(This post has been subsequently amended since first posted)
Today's quote:
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt." - Cicero, 55 BC
I am feeling somewhat melancholy at what little I have accomplished of my motivations for writing this Blog. This Blog was never meant as a "public service message" as I do not believe that there are macro solutions to the issues facing the West, in particular, and the world in general. I originally wrote it for my partners, clients, family, friends and colleagues to be able to access my input when they wished, rather than me clogging up their email in-boxes (which I HATE myself so I did not want to do unto others...).
During my time here, I have had the pleasure of meeting (virtually) some rather intelligent and thoughtful people, and the displeasure of having to correspond with those that I simply refer to as FOS (i.e., pro-choice vegetarians, the quintessential example of FUBAR FOS... this is the intersection of the irresponsible meeting up with people so immature they have taken Disney films seriously and instilled human personalities into the rest of G-d's creatures). I look at Europe - Europe, which is about to come apart at the seams (and with its history of devolving into EXTREME warfare and violence) - and I remember all of the absolutely moronic commentary I have had to endure about how great their system is and all the U.S. has to do is become more like Europe's socialist a$$h*les and everything will be OK... and I am astounded at how far this has gone with so many smart people not getting it... and how few of the people that I know quite well, and that are reasonably well informed, have taken NO ACTION.
Let me give you an example: Under very few circumstances do I see the Western financial system surviving this decade in any manner in which any of us would recognize (and it might not take that long... that is just the outside of the timeline for me). NONE. ZIP. BUPKIS (I once called my good friend, attorney, and Rabbi and asked him what the yiddish word for BUPKIS was... only to find out BUPKIS is the yiddish word for BUPKIS). UGATZ. NADA... yet I see most of these well informed folks far more concerned about their 401k than their personal health and physical well being. Defies logic, but then again it kinda sorta doesn't. After all, food comes from the grocery store, and is traded for with MONEY. Same with water, shelter, clothing. And there you have it.
(There have been a couple of top-shelf posts coming out of the Archdruid report of late. I recommend the most recent posts very highly...kind of funny that a Republican, secular, libertarian, capitalist like myself finds himself, on a great many points, in agreement with a guy that describes himself as a "leader in the alternative spirituality movement"... which kinda/sorta leads me to believe we have a high probability of being correct if we view an outcome from very far away and different perspectives with a high degree of similarity.)
It is interesting that the Financial Markets seem not to care that the U.S. and European banking system is insolvent - and getting worse with each passing day. The U.S. has a fractional reserve banking system, and the system extends MOST (but not all) of its private credit against collateral - primarily REAL ESTATE. The banking system (shadow and proper) is carrying Trillions of assets on their books at face value - and that is such Bull Sh*t as it would be to deny gravity. Here is an example in real life:
I am renting a house in downtown Boca Raton where the mortgage on the property is $750,000 - yet the house would not sell for over $500,000. The owner loses money each and every month because the rent I pay does not cover the mortgage, taxes, and insurance. Recently, the roof went bad and we had a serious leak in our living room. Is it good business for the owner to spend $40,000 on a new roof when they are already upside down by $250,000 on the property and losing money by continuing to make the mortgage and collect rent? NAFC. I had to sue the owner in small claims court (I go to trial tuesday) to break my lease. So the bank is owed $750,000, the house MIGHT have been worth $500,000... but that was before $50,000 in water damage occurred due to deferring maintenance that is simply not economic. Did I mention the termite problem that has not been addressed? Or the mold from the leak? That's the problem with real estate... with a stock or a bond, if paid for it in full you can only lose 100% of your money, and in real estate you can lose much more than 100% (in theory). The bank could go after the owner, but the owner owns 12 other properties - and is upside on each and every one (remember, I am in Florida - ground zero for the real estate crash) of them... giving the owner a negative net worth of a cool couple million $$ - and counting.
This sort of thing is happening all over the country in residential property and is actually much worse in commercial property. There is no hope of rewinding the tape. Given this environment how in heaven's name does the banking system expand the money supply (remember, ours is a fractional reserve system)? Did I mention that consumer credit other than mortgages has contracted every month for the past 12 months?
