Thursday, November 06, 2008

So we voted for "change" and elected "hope"?

I don't think so.

Within 24 hours of being named president-elect we have Obama... simply continuing Bush policies. He says he's going to continue the Iraq policies largely unchanged. He's prepping to nominate an "experienced money man" as Secretary of the Treasury. He's already asked the 13 former Goldman directors to stay on at Treasury. He's apparently considering keeping Gates as Secretary of Defense. He plans more banker bailouts and letting even more "experienced money men" lead the way. Hey Barrack, are these the same money men who gave you $500 million dollars that you swore you'd never take in the first place, just to get elected?

Hope? Change? What change? What hope?

And... the news stays exactly the same as it was before:

Jobless claims higher than expected
Wal-Mart's October Sales Rise as Consumers Cut Back (Update1)
Macy's, Target Monthly Sales Fall
Stocks head for lower open as economic woes mount
IMF now sees global recession in 2009
US Productivity Growth Slowed in Third Quarter (Update2)
Workers' hours slashed to keep productivity rising
Obama's top economic contenders
Rate Cut Fails to Lift Futures Higher
Stocks slide on recession fears

The market is now down 700 points since Obama was elected. It's not that this is his fault but rather that he cannot and will not do anything to rock the economic boat. Read who Obama's top economic contenders are - the very people who helped create this mess and who already got Bush to give away over a trillion dollars of your money. Change? What change? This is why I don't expect anything different regardless of all the campaign rhetoric. Obama has a $500 million dollar collar around his neck. He let the bankers put it there when he went back on his own word not to accept those kinds of campaign donations. Now they own him, just like they owned GW Bush. There's no difference here.

Ralph Nader said something very telling recently, asking publicly whether Obama was going to be Uncle Sam for the rest of us or Uncle Tom for the big corporations. I'll bet money it's Uncle Tom for the big corporations. In fact, if I had that money, I'd bet $499 million dollars on it.

Hope? Change? How about all the lies all the time. Those of you who expect miracles from Obama are about to be sorely disappointed. I strongly suggest you continue to prepare just as though Bush was still in office, because, trust me, for all practical purposes the people who pulled Bush's strings will continue to pull Obama's strings.

P.S. Let's see what happens over the weekend of November 15th and going into the second half of this month. I am expecting a "surprise" for the US of A.

Friday, October 24, 2008

Staring at the Abyss

Russia has suspended trading until next Tuesday after seeing another 10% loss in value. Russian default risk tops Iceland as crisis deepens. Hungary, Ukraine and Belarus have sought emergency loans from the IMF. Chrysler is laying off 25% of its salaried workforce and a day earlier, Chrysler announced 825 job cuts at its Toledo plant and another 1,000 relating to the closure of the Newark plant. GM Suspends Matching Contributions to 401(k) Plans. AIG taps $90 billion government credit line, after having exhausted nearly $120 billion in bailout money in under one month! Japan Stocks Drop to Brink of 26-Year Low while a recession panic hits the Nikkei.Meanwhile the Hang Seng (Chinese stock market) crashes 8.3 percent to a four year low. Mike Shedlock notes that Job Losses Mount as Recession Deepens. There aren't any remaining consumers out there who can take on more debt or purchase more junk. As Mish also is fond of saying, the Shopping Center Economic Model Is History.

Is the picture above getting clear enough for you yet? For the last few weeks, after the last big decline, we've been in another trading range from about 8300 to 9500. We're still in that range although near the bottom. And the global financial problems may cause the market to panic out of that range towards a new low. That new low, for the next round, will likely be around 7000 but that's not the bottom yet either. The bottom is yet to come and will be somewhere south of 5000, with a reasonable chance of being south of 4000. The next downleg on the S&P will be in the 650 range, when it finally comes. There's no sunshine in this market yet. None at all.

This weekend my adult children will be meeting with myself and my wife to discuss what the possible scenarios are and how we can all prepare for those scenarios. I've been busy the last few years learning to garden, compost, learning a bit about vermiculture and building rich soils. We've set aside food and other consumables to see us through an extended emergency and now we're going to try to ensure that our children and grandchildren are cared for as well. We may or may not succeed but we don't have lots of time to spend worrying about strangers who have not prepared at all.

MSNBC recently ran Hard times have some flirting with survivalism--Economic angst has Americans stockpiling 'beans, bullets and Band-Aids’., run by James Rawles, is a treasure trove of practical information about surviving catastrophes, ranging from Cat-5 hurricanes to Cat-5 financial storms. I advise bookmarking it and reading it regularly.

Most readers of this blog (the few that bother to read it) won't have the resources to really prepare. For people in that category, I suggest that you learn to pray. You're going to need it. Some small number though still have a chance to purchase rural land, even land without a house on it is better than no land at all. And I mean purchase it, not via a mortgage. Take that cash and get your hands on some productive land. In a pinch you can build a cabin, or even get fancy and go underground, as outlined in The $50 and Up Underground House Book. If things get as bad as I fear, we're all going to have plenty of time to work on things at home, so it's best to really own a home for that purpose. Additionally, being rural will get you out of the most immediately dangerous problem if society does go pear shaped - civil unrest, aka rioting and looting. Most won't be able to do this but if you can, your chances to actually take this step are drawing to a close.

