, right?  I read these silly articles around the Peak Oil sites about "gardening as if your life depended on it".

Down through history, how often have you heard the line "The Land of Milk and Honey"? Bizzillions, right? Ever heard of "the land of bell peppers and swiss chard"? How about "the land of broccoli and cabbage"?

Me neither.

Look, I love my garden. But I'd rather have a milk cow and some chickens. Let me tell you about the economics of a family milk cow... work with me... I can't help myself.

My family goes through about a gallon of milk per day, 7 days per week, 365 days per year. A gallon of organic milk costs $8.20 here in Tennessee, and that's before 9.25% sales tax on food. Let's call it $9 per gallon. When fresh, our cows give 3 to 4 gallons per day, and at the end of the cycle they still give 1 gallon+. On a tax adjusted basis (remember, I have to pay taxes on income and the $9 per day is after tax), my cow's economic equivalent value is about $5000 per year for that 1 gallon per day.  But she gives me 3 gallons per day for more than half her cycle.  The balance goes to the 2 hogs I raise for the family freezer per year. This milk, together with garden/farm and kitchen waste is pretty much all these 2 hogs will get... and they will yield us about 400 lbs of pork. In order to give milk, the cow has to calve... and she will calve every year for 10 years.

With me so far? One cow puts over 600 pounds of beef and 400 pounds of pork in the freezer, every year for FREE (well, for the price of 2 acres of pasture in the middle of nowhere, or less than a $5000 investment that will retain its value in almost every scenario, and $600 for the cow and perhaps $200 per year in medications, vaccines, and supplements), PLUS $5,000 of economically equivalent income milk. Did I mention butter?

Try that with gardening.

Balance... and the 2H1P

There are a great many crowded trades out there in the market place.

Precious metals and commodities are trading at nose bleed levels. Goldman Sachs, the anti-Christ, is out telling their clients to close their crude, cooper, platinum trades, among other items... no doubt, IMHO, because they have intimate knowledge of the Fed's next moves. Don't fight City Hall. QE2 is coming to an end, and I do not see QE3 in our future, given the religion the 2H1P has gotten of late regarding spending.

Housing and lending are as dead as fried chicken, and are just about as resuscitatable. Employment is too, despite the distortions, gimmickry, and out right lies of the BLS.  QE1 and 2 were both unmitigated successes, or unmitigated failures, depending on how you look at it. Fact is, I favored QE1 and TARP as we were days away from Martial Law at the time. QE2? Not even a little bit.

The government seems to have come to the belief that its job is to cause perfect, seamless, and unending economic growth, and besides the fact that this is the primary reason the political class cannot come to grips with Peak Oil this is hardly the Constitutional function of government... encouraging the electorate to believe that it is has left us where we are.

(I read with interest the dynamic duo spokespeople of the Left: Robert Reich and Paul Krugman. These are bright fellows, if I make use of understatement, so how did they get to be so daft in how they interpret the environment of the human condition? Liberal, elite, of privileged background... and childless. I (very politically incorrectly) assert that the experience of parenting and providing for the needs of a family is a primary experience necessary to fully be able to see and interpret the entire human condition. Living in perpetuity in Academia without having to make payroll and care for children and deal with government edict and regulations is not conducive to rational interpretation of ones environment, me thinks. For example: That fully 1/3 of the SCOTUS Justices are childless, self-important geeks disturbs me to no end. Think this is a silly point to bring up?  Why? Ask ANY PARENT what the most significant, life altering/affirming/maturing event in their life was and invariably it will have to do with becoming a parent. I don't see raising children so much as a "choice" as a civic duty. While it might be acceptable to choose to be childless, it can hardly be defended as the better of the 2 options. And why is it that wealth transfer agents like Krugman & Reisch want so much to make life better and fair by sharing your assets and wealth when they are unwilling to share of themselves with children? OK, maybe I am all wet. Maybe they cannot HAVE children. And adoption was not an option for people of such wealth and power? Should we blame the Liberal's birth-derth/baby bust on their infertility? F*** right off!)

Adults know and understand this out of hand. Unfortunately, we seem to be in a serious shortage of supply of adults at this time in our history.  With the vast majority of Americans and the inhabitants of the rest industrial West firmly believing that something can be had for nothing, that there is no such thing as self-interest let alone the ability recognize and act on it, I think it is incumbent upon each of us to prove the majority wrong - for your own self-interest!