It is also sort of interesting that Peak Oil came about right about the same time that Peak Credit came about. Many think that this was not a coincidence - and of course it WAS a coincidence. That one aggravated the other, or that the later has lessened the impact of the former just doesn't tie them together as being necessary to the other - but it really, really, really, doesn't help that they showed up together.
And its not just Oil... the world is running up into all sorts of resource limitations... and the next time some jag-off economist tries to tell you otherwise tell him to "go fish". Literally. The oceans have been fished out (I am a fanatic water man - spearfishing, diving, surfing, fishing... I moved to Florida to indulge my passion...what I see disturbs me to no end... but what the heck are you gonna do? People gotta eat.), mankind has killed nearly every food fish longer than a yard in length and now the vast oceans, covering 70% of the earth, cannot support mankind (if that is not a marker for the end of population expansion, I don't know what is). This is happening to farm land, copper extraction, Oil production, blah blah blah. But the "smartest" guys I know, self-made millionaires all, sweat the value of the old 401k, but do not have a contingency plan to feed their family if (when) this outcome comes to pass and gunks up the system.
The Peak Oil "Doomers" have been disappointed that the world did not come to an end as yet. They should have "faith", if you want to call it that. Those folks will probably get their wish, though not on the time line they envision, nor in the manner they had presumed (and many of them will have done nothing about it besides read "doomer porn"). When the financial system was unwinding 18 months ago, my partner the Mad Scientist and I were caught flat footed... we thought the US$ would sh*t-the-bed against commodities (inflation) when in fact the opposite was occurring. In our moment of panic as we reversed course and took some big hits, the Mad Scientist quietly said to me: "Well, we thought the world would end by Fire... and it turns out to be Ice". It was a transcending moment, to say the least. I tucked my tail between my legs and joined the deflationist camp (as I always say, "when I am wrong, I am gone"). Not that I will remain in this camp forever... but here I sit at the moment, and probably for a while longer - but as I said... not forever. One day (soon), the Debt-Time-Bomb will GO KA-BOOM!! And what that means for a society that believes its food comes from the grocery store and is traded for with paper MONEY... cannot be expressed in words. For a society where more than half of the Nitrogen atoms in the our bodies comes from the Haber-Bosch method of crop fertilization... Cannot be expressed using a Haiti documentary... For a society that thinks HEAT comes from the thermostat on the wall...
You see, we have this Baby Boomer Tidal Wave that is about to come ashore, at just the moment that all of the Oil will CEASE coming ashore and the banks have ceased to lend and the money supply shrivels like Michael Jackson's nose. Who is going to buy the stocks, bonds, and McMansions that all of the baby boomers will want to sell to fund their retirement? And just who is going to be working and paying into the Social Security and Medicare Trust Funds (ROFL!!!) to fund those insolvent programs? How is the U.S. going to feed, house, fund, and medic the 60 million or so retired and aging boomers that are likely to be alive and drawing (out of 79 million born) in less than 10 years (not to mention 50 million food stamp recipients, 10 million disability goldbricks, etc...? It ain't gonna happen. So what becomes of these people? You know what's going to happen. I know what's going to happen. The president knows what is going to happen. The Chinese knows what is going to happen. The Blogsphere knows what is going to happen...
Nature is going to happen. And not just to the Old Folks. Nature happens to all of us.
As John Michael Greer mentions ever so succinctly in his "Archdruid Report":
Exactly how things will play out in the months and years to come is anybody’s guess. One of the consequences of America’s descent into Third World status, though, is that a great many of us may have scant leisure to contemplate global and national issues amid the struggle to keep food on the table and a roof over our heads.
While you have the luxury of time and resources, this would be a good time to put that to use.
Inflation vs deflation
ALL CURRENCIES ARE GOING TO ZERO!! ZERO!! This is going to happen, and there is no power on earth that can stop it. From here on in, its all about TRADING. Buy and hold of currency (savers) will absolutely bring you to ruin. RUIN. The multi-millionaire living and working in New York City working in the banking industry is going to be poverty stricken at some point in the not too distant future. The multi-millionaire cattleman farmer in Missouri with 1,000 acres of un-mortgaged pasture land with 400 cow/calf pairs has a good shot to be KING. Precious metals can get cheaper from here. IF, and its a big IF, I am going to add significantly to my holdings. I am going to purchase farm land within close proximity of small eastern cities where it rains. I am going to liquidate my Treasuries over the next year and reallocate to hard assets. Deflation NEEDS to run its course, and it could take a year or 2. Somewhere in there one needs to make a stand.
