Monday, September 17, 2007

Let's watch the next 90 days

There are longer term trends emerging in the biosphere and we'll just have to wait on mother nature to reveal those to us when she is ready. She's not going to be rushed or held back by us. But closer to home I am watching the frantic economic hokum try to play out. Of interest was last week's run on Northern Rock, one of Britain's largest banks. That run caused a 31% drop in value and today it dropped another 30% as Britons withdrew billions of pounds from the troubled financial institution. This comes on top of a run on Countrywide bank in the United States last month by Hollywood's own stars and moguls, some of whom withdrew millions. One starts to wonder if bank runs will begin to spread and what the official reaction will be if they do spread. Have YOU got enough cash on hand if there is a bank holiday declared? No? Well tough cookies if your bank closes due to a "bank holiday" and you cannot cash a check or even do check based or electronic transactions!

Meanwhile today the Federal Reserve has (so far) injected $16.75 billion into the markets. Not too long ago we used to see one or two Fed actions per week, totaling $2 to $5 billion for the week. Now we see actions like that every day with at least once per week going into double digits, and sometimes even more often. If you check the Temporary Open Market Actions record for the Fed, and view the historical data, you can see a steady increase in Fed intervention over the last 18 months to where we are today, with near daily injections of credit. You'll also note that the market tends to be soft all week until Thursday when, on most weeks, the Fed does a double digit injection. Since they just did a double digit injection today, will they do another Thursday? And has anyone accounted for all these digi-dollars and what they are going to do to inflation globally?

So all this comes down to watching the next 90 days with some interest, because, if humans are capable of anything, it is upstaging mother nature. And we may be about to enter a period where we try to do just that, at least for a little while. The Taiwan situation is heating up a little bit. George Bush began beating the drums of war against Iran right on predicted schedule after Labor Day. Even France is now warning of war with Iran while the Bush administration continues to leak larger and larger target lists inside Iran. The current count is up to 2000 targets, and remember that Bush wants to use B61 "bunker buster" nuclear warheads which have dialable yields from 0.5 KT to 170 KT of TNT equivalent explosives. For reference, the Hiroshima and Nagasaki weapons were in the 15-20KT range so these are "city destroyers" if dialed high enough.

NATO and Russia continue to not see eye-to-eye over deployment of nuclear weapons with Russia recently threatening to deploy nuclear weapons in a very dangerous location - Kalingrad. And, of course, the economic house of cards is trying to fall apart. And oh! Did you see Alan Greenspan taking Bush to task by publicly stating that Iraq was always mainly about oil?

Meanwhile, back in the real world, Rembrandt Koppelear's Monthly Oil Watch Report for September is out and documents the continuing decline of global oil production. That's right, people. Despite record high prices, oil production is continuing to decline. This is the exact opposite of what economic "theory" tells you should happen, unless the resource is, indeed, finite and constrained and past its peak of production. Daily production was 84.60 million b/d in August 2007 compared to 85.454 million b/d in August 2006. And worse, we are down 1.53 million b/d from the July 2006 all-liquids peak of 86.13 million b/d. Note also that plain old Crude and Condensate (which excludes natural gas liquids, biofuels, and other non-petroleum liquids), peaked in May 2005 and has been lower than that in every month since and showing a generally declining trend.

And oh yeah! The arctic ice sheet is still out there, isn't it? Well thank goodness that it appears to have stopped melting, right? I mean, after all, establishing a new record low of 2.92 million square kilometers of ice, more than 1 million square kilometers lower than the previous record, is just an anomaly, right? Nothing to worry your little head about here. Move along! Move along! But do you want to get really weird? See the September 12th comments at Cryosphere Today - ice mass in the Antarctic is setting record highs!

I think we are starting to see the beginnings of extremely harsh and violent climate shifts beginning, while at the same time the current mythology of homo sapiens (growth economics) is about to blow up in our collective faces, and further, we have a madman in the White House who is prepared to risk starting World War III.

"May you live in interesting times," goes the old Chinese curse. I think we're there, don't you? If we get through the next 90 days without some major problems, I will probably breathe a great big sigh of relief, at least for the short term. Oh... and let's hope we get lucky and have another warm winter in the US and Europe this year. Might as well hope for all the fairy tales to come true at once, right?

Wednesday, September 05, 2007

Random Thoughts

This is just a collection of random thoughts and observations.

