Continued from Previous Post

One of my friends called me after reading my last post and asked me if I wasn't taking the easy way out on my "Both" for Inflation and Deflation - he said I was starting to sound like a Wall Street economist... you know, those guys that are NEVER wrong because they never take a position...

A fair point, that.

Deflation is here at the monetary level, and it will be here for a year, or two, or three (if I knew exactly, I wouldn't need my day gig). At some point the printing WILL overtake the defaults in the credit markets. Defining Deflation as Mish does, as a monetary issue, while certainly correct, does not help folks trying to decide on purchasing power protection strategies. After all, Treasury TIP securities are prices against CPI, NOT money supply, right?

I think that the Treasury and Precious Metal's markets are better indicators than the stock market for this. So far, Treasuries say Deflation and Gold says the US$ is losing value (import price inflation). I don't give specific advice, but it is no secret that my biggest positions are Treasuries and Precious Metals (please remember that I hedge with a covered call writing strategy, so don't take my disclosure as advice... I have been doing this a LONG time and kinda/sorta know what I am doing).

Lastly, I said the US$ could rally in the short term, I did not say it would. Look, nothing is impossible. For my money, I would rather be long a warehouse full of stable consumer goods like toilet paper than US$'s (click here for an interesting take by fellow analyst The Mad Scientist).

More on this soon.

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Regarding the Doomers on Agriculture.

Those guys got it wrong. Unfortunately, I believed their points had merit and after being up nicely in a leveraged Corn trade I got killed in one of my funds last year when the market just dropped out from under me and there was NO interest in out of the money spreads. I went from a VERY pleasing profit to disaster in a matter of 10 trading days or so...

I have been pulling apart Ag for some time now, and I think that weather is THE issue - not peak oil, or Nat Gas, or any of the other "off the cliff" scenarios. In short, there will be no overnight Ag disaster due to a shortage of Fossil Fuels in the near future, though Energy PRICES will affect Ag prices and production - just not to the point of disaster.

As I said in my previous post, "The "next blow up" will not likely come on time, as predicted, or as conveniently as" we think we are capable of predicting. Peaknic's focus on the food supply. No doubt they will be absolutely, positively correct ONE DAY - it just won't be because of Peak Oil (for the foreseeable future... 2020 and later they might be very, very right). This is not to say that the world's, and especially the U.S., food supply systems are perfectly secure - they are not. One growing season like 1936 in the U.S. heartland and we would be "up sh*t's creek" with no paddle and hole in the canoe. If you could just tell me which year this weather pattern would develop next, we would all be very, very rich... from what I understand this has a 1% probability of occurring in any given year, so good luck forecasting that.

(And yes, I am aware of the whole feed or fuel thing... more on that latter.)

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Oil rose sharply today despite inventories increasing because "gasoline demand increased over this time last year".

That was because SUPPLY went down after the Galveston hurricane, and we all know that demand cannot exceed demand... in short, there is not a great deal of support for Oil over $70 at the moment. If the data changes I will change, too.

Imports remain down over 8 % from last year. It will be REALLy interesting to see what Oil imports turn out to be over the next 3 years. That little tidbit of data holds the entire world by the kishkes (alt. gishgas).

Greg

Head Fakes, Y2K, Peak Oil, Inflation/Deflation and the Doomers...

I got some email from folks I can only describe as HOPING for doom...

I have no idea what drives their desire for Armageddon. Some of these people have been hoping for the end since Y2K. Ten years is a major portion of your adult and productive life... sitting around hoping something bad happens seems a terrible waste of time.

This last "Chernobyl" (that is Wall Street trader speak for losing all of your money or going out of business, etc...) was fairly easy to see, and still none of the bloggers - yours truly included - got it exactly right. Why would we? Forecasting is failure prone. The "next blow up" will not likely come on time, as predicted, or as conveniently as the Doomers seem to wish. There were only a few guys that were "right" every time, every call, every trade. Bernie Madoff was their poster boy.

Let me give you an example. In the Long Term (let's say 10 - 20 years) I believe that the US$ will go Chernobyl, Flame Out, Blow Up (you pick), ergo I do not plan on depending on that as a store of value long term. In the short term, a US$ rally could come at ANY time and kill the shorts - dead. Look what just happened in the US equity market. Hence the term "Head Fake". Markets LOVE to use that move on traders. Yes, I think the US$ is doomed, but that doesn't mean I'd be long the other currencies here (short US$). NOTHING moves in a straight line. Markets ebb and then flow.

But back to the Doomers... Eventually, you guys will probably be right. BUT, it is going to happen so slowly - say, over a decade - that you will adjust to the changes and never really see a blow up (unless the reinflation strategy of the Central Banks is so successful that the next balloon pop is overwhelming).

So...

Inflation? Or Deflation? Both. I think it probable that another Deflationary scare is in the offing. I DO NOT think we will experience Zimbabwe style hyper-inflation. Why would the Central Banks need to do that? If the U.S. was just another Banana Republic that might have already happened, but with the US$ being the reserve currency for the world? Nah... I think garden variety VERY high inflation will get the job done. Several years, perhaps a decade, of double digit price inflation will bring the US Budget Deficit down to a very manageable level as well as the average American's debt load - and destroy the life's work of the industrious, frugal, and productive (but in America, at least, we have always despised these f*ckers anyway - "Die Yuppie Scum!"), and it will have the added benefit of keeping the Establishment ESTABLISHED (hey, that's what inflation does - it hobbles the Nouveau Riche (first generation professionals, small business owners... folks working there way UP the ladder) to the benefit of the outright Rich).

Yea... I think 12% inflation for 4 or 5 years should do it. A loss of purchasing power of 12% per year for 5 years and an equal and opposite increase in printing would devalue the US$ by 50% or so. That would be the MINUMIM, with 10 years at 12% yielding a 75% or so decline in the value of the US$ being more likely. (And it will sneak right up on you. Nobody rioting in the streets (and rightly so). No big deal. Just a lot of time wasted working hard for something when you could have been hard at the wine, women, and song. So, if you are a Doomer that started Dooming for Y2K, you will have had to wait 20 years and it will have happened so slowly that the collapse of the US$ just won't be that satisfying.)