The chickens are coming home to roost on decades of fiscal irresponsibility and we're all going to pay. The only question is how much?

Sunday, October 12, 2008

That Flushing Sound is the Global Economy

The press is reporting that the Royal Bank of Scotland and the Holding Bank of Scotland PLC (HBOS PLC) are both being seized and nationalized by the British government tonight. As Mish notes in his Royal Bank of Scotland, HBOS Nationalized, these actions do nothing to correct the underlying problems - insolvent financial institutions. As I write this, Asian markets for Monday October 14th, are showing some gains. But US institutions are closed tomorrow and Europe may involuntarily close their markets in an effort to calm the situation. I'm not sure what they expect that to do because that also doesn't address the underlying problem. However, reviewing the October 1929 crash, there was a multi-phase collapse. The biggest part occurred on October 29, 1929 but there were serious precursor drops and rallies along the way as well.

Because of this and because of various other observations, many people are expecting a short term rally in the market at this point. People really do want to believe that governments globally can solve this, whether they really can solve it or not. That belief will help fuel some form of rally, perhaps into the 10,000 range. Trying to outguess the crowds when we don't have any sort of reasonably accurate model is a difficult thing to do but my best guess is that this rally will last somewhere between a few days to a few months, ending not later than sometime in January of 2009.

A key point to take home from all these "rescue" attempts is to ask whether the action in question actually helps resolve the underlying problem of insolvency for a particular financial institution. If the answer is no, then it cannot succeed longer term. Given that zero actions thus far have addressed underlying insolvency issues, that means that somewhere ahead of us is a further fall downwards, perhaps below 5000 and perhaps even much lower. If we get very far below 5000 though, I fully expect the wheels to come off industrial society in Europe and the United States. Whether you do anything about preparing for that eventuality is your choice. But if you choose to not prepare, please don't knock on my door because I did choose to prepare.

Thursday, October 02, 2008

It just keeps getting worse, doesn't it?

It's hard to believe that our government could have done as many boneheaded things as it has done since I wrote my last entry. Yet the infamy of September 7, 2008 may now be lost amid the early days of what could become the Greater Depression.

Yes, you read that right. I want anyone reading this to realize that right now credit lines are being closed for major corporations. Given that most major corporations and most small ones operate from their credit, the closure of credit lines is starting to suffocate the economy. GMAC shut down the credit line of Bill Heard Chevrolet dealerships, the largest Chevrolet dealer in the United States with annual sales over $2 billion and dealership locations across the US south. This credit line was shut down in August. In September, the Heard family shut their doors on every dealership they have. That's about 3000 people out of work right there. That's $2 billion in annual sales lost to GM via one of their oldest dealers. Bill Heard was founded in 1919, lasted through the Great Depression but was done in by this oncoming Greater Depression.

Other corporations either have been confirmed to have lost their credit lines, such as McDonald's, or rumored to have lost their credit lines, such as HEB grocers.

Those of you who think that the 451 page boondoggle that the Senate passed last night will change anything significant are believing in unicorns. I won't argue with someone who is that economically illiterate but the Senate bill does nothing other than allow Paulson to make his friends whole again at US taxpayer expense, right before the entire global economy goes to hell.

There are lots of issues at stake here and other people, ranging from Mike Shedlock's Global Economic Analysis blog to The Automatic Earth cover these issues better than I do. But I want to ask you something very direct, personal, and not abstract at all. What are you going to do if HEB, Kroger, and other major grocery chains shut down due to lack of credit? Oh yeah, the government will send in the National Guard and distribute emergency foods. Do you like that stuff that FEMA hands out? Have you ever tried most of it? It's... not that good and I am being generous here.

If you do not have at least 60-90 days of canned and dried goods on hand, then you are probably in trouble. And all that 60-90 days will get you is through the initial turmoil to where you become a ward of the government, possibly for years to come. But hey, that's the choice that you made. Of course not having 60-90 days of food supplies may mean you lose some pounds in the 1-4 weeks before government relief shows up in your area. Maybe you lose lots of pounds. Maybe you starve?

Likewise, are you going to have a job if credit shuts down? Will you even get paid? Will your bank allow you access to your funds or not? You are still going to owe money to people and have bills to pay. Wouldn't it suck to have money in the bank that you cannot reach while you are foreclosed and thrown out of your home? Think it can't happen? It already did in the 1980s in Texas and the US south during the S&L crisis and this is thousands of times bigger than the S&L crisis.

In short, your preparation options right now, today, are very narrow but you still do have the choice of doing something as opposed to nothing. So, are you going to do something or are you going to see how long you can fast? Better make your mind up soon. Credit lines continue to lockup worse and worse for the fourth straight day. At this rate, in another week it will be shut down altogether.