Just the other day I was debating a retired professor of economics. Like so many others who believe in economics, he cannot even see that there is no real science there, just theology. We went roundabout on the topic of changes to statistical gathering methods made by the government since the 1970s intended to paint a better picture than actually exists but even after finally admitting that he could not compare 1970s data to 2007 data, he wanted me to bet him whether the 2007 data for the fourth quarter would be "positive" or not... using the government's own statistics to settle the bet, of course. The sheer hypocrisy and ignorance that he demonstrated throughout that discussion should give great pause to any of you who still think that homo sapiens is a "rational" animal and that this rationality is leading somewhere sensible.

I've also noticed that the arctic meltdown has entered the mainstream media, at least briefly. I don't expect it to displace Hollywood stars though. After all, this culture has to focus on what's really important, not piddling things like destroying the planet, right? Nonetheless, we are establishing new record lows for Arctic sea ice, more than a million square kilometers below the old record of just 2 years ago. Has this turned exponential? You can't say for sure based on one year's data but my gut feel is that it has.

And the naysayers are out in force now that it is September. They are picking on Matthew Simmons who said IF we have a bad combination of circumstances that global oil and especially gasoline tightness could result in much unpleasantness here at home. Well so far it happens that the US of A has managed to escape any unpleasantness this summer. Hurricanes have luckily steered south and there's been no huge need for a surge of gasoline in any one week. Lucky for us but there are the cornucopians claiming Simmons said something he did not say and then trying to crucify him for it.

Meanwhile, the credit crunch continues with some extraordinary borrowing in the last two weeks from the Fed to customers. Certain Fed customers are getting loans (via repos) at 0% to 1%!! Check out the temporary open market actions by the NY Federal Reserve, which is the branch of the Fed that does this if you want to see what I mean. Look at the late August period for examples. (You can always get that from the historical series even if it falls off the most recent 25 actions list.) So who is getting the sweet deals with very cheap money exactly when the Fed says money should not be getting cheaper? Methinks Bernanke speaks with a forked tongue.

Worse, on Thursday, September 6, the Fed injected a near record $31.25 billion dollars into the economy. (Look for the September 6, 2007 data in the above Temporary Open Market Actions link.) Unfortunately, it's not going anywhere from all accounts. The inner circle of "credit worthy" banks to whom the Fed has restricted its lending does not seem to be lending this money back out except at exorbitant rates so no one is borrowing. (You can see this rate discrepancy in the T-Bill/LIBOR difference.)

At the same time there is no letup in what is happening out in the real world. Mortgage foreclosures are at record highs and not turning downward it seems. Unemployment is far worse than the BLS is letting on as they revise prior months and try to put the best face on the current month. So far today (September 7th), the DOW is down over 200 points though it looks like the PPT is just trying to run a holding action and keep it from utterly crashing while the Fed figures out their next move since the inter-bank lending has apparently all but dried up.

Meanwhile oil is testing its old highs as demand remains stiff and OPEC refuses to budge. The prior drops in oil were directly attributed to market players trying to raise cash to protect other positions. Now that wave of selling has ended and oil has popped right back up near $80 per barrel. Then add in Israeli overflights of Syria to which Syria responded with anti-aircraft fire and we have the makings of a reintroduction of the $15 "fear premium".

And then there are the curious military activities over the next month, roughly. We have (a) an Air Force stand down action (which they did right before and during 9/11), (b) an Army exercise aimed at simulating the declaration of martial law throughout a large portion of the United States, and (c) a Homeland Security exercise aimed at simulating the detonation of "dirty" radioactive bombs in Guam, Phoenix, and Portland (recalling the locations from memory so don't quote me on those). We also just had the "accidental" overflight of a B-52 carrying nukes through the center of the United States, which is not supposed to happen. Except that it landed at Barksdale Air Force base and Barksdale is from where we ran the last set of Middle Eastern B-52 and B-2 attack flights at the start of the Iraq war. Curious, no?

Finally we have the massive anonymous short positions against the European and US stock markets that expire before the end of September, all betting that both markets will decline by 30% from their record highs.

This is all just so surreal that I can't believe I am seeing it happen. If we get a real event on US soil in the next two months and if it is radiological in nature, I will be firmly convinced that we will be witnessing a false flag operation by the Bush administration to further consolidate domestic power and to incite public reaction against Iran to allow for war.

But I am going to keep telling myself that this is all just coincidence - unless the radiological event really happens. Then look for the market crash and the US to hit Iran with a massive nuclear strike. And if that happens, all bets are off as to where we go then.