"Self-Interest" is perhaps confused in some political quarters as being selfish or self-absorbed. Those quarters, as I mentioned above, often don't have children. Every parent knows how much blood, sweat, and tears goes into raising a family. The chasm between Paul Krugman's and Robert Reich's world view and mine has at least as much evolved from our personal family experiences as anything else. These are brilliant fellows, to say the least. Pretty smart, myself. Very different experiences.

Those supporting the Krugman/Reich view point will often bellow and assert and hold forth on income disparity/tax the rich/Life's not fair! Taking the 400 richest billionaires as an example/reason for destroying the well being and security of the middle class millionaires that grind it out everyday at small business around the country. Look, some of what these guy's bring up is legitimate - our system has evolved flaws that have leant a winner-take-all paradigm that does present serious issues and challenges. Look no further than the recent mortgage and finance crisis in which the moneyed establishment was able to break the rules, profit mightily, and then rewrite the rules with impunity. Believe me, I get it. I spent my life working in finance with these entitled jack-asses (and most of them identified with the Left). The question is whether the cure is worse than the disease.

(It has been my experience that when a view point is extremely weak, the holder must resort to the "nuclear option". For example, when I bring up my pro-Life views and belief that abortion cannot be supported ethically the first response from the pro-choice around me has invariably been "Oh, yea? What if the woman was raped?" WTF??!! What percentage of abortions are motivated by rape? Not a very big percentage, me thinks, but the balance of their argument is soooooo flawed and ill considered that like any drowning person they flail about dangerously.)

I respectfully submit that the cure for much of that disparity is in the offing, but I absolutely guarantee that that cure will not satisfy the Krugman/Reich gang.  In fact, as with any organization, they will use what supports their contention and discard the balance. As will the Right.

The folks identifying with the Right are suffering equally from the fallacy of misplaced concreteness. All things are NOT equal... and yet the U.S. military budget must be cut into, and deeply, in much the same fashion as the entitlement programs.  The prison/industrial/war on drugs industrial complex simply cannot be financed further, and was never a terribly good idea irrespective of the fiscal environment. The Right will NEVER be able to use government thugs to enforce the (very correct) idea that Life begins at conception. What are they going to do? Issue birth certificates for conception? No, these knuckle heads don't give a good fart for the unborn. They are simply USING well meaning folks to further other political agendas.

There are no macro solutions; only micro solutions. The West's energy situation is going to readjust these attitudes of smug superiority. But that revolution won't be televised, either. There will no "I told you so" moment. We'll all be too busy seeing to our own affairs.

Thank G-d.

Friday, April 15, 2011

Wall Street and Football

Working on Wall Street is a lot like playing football. When you are young it is glamorous, exiting, and it pays very, very well. If you stick around too long, your REAL life expectancy, the one that counts, is often cut short (actually in the case of football, its not "often". Average life expectancy for pro football veterans is 55 years of age. That sounds OK when you are 22... but at my age, well... that's just unacceptable!).

Joe Battipaglia has died. He was 55.

Most people know of Joe from his constant appearances on CNBC (one of my good friends from my Bear Stearns days is another giant of a man that is often on CNBC... no names, he reads here on occasion.. I hope he takes this to heart. Hint, hint). I knew him back in the day when he was at Gruntal & Co. We were friendly in that people that knew us used to say that Joe was the only guy on Wall Street bigger than me. Only a slight exaggeration. He was a couple inches taller and quite a bit heavier. (Believe me, being known as being larger than yours truly is not a good thing as far as life expectancy. Big people don't live as long as small people. If you are over 6'2" in height, its best not to tempt fate with any excess poundage around the middle.)

And now he has died. I don't know what the circumstances were, but it has been reported that he had a heart attack at work. Spending time making more money when you are already rich ( a great many "rich people" don't even know they are rich... often they have ratcheted up their living expenses in such a way that they simply must continue on the gerbil wheel until it kills them.  To my mind, Joe would have been better off as a laborer digging in the earth) and commuting long distances in and out of New York City rather than taking care of your health strikes me as self-defeating.

Bruce Wasserstein, Matt Simmons, Joe Battipaglia... wealthy, respected, and dead... spending your later years sitting at a desk to make more money while not taking care of your health is a self defeating outcome of our way of life. Read this excellent article about spending too much time sitting... and this in today's New York Times... how and why it is killing us even if we make it to the gym several days per week. Over 50 (like me!)? Seems nature and evolution wants us to be more active than 3 visits to the gym every week.  This is something to pay attention to.