My sense is that the Western world will NOT end by "Fire"... it is going to slowly freeze by "Ice". Notice I say "West"? Tribes in Papua New Guinea won't notice a thing... but the average citizen living in the West? Oh, boy... There is no difference between Greece and the U.S. The Keynesian Morons on the Left have convinced everybody that their constituents can have the FREE LUNCH you've heard tell about. Now, the rubber is about to meet the road, and the Socialist West's silly programs, including the U.S., are about to go Chernobyl. In my life I have paid a FORTUNE into the SS and Medicare system, and I will receive back .1 X said FORTUNE in real value... multiply this by the millions that have been ripped off in this Leftist Ponzi scheme... that's a lot if unhappy people... who knows what the consequences of that are?
When deflation runs its coarse and the US$ goes off to that big Mushroom Cloud in the sky... what will the price Oil, food, et al be in real terms? Ouch... but BIG opportunities here.
Finally, through my last 814 posts I have tried to quantify the "rate of change", because I believed that to be the most important dynamic in this 4 dimensional equation. I have gone back and forth over that to the point where I have decided that I simply cannot add value in analyzing that issue any longer. I no longer think the "rate of change" matters much. We are going to wind up in the same spot irrespective of the ROC, IMHO, and it will be soon enough that it really won't matter. The very few that through luck or skill are able to pinpoint inflection points AND act on them will likely be the first masters of the new era. Of course, being the capitalist pig that I am, I am going to give it a go... but I am not going to rely on that. This is no time to be "working without a net".
libertariananimal (at) gmail
25 comments:
Re: Boomers
The boomers(I am one)will end up like the old Asian immigrants or college students. They will live in drafty, freezing old houses and rent single rooms to each other. Clothes will be from flea markets and thrift shops. Meals will be simple- like rice and beans for the group- backyard gardens will abound. Transportation may be one old wheezing, smoking van for the whole group with a weekly trip to the market. Medical problems will be managed as best they can with everybody helping each other out as best they can.
The likely next big downturn in the financial crisis will really blow apart any sense of normality for the middle class- and especially rock the confidence of holders of financial assets and residential RE. Dmitry Orlov has described the departure of any sense of normality within the society as collapse advances.
Thanks!
peace
You are the second or third blog of various "doom blogs I read who has said the time element is so close it's not relevant. Or, they've, said that they can't tell when it could happen, tomorrow for breakfast or in 10 years!
Must mean it's too close to even see it.... :(
peace to all,
Many years ago I had a young family, and I was sure the world was going to blow up when Russia went into Afganistan, so I bought a 65' ketch and kitted it out for a family to live on board for a long time. I sold my business to pay for it all, and didn't work for 2 years - great fun, but didn't do much for my career path!
Needless to say, the world kept turning without my efforts, and all the things I thought would happen mostly didn't.
We all see the shit hitting the fan, and no doubt we've lived through the richest period of human history, thanks to all that fossil fuel we've burned up. I for one am grateful for the ride, even as I feel sorry for my 3 daughters and 3 grandchildren whose life will be a stream of unfulfilled expectations at least, and war and chaos at worst. But whatever we imagine will happen probably won't; its other things that will.
I've been through a few years of life looking over my shoulder for the four horsemen to appear, but now I am more constructive. You do what all parents do; try to help your own family be in the right place, physically and mentally.
Most people will survive, even poor people can still be happy and healthy. Its wanting something to be different that makes you unhappy.
The U.S. has been running a Federal deficit for every year but one of its existence. Something should have happened in those 234 years to stop the whole "American" experiment, but nothing did. The last 60 years were "fat living," consuming WAY more than we needed to, in oil, gas, food, land, credit, etc. I doubt anyone would say that we couldn't regress a lot if we had to .. horses and buggies? Grow your own food? Why not? What's the damn rush? Life continued just fine without jet skis, Blackberries and Ipods. There is so much waste and over-indulgence in this world economy that cutting our usage of everything by at least 50% is not only possible but doable. Prices will have to rise, conflicts will have to be settled, and I for one cannot WAIT for the whole airline industry to go pancaking into the Atlantic Ocean (I hate flying with a passion). I don't need strawberries from Chile that bad. Nobody wants the world political economy to end. And with a few exceptions (shorting Treasures and buying metals), I'm betting that it won't.
