Posts Tagged ‘opec’

Who predicted what reversed the growth of Phoenix, Las Vegas, Greece, and Ireland, etc?

June 13, 2012

Who predicted what reversed the growth of Phoenix, Las Vegas, Greece, and Ireland, etc?

how many dollars

The key question from the 2004 publication: “…The Real US Deficit: OIL?” was this: “How many dollars will it cost to buy a gallon of gasoline next year (2005)?”

In 2003, I published warnings of an emerging global credit crisis what would bring down real estate prices in particular as well as reduce stock prices and overall economic activity (spending and borrowing). In 2004, I specified that rising fuel prices would be the specific trigger of a wave of changing habits of borrowing and spending. I also explained then why the long-term trend of fuel prices had reversed in 1999, why that rise of fuel prices could soon accelerate dramatically (which was widely recognized by 2008), and what effect such a spike in fuel prices would have in various places depending on whether that particular area was energy-rich or energy-scarce.

First, what predictable effect would the spike in fuel prices have on oil-rich regions like Alaska and Alberta? In recent years, oil-rich Alaska and Alberta have predictably continued to thrive, even while other energy-importing states in the US and other provinces in Canada have been predictably experiencing tremendous declines in economic activity and thus tax revenues, resulting predictably in downgrades in the credit-worthiness (financial stability) of the government of many states and provinces.

“During the years of 2000-2008, Alaska GDP grew at an annual rate of 7.4%….” By 2010, it was the #2 state in the US for GDP per capita and it was still the only state to pay it’s residents a dividend to reward them for living there instead of somewhere else (over $3,000 per year).

http://econpost.com/alaskaeconomy/alaska-gdp-size-rank

So, as oil prices rose over 1100% from 1999 to 2008, oil-rich places like Alaska, Alberta and many OPEC nations would experience a huge trade surplus. In contrast, energy-scarce places like Japan, Greece, Ireland, Phoenix, and Las Vegas would experience a huge wave of economic conservatism.

English: Vector image of the Las Vegas sign. P...

English: Vector image of the Las Vegas sign. Português: Imagems vectorial da placa de Las Vegas. (Photo credit: Wikipedia)

Once the first wave of conservatism resulted in a decline in global energy consumption, energy prices sharply fell (in 2008). However, any forecaster who already understood the simple geology and simple economics behind the rise of fuel prices which started in 1999 would have also known that the change in behavior arising by 2008 was just the first wave of an emerging revolution in values and behaviors.

In fact, by mid-2005, behavior had already changed in the most energy-scarce areas (the sprawling desert suburbs). Since I was expecting such a change, I reported it within a few months as the predictable first indications of the emerging shift in the US.

May 15: Las Vegas, Nevada is founded with auct...

“Before”: Las Vegas, Nevada . (Photo credit: Wikipedia)

Downtown Las Vegas, Nevada and Red Rock Canyon...

“After:” a recent picture of downtown Las Vegas, Nevada and Red Rock Canyon behind, seen from Frenchman Mountain (Photo credit: Wikipedia)

Prior to mid-2005, there had been a trend of huge economic growth in Phoenix and Las Vegas throughout the 20th century due to advancing technology and plummeting energy costs. As air conditioning for buildings and automobiles became more and more economical, the barren wastelands of Las Vegas and Phoenix had first become popular vacation destinations and then popular places to live, even during the intense summer heat.

By mid-2005, that trend was changing. As global energy prices spiked, the cost rose sharply of long commutes in 115 degree weather (with the auto AC cranked up, thus using far more gasoline than in the winter) and so did the cost of summer electricity bills, which even surpassed the monthly mortgage payment in some cases. Rather than moving further out in to the suburbs and getting bigger and bigger homes, people predictably started moving closer to the urban hub and in to smaller and smaller homes which reduced total energy costs.

Within a few years, most of the US (except for Alaska of course) had similar issues to a lesser degree: more spending on fuel and less spending on most everything else: construction, stock market investing, education, entertainment, and so on. The same shifts had already been evident in much of Europe starting in 1999 and in Japan starting at the end of 1989.

japan 21 years

As the waves of economic conservatism flow across Japan and Europe and the US, consumers and owners of businesses predictably get more and more selective about how they spend their money, what sources they value as relevant and trustworthy and authoritative, and how much attention to put on personal responsibility after the decades of trends toward relying presumptively on distant mega-corporations, government bureaucracies, mainstream media empires, and even mainstream religious institutions. Who has promoted relevant adaptions and who has encouraged naivete, blame, rage and hysteria?

angry alex jones

Did the mainstream media warn you of these issues or entice you to take actions that resulted in disappointment and then incite blame for the results you created with your choices? Did mainstream educational institutions prepare you? Did mainstream religious institutions prepare you? Did governments warn you of these issues or encourage you to be naively confident?

Many of those institutions are declining in authority. In contrast, certain individuals and networks are distinctive in their newly established relevance and leadership.

bush obama

Many people may experience fear upon recognizing the simplicity of what is emerging. Some of them will respond to the fear with courage and responsibility. Others will attempt to repress the fear or project it by blaming some isolated group of villains (whether vilifying the scapegoats presented by the media or directly vilifying the corporate media and those who rule it). They may also cling to some optimism naively or even hysterically, which again may be encouraged by some institutions.

Those institutions are serving their purpose. They are distracting those who are easily distracted. They are sorting those who are ready and willing to be responsible from those who prefer the complacent luxury of another frightened blame and of another desperate hope.

While I used to think of Alex Jones and David Icke and David Wilcock and even Jon Stewart as admirable and relevant, I now assert that, to the extent that they fan the flames of hysteria and divisiveness, they simply distract those who are easily distracted. Again, that may be their entire purpose. I admit that George Carlin and Bill Hicks were witty and bold, but there are other valuable qualities that may be a higher priority. I prefer Alan Watts or Robert Anton Wilson.

If you are open to new results, then you might explore new actions and new guidance. If you recognize that you might value the guidance of one of the people who predicted the changes of recent years and recommended the actions that would have entirely avoided loss and produced enormous benefits, let me know.

opec vs non opec

http://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP

http://www.adn.com/2011/10/26/2139380/alaska-had-49-billion-economy.html

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blame the EU: developing public demand for your business through “harnessing controversy”

May 29, 2012

The key to the future of your business is developing public demand

SIGN OF THE PAST IS THIS ABANDONED GASOLINE PU...

SIGN OF THE PAST IS THIS ABANDONED GASOLINE PUMP WITH A PRICE OF 29.9 CENTS PER GALLON. THE COST OF FUEL HAS MADE… – NARA – 555508 (Photo credit: Wikipedia)

To develop public demand, an awareness of existing public demand is essential. Further, if you are not clear about how public demand changes, then eventually you will be surprised when it changes, such as when gas prices soared and prices of real estate and stocks declined.