Life is short enough.  We need to be productive, but there is no need to help the Grim Reaper along, he'll be here soon enough.  Dying is not terribly productive.

In the end, its all about one thing - To Life!

Thursday, April 14, 2011

The End of QE2 is in sight...

It is easier to blog than it is to run a homestead operation - hence, posting has been a bit light. I did want to share some pictures before I get on with my rant.

I start my garden with seedlings bought from the Amish folks up in Scotsville, KY. I constructed raised beds that are 14 inches deep (12 inches of cedar on top of bricks to keep them off the ground and dry), and am using the square foot gardening method this year. Each bed should produce at least 2 sets of 32 plants per year... or at least that's the plan.

Corn, potatoes, beans, and melons are grown in the field. This is my first year with "soft fruits": raspberries, strawberries, blueberries, and black berries. I'll let you know, but I think we'll be fine as I have good guidance from the Amish family that sold them to me... and we have been doing the "pick your own" thing for 5 years now, making jams and preserves.

I milk at least one cow per day, and in the future when there is more milk than the family and the pigs can consume I intend to get some bottle calves and put them on the cows.

Over all, a family of 5 would need to raise 2 hogs per year, one steer, 100 chickens (for eggs and poultry), keep 2 milk cows (cows dry out every year so you'll need 2), several goats, a 1 acre garden and at least 3 acres in corn to keep everybody fed (we have more livestock than that, for reasons not entirely clear even to me). It sounds like a lot, but I think it takes about the time it would take to get in my car, drive to the gym, change my clothes, work out, shower, and drive home. Instead of dirty gym clothes I have food stuff coming out of my ears, and enjoy being outside and having something constructive to do.
Raised beds. 8, 8 x 4 cedar beds plus 1, 64 foot cinderblock bed.

Seeds planted and forced are outside hardening off but protect from wind in this box.

Here is my Hog Yard. Next month the hogs get penned in the back and corn, beans, and pumpkins will get planted in the yard (a little over .5 acre). The Hogs will harvest the produce themselves. See those Guinea hens in the background? I let them roam the farm as they are excellent natural pesticide.

We have 5 cows, 1 Bull and 20+ goats on pasture. They are grass fed and well cared for. We eat the males and milk females.

This is my breeding pen for meat birds. These are Jersey Giants and 2 Rhode Island Red Roosters whose daughters proved to be good egg layers. At least we think these are the Dads... nothing's perfect.

I use an incubator to hatch out a couple hundred eggs per month during the summer. I give the chicks we don't need as presents to friends and neighbors. We eat 2 birds per week, and only half or so survive to adulthood or harvesting... so we need to hatch at least 200 birds per year for our own consumption
This is the laying/breeding pen for layers.  After their second season I give them away. Poor folks do not look a gift chicken in the mouth. During spring and summer we have eggs coming out of our ears... enough for us to eat a dozen a day, fill the 270 egg incubator every month, and give some a way. That pen is on 2x4 sled runners and I move it several time per day so that the birds can have fresh grass and bugs along with their layer ration. Its a bit heavy but I'm only a chromosome or 2 away from being a Neanderthal, so it works for us.

The end of QE2 is in sight. I have to say that I have egg on my face for underestimating the impact that QE1 and QE2 had on the markets, but I think that the markets will not be kind to the longs as we get closer and closer to the end. We shall see.

Tuesday, April 12, 2011

All of Washington, T.P. included, has lost its mind...

Look what got cut in the budget deal - high speed rail. Notice military spending, which needs the same kind of cuts that entitlements do, was spared any cuts at all.

We are losing our collective freaking minds. Dear Tea Party: I thought y'all heard the voice of the people. Must a been something else.

BTW. I am flat Oil. I don't like when market's turn around after a rally this hard... especially with Japan declaring the nuclear situation to be far worse than previously believed.  In the near future this will increase demand for fossil fuel... but not in the immediate future.

Wait until somebody does something dumb - then go long Oil (or at least that's the theory).

In fact... I think the markets are extremely dangerous at the moment.

Best to stay clear unless you are a remarkably disciplined and experienced trader.

Monday, April 11, 2011

"I Hate Everything and Everybody"

"I hate everything and everybody" pretty much sums up my thoughts on the "budget battle". Never have more losers done less for the unknowing in the history of mankind... with the possible exception of the FDR administrations.