If one thinks about it, the above scenario dovetails nicely with the Gold $2,000 crowd. That would mean a 50% decline in the US$, and Gold $3,000 would be close enough (especially for government work) to the 75% decline in the value of the US$. Of course, Gold might succumb to the Defaltionary scare I see as highly likely. Remember, Gold is not the perfect investment. It is simply an alternative store of value, one that has worked for 8,000 years or so - somewhat longer than any paper currency has held value. Paper currency, stocks, bonds, small businesses, etc... are only markers, a place holder, indicating the owner's cut of the world's:

1. Fisheries
2. Forests
3. Ranching and Live Stock
4. Agriculture
5. Mining & Minerals
6. Fresh Water
7. Fossil Fuels
8. Human Resources Capital

There is nothing else. If The Powers That Be print more currency, issue more stock certificates, lend more money, huff, puff, suck, or blow etc... you don't increase ANY of the above - not even a little bit. Capital Stock? Means of Production? These are merely 1 thru 7 and the application of 8.

Well, TPTB are printing, but even they can't print fast enough to collapse everything overnight. Sorry Doomers, this is going to take more than a day or 2, but less than 3,650 days I should think.

In the meantime, life goes on. Tonight I am going for a walk on the beach with the kids, then its off to Dairy Queen for some ice cream, and later a glass of wine with my wife.

The best line I ever heard in my LIFE was when I lived in NYC and some nitwit or other was proposing to make a park within Central Park, taking land away from children's play areas and dedicated to, wait for it.... "World Peace". A bunch of locals came over to heckle these jerks when the media got there and after a few back and forth came the line of the Century from a stereotypical NYC mom:

"World peace will come and go. My kids gotta play little league."

Brings tears to my eyes.

Greg

"You f**ked up - you trusted us! Hey, make the best of it. Maybe we can help..." From the movie "Animal House"

Just for fun, read this:

U.S. Federal Reserve Gov. Kevin Warsh said in an opinion piece published late Thursday that the central bank might have to begin taking steps to normalize policy before the need is obvious.

"If 'whatever it takes' was appropriate to arrest the panic, the refrain might turn out to be equally necessary at a stage during the recovery to ensure the Federal Reserve's institutional credibility," Warsh said in a piece published on the Wall Street Journal's Web site.

"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers," he said.

Warsh says the Fed is at "a critical transition period." He cautioned that if policy steps are "not implemented with skill and force and some sense of proportionality, the success of the overall endeavor could suffer."

"Policy makers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves," Warsh said.

Since the global credit crisis began, the Fed has pumped more than $800 billon into the banking system, kept the federal funds rate near zero and purchased so many Treasurys and mortgage-backed debt that the amount of assets on its balance sheets has now swollen to $2.14 trillion.

Got that? I don't know about you, but I really liked the:

"The asymmetric application of policy ultimately could cause the innovative policy approaches introduced in the past couple of years to lose their standing as valuable additions in the arsenal of central bankers,"


thing.


Allow me to translate:


"We really f**ked up, and the cure may turn out to be worse than the disease. Our policy moves, both fiscal and monetary, are leading to a complete collapse of the currency, and with it, the system. Holy sh*t! This is bad!"


These guys should hire me as their director of public communications.






Greg

Holy Cow! Or is it Holy Dog?

I live on a farm half of the year. Not a big factory farm, but a small, truly organic family holding where we raise all of our own meat, milk, and eggs, most of our vegetables, and some of our fruit and grain.

In order to have organic meat we raise a steer, a hog, and some chickens and goats. That means will kill them and eat their flesh. Vegetarians despise people like me (the feeling is mutual, as I never met a Vegan that was not also "Pro-Choice", no small bit of being FOS there...).

I have not contributed to the EnergyBulletin.net for some time because I felt that they were engaging in censorship. Perhaps I was wrong. I found the following essay on their site today:

Warning! This is refreshingly poignant, politically incorrect, and brutally honest...

By Gene and Carol Logsdon (their website is organictobe.org) Energybulletin post here.

I see [in recent Ohio news] that people are getting arrested for murdering dogs and cats. We deliberately murder thousands upon thousands of cows and pigs every day so that we can eat meat but oh my, not cats and dogs. We kill people in war every day too, but oh my again, not cats and dogs. Has it been determined by theologians that dogs and cats are suddenly included in the Thou Shall Not Kill commandment? Did the writers of the American Constitution have in mind covering pets too?

Next thing you know, someone will get arrested for killing a mouse. Why not? Does a mouse have any less rights than a cat or dog? How about a rat? A mosquito? What hypocrites we are. Our pet-worshiping society raises a hullabaloo when a man kills his dog but our local humane societies must kill dogs by the thousands every day because pet-worshipers won’t take proper responsibility for their pets and nobody else wants them.

Sooner or later some poor judge will be called upon to decide which living things can be legally killed by humans and which can’t. Mercy, what a can of worms that will open. The judge will have to decide whether or not animals have rights like humans do; or, if they have some human rights and not others, which? And then, where should the line be drawn between which living things are animals with rights and which are animals without rights. If a cat has rights like humans have, why not the fleas on the cat?

What grinds me the most are people who, believing they are being kind to animals, will live-trap the ones that are bothering them and release them out in the country to become someone else’s problem. That is first of all illegal in many places. Secondly, study after study shows that releasing a wild animal into the wild most often is an act of cruelty. (Not to mention the horrendous cruelty of dropping off pet kittens out in the countryside.) The wild environment already has a full complement of wild animals, believe me. That’s why they are going to town and raiding urban backyards, looking for food. Adding, for instance, more raccoons to the countryside will only mean grave hardship or starvation for the released animal or it will find its way back to town anyway. Or into my barn. People who treat animals this way rather than killing them or taking them to the Humane Society to be killed, are just plain ignorant about nature, or refuse to admit that the food chain requires the constant necessity of death. Thank heavens for our local Humane Societies who do the dirty work of killing these unwanted animals. But why is it cruel to shoot a dog with a bullet, but humane to kill it with a shot of some chemical?

I once had a very refined and cultured book editor who was very adamant about not killing wildlife. She was horrified when I told her that I killed groundhogs and raccoons that were destroying my gardens. Later she took up gardening. Wasn’t long before she admitted that she understood what I had tried to tell her. She cornered the groundhog that was systematically destroying her garden and this very refined and cultured woman killed it with her spading fork, the only weapon handy.

This is the only way I know to change an avid wildlife lover’s view of life and death. Put them in charge of producing some of the food for the world. They can either put an animal and bird proof fence around the entire food producing acreage of the world which not even Bill Gates can afford to do, or they can help nature keep population levels from exploding.