Tuesday, September 09, 2008

Another Day of Infamy

December 7, 1941 has gone down in history as a "day of infamy" due to the attack on Pearl Harbor by Japan. I believe that September 7,2008 will go down in history as another "day of infamy", due to the clear abandonment of any pretense of free markets in the United States.

Anyone who still thought there was anything approaching a true "free market" in the United States certainly ought to be re-evaluating that position in light of the latest government bailout of certain corporate sweethearts (in this case Fannie Mae and Freddie Mac). While this may surprise some folks, this is about what you would expect in a truly totalitarian globe-spanning empire and now you've got it. All pretenses are off - the US government is trying to convince the world that it and it alone is capable of saving the entire global financial system.

September 7 will be the day that marks the beginning of that process. This last week has seen the process accelerate drastically. Remember those alerts from this summer about a possible stock market crash for this autumn?

RBS Offers global stock and credit crash alert.

Morgan Stanley warns of a 'catastrophic event'.

In a recent quarterly report, the Bank for International Settlements (BIS) warns that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

Paulson & Co. Says Writedowns May Reach $1.3 Trillion

All of the above articles were prominently displayed by sources like Bloomberg, Yahoo, etc., earlier this summer. These warnings were issued by major players, not by me.

Look at what has happened this week:

  1. Russian Markets Halted as Emergency Funding Fails to Halt Rout
  2. The US market is down almost 800 points in 3 days.
  3. Lehman declares bankruptcy.
  4. The US government steps in and nationalizes AIG to the tune of $85 BILLION dollars.
There is panic in the streets (Wall Street). So far we are down nearly 1000 points from recent highs and almost 4000 points from 10 months ago. Think about that.

"Lehman Brothers Holdings has gone bankrupt. Here is a firm that was founded in 1850. It survived the Civil War and the Great Depression. It did not survive the current breakdown. Anyone who thinks this crisis is some minor affair is not paying attention." - Dr. Gary North
Now please attend to me what is happening.

1. Lehman has declared bankruptcy. Lehman therefore must be liquidated by the courts. Lehman's "assets" (CDOs, derivatives, etc.) have a nominal value of about $640 BILLION dollars. To be liquidated, these assets MUST BE SOLD. But who is going to pay full price for these $640 billion worth of fake assets? Nobody! Ergo, the assets will be sold at firesale prices. Expectations are that the court will get 5-40 cents on each dollar. In other words the court will find that the assets have lost between 60-95% of their claimed value!

2. Because of #1, the assets of every other financial institution will finally have to be marked to market. When this happens, every other financial institution will find itself officially under-capitalized and selling more assets to get capital.

3. But no one is buying! No one is buying these assets! Ergo the price will fall even further.

No human being can say with complete assurance that this is the end of the line but right now, today, global civilization stands at the precipice looking down towards its own death.

Now why does this matter to you? Because your job is with a business that has a 99+% certainty of being with a company that operates on debt alone. Imagine this scenario - banks cannot lend so they don't lend money to the oil companies who then cannot refine petroleum which results in total loss of fuel from the marketplace keeping all workers home from their jobs. There are dozens of other scenarios in which loss of credit destroys companies that are fundamental to the existing economy. What happens if the grocery chains cannot get credit to buy food to stock their shelves? There are dozens of other ways in which the collapse of credit can mean the end of many if not nearly all jobs in the global economy. What then? Do you think that Uncle Sam will come cuddle you? If you do, you deserve whatever happens to you.

Sunday, August 03, 2008

Riding the Roller Coaster

We've been falling in stages since last November. Chart it and look at it. We take a fall, then regain half to two thirds of the fall. This establishes a new trading range where things sit for some period of time ranging from days to a few months. The trading range is the new recovered high down to the low in the current fall.

Then we take another fall, regain half to two thirds of that and establish another trading range. This has happened about 5 times from what I can see. The current trading range appears to be about 10,900 to 11,800 or maybe as high as 12,000 since we've not really tested it yet.

My advice to people is to ignore the trading range. Every rally inside that range is just "noise" and every fall inside that range is more "noise". What would mark a significant departure? Either 5 straight days above the cap of the trading range that also involves increasing values each day (almost impossible at this point) or 2 straight days of falling values below the current floor.

The falls are the most likely things, nearly 100% certain at this point. The problem is trying to guess the timing of them.

Over at TAE, poster "Snuffy" asked, "How do the rest of you see the next few months...say till Christmas will play out? Will some event shake the public to full awareness of our true state? Or will we stumble along,sleepwalking into chaos?"

My reply to Snuffy is that you are asking a very hard question. So far as is publicly known, there is nothing like the fictional Hari Seldon's "psychohistory" science that could predict mass reactions to events so we're just left to guessing.