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I published forecasts in early 2003 of an emerging instability in real estate and stock markets. In 2004, my continuing analysis began to focus on the issue of a predictable long-term rising of prices for gasoline and crude oil which began in 1999. I asserted in 2004 that because of certain geological facts about fossil fuel, the rise of fuel prices since 1999 would accelerate until it would radically alter the economic behavior patterns of Europe and the US, just as I claimed had been happening since 1989 in Japan.
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As you may know, by 2008, prices for a gallon of gasoline spiked above $11 in parts of Europe. Behavior changed radically. Consumption of gasoline decreased dramatically. Prices of gasoline then fell dramatically.
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However, prior to that, people had been redirecting money from other investments (such as stocks or real estate or even travel and entertainment) toward paying for rising costs of fuel, especially to commute for work. Since 2004, my basic assertion has been that consumers would choose to pay rising prices for gasoline over buying more stocks, more real estate, as well as things like more furniture or more tickets to sporting events or music concerts. Since 2004, the evidence has strongly supported my forecast.
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Another way of interpreting my analysis was that I claimed that the public (at least in the West) had been vastly overestimating the value of (demand for) real estate and stocks while underestimating the practical priority of fuel (and the huge increase in demand for fuel in Indo-China and even the EU). I also claimed (long before the public was aware of any “crisis” ) that much of the public next would engage in political arguments about who to blame, just as had been the case throughout the 1990s in Japan, which would ultimately be recognized as an unrewarding investment of time.
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English: THE KREMLIN, MOSCOW. President Vladim...

English: THE KREMLIN, MOSCOW. President Vladimir Putin meeting with Saudi Foreign Minister Saud al-Faisal bin Abdul-Aziz al-Saud. Русский: МОСКВА, КРЕМЛЬ. С министром иностранных дел Саудовской Аравии Саудом аль-Фейсалом Аль Саудом. (Photo credit: Wikipedia)

“How can politicians rescue us from geology? How can politicians rescue us from economics? How can politicians rescue us from our own preference for fuel over real estate and stocks? How can politicians rescue us from our own naive presumptions and denial and arrogance and antagonism?”
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I dared to pose questions such as those PRIOR to the economic changes coming to the attention of the public. Again, I simply borrowed some ideas from what had already been developing in the conversations of the residents of Japan.
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I have found that most Americans with whom I interact still think that gasoline prices in the US are primarily determined by issues specific to their own nation. If so, why do average gasoline prices vary from under $3.38 in South Carolina and Oklahoma to over $4.39 in California, or over $11 per gallon in Europe to under $1 per gallon in Saudi Arabia and Venezuela?
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Is it possible that when Europeans are paying $11 per gallon, that is a factor in Americans paying as much as $4? Consider that if you had the exact same product to sell and you had two offers to buy it: one for $4 and one for $11, which buyer would you favor?
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Would the person who only offers you $4 complain to their government if you choose to sell to the purchaser offering nearly three times as much? “Those people want me to pay $4.10 instead of 95 cents, which is what I consider fair!”
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Yes, that is correct. Those people want to sell it for over $10 a gallon in Europe instead of for under $5 a gallon somewhere else. Wouldn’t you do the same? If someone offered you $10,000,000 to buy your house and someone else offered only $4,000,000, don’t you think that you might consider accepting the higher bid simply because it was a higher bid?
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Petrol Prices

Petrol Prices (gasoline) in Europe soared in to mid-2008, then briefly retreated before resuming climbs to all-time highs (Photo credit: Wikipedia)

Some people certainly have been complaining that the international energy market has been selling fuel to Europe that it could have sold in the US for a huge reduction in profit. Consider that addicts have a tendency to resort to denial and blame and that Americans (as well as Europeans) are extremely addicted to cheap fuel.
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Obviously, as American gasoline addicts facing the terror of withdrawal, we can blame the Europeans for outbidding us so much that fuel prices in the US doubled in a few years. However, prices for crude oil rose 1200% in 9 years (from 1999 to 2008) while Americans complained that gasoline more than doubled. Why don’t more Americans celebrate the fact that gallon prices rose less than 1000% and not even 500%? Well, that is just not in the nature of addicts, is it?
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By the way, blaming Europeans for driving up fuel prices will not change fuel prices. People in Oklahoma can also blame Californians for paying $4.40 per gallon and driving up prices to over $3 in Oklahoma, but complaining and blaming will not change fuel prices. As long as Californians will keep paying higher prices for gasoline, people in Oklahoma will also face rising prices. As long as Europeans are paying over $10 per gallon, that will effect fuel prices in competing markets such as the US.
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Bandar bin Sultan, Secretary-General of the Na...

Bandar bin Sultan, Secretary-General of the National Security Council of Saudi Arabia (Photo credit: Wikipedia)

So, some people may want to elect a politician who will “make” international sellers favor receiving $4 over $11. Some of the same people then complain when their politicians arrange for some serious military force in order to coerce sellers to decline offers to sell for $11 in favor of accepting offers to sell for $4. That is extremely ironic.
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By the way, instead of invading the middle east, if the US invaded the EU, that might be the best way to get fuel prices back down to $2 per gallon in the US. After all, it’s not the Arabs who are paying $11 per gallon and driving up prices in the US, right?
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I know that the US invading the EU probably sounds ridiculous to you today, but 9 years ago when I predicted all of the major economic developments of the last several years, many people called my forecasts “ridiculous” then, too. The EU is in much worse economic trouble than the US and has nothing comparable to the centralized military of the US, plus the US is still the #3 producer of oil on the planet. Then again, invading the EU could be bad for US relations with OPEC nations, who are currently making huge profits from selling fuel to Europe, similar to the huge profits the US made on European exports in the 20th century.
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Here is an easier question: which will be more important to the US in 10 years: relations with the EU (if it even still exists) or with OPEC? The chart below may help you to answer, showing that, within 15 years, OPEC countries are expected to produce twice as much crude oil as the rest of the world combined.
opec vs non opec
While I am not ready to forecast a formal US invasion of the EU, I am certain that the citizenry of the US fluctuates in regard to their sentiments toward war in general and any war in particular. Incidentally, I do not know how many military bases the US currently has in Europe (other than in Germany), but it might be more appropriate to reference an expansion of the current US military activity in Europe rather than use a term like invasion, which suggests that the US military is not already there.
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Now, back to the future of your business, adapting to how public values are changing is essential, at least in periods when public values are shifting radically. Knowing when public values are about to shift is also extremely valuable.
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My specialty is assessing how public values are about to change. 13 years ago, I also began to work as a consultant in the field of advertising and marketing. I can help your business to present itself to the public in ways that will be intriguing and distinctive, yet not so controversial as to be distracting.
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Know how public demand is shifting. Know how to shift your business to develop the public demand for what you are offering.
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If you do, then your business will grow faster than that of your competition. If you do not, then you will experience results that may eventually motivate you to invest in hiring a marketing consultant that understands how public demand is shifting and how to cultivate and develop public demand so that the public associates your business with their emerging values.
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real estate prices: how predictable?

April 1, 2012
Here is a chart of recent US residential real estate prices and US commercial real estate prices. Do you notice that the red line peaked and then declined, which was followed by the black line peaking and declining?
With that chart in mind, let’s imagine that there could be such a thing as a leading indicator. A leading indicator would be some measurement that consistently precedes certain consequent developments.
What other data could predict changes in price trends of overall US real estate prices? How about prices of specific subcategories, like selling prices of new homes only in a certain specific region? Isn’t it possible that certain prices (like of new homes only) would drop in a particular region first, prior to an overall drop?
How about this: could future prices be predicted by the recent volume of sales? Could the volume of sales be predicted by the recent volume of pending sales (signed contracts that have not closed yet)? Could the volume of pending sales be predicted by the recent volume of mortgage applications for pre-approval of real estate financing? Could the results of consumer confidence surveys predict things like the volume of mortgage applications or the NAHB rating for traffic of prospective buyers?
National Association of Home Builders

National Association of Home Builders (Photo credit: Wikipedia)

What? Is there really such a thing as the NAHB and do they really track the traffic of prospective buyers? (Yes and, by the way, the NAHB is the National Association of Home Builders.)