Now all you friends of wildlife can rant at me. I wish you well and I wish you were right. If raccoons were endangered in any way, I would be the first one to rise in their defense. We certainly have to avoid cruelty to animals, but, oh my, it is extremely difficult to define what is morally or immorally cruel. Life is cruel by whatever standard you want to use. I just took my lambs to market, an experience that is always very sad for me. I’ve spent many a cold night keeping those lambs alive and healthy and many a long day guarding them from neighborhood dogs whose owners won’t live up to their responsibility as dog owners. I have enjoyed the supremely pleasant sight of lambs gamboling over the meadow grass. I had the unpleasant task of cutting off their tails so that fly eggs don’t hatch into maggots in the manure that would otherwise cling to the lambs’ tails and literally eat the lamb alive. I have tried very hard to raise lambs in a way that will protect them from internal parasites which is the main reason they often get loose bowels that bring on the maggot problem. But it is extremely difficult to succeed at raising sheep without internal parasites. Should I not raise lambs because I don’t like docking them? Should I quit raising lambs because they will end up as rack of lamb for rich people who descry the ways we shepherds must use to keep the lambs alive until then?

Should I not get married and have children because in the end we all must die? Perhaps in some idiotic war? Some of the very people who belch bricks at me because I will kill a dog that is killing my sheep support that terribly insane Iraq war and now nod their approval to killing more people in another idiotic war in Afghanistan.

But oh my, we must save our precious dogs and cats so they can die of old age and be buried in animal cemeteries. Did you know there are even live traps for mice now? You trap them and then let them loose away from your property to infest someone else’s house. I wonder how far away we are from spending money on mouse cemeteries while poor people can’t get adequate health care.

End of the Logsdon Essay

Can you believe that? From Organic Liberal types? I almost fell out of my f*&king chair reading that this morning.

Yea, I know, nothing to do with energy... but every once in a while you find someone willing to not be just another flippin' idiot...

Hat tip to the Logsdons!

Greg

Japan Exports Plunge, China Trade Surplus Disappears

"Every sentence I utter must be understood not as an affirmation, but as a question." - Niels Bohr

The U.S., for its part, is an importer not a manufacturer.

If Japan's exports are STILL plunging, it means the U.S. is not importing - and not growing.

Japan's exports tumbled 36 percent in August -- with car shipments falling by half -- and imports also contracted sharply, the government said Thursday, showing the world's No. 2 economy remains mired in a deep slump.

Declines in automobile and steel exports were especially pronounced, the Ministry of Finance said. Exports fell for the 11th straight month to 4.5 trillion yen ($49 billion).

"We are not seeing an improvement in exports due to a continued slump in global demand," said Hiroshi Watanabe, an economist at Daiwa Institute of Research. "Japan's exports were particularly hit hard by stagnant demand in Asia and China."

Imports, meanwhile, dropped 41.3 percent from a year earlier to 4.3 trillion yen, reflecting weak consumption within Japan, where the jobless rate is at a record high as companies shed workers. Consumer finance company Aiful Corp. said Thursday it will cut 2,000 jobs, or about 44 percent of its work force.

This is not the stuff of expansions.

And the hits keep coming...

China's prodigious trade surplus appears to be coming to an end, and with it China's ability to fund the U.S. trade deficit.

But as import growth continues to outpace the nation's export growth after bottoming out earlier this year, the world's largest foreign-exchange accumulator is now on a path to start reporting trade deficits soon, according to Eric Fishwick, head of CLSA Asia-Pacific Markets' head of economic research.

"China will be recording, at the current run rate of exports and import growth, monthly trade deficits early next year or the turn of the year," Fishwick said Monday at the CLSA Investors' Forum 2009. "What is remarkable about its composition of imports is not just the pace, but the breadth. Nearly everything is going up at more or less the same sort of rate."

Official data released earlier this month showed that China's exports slumped a larger-than-expected 23.4% in August from the same period a year earlier, while imports narrowed by a margin of 17%

This explains the Treasury's Tic Data (hat tip to the Mad Scientist) which clearly shows China's lack of appetite for U.S. Treasuries of late. After all, if China does not have the DOLLARS that would naturally accumulate from a TRADE SURPLUS how can they buy U.S. Treasuries? They can't.

"He who would be serene and pure needs but one thing, detachment." - Meister Eckhart

Back soon,

Greg

EIA Weekly Petroleum Report

The following was taken form the U.S. Department of Energy's Web site today:

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 335.6 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 5.4 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 3.0 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 1.3 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 8.0 million barrels last week, and are above the upper limit of the average range for this time of year.

That last line, the 8 million barrel increase? And the "above the upper limit of the average range"? Those 2 data points are not supportive of any meaningful expansion in GDP in the recent past. The question of whether or not it is supportive of Oil prices in US$ terms is a more complicated story, and the short answer to that is "No". Please note that "not supportive" means nothing in the data would lead me to go long, but that does not mean that the price will not go up (just to make me look bad), it just means in the short run it will be without me.

The Fed says that economic activity has picked up in its report today... and it has, but only because the rate of decline that the economy experienced last year could not, by mathematical necessity, continue. Nothing in energy consumption, rail traffic, the Baltic Dry Index, etc... is giving me a warm and fuzzy feeling. That, too, does not mean that equity prices cannot extend their rally... they can. If you throw enough money at any asset class prices will rise.

There is still a great deal of government stimulus money waiting to be spent, and that will have an inflationary pressure for at least a couple of years, and we might yet "get" another stim pak from the economic geniuses in D.C. Destroying the nation's currency by printing and borrowing and spending (remember "tax and spend"? How quaint.) will actually make us feel better in the short term, very much the way a heroin addict feels just before he dies from an overdose.

The year over year decline in Oil imports appears to be leveling off in the mid 8% area. It will be very tough for the US economy to experience any REAL GDP expansion without an uptick in Oil supplies and consumption. Ergo, any increase in equity prices will have to come from stimulus or multiple expansion... or an increase in Oil supplies.

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I think we are passed the point of a financial collapse brought on by a banking collapse (despite the fact that there is another wave of foreclosures about to swamp the banks... and no, I am not bullish on the banks, or should I say "Bank", the Fed is really the only bank we have). The various Central Banks and national treasuries have shown they will do whatever is necessary to destroy the value of paper money to shore up the banks. Nor will a collapse come from a default by the U.S. Treasury. No, the next, and final, financial collapse will come from a currency crisis in the form of the end of the US$. While it could come sooner, I would guess that the final wipe out of the US$ will come sometime between 2014 - 2019. Somewhere in that 5 year period lies, in my opinion, the highest probability of a political/currency crisis in the U.S. that will absolutely, positively spread through out the world in devastating fashion. Of course, as in all probability theory of certain outcomes with uncertain timeframes the distribution of probability will be on a bell graph, with standard deviations emanating from the peak of the graph left AND right. That means there is a small likelihood that this could take place tomorrow, with a much higher likelihood of occurrence in 2014-2019, and then a small likelihood that it takes place sometime thereafter.