At some point we're going to be left with the awareness that it's over and there's no going back but countering that is natural human optimism. We are, by evolution, largely selected to be optimistic about the short term (probably because we could not function well if we were too pessimistic). Even doomers tend to be optimists, at least about their own short term future even if they think most of everyone else is screwed.

So given that desire to hope for a better tomorrow, we cling to illusions like fractional reserve lending and "off book" accounting because we really really really want to believe in get rich quick schemes, unicorns, and fairies. So when will the moment of mass awareness arrive? Who knows? But when it does, you are likely to see a stampede for the exits.

The bulk of the modern populace is so poorly educated about modern finance that they will be willing to believe fairy tales from Uncle Sam rather than face reality, if believing in such fairy tales allows them to go on for even one more day without facing the awfulness of reality. Thus I fear that there are a few more steps on this ladder going down before reality sets in. Uncle Sam knows this too, and will try every trick in his book to get the majority of us to keep on believing. At some point this will all fail but trying to predict it is a fool's game, because our species is a fool's species.

Thursday, July 17, 2008

Mid-Summer Odds and Ends

I've been doing some reading and I don't think that I'm going to lick the corn dwarfism problem that I am seeing in my garden. It appears that the culprit is a virus that also lives in Johnsongrass, an invasive species from Europe that has spread world-wide now. Given that there is lots of Johnsongrass near where I live and that I cannot possibly eradicate it alone, I'm going to investigate other grains next year.

Given that this is the southern US, I am preparing a second planting of many things. The cucumbers did ok this year but have largely died off early. I am not sure if it was the heat or soil issues yet. The squash did its usual thing - bloom hard and hardy for several weeks then die off regardless of what I did. I may try to plant a second squash crop too. The strawberries are doing well enough, with the exception that my family hasn't seen any. The birds and squirrels keep snapping them up before they are really ripe enough. Of course if the squirrels keep that up, they may be what's for dinner instead.

I notice that the financial wizards continue to rig the markets ever more blantantly in favor of their own core group. The latest round of protections for Fannie Mae and Freddie Mac includes select financial institutions. You can consider that these are the "bad guys" of the world scene since they made billions shorting other companies but now have begged the SEC to place them beyond such responses. That list includes:

  1. BNP Paribas Securities Corp
  2. Bank of America Corp
  3. Barclays PLC
  4. Citigroup Inc
  5. Credit Suisse Group
  6. Daiwa Securities Group Inc
  7. Deutsche Bank Group AG
  8. Allianz SE
  9. Goldman Sachs Group Inc
  10. Royal Bank ADS
  11. HSBC Holdings Plc ADS
  12. JPMorgan Chase & Co
  13. Lehman Brothers Holdings Inc
  14. Merrill Lynch & Co Inc
  15. Mizuho Financial Group Inc
  16. Morgan Stanley
  17. UBS AG
  18. Freddie Mac
  19. Fannie Mae
As Mike Shedlock notes, it's also interesting who is not on this list. Since this list was supposed to protect financial companies from shorts, why not protect those financial companies getting shorted the hardest, like this list:

  1. Washington Mutual
  2. Wachovia
  3. Corus Bank
  4. Bank United
  5. National City Corporation
Those guys are getting clobbered by shorts but they are not protected! Wonder why? Because they are not part of the global elite. These companies are being sacrificed while the elite get to keep their ill-gotten gains and continue raping the planet for more ill-gotten gains, all at the expense of the rest of us. Lovely game, isn't it? The only winning move for you is not to play, to paraphrase WOPPER, the War Games computer.

I also note that, despite constant claims of imminent collapse, that the global economy is still hanging on. Now, I will be the first to say that given the numbers I have seen that fast economic collapse actually makes the most sense to me. But it's not occurring despite what I and many others think. I saw this before, in the 1979-1982 recession. People kept expecting financial armageddon and it never really arrived, at least in the form of a singular event. I also suspect that many of us equate 1929 with the Great Depression but the Depression actually took several years to get into full swing (just like this one appears to be trying to do). So one thing I would warn of is to be prepared for a longer, more extended fall than you might have expected. And it's probably going to be slower too.

Now having said that, I think the markets have settled into another trading range. This range looks to be approximately 10,800 to 12,000 on the DOW. It may last from several days to several months. The last trading range lasted from March until very recently. Some of the earlier ranges lasted far shorter. But given the gloomy financial picture, another move downward will come and if it holds true to form, we can probably expect a lower bound around 9,800 or 9,900 and a new upper bound around 11,000. However, just because other forces appear to be at work, I am going to guess that the next downward move won't really start until close to the end of the Olympics or shortly thereafter. But that's purely a guess. We just have to wait and see what triggers then next downward wave.

As for what is happening in the world, there are rumors that the major banks have all colluded to stop all mortgage renegotiations, effective somewhere around Monday, July 14. I have been unable to confirm this rumor so take it with a gigantic grain of salt but I have heard it. However, the word is out that the new mode of operation is "foreclose on anything you can" and that all the major banks are working together on this. Note that IndyMac bank, recently seized by the Feds, is still renegotiating, since that is one action that the government has urged anyway, over and over again.