So, there are a lot of leading indicators tracked and monitored by conservative investors (and by conservative, I mean those who do research into leading indicators before they invest). For instance, here is a notable report on mortgage applications for “new home” purchases dropping 27% in a single week in 2010: http://www.mbaa.org/NewsandMedia/PressCenter/72905.htm (while applications for “used homes” dropped only 14 or 15 percent that week.)
There is even data tracked for the volume of existing homes listed for sale. So, when sales volume dropped in certain categories, then volume of unsold homes listed for sale started to multiply, what would be natural to expect regarding future prices of similar homes? (I’ll give a real example below.)

First, here is the same chart as before, but with two added lines. Note that I just drew some lines on there, but you can imagine what kind of data could indicate in advance what would happen next in US real estate prices.

On that note, here is something I wrote in October of 2005, right after reading the NAR (National Association of Realtors) report that was released that day to report September 2005 data. (You can see my original comments in full at this link: http://groups.yahoo.com/group/redpill_info/message/34)

“…actual sales are down almost 20% from last month, while excess inventories keep rising. Even more importantly is… price. Look at housing in the west, the most expensive region: down ALMOST 10% from last month. Do you think the rest of the nation will be stable while California prices are tumbling?”

I could have added that the previously booming areas of Phoenix and Las Vegas were also struggling. In fact, I later did in October 2006. Here is a new update regarding Phoenix area real estate.

Date Single Family & Condo
Inventory		 25th Percentile
Asking Price		 Median
Asking Price		 75th Percentile
Asking Price
03/07/2011 30,053 $85,000 $144,990 $275,000

08/28/2006 27,703                     $255,000$339,000$505,000

09/01/2005 8,030 $269,000 $380,000 $630,000

While some people might be startled to note that the median price has fallen from $380,000 to under $145,000 ( a drop of over 60%- and actually up more than $5,000 since January), next is what I find even more interesting. The inventory of homes listed for sale is still much higher now than in 2006- meaning that the excess of unsold homes listed for sale is currently worse than in 2006 right before prices declined by about $200,000.

So, is there  a shortage yet of unsold housing for sale again in Phoenix like there was in 2005 right before the market collapsed? Nope- not even close.

Now, I offer those examples simply for historical reference. They are not particularly important to me and perhaps not to you either. But here is where it gets interesting….

Consider that the amount of spending for exploration for oil deposits is a leading indicator for discovery oil deposits. Consider that the following chart shows the correlation between the timing of exploration and discovery (as well as extraction and refining):

It is reasonably logical to predict that we can only discover oil that we look for, right? And we can only extract oil that we discover first, right? And we can only refine oil that we extract first, right?

Okay, so now that you are clear on the simple and really quite obvious principle of leading indicators, now let’s look at a chart that is much more important than something trivial like prices for commercial or residential real estate.

That chart shows exactly how discovery peaked in the mid-20th century, with production still rising. But then production (AKA extraction) peaked in 2006:

Now let’s look at that same chart with the main data broken down into two subcategories: non-OPEC production and OPEC-production.

Notice that except in the early 1970s, non-OPEC production has exceeded OPEC production. Now was there anything unusual about the early 1970s in global economics? I was so young; let’s move on….

Around 1985, non-OPEC countries produced about twice as much oil as OPEC countries. The above 1999 chart showed a forecast that in 2008, OPEC countries would match the productivity of non-OPEC countries- now did anything unusual happen in 2008 in global economic patterns? Anyway, let’s look ahead to 2020 or 2040 and consider which countries are currently dominant economically and also consider which ones are predictably likely to rise in prominence- or even become singularly dominant, with 2:1 ratios of oil productivity- or even 10:1 by 2040.

So the US and USSR rose to singular prominence in the 20th century as the #1 and #2 producers of oil in the world. Those two nations were known as “superpowers.” Then, the USSR collapsed a few decades ago.

Is it possible that there will ever be a different global economic superpower than the US? Is it possible that there already is? Is it possible that the US, which now consumes around 25% of the world’s resources with less than 5% of the world’s population, might eventually consume less than 25% of the world’s resources?

Considering that oil extraction peaked in 2006 and may continue down forever, is it possible that even if the US continues to consume 25% of the world’s oil, the total consumption worldwide could eventually diminish- perhaps just a little? For instance, if, in a particular year, all of the oil in the world were consumed in the US, but that was only 1 barrel of oil, then consuming 100% of the world’s total consumption would still only be 1 barrel.

Now, are there any questions about the predictable future prices of suburban US real estate? No? None at all? Not even one?

Maybe I distracted you with that reference to over 30,000 unsold homes listed for sale in the Phoenix area… because you were thinking that you did not see any reason not to own at least 25% of them yourself. Maybe you missed everything else in the article.

I just hope that you got the part about possible leading indicators like mortgage applications and the NAHB index of the traffic of prospective buyers. You do know that all that stuff is going to be on the test, right?

(completely unrelated graph placed here for absolutely no reason:)

First Published on: Mar 9, 2011

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critique of 3 LAWS OF PERFORMANCE book

March 29, 2012

Hi David and Steve (the authors of “the Three Laws of Performance”),

4 U.S. Presidents. Former President Jimmy Cart...

4 U.S. Presidents. Former President Jimmy Carter (right), walks with, from left, George H.W. Bush (far left), George W. Bush (second from left) and Bill Clinton (center) during the dedication of the William J. Clinton Presidential Center and Park in Little Rock, Arkansas, November 18, 2004 (Photo credit: Wikipedia)

I found something interesting enough in the Three Laws of Performance book (on pages 120 & 121 in particular) that I am emailing you two. The basics are that your “distinguishing” of corporations from other organizations is… very incomplete, plus the explanation of the notable financial developments globally in 2008 is… something I intend to correct.

I am going to take some time to create this, expecting that you care at least as much as I do about the content below. First, thank for writing the book and everything involved in forwarding the conversation as you have.

Briefly introducing myself, I graduated from a Landmark Forum in late 2007. Prior to that, I was exploring the same issues you reference in your book. By the way, since you write in a context of global concern, I note that I also live in the U.S.

In early 2003, I published forecasts of the so-called “surprises” of 2008. In 2003, I focused exclusively on financial trends (primarily, the causal activities of lending, borrowing, buying, and selling, etc and the secondarily the resulting price changes). In 2004, I went beyond the basic data of the various causal trends of investing activities (and the resulting financial measurements of those activities called changes in “pricing”) and then focused on a core economic issue which I asserted as the “root cause” of the changes in patterns of human action (and thus patterns of price change).

That publication was “The Real U.S. Deficit: OIL.” The term “real” was used in contrast to the word “nominal” as in the phrase “nominal dollars.” “Nominal” dollar pricing ignores long-term changes in the purchasing power of the dollar currency. All dollar figures are actually measuring something else, such as the dollar cost of importing 14 million barrels of oil per day in 2011. We can measure the cost of 14 million barrels in “current dollars” or in “1985 dollars” (which were “more valuable”).

A single barrel of crude oil is a real, tangible, physical amount. It does not change from year to year. The purchasing power of a currency can change quite a bit in a decade or a century, while a 55-gallon barrel is still the same amount (and a gallon is still the same amount).