And, yes, I firmly believe this to be the most likely outcome and timeline, and, no, I am not happy about it, am not wishing for it, or hoping that I am correct. If the data changes, I will change my mind on a dime.

What could accelerate this? A rapid decline in Oil imports into the U.S.

What could prevent this? Moving Federal, state, and local employees AS WELL AS the Social Security and Medicare eligible age to 72+, ending unemployment insurance, cutting the military budget by 80%, and discovering a new Saudi Arabia every 2 or 3 years, et al... piece of cake, right?

Right.

Greg

Colege Debt, Afghanistan, and the American Body Politic

Ah, but it is thrilling when common sense rears its ugly head in the media.

The insanity of compounding putting off going to work for too long with the ball and chain of student debt awaiting your entry into the "Real World" is really getting some traction, although it remains almost an apostasy in some circles.

You are allowed to use your own brain to scrub any outcome that takes place over a period of time, especially when it comes to your LIFE.

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Obama expands the war in Afghanistan... and this guy is supposed to be smarter than GWB?  Dumb as a war in Iraq was, Afghanistan makes that look cerebral.  

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While that might indeed be enough said about Obama, I find it impossible to heap enough scorn (my boots just are not that high) on his most ardent supporters.  Not that McCain would have been any better... but failing to recognize that A.) it did not matter which of these 2 we elected and, B.) great presidencies are not built on issues like race, abortion rights, and gay marriage. It must nice to be so delusional as to deny the simple truth in that.  

The American capitalist/liberal democracy system is under EXTREME duress, and likely won't survive the next decade, but Obama's supporters are concerned with politicizing sex, marriage, family law, race, etc... Let me clue you in... you cannot cure America's ills by making abortion "safe and legal".  If you think issues  like abortion, compensation discrepancies between the sexes, flag burning, gay marriage (either side!  Why would ANYBODY want to lose the Right not to have to get married "Legally"?  Why do Gay folks want to invite the government BACK into their bedrooms?  Go figure!), freedom fries, prayer in school, and any of the ill fated, self-destructive tendencies of the Left... Speaking of which... Does ANYBODY on the Left know their History of Greek Philosophy?  If so, can anybody point out to me an essay by one of those rather interesting fellows about how a society can whether a Great Storm by encouraging their people to do really bad/stupid/horrific things?   Or just waste their time?  The VAST majority of the folks that I communicate with on the issue politics have never read the U.S. Constitution and the vast majority of the folks I communicate on the issue of Banking & Finance have never read the Federal Reserve Act... but they have VIOLENT opinions on the subjects!  Why?

Talk about polishing the brass on the Titanic... The American currency is sinking before our eyes, a symptom of our collective ills, and our nation's collective debts have become so large as to be unmanageable. Yet the best we can come up with is to borrow MORE from our future and our trading partners to make sure that when the Blow Out comes it will be truly spectacular? (Go ahead, click the link.  Then copy the data into a spreadsheet, and exptrapolate the growth in debt at the same rate out into the future... We have increased debt at a compounded rate of over 8% per year since 1950, and experienced GDP growth of less than 3%.  It might help you to watch this lecture in its entirety... here is a link to the first segment of 8.)  This assures, absolutely AND positively that some kind of outrageous smack up will occur to the economic/banking/currency system at some point in the next 5 to 10 years.

The Jag-Offs that were hoping for the end of the world and the capitalist system will likely get their wish - but they won't be satisfied because the collapse/revolution/coup will NOT be televised nor podcast. It also won't happen in a time frame that will make them terribly happy.

Our political system, the one that prevents guys from getting dressed up like they are about to invade Poland and breaking into your home and causing folks to disappear, is based and dependent upon the U.S. Constitution.  A casual look at the history of the world clearly shows a propensity for people to willingly abandon their freedoms; our founding documents were drafted to prevent that.  Even so, a half century of Liberal Jurisprudence has eviscerated the political animal.  Badly wounded and wobbly, it is about to be finished of by an unlikely foe - ourselves - in the form of silly promises (medicare, social security, and the pensions of government employees) and programs (Fannie Mae, Freddie Mac, Sallie Mae).  By promising the proverbial "free lunch", we have created a hungry monster that can be fed for just a bit longer, and when the all-you-can-eat buffet comes to an end - and it surely will - those nice folks from the Cryps, the Bloods, ex Law-enforcement/military, MS-13 (never heard of them?  You will.), etc... will be only to happy to indulge in the "other white meat" - unarmed Liberals.

Remember the transitive property of Mathematics?  If a = b and b = c, then a = c.  If (over promising social programs) = (the collapse of the currency) and (the collapse of the currency) = (political collapse/Armaggedon)... well, you can finish the equation yourself.

No, events likely won't come to pass quickly enough to vindicate my assertions.  But they will come to pass before my infant daughter is in Middle School.  

And maybe sooner.

Have a nice day!

Greg

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Conflicting Data

Today's Quote - "The opposite of a correct statement is a false statement. But the opposite of a profound truth may well be another profound truth." Niels Bohr.



I spent the weekend crawling through reams of data: Bank reserves, energy consumption and inventories, Gold prices, interest rates, shipping rates and costs, retail sales, industrial production...

I come away with the sense that we might have seen a bounce but not necessarily a "recovery"in the U.S. and perhaps something more than that in the world data (keep in mind world population growth virtually assures "growth").


This does not mean that US equity market momentum won't carry the market higher... I get back to my inflation argument because EVERYTHING has been going up versus the US$. If you compare the Dow to Gold, it has gone nowhere. If EVERYTHING is going up relative to the US$... well, isn't that the very definition of inflation? What would happen if all asset classes fell ALONG WITH the US$? Isn't that a possibility if the world is in a state of over-capacity and the US keeps running $Trillion plus budget deficits? (Read this excellent post by the Mad Scientist... then tell me that that is not a DISTINCT possibility.)