In other news, global oil exports continue to decline, even though it appears we may have a new all-liquids peak date but the new value is only a tiny bit higher than the old value. (Crude and condensate remains on the same plateau it has been on for 4 years. The new liquids are NGLs, tar sands, biofuels, etc.)

Pressures continue to build around food and fertilizers. Rolling blackouts and brownouts are affecting more and more of the planet. Ammunition shortages continue but are not completely critical yet. Machine tools remain available but prices are climbing and may skyrocket as soaring steel costs percolate through the economy.

The summer drags on and the slow motion collapse continues. The blessing of a slow motion collapse is that it gives those seeking to prepare yet a bit more time. Now I need to get back to my garden and my tools. I can only hope that your focus is on you and those you care for immediately around you.

Tuesday, June 10, 2008

The Ugly Truth About Inflation

So here is the ugly truth about inflation. This is not some 5 year aberration. This is not some minor statistical blip. This is a 41 year picture of the lie of generalized investment as a means to retirement comfort. (Click to see enlarged version.)

The chart to the left here shows two plots. The blue-green plot is the unadjusted DJIA from January 1967 to April 2008. The orange-red line is the inflation adjusted DJIA over the same period.

The scale on the left Y axis covers the actual values obtained by the DJIA. The scale on the right Y axis is the inflation adjusted value. There are lots of interesting observations in this chart.

First, note that $1000 invested in January 1967 would have taken until sometime in mid-1995 to even recover its base value after adjusting for inflation. Second, note that the unadjusted chart implies that new highs have been reached in the last few years, yet after adjustment we see that we have not yet regained the high point of January 2000. The third thing to note is that the only real growth in the DJIA over 41+ years was the five year period from 1995 to 2000.

This chart exposes the lie of generalized investing. The promise is that you invest and it will all even out. Yeah, really, sure. The truth is that real opportunities to get ahead come around once in a lifetime and then are gone until the next generation gets a shot at some random point in the future. A 41 year time chart does not lie. This chart covers someone who graduated high school to today and who has trusted the market all along. There are 36 years of losses or no gains in that market versus 5 years of real gains.

People who are going to invest and who trust "financial advisors" are being taken to the cleaners by liars and shills. Only by really understanding your target market and working it like a real job can you have any hope of getting ahead by investing. This is why the common man and woman was long better served by simple saving rather than complex investment schemes. However, the banks were not content to let all those savings sit at rest and have created fractional reserve lending and participated directly in a sustained multi-generational program of deceit via inflation to rob the common man and woman of their savings.

And they have succeeded. They have succeeded because you (and you and you and you) have allowed them to do so. Only one man has dared to stand up and run for president while at the same time declaring the true solution to our financial woes - Ron Paul. If you support anyone other than Ron Paul you are voting for a liar, a shill, and someone who is complicit in this multi-generational program to rob you blind. If you vote for anyone other than Ron Paul, you deserve whatever fate befalls you.

Monday, April 28, 2008

Is a Deflationary Collapse Guaranteed?

Over at The Automatic Earth, I was having a conversation with some folks about the price of oil in the April 27th Debt Rattle thread. My concern is that we are not facing a traditional recession/depression at all but rather are facing the leading edge of oncoming waves of scarcity driven by serious overpopulation. Because of that, I felt compelled to expand upon that dialog and it got large enough that I decided to do it here rather than as a reply there. Before I proceed further, if you don't understand the difference between prices rising due to scarcity and prices rising due to monetary inflation then please do not read further. I'm not going to answer basic questions about such things that you can get from multiple other sources on the net.

Now, to continue that conversation from TAE, let's take a look at what is really happening around the globe. At te current time, grain prices are through the roof. Some of this is due to speculation, some to trade barriers being erected (due to food security concerns), but a large fraction of this is due to shortage. We know that UG-99 is causing havoc with wheat in Africa and now the Middle East and it is expected to move into Asia proper this year. The planet has consumed more grains than it has produced for 7 of the last 8 years, reducing the 2000 grain surplus of 110 days global food supply to under 57 days global food supply. Regardless of deflationary pressures, this is going to produce upward pressure on prices (NOT inflation!!) due to shortages until shortages are alleviated.

Likewise, consider the price of gold, which has fallen by roughly 10% (slightly more) into the $890-$900 range. Gold is money and since the global monetary situation is deflationary, gold is sliding somewhat with it. This however will vary over time as people move from fiat currencies back into gold and silver. Which way will these two precious metals go? Beats me! The combined problems of deflation coupled with flight from fiat currency (upward pressure on gold prices) look completely unpredictable to me at this time thus I have zero interest in playing the gold market in any speculative manner.

However, look at oil. Oil remains on an upward trajectory. So long as any global technological civilization exists AND that civilization does not go to war with itself (regions against regions) then energy must continue to flow at some rate. Unless and until rationing sets in, so long as any open market in oil exists AND the global production continues to fall below growing demand we will see rising prices, even in a deflationary scenario.