Oh by the way, I'm trying to get some of the first Chevy Volts placed in the Great Lakes area with our agency. Now where's that conduit? ... :)
P.S. for those of you that have jumped on the deflation bandwagon, as first pushed by blogger Michael (Mish) Shedlock (perhaps he had a role in swinging Jeffers into the deflation camp?), there is another guy Mish found who is a UK hedge fund manager making some real money betting on deflation. His name is Hugh Hendry. He has some interviews on YouTube you might want to check out. If there is already a Mad Scientist, Hendry would be Mad Scientist #2. :) Nutty-like-a-fox Scotsman.
I still fear it will be a lot uglier than eating rice and beans and growing a garden. There are so many of us and too many who are like spoied little children, ready to throw a tantrum when things don't go their way. I plan to stay far away from large cities when I see the tantrum beginning.
Donal:
I think that you are essentially correct.
It is all about expectations. I think economic and business conditions are going to be just plain awful.
1 Billion in India are fed on half the land and 1/10th the Oil... but Americans would war over that kind of lifestyle.
The issue is the silly promises that won't be kept - and the people that still expect them to be.
Stick around. My bet this gets a great deal more interesting than Russia meets Afghanistan.
I'd add another comment to a detail in your blog Greg. Don't think of 'Europe' as one place - its not. The Euro is an experiment of one currency over 20-odd countries with no common economy or policy. Its grip has proved deadly for Greece and will probably do for Spain and Portugal too. But France is doing OK and doesn't seem too vulnerable at the moment; they grow most of their own food and produce 80% of their electric from nuclear. They have a fast train network and every delivery in Europe goes through their territory. Yes, they have high expenditure and high public expectations but, if Portugal, Spain and Greece fail and the Euro collapses, France will still be fundamentally sound.
The UK £ has effectively devalued 30% against the Euro and is still in deep shit. The next election is in a month or two and looks like being close enough for a hung Parliament, meaning policy freeze. I don't see any way out for the UK economy - London is now known here as Reykjavik-on-Thames!
Yes, ringside seat and I'm watching with interest!
Well, you have me paying attention, for what it's worth. I'm a bureaucrat slurping at the state trough (albeit in a capacity that even most libertarians agree is a state function) and living in suburbia. I now have a decent stash of food and such, and will be moving within the year to the family machine shop/farm. I'll leave behind most of that stash and my (no mortgage) house to my grown children. The extended family knows where to go when times get really tough. It's not perfect, just the best I can do to minimize downside for the future. Thank goodness great-grandpappy planned long-term!
Bur:
The MS and I made small fortune in Oil, gave back some on the wrong bet (inflation). That's life. Everybody in my business is wrong - and often. And RIght - and often. Best not to think your next trade is a sure thing because your last trade worked out so well.
"Even a broken clock is right twice a day" and "even a blind squirrel finds a nit every once in a while" seem to come up in conversation a great deal in my biz...
I have read Mish for years... if I listened to him on Oil I would not have scored... I think he is a smart guy that can do some original thinking - my highest compliment as there aint much of that on Wall Street.
Deflation will not last forever, but it has to run its course first.
Thanks for the post, as much as I agree with everything you wrote, it is still hard to know how to play it, it seems.
There will be a new edition to my family soon, and on thinking what i could do for him and my family now, perhaps the clearest thing is that rather than put some cash into an account for him, if I buy him some gold bars or Kruegerrands, those gold bars are likely to be worth far more than their equivalent in paper or digital money by the time he turns 21.
I don't remember you mentioning it here before, but how do you rate GLD compared to physical gold? How about over a 21 year time span?
Mish hates government employees (like me) and especially unions. He's only unique in that his choice to follow Austrian economics and "historical trends" was the right formula to predict the (economic) future. We've had credit crises/deflations/asset bubbles for centuries. The sad thing this time around was that the media has become so gutted and irrelevant that nobody thought to warn us of the impeding asset bubble, and what always happens when it blows up. I grew up in the 1970s. I watched my Reggie candy bar go from 25 cents to 40 in 2-3 years. All I know is inflation. Sometimes the 1% of the people (like Mish and Hendry) end up being right, with their "can never happen" predictions.