For my money, on SIGNIFICANT weakness, I am going to go long energy equities, but I am going to hedge it with a short position (could be a typical long/short or just a covered call.) I say this even though the risk of significant decline in Oil prices is pretty high (after further consideration, the data does NOT support higher energy prices in the short term). Inventories just don't justify $73 Oil, even if gasoline consumption might. Since the object is to buy "low" and sell "high" and the likelihood of supply constraints in the U.S. in the 2011 - 2013 is fairly high... this outcome would awfully convenient... perhaps, too convenient.


Oh, well, as I like to say - you can trade it, just don't believe it. If you are right hold on; if you are wrong be gone.


Greg

Goods Transport Data

The U.S. is 25% of world goods consumption.

Therefore, rail traffic across North America and ship traffic to and from North America bear close watching.

For July and August the Baltic Exchange Dry Goods Index fell hard.  Now the first 2 weeks of September's Railfax rail traffic report appears to show a sharp decline in goods transport across North America's railways.

These data points underscore the poor employment picture, particularly the lumber and crushed stone transport data for the past 4 weeks.

If one compares the U.S. equity market to Gold, and NOT to US$, the stock market has gone nowhere since March - the Dow was trading less than 10X Gold in March, and is now trading just under 10X Gold.

In other words, in REAL terms, there has been NO improvement in the markets, employment, tax revenues, etc... the Fed and the Treasury have merely succeeded in devaluing the US$ and causing both price AND monetary inflation.

This does not mean that the U.S. equity market will go up OR down (but the trend is your friend) but it would seem to support energy prices, and PERHAPS energy equities.  

Any REAL expansion of US GDP will absolutely, positively require oil imports to rise.  Just remember that in NOMINAL terms no such requirement exists.  So keep your eye on the EIA import data released every wednesday.

The market appears over-bought, and the rail and baltic dry goods index do not warrant increased risk.  On the other hand, any and all liquidity appears to find its way ONLY into the financial markets, not the real economy.

Greg

Motor Gasoline Consumption Vs Commercial Distillate Consumption

The U.S. Department of Energy's E.I.A. provides data clearly showing that the U.S. total consumption of Petroleum Products will decline by 800,000 barrels per day ("bpd").

But the consumption of Gasoline in 2009 will eclipse 2008, ergo...  ALL of the decline in petroleum consumption came from diesel fuel, jet fuel, and heating oil.  It would seem consumers, tapped out as they are, do not see gasoline prices as high enough to make any changes in their driving habits.  That would argue for much higher oil prices in any kind of expansion, particularly if you consider the number of cars being sold in the non-OECD countries.  In fact, more cars will be sold in China than the U.S. in 2009.  If gross world oil supplies do not rise, by mathematical necessity there will simply be less oil available to the U.S., and the competition for the remaining oil shipped on the world's oceans would intensify.

There is enough evidence to make a compelling case that the U.S. economy cannot long withstand Oil consumption in excess of 4% of GDP - or about $80 per barrel in today's dollars and GDP numbers.  If this proves to be true, and if the competition for imported Oil continues to grow, it would seem that there will be some significant gyrations in economic output as inefficiencies are rung out of U.S. petroleum consumption.  It would seem that with Oil currently trading at $72 per barrel that the U.S. is very close to having its economic expansion cut short.  However, this does not mean that WORLD economic output will decline at $80 - but it probably does mean that that is the case for the big industrial importers - with the reverse being true for the Oil exporters.

The US$ trend simply does not support the deflationist argument.  When investing or trading it is best not to deny what your own eyes are seeing - especially if you are on the wrong side of the trade.

Greg

Sea Change

Cash is Trash.

If you missed the recent rally, you gotta forgive yourself and move on.  Most missed the rally, considering the volume of stocks trading hands outside of the flash traders.

In the short term ANYTHING can happen, but I am looking to buy, ON ANY WEAKNESS, energy equities.  This is a big change for me.  I even put a little of Big Oil in my portfolio friday (they have not rallied with the rest of the market).  I have no interest in U.S. banks, retail, transportation, etc... they are too rich for my blood.  But I AM interested in international commodity players (non-US companies), energy (not Nat Gas).  

Gold and Silver (and Platinum) have been my biggest personal holdings, and I will AD to these on any weakness.  Yes, the US$ could rally at anytime given the recent sell off... but the US$ is f*&^king doomed, and I don't want to be near it when the proverbial bad guys come and rub the US$ out in Mob Hit style.  

Deflation came and went.  It could come again, but I don't think for several years - not until the real blow up that comes when the U.S. recognizes all of its Social Security and Medicare liabilities.

The 800 pound gorilla in the room is OIL.  

Greg

La Shana Tova!

A blessed, prosperous, and healthy New Year from the Bujewalics (that would be: the Buddhist-Jew-Catholic Jeffers Family) to all celebrating tonight!

Greg

Its all about Oil and Debt

So, where to from here?

The housing/mortgage/financial system train wreck that came about over the past 3 years or so was an easy one to see - that is unless you were a classically trained economist with a 7 figure Wall Street pay package or a government Central Bank economist.  Then you were deaf, dumb, and blind... but at least your establishment credentials SAID you were intelligent...

That was then, and this is now.  

Where are the Western financial markets going?  What about the US$? Oil?  Ranting about the end of the world is not going to make one a living.  Losing one's life savings is not that appealing either...

The U.S. and OECD governments have won the deflationary battle much earlier than I would have thought.  Read my posts over the past 60 days or so... time and time again I mention that the US$ MUST begin to recover RIGHT NOW - or else.  It appears that we should get ready for the "or else" series of outcomes, because in succeeding to reinflate the U.S. Treasury and Federal Reserve Bank have ensured the demise of the U.S. currency.  Actually, that's not fair.  The Treasury and the Fed were merely hand maidens for the elected nit wits leading our country for the past 50 years.  It was NEVER possible to actually pay for all of the liabilities of Medicare and Social Security (among other silly things dreamed up by what should have been our best and brightest).  

The US$ is going to experience a very tough slog over the next 10 years (and that might be the understatement of a lifetime).  There appears no other way.What is the point of working hard, saving and investing wisely, only to have all of your work blown away?

I had this to say in my November 15, 2006 Post:

The only way to pay the debt back is to increase net nominal (not real) tax revenues, actually or de facto. This can be done in a number of ways:

• The U.S. can raise tax rates.
• The U.S. can cut services, entitlements, and spending for defense
• The U.S. can grow the size of its economy, thereby collecting more taxes without necessarily raising tax rates. For this to work, the U.S. must still get a hold of its spending.
• The U.S. can debase (lower the value of) its currency (or its trading partners can do it for the U.S.).