To alter this we either need increased supply (which is not going to occur) or decreased demand. And despite the observations of the deflation watchers like Mish and others, there has as of yet been no deflationary crash. In other words, so long as the markets continue to ignore the crackup in the financial sector, oil cannot do anything but continue its general upward trend.

Now I agree that in the event of a 1929 style deflationary collapse we would see massive decrease in demand. But are we going to get that? Or are we going to muddle along for the next several years in some financial no-man's land?

Here's a point for people to ponder. The 2001 tech stock crackup was supposed to be "the big one" but the powers that be managed to hide that with a convenient "war on terror" and yet another bubble. Everyone betting on a deflationary collapse now is making the same assumptions but TPTB have proven remarkably resilient in their abilities to rape the planet and its population. Why do you think they won't get away with this again? We had already passed into the realm of fairy tale numbers back in the 2001 crash. This crash is just more fairy tale numbers. And they have a ready proxy waiting in the wings for the next bubble - carbon credits. Note that I am not a global warming denier, much to the contrary, I am quite a believer in global warming. But I don't think that these sorts of policies and actions are actually going to solve anything. Rather, these policies, like carbon credits are more akin to exploiting a legitimate crisis for gain by the elites.

Likewise, given that $750 trillion in derivatives debt was preposterous to begin with, yet we had it, I can clearly see the existing population buying into an even bigger bubble based on something else. Now I am not predicting this will occur but I am warning many of you that betting on a purely deflationary fast collapse ala 1929 is not a guaranteed bet. I fully intend to speculate in oil futures so long as it seems viable to me. And that is the decision that you must make - does such a speculative action seem viable to you at this time? No one can answer that for you except you. Right now global civilization is in no-man's land. Rational thought was abandoned long ago in favor of rationalizing thought. All that matters now is the race to some illusory goal and right before people reach it, the goalposts will be moved again. This technique has worked for a long time for the established families at the top of the world order and they won't abandon it now even in the face of global catastrophe.

Monday, April 21, 2008

As we continue to sink...

It's been a busy spring for me, both in watching the news and in my own preparations. I've added extensively to my raised bed gardens this year, to the point that we should have major harvests of several vegetables for the remainder of this year. We may be looking at canning as a result. Part of this is prompted by the huge run up in commodities prices, particularly grains, coupled with the many stories of grain producing nations beginning to cut exports and in some cases to halt exports entirely. The problem is spreading even to the US as the NY Sun reports Food Rationing Confronts Breadbasket of the World. One cheap thing you can do is begin buying extra bags of rice, beans, etc., and storing them inside a larger plastic bag and then that inside a sealable container. There are numerous articles on the net about such processes, along with advice about using dry ice or other methods to drive oxygen out of your containers before sealing it. Be sure to mark and date such containers and either use them or donate them to a food bank before the expiration date. Consider also tossing some hard-to-get items in that container as well, such as toilet paper, matches, sugar, coffee, tea, etc. If you build an inventory of such containers at a rate of 1 or 2 per month, in 6 months time you will have a respectable store of staples.

I am not going to go further into the many details of such activities but as I said previously, there are numerous sites on the web documenting such self-storage processes. You might also consider the Latter Day Saints church as a source, since they have advocated such levels of preparedness for members for decades. And no, I am not a member of the LDS, just noting that they represent one source for such things already vacuum packaged if you wish to go that way. You can also go the freeze-dried route with Mountain House, Nitro-Pak, and other such vendors.

The global oil situation continues in its roughly flat plateau of the last 4 years. A technical new C&C high was reached in February of this year, barely eclipsing the May 2005 high, but keen observers noted that this new high includes tar sands, which are in no way, shape, or form to be considered "crude" oil. So technically the old 2005 high still stands but even with this addition the difference is a mere 137,000 barrels per day. And given the error rate of these reports, a subsequent report may revise that back down anyway. Regardless, the oil plateau continues despite oil moving from $38 per barrel at the start of the plateau to $117 per barrel now. You would think a full trebling of price might get some demand response? But no, no demand response here! So much for abstract economics. Hello economics? Meet reality.

Another alarming trend is that of A Storehouse of Greenhouse Gases Is Opening in Siberia. Read that carefully. If you have not Googled hydrates then I suggest you do that. In the meanwhile let me describe oceanic hydrates as containing more estimated hydrocarbons than maybe 10 times the total conventional oil and natural gas deposits. And further, almost all of it is methane, a greenhouse gas (GHG) that is 20 times more potent at trapping heat than CO2. There have been events recorded in geologic history that strongly suggest prior mass extinctions are tied to massive releases of hydrates, which then basically toast the planet rapidly. Hydrate releases are not in the "predicted" warming scenarios even in this century, yet they are beginning now. Everything you read from the UN's IPCC report is watered down, deliberately so, in order to get approval of all the governments involved, especially the United States which has never really been honest about climate change. We can only guess at the reality of how bad it truly is since most of that information gets deliberately suppressed.