So, since 1970 when the US started using more oil than it produced, the trade deficit of importing more and more oil has gone up and up and up (as oil production levels in the US have also declined almost every year since then). By 2008, importing all that oil was getting so costly that some people and companies in the US began something quite radical: reducing consumption. Naturally, prices stopped rising and fell.

Borrowing from the phrase “the domino effect,” I titled a section of that 2004 publication “The DominOIL effect.” I asserted a simple, clear connection between (1) geological facts (how much oil was available) and (2) technological facts (how much oil had been located as accessible) and (3) behavioral facts (human trends in extraction, consumption, invasion, etc)  and (4) financial measures of price, and so on.
Here is a central focus of that article: “how many [US] dollars will it cost to buy a gallon of gasoline next year?” By the way, gasoline prices rose dramatically the next year, 2005.

In 1999, the pricing of oil (and gasoline) reversed a long-term downtrend of cheaper and cheaper fossil fuels overall. Again, that price trend ended in 1999, as predicted with varying degrees of precision by at least a few geologists and economic forecasters, perhaps most famously by US President Jimmy Carter in the late 1970s on a live TV broadcast (but also by Richard Nixon before him, and, most notably, a “heretical” USGS Geologist named M. King Hubbard in the 1950s).

So, by 2004, it was obvious that a long-term trend of rising prices of oil (and gasoline) would alter many behavioral patterns. First, as oil prices doubled from 1999 to 2000, the stock prices of the US airline sector index dropped 40%- starting almost an entire year prior to the collapse of the global tech bubble in 2000.


What happened? The predictable rise in fuel prices (which surprised most people) led to a predictable increase the expenses of airlines (which surprised most people). Further, as gasoline prices rose, many budgets tightened (of private households, businesses, and governments). With less cash available (after “predictably surprising” rises in fuel costs), there was less money to lend (like for real estate speculation) and less money to invest (like in stocks or in new business ventures or in cash purchases of real estate). With less money being borrowed and invested in to real estate and stocks, what was “surprisingly predictable?”

The US housing stock sector peaked in 2005 and has fallen 80% since then (shown above). Real Estate prices began to fall in regions that previously led the boom, such as Las Vegas and Phoenix (the area where I now live). By the way, similar developments in Europe recently have basically followed the similar pattern of Japan since 1989 (and, to a lesser extent, to the dissolving of the Soviet Union around the same time).

By 2007, US (and European) companies that were heavily exposed to real estate speculation began to adjust their balance sheets for more realistic reporting of current asset value/collateral value. That includes the financial insitutions that financed real estate speculation (like Fannie Mae, Countrywide, Bear Stearns, Merrill Lynch and GMAC) as well as the many insurance companies that had contracted to immense liabilities beyond their cash capacity to perform, such as AIG, in “mortgage insurance” promises to protect the financial interests of the lender in the case of a default on a mortgage.

In other words, in 2007, the financial sector of the US stock market began to crash, falling over 80% in about 18 months. As I forecast in 2004, it was the spiking of oil prices that “popped the financial bubble” and by 2008, triggered (I assert) an accelerated decline in stock prices, but also a sudden 70% decline in oil prices in only a little over half of a year.

Generally, I call all of that “the DominOIL effect.” I detailed it generally in 2004 and continued to elaborate ever since then.

Now, let’s look at your sentence (from The 3 Laws of Performance) referencing the global shift in 2008: “The world became aware of the negative effects of externalization in the financial crisis of 2008, when bad debt created by corporations required government intervention to avoid economic collapse.” I’m now going to question and challenge basically all of the assumptions (“blindspots” ?) of that sentence. Again, I applaud you for raising the issue and for interpreting how you did- perhaps a perfect fit for the context in which it occcured for you.

Let’s start at the end. What is an economic collapse?

An example would be when farmers rely on a well for water, but then the water runs dry, the soil turns to dust, there is no harvest, and people starve to death. Those are all economic issues.

Another example of an economic collapse would be what happened to certain mining towns in Arizona now called “ghost towns” or to certain oil-producing regions of Texas that in the 1920 were booming, but then ran out of oil and became ghost towns as well. Economic collapses can be much larger though.

So, was an economic collapse avoided by government interventions in and after 2008? I say “no” and I will say more below.

First, in Japan in the 1990s, lots of government interventions were implemented, but Japan’s stock market is still down over 75% from it’s 1989 high. In the US in 2008, yes the government stepped in to rescue banking institutions and the US auto industry and shift the burden and risk away from shareholders to taxpayers. However, that redistribution of risk did not especially reduce risk.

If there was a rescue in 2008, it was not by a government agency, but by the Federal Reserve (a private corporation), which rescued AIG with a loan of $85 billion (as I recall), allowing for the US financial system to continue at least temporarily in much the same way as it had been previously- no major redistribution/re-organization/collapse. The Fed gambled on AIG and the long-term success of their gamble is still questionable, but let’s say it worked pretty well so far.

Note that I am generally skeptical of government interventions, and not just attempted socialist bail-outs like that of the failed USSR (or in Japan for the last 21 years). For instance, for many decades, government interventions to immediately put out wildfires in the US state of Arizona have produced a distinct condition: a forest with huge accumulations of fuel (dry twigs and other vegetable debris) as well as a very dense network of trunks all sucking water from about the same amount of annual rainfall, which means they are very dry and unhealthy and so most are infested with weevils, which the government agents might then intervene to kill.

So, decades of government interventions produce an “unmanageable” concentration of fuel, then a “normal” lightning fire can easily get “out of control.” I was a refugee of a 2002 wildfire that burned about 500,000 acres of northeast Arizona. (That experience is what indirectly led me to research trends and forecasting.) This very minute, an even larger wildfire is plaguing northeast Arizona. What can be learned from the “surprising” wildfire developments in 2002 and 2011 (which I assert were easily predicted by any competent forestry scientist)?

For decades previously, Forestry Science professors studied and predicted the wildfire danger in the Ponderosa Pine mountaintops of Arizona (and other similar regions) and, generally, were ignored (but still publicly funded). Similarly, geologists and some forecasters studied and predicted the “dominoil effect,” but were generally ridiculed and resisted, beginning with M. King Hubbard.

So, do government interventions avert economic collapses? Perhaps sometimes. Do government interventions ever produce predictable disasters- such as 2,000 degree forest fires- that were impossible without those government interventions? Perhaps sometimes!

Next, in 2008, was an economic collapse avoided and “transformed”- or just delayed/”changed”? The fundamental shift of power continues. The shift is away from the previously influential regions of Europe to, by the 20th century, the two regions that produced the most oil in the world (the US and USSR) and further to the regions now producing the most oil (the Oil Producing and Exporting Countries of O.P.E.C.).

I expect the EU to dissolve and collapse relatively soon, and the economies not just of Greece and Italy and Ireland, but basically all of Europe. I expect the US to follow in a huge long-term economic contraction, but distantly, rather like Japan has been. I expect the primary OPEC countries, including Saudi Arabia, which is now the #1 producer of oil in the world, to expand in geo-political prominence and economic affluence just as did the USSR and US when those two countries were the #1 (and #2) producers of oil.

Now, that doesn’t mean that your book and work should reflect the “probable almost certain future” as I see it. But it could reflect what I see, and that might make it much more relevant ten years and one hundred years from now.

By the way, I understand your reference to “externalization,” but I do not think it is especially relevant to what happened in 2008. Also, if it was just a matter of bad debt, then the debt could be discharged, then bankruptcy courts could sort out what to do with the relevant assets, and the overall economy would be largely unchanged- like in terms of barrels of oil consumed. Bad debt is just a financial and contractual and legal issue. Dry wells (whether of water or oil) is a major economic issue.