It is extremely doubtful that the U.S. could raise its tax rates enough to make much of a dent in its budget deficit and entitlement liabilities – to do so, the U.S. would have to tax its citizens into penury. How likely is it that the U.S. Congress would cut services and entitlements in the absence of crisis? Pigs have a better shot at flying. Can we grow our way out of this mess? Sure, if we had an unlimited supply of domestic Oil and Natural Gas (“NG”) and if we were also able to control our spending. In order to grow the economy we must increase our consumption of energy. And “therein lies the rub”: The only energy source we can increase consumption of is Coal, and Coal will not run the U.S. transportation system. Coal will not heat the homes of the approximately 60% of Americans that use NG for home heat. Not to mention the external environmental costs concomitant with the use of Coal.

So we are left with the currency. You see, to pay its IOU’s, a government is very much able to print more money and use it to pay its debts. The problem with that is the contra party, the guys that hold those IOU’s, don’t like that very much. They won’t extend any more credit on such terms. They will want MORE of that less valuable money in the form of interest in the future and for the exchange of goods and services that they sell us. That means higher interest rates and higher inflation. Much higher, and we all know what that means

Then a couple of days ago the Mad Scientist sent me this from a Research Report from Sprot Asset  Management: (here is a link to the entire report)

So how will this US debt crisis ultimately resolve itself?  Let’s consider the options. It would appear from our analysis that the spending ‘promises’ are the crux of the problem now facing the US Government. If there isn’t enough new capital in the current environment to fund new Treasury bill issues (as we argued in “The Solution... is the Problem”), then there certainly isn’t enough capital to pay for the US’s unfunded future obligations. The choices, therefore, are bleak:

1. Default on Medicare promises. (Unlikely given the current debate in Washington to  

expand medical coverage.)  

2. Default on Social Security promises. (Unlikely given the increasing average age of the  

voting public.) 

3. Put forward a credible plan to balance the budget. (Unlikely given the most recent budget 

projections.) 

4. Default on outstanding debt. (Unthinkable) 

None of these options are feasible for the US Government. So they realistically only have one option left – to print their way out of their debt crisis. 

We keep coming back to the numbers for the US debt, and they don’t add up. Even Alan Greenspan, former Chairman of the Federal Reserve, believes that the rising budget deficits in the United States are “unsustainable”.  Because the US Government is printing dollars to fund their liabilities, it is highly unlikely that we will ever see a failed bond auction similar to that of Poland. The far more likely outcome, therefore, will be a US dollar crisis. It is for this reason that we have positioned our hedge funds and mutual funds so heavily in precious metals. At the end of the day, when the world finally realizes what the US has done to the world reserve currency, international investors will shift into an asset that no government can print. In our opinion the US dollar’s status as a ‘port’ in the financial storm has officially come to an end.

I will be the first to admit that the deflation argument held sway with me for a short period of time - and it cost me in lost opportunity. When the data changes and you don't change fast enough with it... you won't be in my business for long.

More to come.

Greg

A Funny Thing Happened on the way to the end of the World

Dear Deflationists:

(In case you didn't notice...) Your head is rolling down the street, leaving a bloody trail all the way up to the bloody sword still in the hand of the various Central Banks. You had your day in the sun, but you're done. Toast. Kaput.

Remember, it was you guys that said that the Fed, the ECB, the Bank of Japan, etc... would not be able to reinflate, that they were pushing on a string - you had me going, too. I would make some money, take my profits and leverage a short trade, cover, lose money... rinse and repeat. I have heard the arguement for a double dip - and I even buy it - but that has not done me any favors.

Turns out, the Central Banks still have some mojo left.

I get very little satisfaction out of missing the funeral and then get lost trying to get to the wedding. It is supposded to be the other way around - "if you don't get an invite to the wedding, don't go to the funeral".

Oh, and the US$? You know, the currency that was supposed to sparkle in a deflationary environement? The US$ ain't twinkling folks, it tinkeling - all over itself. So, although the Central Banks still have "the power", said power does not seem to extend to currency valualtion.

----------------------------------------------------

Well, I did not think thet could do it this quickly. The Central Banks have pulled off a marvelous success in their effort to reinflate.

Here's the rub:

Oil is over $72 while the world's largest consumer of Oil is at the tail end of a miserable recession. What will the price of oil be if the Reinflation effort continues to work? $100? $150? $200?

This is the Conundrum. The American Consumer's ability to pay their TAXES, let alone necessities, goes out the window with gasoline at $4.00 per gallon, and at $5.00 they are flat on their backs. Any recovery at all - ANYTHING - and Oil is back over $100 per barell. Then... POOF!! That's the end of the recovery, with its concomitant decline in tax revenues (collections) yielding ever increasing budget deficits, which puts more pressure on the US$, which causes Oil prices to rise in US$ terms, repeating, ad infinitum. After all, the Central Banks CAN inflate asset prices, but employment is a very different animal. Asset prices are abstract, employment is real.

This process has begun, and each successive cylce will jerk us around like a puppy on the end of a leash held by Michael Vick's Dark Side.

Here is a link to the U.S. Department of Energy's weekly petroleum status report. Please note that the US has been drawing down its inventory in recent weeks as imports continue to decline and while it appears that we CAN reinflate, it seems it will be so at the expense of destroying the US$. This will no doubt make many American debtor's happy in the short term, but it will certainly accelerate the decline in Oil imports into the U.S.

And we all know what that means.

So, here we are again. The housing/financial issue put the energy energy issue on the back burner for perhaps 15 months.

"They're baaaaaaack!"

Greg

You Can't Make this stuff Up!

President Obama's Community Activist Center - ACORN - just ain't helping the Big Guy out these days.

Look, you gotta watch, listen to this.  I am not poetic enough to describe it:

(Disclosure:  I am a Pro Life Libertarian, I do not think the Government should be in the business of telling anybody who they can and cannot sleep with (given a reasonable age of consent) for ANY reason - but I would demand that the individual alone accept the repercussions of their decisions (yes, it is "your body" and you can sell it to whomever you wish, and no, the baby you might carry is not "your body" - just check the DNA - and you may not kill it. Irrespective of whether you agree or not... my position is fairly clear, I think.  It was just a disclosure, not a challenge.)

These are the people, the ACORN type community organizers, that made the statistical difference and gave Obama the Presidency.  

