Haiti, Easter Island, and Denial...

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

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

What do you see?

Read the history available on the web on Easter Island.

What do you see?

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

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

And there is nothing we can do about it.

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

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

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

Take a good, hard look at Haiti...

What do you see?

Do Gooders and Terrorists

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

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

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

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

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

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

Meanwhile, just a few miles away, a couple of old men perished in their homes from hypothermia in MIAMI - not Fargo, N.D., MIAMI.

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

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

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

We have crossed some strange boundary here...

Rate of Change

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

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

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

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

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

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

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

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

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

Nobody Left to Fire

"Even the worst days on the farm are better than the best days in a factory." Gene Logsdon

The Financial Media is telling the markets it is time to celebrate - job losses have ended in the U.S.

There is nobody left to fire in Corporate America or Small Business. These sectors had cut into bone long ago. Now government, on the other hand...

I don't have to tell you that we need 100k per month job growth just to keep unemployment where it is because of population growth. Having nobody left to fire is not the same as hiring.

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The Financial Media is out there pitching the "The U.S. needs more refineries" story again. If that were true, why the hell do we need all of these ethanol plants? Why are we bothering with wind, solar, tidal, etc...? Who plants these stories, anyway?

Stories don't just magically appear in the media. There is a very good reason the U.S. has thousands of PR firms. You're an industry player and you want a story on widget production issues. Voila! PR to the rescue.

"Believe nothing that you hear, and only half of what you see."

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The worst Recession since the depression with double digit unemployment... and Oil is at $83 per barrel. Where would Oil be if unemployment was 5%? Or is unemployment at 10% because Oil supplies are off 10%?

The decade ahead will be a game changer. How old are you? Do you have any resources with which to do anything about it? I got an email from a young person with no money but real brains asking what I would do if I were him. I said "Move South, its going to be awfully cold up there" (he was from the Northeast). George Soros recently said that it is going to be very difficult to preserve wealth in the years ahead. Amen. Still, that depends on your definition of wealth... and how wealthy you are... as well as how old you are... and how flexible you are.

The U.S. is in the grips of a serious cold snap. Imagine life at these temperatures with no heat. (Please spare me the wood stove illusion... There would not be a tree, bush, or piece of furniture within DAYS if the 50 million people in the U.S. Northeast were forced to heat with wood.

No, not tomorrow, but as sure as the sun rises this outcome will arrive within the lifetimes of those reading this. You save for your kids (or grandkids) education... what are doing about this?

Some of the better minds on the planet have chimed in lately:

1. Faber: The 'American Empire' has peaked, is on a decline

Hong Kong economist Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."

2. Grantham: Learned nothing, doomed to repeat past, only bigger

Money manager Jeremy Grantham warns that our irrational nightmare will repeat. A year ago we came dangerously close to the "Great Depression 2." Unfortunately, we've "learned nothing ... condemning ourselves to another serious financial crisis in the not too-distant future."

We had our bear-market rally. Next, historical cycles plus our irrational behavior guarantees another, bigger global meltdown. We "learned nothing."

3. Stiglitz: Wall Street creating short respite before next crash

Nobel economist Joseph Stiglitz recently warned: Unless Wall Street's incentive system is drastically reformed, "the financial sector will only try to circumvent whatever new regulations we put in place. We will simply have a short respite before the next crisis." Warning, nothing's changed, it's worse: Lobbyists run Obama, Congress and the Fed.

4. Johnson: Running out of time before Great Depression 2

Yes, "we're running out of time ... to prevent a true depression," warns former IMF chief economist Simon Johnson. The "financial industry has effectively captured our government" and is "blocking essential reform," and unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.

5. Ferguson: Fed's easy money fuels new bubbles, meltdowns

In the 400-year history of the stock market "there has been a long succession of financial bubbles," says financial historian Niall Ferguson. Who's the culprit? The Fed: "Without easy credit creation a true bubble cannot occur. That is why so many bubbles have their origins in the sins of omission and commission of central banks."

Another bubble (and crash) is virtually certain, thanks to Washington's $23.7 trillion explosion in debt, the Fed's support for the $670 trillion shadow banking system and Wall Street lobbyists getting superrich thanks to Wall Street's insatiable greed.

6. Taleb: Fed haunted by ghost of Greenspan's failed Reaganomics

When Obama reappointed Bernanke, Nassim Taleb, risk-management professor and author of "The Black Swan," warned of a new disaster: "The world has never, never been as fragile," yet Obama reappoints an economist who "doesn't even know he doesn't understand how things work." New proof? At last week's American Economic Association, Bernanke was still shifting the blame: "The best response to the housing bubble would have been regulatory, not monetary."

Wrong: He conveniently forgets he was advising Bush earlier, did nothing. Now Obama's stuck with a Greenspan clone and an insane ideology focused solely on saving a failed banking system by flooding the world with inflated dollars guaranteed to trigger another meltdown

7. Soros: Dollar dead as a reserve currency, nest eggs dying

Billionaire investor George Soros' "New Paradigm:" America's 25-year "superboom ... led to massive deregulation ... blindly chasing free markets ... unleashed excessive greed ... created the dot-com and credit meltdowns" and a "shadow banking system" of derivatives.

"The system is broken. The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency," warns Soros. "We're now in a period of wealth destruction. It is going to be very hard to preserve your wealth in these circumstances."

8. Hedgers: make billions shorting stupid politicians, bankers

Soros isn't alone. Lots of hedge fund buddies made hundreds of millions and billions betting on the stupidity of Washington with the Fed's cheap-money policies. Alpha magazine reports that four hedgers made more than $1 billion each in 2008. The top-25 "managers made $464 million each on average last year ... a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth."

9. Shiller: Dot-com, subprime meltdowns, 'third episode' next

Economist Robert Shiller a "Dr. Doom?" Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."

10. Kaufman: Irrationality replaced reason, science, technology

Henry Kaufman was Salomon's chief economist and "Dr. Doom" for 24 years: "Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"

Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.

11. Biggs: Sell everything, buy guns, food, head for the hills

In his 2008 bestseller "Wealth, War and Wisdom" former Morgan Stanley research guru Barton Biggs warns us to prepare for a "breakdown of civilization ... Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc ... A few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage." Biggs sounds like an anarchist militiaman.

12. Diamond: Nations ignore obvious till it's too late, then collapse

The end will be swift. In our age of short-term consumerism and instant gratification, few hear the warnings of our favorite evolutionary biologist, Jared Diamond. Societies fail because they're unprepared, will be in denial till it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

The warnings were everywhere in 2008, but Greenspan, Bernanke and former Treasury Secretary Henry Paulson were in denial: It will happen again with Obama. Downstreaming problems will fail. Future bubbles get too big, crashes more deadly.

It ain't just me.

State Tax Revenues

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

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

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

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

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

And the hits keep coming...

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

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

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

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Sorry, back to the data...

Tax revenues don't lie.

Grass Fed Beef - Its what's for dinner

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

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

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

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

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

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

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

Libertariananimal (at) gmail (d0t) com

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

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

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

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

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

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

THIS IS IF WE STOPPED USING CORN FOR FOOD AND ONLY FOR FUEL.

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

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

More soon