And of course there is the economic mess. Do not let the recent rally fool you. This was even predictable as the market, made up of humans, can only take so much bad news before they want to believe anything even remotely positive. However the bad news continues and will continue until all of this bad debt is written off, and that's going to take lots more pain and a few more years at least.

So here we are, 2008, facing gasoline over $3.50 per gallon at the very least, oil at $117, grains at record prices with even some nations halting exports so they can feed themselves, and the US still embroiled in a pointless, expensive war that is just going to lead to even more trouble. If you think things are bad now, you ain't seen nothin' yet.

Tuesday, March 04, 2008

Financial Race to the Bottom?

Writing today, Mike Shedlock notes upcoming prime interest rate cuts by various central banks. Of particular interest is the why of cutting rates. Canada cut because their exports to the US are falling and US exports are a large part of their income. The Eurozone is considering a cut because of the same pressures, with many European employers now threatening to layoff people and move jobs outside the Eurozone. Even Japan, with an interest rate of 0.5% is threatening to cut... to what, zero? Why? Because economic growth is slowing in Japan and Japan exports lots of products to the US.

This raises the question of whether the various economic powers of the world are now prepared to race to the bottom in an effort to support their own economies at the expense of everyone else's economy? It certainly is starting to look that way at this time. But what happens during massive contractions? Certainly not building new infrastructure or large scale capital spending on new and unproven technologies.

Thus, it appears that we are adding another positive feedback loop to the existing ones working against mankind right now. The others are natural cycles altered by man - resource depletion, climate change, topsoil erosion, water table depletion, overpopulation, etc. This new one is a man-made system (economics) again altered by man himself with simple greed and corruption, destroying trust in the underlying financial system at precisely the moment in history when the financial system is most needed to counter the other positive feedback loops.

Monday, March 03, 2008

Financial House of Cards Continues to Tumble

1. Margin calls started in mid-February against Thornburg Mortgage. Now it appears that Thornburg Mortgage is about to miss the next series of margin calls as their collateral continues to rapidly decline in value.

UPDATE 3/4/08: Thornburg in default; fails to meet margin calls.

2. The Bank of Montreal has missed margin calls as well. As a result Bank of Montreal's trust funds were downgraded to junk status.

3. Focus Capital, a large US hedge fund, is rapidly dumping assets to raise cash to meet collateral requirements or will face margin calls. UPDATE 3/5/08: Focus Capital collapses against margin calls.

4. Peloton Funds in Britain was wiped out over the weekend as margin calls were made against loans they had taken out. But the collateral had fallen in value. Unable to meet collateral requirements they had to sell assets to come up with the cash. With no buyers in the market, they were forced into firesale mode ultimately liquidating the entire fund for pennies on the dollar. Anyone invested in that fund lost everything that was invested.

5. What is happening right now is that the largest banks lack capital themselves. As a consequence they are starting to squeeze anyone who has an upside down loan, starting with businesses first. The banks need capital, either cash or hard assets. These funds all took out positions based on expectations of further growth at the same time the economy was beginning to slow and now is starting to actually contract. Everyone globally is short cash but the banks are in the best position to squeeze others. However, even the banks are facing trouble. The FDIC is apparently expecting 100-200 bank failures in the next 24 months. This compares to zero failures from 2005-2007.

6. The cash problem is also affecting the bond markets where muni bond sales have collapsed almost completely. Consequently cities and states are being forced to cut services.

Sacramento is cutting their entire workforce 10%. Vallejo, CA is on the verge of bankruptcy. El Dorado county, CA is cutting budget.

The entire state of Arizona is in trouble. (Warning! PDF!)
Quoting from the PDF:
Total January General Fund revenue collections were $849.3 million, or (16.1)% below January of last year. This amount was $(226.2) million below the forecast based on the June enacted state budget.

For the first 7 months of FY 2008, General Fund collections are down (3.5)% when compared to last year, and are $(619.2) million less than the enacted forecast. When factoring in Urban Revenue Sharing, year-to-date collections are (5.1)% below last year.

The January decrease represents the largest percentage year over year decline since April 2002. The dramatic drop in January revenues was across the board in all 3 main revenue categories:

* Sales tax collections were down (7.5)% compared to January 2007, and were $(71.9) million short of the monthly forecast. This is the largest percentage year over year decrease since at least FY 1991.
* Individual income tax collections were down (11.9)%, which was $(98.7) million below forecast.
* Corporate income tax collections were (138.9)% below last year, and $(35.7) million below the forecast.

7. Last month, William Poole, the President of the Federal Reserve Bank of St. Louis, wrote about the problems of "moral hazard" that are showing up right now.