Externalization did not change the mining towns of Arizona in to ghost towns. Emptying of the mines naturally brought about the formation and growth of the towns, (bringing business activity to the area), and then once the mines were empty, the towns were abandoned. “Externalization” seems to me to be your pet demon, your convenient “make-wrong,” even a justification for government interventions to “protect” us from the morally evil corporate externalizations.

But interventionist government protections do not make an empty mine full again. In fact, interventionist governments sometimes produce uniquely unsustainable conditions, which PREDICTABLY resolve as huge wildfires.

Now, let’s turn to a point of potential trivia- because it is also potentially a clarification that will renew possibility. Let’s review the distinction between organizations in general and corporations in particular.

Let’ts review a few rather old organizations, such as Harvard University, the Dutch East India Company, The Roman Catholic Church, the Knights Templar, the Free Masons, and an organization generally known as China. India and Egypt are pretty old, too, right?

Do they all have the “right” to employ people? Yes. Legal rights, by the way, arise from the declaration in to being of governing operations called court systems. Court systems create stuff in language (or govern what others create in conversation) known as “legal rights.”

Do all of those organizations “own property?” Sure! Do they all engage in negotiations and contracts and lawsuits (and even wars)? Sure!

So, you did not really distinguish corporations at all, did you? Corporations exist explicitly to promote the interest of the interested parties (shareholders, creditors, employees, etc) and do so implicitly relative to the interest of “everyone else.” In other words, corporations are instruments of competition (as in conquest). Many of them can be traded. They do not discriminate based on language or sex or nationality or religious affiliation (except when they do).

Also, the legal definition of “person” just means a legally relevant identifying in language. The word person (and persona and personality) derive from the ancient Greek roots per-son, which is the same base root as sonar and sound. The word derives from the masks worn by actors in ancient Greek theatre, with different masks having different sound holes so that the sound or voice or vibe of the character was distinct, since in Greek theatre, a few actors would play multiple roles in a play.

There is nothing inconsistent with the legal definition of person and the ancient Greek roots of the word. In fact, consider that there is no such thing as inconsistency per se, just varying degrees of connectivity or consistency or causal significance.

Next, I note that I “do not like” the phrase “without integrity, nothing works.” When we say integrity as in “honoring word,” that is not about physical integrity but language, right?

I prefer this: responsibility about language gives access to powerful communication. (liken that to “communication: access to power” which I have taken). Further, powerful communication CAN create breakthroughs in performance. (liken that to: “communication: power to create” which I have not taken, but I think I assisted for it at least once a few years ago.)

Anyway, having studied organizations that prohibit and punish “transparent integrity” of certain kinds, such as the KGB or the US Army or the Free Masons, I respectfully question the phrasing “nothing works.” Nothing? Really!?!?   😉

So, let me recontextualize “the problem” at least in terms of finances and language and law. Masses of private investors own shares of corporations without any sense of accountability for the activities and performance of those corporations. Such ownership “lacks integrity” and markets might redistribute such ownership. Simple, huh?

Like when a real estate “flipper” owns 50% of the equity, but then suddenly the creditor owns 100% of the equity, that is just a redistribution of ownership. Or when Fidel, Che and the other armed revolutionaries of organized violence come in and say “our gang just overthrew your gang and now we control this whole island,” that is also a redistribution of “ownership” by the “declaring” of a new governing court system of organized violence (given that all governing courts are systems of organized violence).

As for “the problem” of the probable and almost certain “end of the fossil fuel age,” it’s not really a problem unless we relate to it as such. Yes, human civilization may radically alter… again. So what?

Do the US and EU have a problem in terms of maintaining their current “market share?” Yes. According to the US Government, the US currently has about 4.5% of the world’s population and uses almost 25% of the oil. Both of those figures may change radically, probably starting with the latter.

Change is not a problem. Change is a fact.

Alaska is a booming state, producing lots of oil. The province of Alberta Canada is also booming, and, by the way, producing (extracting) lots of oil. Mexican stock markets are surging, with Mexico producing and exporting lots of oil.

(Chart of Mexico stock index prices:)

Mexican stock markets are charted in green above, next to the US in red and Japan in blue.

However, once the oil wells dry up, economic collapse may follow. At some point, personal adaptiveness leads to adaptiveness of groups (and organizations). When that point arises for any particular person (human organism or legal corporation) may have something to do with the “relatedness” of that person’s conversations- the extent of the relatedness to what is relevant, which is more specific than “what is so.”

So, the subject line of this email says “proposal.” My proposal, first, is that I assert that I am correcting herein the lack of distinction re corporations and re the global shift underway.

Corporations, unlike governments, do not explicitly rely on organized coercion and also generally allow participation by publicly-traded shares, which may mean involvement is much more open than in most governments (or churches). However, that does not make corporations better (or worse)- just distinct.

As for the real issues of global economics- not just nominal financial issues and national political spins- the real issues are exceedingly simple, but perhaps quite unpopular in places like the US and the EU. Virtually no one wanted to hear Hubbard or Carter (or even Richard Heinberg, Michael Ruppert or me), at least not until they did.

But certain leaders in OPEC have long been very clear that in 2008, current members of OPEC would produce more oil than all the rest of the world combined, including the Former Soviet Union and US and Mexico and Canada. From here on, the percentage of oil produced by OPEC countries is expected to grow year by year and decade by decade, as more and more wells in the Russia and North America run dry.

Did, as you assert, something fundamental change about “corporate externalization” in 2008? Or did global power simply shift… again.

I propose that you did not already know what I have now presented to you clearly. I propose that you are not attempting to cover up and distract from the simple economic shift underway. You just will not relate to it powerfully… until you are.

I invite replies to this email. Again, thank you for your interest and your intelligence and your commitment.

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critique of 3 LAWS OF PERFORMANCE
First Published on: Jun 25, 2011
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the state of the west- enron, aig, and the ponzi economy

February 29, 2012

"false profits?" is that right? is that a reference to 'fraudulent" accounting reports?

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Here is my short version of “the state of the developed nations of the West,” including a declaring of a problem, opportunity, and solution. Note that, strictly speaking, it is just one possible interpretation.
Consider that there are cycles of centralizing and radiating. In fact, both radiating and centralizing are always present.
Another way to express that is that life is a process of redistributing energy towards what is adaptive. Whatever is less adaptive
radiates it’s energy toward whatever is adaptive, centralizing energy in what is most adaptive.

In the economies of the developed world, I assert that there is too much centralization of influence. In other words, there is not

English: IS-3. The "Joseph Stalin" t...
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enough radiation of responsibility.

Instead, there has been a trend toward the centralization of responsibility, a trend toward the abdication of influence toward increasingly remote bureaucracies, a trend toward economic dependency. By the way, all trends begin and end, as in, reverse. That is why they are called trends.
There are basically two ways that the trend of centralizing in the developed world could reverse. Either there can be a radiation of responsibility toward the masses of the developed world or there can be a centralization of responsibility away from the developed world toward the developing world.
In fact, those alternatives are not exclusive. Both can happen.
The second alternative is the simplest of the two. The developed world can redistribute decision-making authority for it’s economic activity to certain portions of the developing world, specifically, the remaining primary sources of oil, led by Saudi Arabia, but including the various members of OPEC. For many decades already, affluence and influence have been shifting away from the developed world of the West toward the middle east.
The other alternative is the easiest of the two. The developed world can re-distribute it’s centralized decision-making to the masses of the developed world. This may sound very attractive, but it may be much less likely than a simple re-distribution of influence to the oil-rich Middle East.
English: Shows traditional location of "F...