(I made about $30K in my oil investments in 2007-8 too :))
What hard assets are good choices for investing in?
Hard Assets will be the subject of my next post...
What are you advising about 401Ks? My reading of what you are implying is that people should immediately cash them out (no matter what the withdrawal penalties and extra tax payments because of higher brackets) and put them into hard assets. That there is a question of timing; that because of deflation one might be able to get them more cheaply a short time in the future.
You certainly are a religious piece of work, as they say.
I have been a vegetarian since 1972 and reading F. M. Lappe's book, Diet for a Small Planet and being appalled at the 40 to 1 waste ratio of converting vegetable protein into animal protein. I am extremely healthy and most people are quite shocked when they find out how old I am.
And I also am libertarian enough to consider the orifices of the human body as completely private. You get to do with them as you wish...and that include a woman requesting a doctor insert a suction device into her vagina if she wishes. Nobody's business but hers. And I think abortion is an unfortunate consequence of ignorance and those who support and encourage ignorance. Sex with birth control ain't rocket science.
However, if you are an insecure, wounded male and into hard core pussy control...that is another story.
There is enough to go around for the 6.5 billion souls on this planet, but some of the hog people have to pull back from the table a bit. Mr. Market don't know how to do that.
Cheers, Pro-choice Vegetarian
No, I would not cash out your 401k... America will still use the "Federal Reserve Note"... Read my next post.
Remember that I do not give specific advice in this forum... but I will try to address things as best I can. So much depends on your age and personal circumstances...
Dear Pro Choice Vegetarian:
One does not need a religious belief system to know that murdering innocent babies is wrong.
Lay off the Disney movies.
Another Good post Greg.
I came to the same conclusion as you a while back but I only own a few hundred acres in Missouri and thats counting about 150 that is still family owned that borders my acreage.
I should be branching out into small sized cattle this Summer as well.
My opinion is that small scale farmers close to larger urban areas is the only real hope America has for the future.
Which you seem to agree with.
Always a pleasure to read your blog.
P.P.
I very much like the opportunities presenting themselves in the Ag market, while I detest the vulnerable place the USDA has allowed us to get into. Over the next 20 years, this is going to be the space to be in... one way or another, folks are really going to be paying attention to Ag...
BTW, I was THRILLED to hear that NAIS went down in flames!
MO? Great cattle state. I am even more excited about pasture lands along the eastern seaboard in the Old South.
Greg; i'm in two minds about the abortion argument, but its hard to stand on the sidelines when you lay into Vegetarian. I may not agree with him, and its your blog so you can say what you want, but you're being unecessarily offensive IMO.
If you want a logical argument, then Americans using 50 times the average earth resources whilst children in developing countries starve for lack of clean water would count as murder just as much as abortion.
Confederate money appreciates. Maybe a sign of things to come.
Donal:
Of course you are correct on both accounts.
In fact, I was being an unconscionable prick...
And, yes, American consumption definitely effects other peoples well being to the point that it is murderous and despicable. Just because I am an American does NOT mean that I support the death penalty, immoral wars, outrageous resource consumption, Bombings, torture, outrageous prison populations... I absolutely and unquivecably do not. The sanctity of life is NOT reserved ONLY for the unborn - but it IS, in fact, reserved for them.
I simply can't think of ANY group more FOS than these folks, although it seems you can.
Still I stand corrected.
My apologies!
Donal,
After further reflection and a good night's sleep, I have decided to delete my offending commentary (while NOT deleting the comment that ignited my ire).
Nothing worse than hypocrisy... and while I complain about the lack of civility in political discourse nearly every post, you rightly pointed out my own lack of civility.
You point out that I am out of bounds in finding fault with this vegan for, well, being vegan... Not the case at all. Vegans that extend the view of the sanctity of life to animals in addition to mankind deserve our respect. Somehow, and I want to say this kindly and with great civility, I do not feel that way about vegans that wish to extend that view to animals but not to unborn children.
Of course, that does not mean I get a pass on the hypocrisy thing... and I hope I have done a better job in keeping with my own principals.
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