This is all part of the problem that Bernanke is trying to address. The Fed providing liquidity is not helping because liquidity is not the problem. The core problem is that the financial institutions themselves don't even trust each other right now. Bernanke has to solve that problem. How does he solve that? I don't know and it's going to be hard but if he doesn't the entire banking system comes down. Meanwhile, as the Fed does provide more liquidity this causes worsening inflation and further collapses in the dollar. In January 2007, it tool $1.39 to buy 1.00 Euros. Today it takes $1.52 to buy 1.00 Euros. The dollar is collapsing in value globally at a 10% annual rate because we are holding interest rates too low. Meanwhile this is still not helping the banks or other financial institutions because liquidity is not the problem - moral hazard is.

If I were a betting man, I'd be betting on a really bad recession right now. And things could even get worse than that. Why is this important? Because the horsemen of the apocalypse are still riding our direction. Peak oil is not taking a break. Global grain reserves are about to reach the lowest level since 1947. Climate change is accelerating. And now our economic system is coming apart right when we need social and economic stability to confront multiple global problems. If you can't see where this is going, then you shouldn't be reading this blog.

Tuesday, February 05, 2008

Economists Admit Recession is Here

The Institute for Supply Management threw cold water on the assumption that we've reached bottom in this mess. In the ISM's January 2008 report they show the economy contracting at an amazing clip. This comes on top of the endless news about the monoline insurers slowly slipping beneath the waves of insolvency. And now the Financial Times warns about commercial real estate property defaults rising. Well, duh, of course businesses are going to go under if they lay off employees who then don't have money to spend. This is a downward spiral and the Fed has already blown a couple of their biggest shots at trying to halt it, without much success. Now if you want detailed info on all this, I suggest that you hop on over to The Automatic Earth and listen to what Stoneleigh and ilargi have to tell you. I'll mention the ongoing financial disaster here as I get around to writing but they cover it daily and are an excellent source of information about the ongoing collapse of the credit markets.

For those of you not paying attention, the climate news remains bad and the crude oil supply remains roughly flat with a tiny uptick at the end of 2007 but already predicted to fall again and OPEC saying they need to cut production. Huh? Wasn't OPEC the one promising to raise production if prices stayed over $70 per barrel and keep it there until it came down? I guess that was just more PR, like the eternal Saudi promise to expand production to 12 mbpd, which failed to materialize in 2004 and then in 2005 and then in 2006 and most recently in 2007.

So basically the oil plateau remains with us at the current time, the climate is growing worse, and the corruption of the American political process continues apace. Nothing new here, aside from the rapidly imploding credit collapse.

Friday, January 18, 2008

The End of Finances?

So, we have a frightened government and power structure now running around like chickens with their collective heads cut off. We have the far right screaming that "A $3 Trillion Bankruptcy Will Start to Emerge" while the far left shouts "From Sound to Slush: The Stimulus and the Meltdown". Heck, we even have Business Week crying about the "$850 Billion Home Equity Crisis Dead Ahead". While the numbers vary wildly, one thing is consistent - everyone expects even larger losses than those already reported by Wall Street.

What's the reaction on Pennsylvania Avenue to this? Talk of "Bush Considers $800 Tax Rebate For Every Filer" dominates the news while rumors abound that Helicopter Ben and the Federal Reserve will throw caution to the winds and cut the prime rate by a full 100 basis points (a full 1%) either soon or at the next regular meeting at the end of January.

Why are they frightened? Ambac just lost their rating. What does this mean? There is a good chance, not certainty, but good chance that the next 180 days may see financial Armageddon for the entire planet. Right now the insurers for all this debt have been uncovered as bankrupt themselves. Ambac is just the leading edge of this second wave of the financial mess. If you don't understand what this means, then you need to try to educate yourself. But think of it this way - the insurers have certain ratings and they transfer their rating to a financial instrument in exchange for an insurance fee. In normal times when these financial instruments are properly valued and rated, they are properly insured and usually don't default anyway. But now everything is contracting. The insurers are broke and their ratings are being downgraded, which means every single dollar of debt they insured is going to drop in ratings as well, causing a cascading failure of revaluations across the board. So even the $3 trillion headline above is wrong. This could run into the tens or hundreds of trillions of do

In other words, we may be looking at the entire global dollar based fractional reserve banking system resetting to zero. To make matters worse, we are facing the early wave of effects from climate change plus the planetary cries from resource depletion. Like many others I thought we had a bit more time but the collapse of the insurers is going to shake the entire financial foundation. Note that the government may try, as a last ditch effort, to use its own "credit" as backing for the insurers. If this occurs, expect government debt to skyrocket, perhaps as high as 20% for the base rate and all other rates being somewhere above that. Such an attempt would collapse within weeks to months at best and perhaps days at worst. Such an action would be an admission of financial collapse.

We are talking about the potential end of the dollar as a currency. A dollar may shortly be as interesting as a Confederate note - historically interesting but worthless. And into that gaping chasm, the entire human race is running, while at the same time running out of core resources.

The Chinese are said to have a curse, "May you live in interesting times!" It certainly appears that these are going to be interesting times.