I despise the Left AND the Right in America. The "players" on either side have no heart felt beliefs, no "moral compass", and no humanity.  "I FART in their general direction."

May they eat sh#! and die.


The Tea Party blinked. No, that isn't fair. The Tea Party wet their pants, and they are proving to be just another group willing to try to kick the can down the road. Notice the next day that Pimco show's up short Treasury Bonds? That ain't a coincidence. Both bonds AND stocks are going to get rocked as will employment and housing... unless something changes drastically.


I was beyond thrilled to see this post by Stuart Staniford over at "earlywarn".  If you have been reading my stuff for a while you know that I get peptic regarding the lack of numeracy amongst the political and media establishment. For reasons unknown to me the "intelligensia" here in America simply cannot or will not understand the relationships between numbers, other wise known as ratios.


Oil has had some week. And the propaganda just keeps coming. Please consider paragraph 2 of this inane horsesh#!.
Across the country, people are pumping less into the tank, reversing what had been a steady increase in demand for fuel. For five weeks in a row, they have bought less gas than they did a year ago.
The cessation of Libya's Oil exports is the reason American's have bought less gas over the past 5 weeks, you AP jackass. People cannot buy what isn't there, and the volume that was available has been rationed by price.  


The Oil shock cometh. Upon its arrival it shall be known as the new normal. The new normal is the solution.  

Friday, April 8, 2011

Saudi Solar?

Brent Oil traded over $125 today; front month WTI is over $111. I cannot fathom this spread. My bet is it simply won't last. I have read about the supply conundrum at Cushing, Ok. My sense is that the Oil now being piped there that caused this discount will not find its way to the origination point of that pipe system.  When, I can't say, but I will bet dollars to donuts that it happens, it happens soon, and when it happens it will happen (the spread will close) fast. Long WTI/Short Brent sounds like a reasonable bet to me (but this is not investment advice and I already have positions).


The KSA is in a hurry to spend some BIG BUCKS, no doubt on well connected Western contractors, on solar, nuclear, wind... but notice the silly conclusion/explanation of the author:
That means Saudi Arabia wants to wean itself off oil but keep the rest of us hooked (unless it has plans to become the world's largest solar-panel exporter, too). 

That's the writer's conclusion?  No wonder the public in the West is so kerbolixed up with this issue.... relying on the media to inform them.

The KSA's agenda ain't keeping us hooked on Oil; that was done long ago, far away, and by another party... their agenda is to matter, politically, to The Powers That Be, and TPTB won't give a good fart about the House of Saud when they are not an Oil exporter... heck, they might not give that good fart once it is common knowledge that Saudi export days are numbered.

The Saud's are between a far bigger rock and a much harder hard place than the U.S. is. Either way - they either skidaddle or wind up hanging on a hook with piano wire for a noose.


I don't know Tracey McMillan, but I love her already.


An excellent article on the merits. Don't miss it. My sense is that as the Oil supply declines, the better nature of man will shine through. Or perhaps I just hope so.


I have more than a passing interest to see how declines in electricity availability in Japan this summer effects productivity and production itself. Before the age of AC for summer cooling, summer was a time of diminished work and production. Japan might well give us a good look at our own future.

More on this soon.

Thursday, April 7, 2011

Well, well, well...

RBOB gasoline, that's the wholesale trading vehicle in the harbor, is $3.17 as I write this. Heating Oil in the harbor is $3.18. And this is the "Shoulder Period"!

Forget WTI. Products, such as gasoline and heating oil, far more likely trade off of Brent, as "products" are exported from Europe to the U.S. and delivered along the coast. Brent is $122 and front month WTI is just over $109.  I would have thought we would have seen some demand destruction at this level... but I can't find any evidence of that. So I am still Long Oil.

How much higher will Oil go before it cinches down hard on demand? I don't know... I didn't think we would retest the 2008 highs just yet, but I am having a change of heart. Oil prices are not terribly elastic, and Libya's missing 1.2 million of exports has driven the market $25 higher (and that's not really true... the contango was very, very steep and Libya flattened it quite a bit... in reality Libya probably moved Oil $12 to $15 over the entire curve).

It is my opinion that there is no way to stop the demands of the Arab people. Ergo, there is likely more short term upside to Oil. At some point the U.S. and the West will have to go through another brutal contraction in order to ration Oil by price.

Peak Oil, with all its effects and consequences, is here.