Please note that the documentarian is informing the ACORN reps that he intends to bring in underage, illegal aliens to work as prostitutes with he as their pimp.  Forget my Libertarian tendencies... just because I think a law is "wrong" does not mean that I would suggest one violate said law... prostitution is illegal, underage girls would be a Class "A" Felony, and I am sure that the folks at INS would frown at the whole illegal alien thing.

Just wanted you to know who this administration owes its favors to.

Greg

US$ is back on the Ropes

"Houston, we have a problem".

Forget comparing the US$ to the Euro.  They are in the same boat as we are.  Compare the US$ to the currencies of the Asian industrial exporters, Oil, Gold, etc...

Read this.  Then consider what the cure is. A nation whose regulatory system, tort system, and government spending has precluded that nation from providing basic goods and services to itself is not long for political stability.  How will the markets bring this back into equilibrium?  By making the US$ fall versus the currencies of the economies that are eating the lunch of American industry.  There is no other way.  And that means... Drum roll... import price inflation EVEN IN AN ENVIRONMENT OF MONETARY DEFLATION.

In other words, in layman terms (I am the epitome of a "Layman"), while the banks may continue to shrink credit to the American economic system our trading partners are going to demand more for less. That $2 tool from Home Depot?  That'll be $10 please.  This will go for imported food, vehicles, clothes, electronics, OIL, chemicals, etc...

On a macro basis, there is little that can be done to prevent this given our sh*t stain of political discourse: Our smug Left, who in addition to being innumerate (can't count and can't work a calculator)  lay their claim of intellectual enlightenment at the feet of the murder of innocent children and gay marriage; and our mean spirited Right who never met a problem that couldn't be cured with more prison space or the bombing of innocent children.

I long to hear the "thud" of their deceased bodies hitting the floor.

But I digress...

I have been a US$ bear for years, but a few weeks ago I thought that this sell off was overdone.  No more.  The only reason the US$ has ANY value is the world's system relies on it exclusively - but who said the system could continue to function as currently constituted?  In any kind of US$ crisis world trade would hit the skids.  Anybody notice what has been happening with the Baltic Dry Goods Index lately?  You can read the graphs for yourself.  That is not exactly indicative of something good for the US$.

Of course, an engineered "crisis" would send people for the exits and back into the US$.  My friend the Mad Scientist thinks that this will be necessary in order to fund the deficit over the next couple of years (if capital is driven out of risk assets and into "safe havens" like the US$ and U.S. Treasuries, the U.S. Treasury Department can get the funding it needs for our outrageous deficit spending).  Unfortunately, I believe he is correct.

Could there be one more US$ rally?  Yes, sort of.  The US$ could rally against the Euro, but is that really a broad rally indicating VALUE?  NAFC.  This is not to say that there will be a straight line decline in store for the US$ - that just isn't how markets work.  

The U.S., one of the first Liberal Democracies of the World, Fighter of Fascist and Communist regimes the world over and WINNING, and then being brought down by Social Security, Medicare, Fannie Mae, Freddie Mac, AIG, Goldman "The Anti-Christ" Sachs, et al... brought down by our own... what an ignominious end.  

It does not HAVE to be this way, but it is the most likely outcome.  I get ill thinking about it.

But at least we have "Hope" and "Change you can Believe In."

Greg

First, a quote from Mike Shedlock's excellent blog:

Like it or not (and most don't) this is a global economy. The US cannot make itself into a self-sustaining island. Moreover, the idea that we can pay everyone $35 an hour and compete globally is ludicrous.

As I have said many times, the problem is not wages, but how far wages go. Greenspan and Bernanke have wrecked the US dollar. Financial engineering drove property prices up to insane levels. The US wastes $trillions attempting to be the world's policeman. There are so many student loan programs that the cost of education has soared. This is what happens when one throws money around.

Fairly straight forward, right?  The U.S MUST trade with the world, whether one likes it, or believes it. MUST.  ALL of us must compete at every level with people that do not have 3 extra bathrooms to pay for, or a bunch of retired police officer's pensions.  Ergo, they are pretty competitive (they can work cheap).

$35 per hour.  If one worked 40 hours per week (the U.S. work week is about 32 hours presently), 52 weeks per year that would work out to $72,800 in compensation.  But, as Mish just said we can't all get paid $35 per hour, or said another way, the average American cannot earn $72,800 per year by mathematical necessity or $2,184,000 over a 30 year career before taxes... or $1,419,600 in after tax income LIFE TIME income.  Let us assume that this worker was EXTREMELY disciplined and saved 10% of their after tax income - $141,960 over the course of their LIFE.

Does anybody think that its a good idea for EVERYONE to spend $200,000 of after tax money on an UNDER GRAD education in order to get a job that will only yield $141,960 in savings IF the subject is a FANTASTIC saver AND it is not possible for the AVERAGE American to earn the $35 per hour in the first place?  My best guesstimate is that an average of $20 per hour, or just over $40,000 per year will be tough to achieve.

If you are fortunate enough to have that money (not counting folks with net worth's of $5 million or more) available to educate your child... well, for the AVERAGE person the $200k investment just is not worth it. Itt is nothing more than a confiscatory tax benefitting a very few... a few who are participating in a system that is going to break down.  THAT  is why I say that half of the private colleges WILL NOT be in business by the time your college age kid is my age.

Believe me, you are going to be buffeted over the next 5 or 10 years with studies, propaganda, guilt trips, etc... in the media in an attempt to get you to make this really, really dumb move.  

Don't fall for it.

From the movie "Fight Club":

We are the middle children of history, with no purpose or place. We have no great war, or great depression. The great war is a spiritual war. The great depression is our lives. We were raised by television to believe that we'd be millionaires and movie gods and rock stars -- but we won't. And we're learning that fact. And we're very, very pissed-off.

-------------------------------

The U.S. has seen its supplies of petroleum products reduced by 2.7 MILLION barrels per day (if you do not consider ethanol a "petroleum product" - and I do not).  

Let me put that into perspective.  The U.S., from its peek in 2006 or 2007, has seen its daily supply of petroleum drop by MORE than the entire country of Germany uses each day.

So?  At this rate of decline, several million people in the U.S. each year FROM THIS POINT FORWARD are going to stop commuting and start working from home (those that will still have a job, that is).  That means that the value of commercial Real Estate is going to drop like a stone (Who holds all of those commercial mortgages?