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The mainstream of the West has been in trend of abdicating responsibility (influence) in a few ways. There is the trend of expecting for governments to provide for the masses, whether by social service programs in general or by the latest economic rescue interventions, including the idea of political salvation provided by regulatory bureaucracies.

But the big ones may be more subtle. There is also the trend of the abdication of responsibility on the part of investors. Speculative investors have abdicated financial responsibility to huge corporate bureaucracies by purchasing shares of major corporations without any awareness of the industry, the operations of the company, or the finances of the company.
American International Group
This is why shareholders are surprised when Enron or Merrill Lynch or AIG file for bankruptcy; the investors often did not ever know anything about the finances of the company. They relied on stockbrokers and government regulators and accountants and lawyers.
These passive shareholders of the largest companies in the developed world have been speculatively investing for unearned gains, but they do not accept personal responsibility for the results produced by the businesses that they own. This includes share ownership indirectly through mutual funds, annuities, and even pensions. The owners have abdicated financial responsibility to professional managers, whether managers that are agents of the corporation or of the regulating government.

These owners tend to be surprised by crashes in stock marketsand the values of their own stocks. They tend to claim that they have

Merrill Lynch & Co.

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been betrayed by their professional managers. They project responsibility for the natural results of their own speculative investing on the taxpayers, lobbying for bail-outs paid for by “somebody else.”

With insurance companies, the abdication of responsibility is even more stark. Millions of people pay small premiums in order to receive huge promises of benefits from insurance companies that do not have anywhere near the funds to cover all of their promised coverage. When enough claims come in at the same time to a business that does not have close to enough money to fund all of its promises, of course AIG could need an urgent $85 billion rescue program.
Again, most policy holders would express surprise to find out that the insurance does not actually have anywhere close to the total amount of money that they have promised to pay out. Such is the state of the balance between personal responsibility and abdication in to dependency with the eventual blaming of the professional managers, rather than a recognition of the immense risk of the speculative investor in insurance policies, hoping that their gamble would pay off with aboslutely no attention to the financial capacity of the insurance company to eternally maintain it’s legalized “ponzi scheme” of using new premiums to be able to afford to pay out all new claims.
Note that insurance companies do not inherently reduce risk. Insurance policies merely transfer financial risk to someone else. When governments agree to be liable for risk, as in the case of the FDIC insurance program, that does not actually reduce risk. It just means that instead of customers and owners bearing the risk themselves, taxpayers who had no involvement in those transactions are receiving the bills for the risk.
The idea with government regulation and risk-sharing is that governments could implement programs to actually restrict operational risk. While they could do that, government programs to manage financial risk are not always successful, as in the case of the former Soviet Union. By the way, the dissolving of the Soviet Union is an instance of the radiating of influence and responsibility away from a centralized bureaucracy.
Coat of arms of the Union of Soviet Socialist ...
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Finally, more extreme than passive speculative investing or relying on the bureaucracies of insurance companies and government regulators is real estate financing. Historically unprecedented financial risks have been entered by speculative borrowers gambling on financed real estate investments for unearned gains.
They may have been drawn in by slogans like “why rent when you can buy” or “real estate always rises” or “no down payment required and pay no interest for the first 24 months.” Still, they gambled not only with their down payments, but with enormous amounts of credit, typically hundreds of thousands of dollars at a time.
All together, one might conclude that in the devloped West, there is an unsustainable concentration of dependency on massive bureaucracies (both governmental and corporate). This includes dependency on bureaucracies of media, education, and, increasingly, health care.
Still, all of those issues may be mere symptoms of the simplest: the developed West has too much dependence on dwindling foreign resources, especially oil (the source of gasoline). Consider the example of  westernized Japan, a developed country extremely dependent on foreign oil; In Japan, the last 21 years have notably punished real estate speculators and stock market speculators for less than adaptive choices.
In the European Union, the last decade has followed much of the sequence of Japan in the 1990s, with gasoline prices there exceeding $10 per gallon in the UK and Gemany in 2008, crippling economic activity, credit markets (including real estate borrowing and lending), and forcing many speculative stock market investors to sell urgently to access cash to avoid foreclosure and bankruptcy. Why? After spending much more cash than they had projected on fuels like gasoline, they needed cash fast and selling stocks was much faster than selling real estate. After it’s all-time high in late 1999, the UK stock index of the FTSE 100 plunged 50% by March 2003.
On to the US, by 2007, there was a general recognition of a notable real estate decline (which started showing up in mid-2005 in previously leading markets such as Phoenix and Las Vegas). Further, speculative stock ownership was also punished with an 18 month decline of 56% in the US S &P 500. Note that by 2007, there was also a general public recognition that rising fuel prices were impacting the budgets and choices of most portions of the US economy.
However, rather than retract the influence that they have abdicated to massive bureaucracies, much of the West remains invested in stock market speculation as well as continuing to gamble that real estate prices will recover. For many, their hopes are increasingly desperate, as their real estate has lost so much value that they might have to pay more than a hundred thousand dollars of negative equity just to exit from their real estate speculation. More and more people have been exploring alternatives like bankruptcy protection and negotiated short-sales of “upside down” real estate.
There could be a simple solution, but how open are the people of the West to being willing to be directly responsible for taking the action that could result in a simple solution? Unless investors within the developed West are willing to reclaim financial responsibility by definitively exiting their deflating speculative investments in such things as passive ownership of stocks and financed real estate, there is little chance for an economic recovery by Japan or Europe or the US.
Instead, many complacent investors of the developed West are calling for increasing dependency by centralizing responsbility further toward massive bureaucracies, especially governments. If that trend of rejecting responsibility continues by Western investors speculating for passive unearned gains, it may assure the rise of the developing OPEC nations in to a position of being the unriveled superpower of global affluence and influence.
King Abdullah ibn Abdul Aziz in 2002

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published: July 20, 2011
re-published as a post: February 29, 2012
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Bakken, oil, crisis, & prudence

February 17, 2012

This is an exchange between myself and “DK.” She sent me a broadcast email with a subject like this: “OIL – You better be sitting down when you read this !!!!!!”

Her email is about the Bakken oil field in the US. Her email referenced two figures as the total estimated amount of oil there: 503 billion barrels and 2 trillion barrels. She cited an article from the USGS indicating that the accessible, useful oil was more like 3-4 billion barrels:  http://www.usgs.gov/newsroom/article.asp?ID=1911 

USGS Logo

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Here was my initial reply:

According to the USGS article that you cited at the bottom, only a few
billion barrels are currently classified as recoverable, or less than
1% of the 503 billion barrels referenced elsewhere.

Let’s put that in perspective. 3 billion barrels of oil is
approximately an extra 16 months of oil at the current rate of
production in the US (which has been near 6 million, but may have gone
up in recent years).

So, if oil production is up in the US already and even if the US
doubles production for 16 months, yes that will be a[n]… increase in
the global economic balance of affluence. 3 billion barrels of oil
does correspond to an extra 300 billion dollars or so of value.

However, what was the US government‘s spending in 2011? $6 trillion,
as in 20 times as large as the extra 300 billion dollars of economic
affluence represented in the USGS article.

Is that 300 billion dollars of value trivial? No! Does it
fundamentally change ANYTHING long-term? Not yet!