Peak Oil is here, and you can still enjoy your life!

My wife and I are planning to spend next winter in South or Central America. We will surf, hike volcanoes, fish, ride horses... for about 1/4 of what many of my friends in Boca Raton consider an acceptable monthly family budget.

Being frugal in the extreme has its rewards. Don't miss them. It does not have to be travel (I can work from anywhere), but to be rich in time is to be truly rich. Rich in money will end your life early - just look at Matt Simmons and Bruce Wasserstein, 2 very wealthy investment bankers that spent 1 too many days at the office and dropped dead in their early 60'swith ooddles of money in the bank - if you have work too hard for it.

Yes, you gotta work and save money, but you have to enjoy yourself and keep your health. Clear the decks of every repeating expense (monthly bills) and work to keep them low. You will love yourself for doing it.


Its not often that I find myself on the same side as Slate magazine...

But WTF??!!  The Right on the SCOTUS are completely out of bounds. As former prosecutors and government attorneys these Justices are far too sympathetic to prosecutors and other government thugs.

I am sickened by some of their recent decisions. We, as a people, are getting meaner, and meaner, and meaner... so too, it appears are the individuals that are sworn to protect the American People from unconstitutional and oppressive government.


I know that may civil libertarians are bemoaning the fact that our cell phones are tracking our every move. Here is another way of looking at it:

Remember the Duke Lacrosse players falsely accused of rape (and, BTW, their accuser has just been arrested for attempted murder for stabbing her boyfriend... and this is only her most recent arrest)? The only reason the guys are not buried alive in prison IS THEIR CELL PHONES. Without the location data provided by their phones these guys would definitely have gone to trial, at great personal expense in stress and treasure, and at great risk of false conviction (partly because of that anger I spoke of earlier).  Yes, your cell phone is tracking you.... it is also giving you the perfect alibi should you come under attack from a false accusation.

That I even feel in any way positive about being tracked says volumes about my respect and confidence in our law enforcement and justice system.


Climate change is real. If you are a denier, its ok to come around. The data is simply overwhelming.  The good news is that there is not enough Oil nor Coal to accomplish the projected damage... and there is nothing to be done with what has been done. Still, it is what it is.

Monday, April 4, 2011

Back from the Scottsville, KY Amish Fair & Auction

I spent a couple days at the Amish Fair & Auction in Scottsville, KY. This was the 27th annual edition, and it was well organized and very, very informative.

That the Oil Age is coming to a close is approaching "boring" as a discussion topic. It is, in my humble opinion, and there are no macro policy responses that are likely to be worth your time in the offing any time soon.

So best to get on with life.

Before I get on with that, I wanted to share my observations about the people I met and spoke with these last few days. Let us call them the "Amish" and the "English" ("The English" is how the Amish refer to non-Amish).

In appearance, the Amish are, unsurprisingly, in very robust physical shape. Most appeared to have all of their teeth, though my bet is most had not had teeth straightening treatments as children, and those teeth were white. Not one of the men I met had any sort of tire or gut or extra weight hanging around the midriff. We did meet one overweight Amish woman. One. And we met hundreds.

The English were not as appealing to behold as the Amish. The vast majority were overweight in the extreme. Loaded with tatoo's, smoking, chewing tobacco, missing teeth, unkept... the differences were quite striking. In short, the English looked terrible.

The Amish farms were well kept, tidy, and productive. The homes of the English? More than half looked like the stereotypical country mobile home with junk deposited about the structure. The Amish do not appear to favor "yards", as crops grew right up to the eves of the house and surrounded the barns. No doubt that the Amish's large families are instrumental in keeping their homesteads in such pristine condition, but one could not help but see that many of the English living in the area have has lost their way... and I couldn't help but wonder how much the hours spent watching T.V. or in other media took away from their potential as stewards of their (the English) properties.

My bet is the Amish are not big on Prozac, either.

I made some contacts with local Amish farmers, a green house operator, leather worker, and General Store. I bought a Swiss/Gurnsey cross milk cow (I now have 3 milk cows...) 10 Black Jersey Giant hens, assorted roosters (to introduce new genetics into my flock), 2 dairy billy goats (also for genetics) and several flats of garden vegetables.

I ordered a hand planter for corn and beens. For an acre or 2 (or 3), these can work reasonably well.

My homestead is really coming along. I will have some pictures up shortly, if the tornados don't land here today.