It is simple physics.  If you remove an energy input large enough to run Germany from the American economy a certain number of people either are NOT going to have a job or are going to have to work from home and the commercial space they formerly used is going to go vacant. A certain number of hotel rooms will have to go empty and a certain number of jets will have been grounded.

The U.S. was already overbuilt with office, retail, and commercial space.  I think it likely that the U.S. will NEVER need any more construction in these products - ever again.  The 2 year rate of decline for petroleum imports is over 8% per year.  If that continues, and I think it likely to continue AND accelerate, in a addition to no need for further construction, the U.S. will have little demand for cars and trucks, aircraft, etc...

We are in the grips of powerful deflationary forces, yet the stock market has taken off and the US$ has cratered.  These things can happen in tandem in the short run, but over the longer haul they are mutually exclusive events.  And while the US$ might catch another bid (I had thought that would have happened as I write this... didn't work out that way), over the next 2 years the Federal Budget Deficit is likely to grow by nearly $3.5 Trillion.  More than the reserves of China and Japan combined.  Will the new American saver have enough savings to finance the difference?  Maybe. Then again, maybe not.

Continued...

I had a comment on my previous post: "focus on useful degrees".

I love it when someone says something so profoundly common sensical... Thank you! (I expected nothing less from a fellow named "gardenerG". Us gardeners are used to getting our hands dirty
but seeing the reward.)

I did not suggest rejecting education - I suggested doing a careful cost/benefit analysis of what you pay for and what you ACTUALLY get.

Spread out your life on an excell form! It used to be that a home was our biggest investment and a car was our second... but NO MORE! The costs of Private school education and then private college, and compounding the lost interest yields an investment FAR greater than the individual's likely home.

My son's private school education since preschool has totaled over $200,000. Private college is another $200,000. But that is just PRINCIPAL. Had I invested that $400k in U.S. 10 year Treasuries by the time he graduated college he would have had well over $1 MILLION. Will the increased earnings of his undergrad degree EVER catch up to the continued power of compounding? NAFC.

Of course, there might have been some intangibles that could be factored in, but on a dollars and cents basis, the investment is indefensable.

Look, this idea has now gained traction all over the web. It ain't just me making the point anymore. People can count.

Its all about what you get for your money. If my son becomes a highly paid surgeon (besides the nachus I will have) it will have been worth it. If he becomes a social worker? A noble profession, but a very, very poor investment for the family.

Greg

From the Hinterlands

I received this email from a young man seeking my advice:

I read your energy blog regularly and am trying to chart a course in life amid the ongoing collapse. I'm writing to ask what, if any, thoughts you have about what I should do. I was thinking about law school, undergrad for econ, or grad school for stats, or education. But will there be time to use any of those? Guy McPherson (from the Nature Bats Last blog) advised me to forget school and move far from pop. centers.

Background: I have one useless degree (in religion/philosophy, but with great grades) and one seemingly more practical (mathematics) that may be useless due to mediocre grades. I was valedictorian in high school (with scholarship to a top college), but am now 31 and flat broke due to never having a real job. If the industrial economy weren't in its death throes, I'd still be young enough to start over, but with oil production soon to fall to 1980 levels, my margin for error is not large. I currently scrape by teaching test prep courses part-time for one of the major companies. My family moved from NJ to Montana 5 years ago when my dad retired as a carpenter. They would take me in a second, but there is no work there except Walmart.

I think the solution under "normal" circumstances would be a degree, but is the time right? Any thoughts, please send them along.

I replied:

Well, though I don't know you or your talents, I will speak in generalities…

Another degree is not the answer, unless you need it for a professional license. Education does not really require somebody else's approval. When I referred to myself as self-educated, my good friend, family clergy man, and adviser Rabbi Mo Silver sniffed and said: "As if there was any other kind." He has an uncanny ability to grasp the obvious and to remind me that it was so...

Start a business. Learn to make money, negotiate, sell, buy, trade, manage... the most important skill in business is the ability to "grind it out". It is true: “80% of life is just showing up”. Business is not as much fun as going to school (with all of it attendant social opportunities), but it can provide you with a living.

Don't know which business? Me neither. But I think something where YOU add value beyond just being a merchant... but if you can't add value, well... being a merchant ain't all that bad.

Northern Rockies? LOOOOOOONG Winters... if that is OK with you... but the middle of the country will likely empty out (with the exception of rain belt farm land), and that ain't good for a local economy... and in the end, that kind of isolation is not for many people.

The U.S. advanced education industry has ripped off millions, saddled them with debt, and held up their productive lives for years and years - and you might have been caught up in that fraud, though I can't be know for sure. 31 years old is a bit late to be going to work, unless you are a surgeon and spent 8 years in full time training...

I have a son, 16 years old. Every chance I get I tell him the faster he can get through college and get some real life experience in business, the more success he will likely see, and the more comfortable will the end of his life be.

I can only look at my own life for perspective, and compare that to others… which is rather imperfect. I went to work at 17 (14, if you count my weekend job I held till 17), worked through college with an athletic scholarship (I would have been better off working at McDonald's), skipped back packing around Europe (mistake, but I did travel extensively through South America’s third world – excellent eye opener) to go right after it in business (best thing I ever did, by the time my friends got their MBA's I was a millionaire) and I have been at it ever since with a couple of weeks off per year. That's life. The good news is that I have been blessed to be able to provide very well for my wife and children - and that really IS a reward. I worked hard, saved my money, and never bought a red sports car.

But there is something you should know... unless you are a freak of nature, there will be times when life beats you up. I have had business failures, lost every thing, came back, lost everything again in a market collapse that nearly broke me… went through a divorce… personal loss… came back... nothing is static, especially in business.

Still, through good times and bad I always had a glass of wine with dinner, never missed desert, and endeavored to make love every night. I played hard in general.

If I could give you any advice... start with the wine, desert, and love making... add some hard work in a business that pays (too many folks give you the circle jerk about doing what you love, doing what makes you happy... let me tell you something... while “money can't by happiness”, happiness can't buy money... whoever said the former had never been poor - I have. Poverty SUCKS. You will find whatever you do for a living infinitely more fun if it pays $2 million a year, or even $200k...

Go into business, and go to work. Besides, since you probably can’t get a job you really don’t have a choice.

Good luck!

I continue to be struck by the number of people just STARTING to go to work at 30 or 31 years old. If you need medical or law school to enter the profession, that's OK. That is simply the start up costs... but if you are getting Poly-Sci degrees and putting off work until you are 30 years old... well, I think you would have to have rocks in your head.

Greg