DK replied back to me:

JR,
Thanks for your insight.
What can the average person do to pressure them to do the right thing?
D.

Hi DK,

Respectfully, I do not know who you mean by “them” (or what you mean by “the right thing”). [I now presume that she meant the US government.] Let me give you some of my perspective on the general subject.

Starting in early 2003, I have invited people to consider the actuality of trends and to adapt to those actualities, such as the shift in the long-term price of fuel. For the last several centuries, fuel prices have dropped dramatically (in “real” terms as in after adjusting prices for the fluctuating purchasing power of currency).

One of the ways that economists (as distinct from accountants) have measured the cost of fuel is this: how long does it take the average person to earn or produce the capacity to produce an hour’s worth of candlelight? You may have heard of measuring the brightness of light in “candles” and that is what I am referencing. The time-cost of producing an hour of one candle worth of light has gone from a large fraction of an hour centuries ago to under one minute and finally to under one second. The same kind of measurements can be done in regard to one unit of “horsepower.”

Human civilization has radically altered in recent centuries with the collapse in the cost of energy (fuel). Amish people and others have not participated much in the “boom” related to the huge decline in energy costs, but the huge ballooning of human population in recent centuries is the direct result of the huge decline in the cost of energy/fuel.

So, in 1999, that multi-century trend of declining cost of energy may have reversed. Starting in 2004, I wrote and published articles referencing the reasons that energy costs were rising and the predictable consequences of any continuing rise, which I did predict would continue.

I have noted that the average decline of 40% of the stock prices of the US airline industry in several months in 1999 [red line above] went along with a quick doubling of global oil prices [blue line above]. [Also, the green line above shows the simultaneous decline of the financial sector of the US stock market.] Further, I have consistently documented the general shift in the economies of Japan, Europe, and the US toward the economies of OPEC and other oil-producing regions (including places like Alaska, North Dakota, and the province of Alberta).

Japan’s decline started in 1989. The USSR, which was the #2 oil-producing region on the planet (and still is), has also collapsed politically since then (dissolving in to smaller political units). The EU (including the UK and Germany, etc) as well as the US have been declining now for over 10 years at least, depending on the exact measures used. [Below is a long-term chart of the UK stock market, which peaked at the end of 1999.

My assertion is that the global political history of the 20th century can be summarized in a few words: the rise of oil. Next are a few paragraphs summarizing the 20th century:

The prior two major powers, Great Britain and Germany, fought two massive wars against each other (world war one and world war two). In ww1, Britain won. In ww2, Germany lost.

But who won world war two? The USSR and the US did. In WW1, those two countries were not even major powers. However, after ww2, those two countries dominated much of the world and they even split Germany right in half between those two allied victors.

Britain did not get occupied like Germany did, but Britain did not get a portion of Germany either: just the US and the USSR. Britain did not win ww2. Germany lost (along with Japan and Italy) and the winners were the US and USSR. Further, lots of other folks (France, Poland, etc) could also be said to have lost or at least not to have won.

So, those two “superpowers” of the US and USSR had very different political systems and very different cultures, but those two nations rose from relative obscurity in the 19th century to become the top two global powers in the 20th century. What did they have in common was oil. In the 20th century overall, the US led the world in oil production (and consumption). In the early 1970s, the USSR surged past the US in oil production, leading to a significant power shift and the rise of OPEC to prominence.

In the latter decades of the 20th century, as the USSR and US slowly fought over regions like Afghanistan and Central America, the USSR eventually lost and crumbled. One of the most devastating economic events for the USSR was the joint effort by the US and OPEC to drive down global prices of crude oil, which was the main source of revenue for the oil-exporting USSR.

Normally, when a company produces something, then want to sell it for maximum profit. However, with the US and OPEC colluding to drive down oil prices, US and OPEC companies (like Aramco, the Arab American Oil company which controls much of the oil industry in the Middle East) sold oil for much lower prices than they could have. Governments may even outright subsidize oil production so that private companies can sell oil at a loss, but still receive tax incentives or other incentives so that the governments can drive down international prices of oil for political purposes.

American International Group

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So, what is there to do about any of this? Recognize it. Adapt to it. Benefit from change. Reduce exposure to risk (like protecting assets using the fullest extent of the law while those laws still exist, settling debts rigorously, and investing wisely).

This is a time of unprecedented opportunity. Why? Because so many people who are currently so wealthy (in the US and EU) are so naive (if not arrogant) in regard to what is happening.

The mainstream middle class (not just in the US) have been taking immense financial risks with no appreciation for the basics of economics or investing. Most people do not understand the simple ponzi scam of the insurance industry and thus consider casino gambling and state lotteries to be less risky than their investments in ridiculous long-term annuity contrasts. There is nothing as risky as the global insurance industry, which is the largest concentration of financial risk in human history. AIG was not a fluke. The 2008 financial crisis in the US and EU was not a fluke. Myself and many others predicted it. People see the financial issues with the government of Greece or of the US, but a glance at most any insurance company might reveal a much less favorable long-term financial stability.

So, The investments that will be most valued in the next few years are almost completely ignored by the mainstream as of now. That will change and suddenly, which can produce huge increases in price.


By huge, I mean larger than the 1200% increase in the price of oil from 1999 to 2008. I mean larger than the 1600% increase from 2000 to 2010 in the stock prices of the HUI index of 15 conservative gold and silver mining companies. Those were certainly quite large gains. Some gains, however, are huge, like historically unique.

So, I am not especially interested in speculating as to what is they right thing that other people could do (such the US Congress or the leaders of OPEC or AIG or NATO). I am interested in identifying what I could do, in what results I can help individuals to produce with me, and in then producing the results that I value.

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when do global stock markets crash?

September 21, 2011
If the costs of conducting “business as usual” rise enough that profit margins turn negative, wouldn’t any business owner consider shutting down? When costs rise so much that net operating profits do not just disappear, but turn into net operating losses, what would you do as a business owner? When continuing to operate a business clearly is less favorable than simply shutting down, then any business would likely close, right? What if a bunch of them closed at once?
That is probably one of the most unappealing possibilities conceivable. If one business depends on others (suppliers, customers, etc), and then even just one essential supplier shuts down, then other businesses depending on that supplier CANNOT continue to conduct “business as usual”- at least not until they can replace that supplier.
This is the same basic issue that people have been concerned about in regard to the government of Greece or of Minnesota, but those isolated budget issues are symptoms of a broader issue: the end of the age of cheap fossil fuel. I will come back to the rising cost of commodities in a minute.
First, if the government of Greece ceased to function, that would definitely effect the operation of private businesses in Greece, right? Private businesses typically rely on government courts not only to provide basic services like road maintenance, but in particular to enforce all legal contracts with organized coercion. If private businesses could not hire governments to use force to evict delinquent tenants and foreclose on them, or to force their suppliers and customers to do as they legally promised, then private businesses would be responsible for the additional cost of acting as it’s own collection agency, rather than hiring the court’s deputies to take their guns and enforce contracts with organized coercion.
From an economic perspective, one can think of any government as a collection agency that is organized and funded by the owners of private businesses in order to arbitrate debt claims for validity and then collect validated debts using organized coercion. The owners of private businesses uniformly agree to promote a sort of monopoly in the use of organized coercion. While there are different levels of government, like city and county and state and national, usually these concentric monopolies co-exist peacefully.
Of course, nations have a history of invading other nations. But outside of that, the only time that local and national governments have a major conflict is when there is a “civil war” between one operation of organized coercion that is claiming to have authority over smaller operations of organized coercion that then “secede” and band together, like to attempt to preserve the patterns of a prior system of relatively decentralized organized coercion.
For instance, let’s say that the government Treasury of Greece eventually defaults. It owes debt to the US, Italy, Germany, and so on. Well, what if Italy, Germany, and the US all start to fight over ruling Greece and cutting up it’s resources? That is basically a world war, like if it includes a distant global power like the US coming over to Europe to defend “US national interests” in Greece from the “axis” of an alliance between Italy and Germany.
Or, what if Germany or Greece wants to secede from the EU instead of being subject to the decisions issued down by the central EU authority? For instance, what if the EU decrees that Germany is liable for the debts entered in to by Greece. That might produce a civil war, right? If a lot of the debt that is owed to Germany (and Germans) is suddenly declared to be paid by Germans and Germany, there is also a logical or logistical issue there, right?
With the USSR, various smaller jurisdictions might “secede” and rebel from the central authority. With the US in the 1860s, the same could happen. With the EU today, it’s about the same. Also, Yugoslavia used to be one country, then, in the 1990s, ceased to function as a singularity and officially split in to several republics, but not before a civil war that involved the militaries of lots of outside nations.
When one government falters or is defeated militarily by another, that is not the end of government monopolies on organized coercion, but sudden changes in procedure can arise. Certain businesses also tend not to operate as profitably when there is a civil war going on and large portions of consumer population is getting killed or goes to war to kill their opponents. Consumption may shift towards the basic “staples” or even “the bare essentials.”
Sometimes a prior central unity of organized coercion is maintained and sometimes a new centralizing of organized coercion develops. Sometimes what happens is a split in to two or more independent operations of organized coercion. In the case of the European Union in recent years, numerous nations went from relatively informal alliances like NATO or NAFTA or the UN to a much more formal alliance of a single set of consistent procedures, passports, and currency, such as the EU and it’s Euro currency.
Now, before we look closer at prices of commodities and how rising commodities prices are related to global economic activity, let’s look at a chart of the cumulative stock prices of 1800 global companies, priced in Euros:
Here is the same global stock market index, but priced in US Dollars:
While the two charts are very similar, a few differences are notable.  In 2007, the Euro pricing topped and reversed prior to the $ pricing. In 2008, the Euro pricing made a low and started a multi-year rebound while the $ pricing made another low in early 2009  and then started a multi-year rebound. Finally, in early 2011, the Euro pricing topped and reversed while the $ pricing once again topped a few months later and then reversed sharply.
The pattern is obvious. The Euro pricing is the leader and the $ pricing is the laggard.
However, as I have indicated from the beginning, the real leader may not be stock prices at all. It may be that those fluctuations in stock prices are symptoms of a simpler development.
Since 2004, I have suggested that rising commodities prices, especially rising fuel prices, would eventually slow down and then de-stabilize the global economy. I even specified that the issue was debt, and that eventually the cost of borrowing to pay for increasingly scarce resources would “pop the credit bubble” and bring down real estate prices worldwide, which I have been forecasting since 2003.
Above is a chart of the prices of a bundle of global commodities (priced in US Dollars and shown in blue) and an index of the overall prices of 1800 global stocks (priced in US Dollars and shown in red). It is easy enough to note that eventually (by 2007), the mutual rising of those two lines diverged. As commodity prices soared to such a high level that economic activity declined, like when the price for a gallon of diesel exceed $11 in the UK in 2008,  stock prices fell first and kept falling.
Once demand for commodities dropped enough that commodity prices came down, stock markets were already “caught in a tide” of a deflating credit bubble. In other words, the aggressive borrowing that had allowed for global stock prices to keep up with global commodity prices from 2004-2007 did n0t resume. Previously stable lenders were in trouble.
Naturally, I am oversimplifying a bit, but the basic idea is that a relative scarcity of resources (especially fossil fuels like oil) drove up commodity prices leading to other effects. The “relative scarcity,” by the way, is not that supplies of tangible commodities were plummeting, but that demand was growing at a historic pace while supply volumes (production of crude oil, for instance) was flattening or even declining slightly.
In the case of oil, this development (relative scarcity of oil supplies- relative to ballooning demand) was predicted in the 1950s and was repeatedly referenced in the 1970s by US Presidents Nixon, Ford, and Carter. However, that was just a national issue, since as US oil production peaked, the US could afford to import oil from elsewhere. now, with global oil production peaking in 2006, a much more widespread issue is emerging.
This issue is not specific to a particular exclusive region of the globe like the US or to a single currency or to a particular system of organized violence (court system) which enforces the value of all currencies and indeed of all financial contracts. There is no particular national political solution to a global economic shortage of fuel. Courts only have power over human activity (including the “activity” of human perception or interpretations in language), but not over the geological facts of the volume of oil reserves globally. Reports can lie, but deceptive reports do not deceive the wells or the amount of oil in the oil deposits.
That bring us to a different perspective on the prices of the global stock market. Above, we reviewed the price of the global stock market relative to the US Dollar and also relative to the Euro, which we also saw has a clear history of forecasting the trend reversals of global stock prices measured in US Dollars.
Now, let’s look at about 4 years of global stock market prices relative to global commodity prices. This is a chart showing changes over time in how much tangible resources can be purchased by selling the same set of global stocks.
The most obvious thing is that this chart has gone down rather consistently for all 4 years. There was no recovery in the tangible purchasing power of the global stock market in 2009 and 2010 relative to that particular set of major global commodities called “CCI.”
Global stocks measured in US Dollars made a low in early 2009. Global stocks measured in Euro made a low prior to that in late 2008.
However, prior to both of those, the above chart of global stocks relative to global commodities made a low in mid-2008, then rallied in to late 2008, then floated a bit for a year or two and recently broke sharply below the lows of early 2011.
As in late 2008, we may now see prices of global commodities and global stocks tumble together. In late 2008, global commodity prices did the worst, then global stock prices, then- much better than either of those two- the Euro did quite well. However, by far, the US Dollar did better than any of those 3 other alternatives (for late 2008).
That is a fit with what I began predicting in 2003. Now, we are one the brink of a continuation of the shift that was notable in global stocks by 2007. Relative scarcity of global commodities is slowing global economy activity, especially in relation to fuels, but that rising fuel prices also cause rising prices in transportation costs of all things shipped long distances.
Rising fuel costs are not inflation. If it was just inflation, then US real estate prices would not have begun a historic plummet in 2005. If it was just inflation, then global stocks priced in whatever currency would not have plunged.
Back in 1999, when global oil prices began a rally and doubled in less than 12 months, the prices of a group of companies very dependent on the price of fuel fell by 40%: airlines in the US. Stock prices of ending institutions also declined, though not as far. Again, the decline in prices of airlines and lenders preceded the top of the high-tech bubble as well as the broader stock market decline of 2000-2002.
Commodity prices matter. When diesel hit $11 per gallon in the UK (and Germany) in 2008, people changed their behavior, including business owners.
Stock prices shifted (down). Currency values shifted (eventually, way up relative to historical norms).
Now, the instability in the EU that myself and others have been referencing for many years is now getting attention from the mainstream media in the US. While there is perhaps no open talk of civil war, there have been a series of riots, including riots not directly explained by economics or politics. However, when an economy is de-stabilizing, that can manifest in “short-fuse” public hysteria, in epidemics related to stressed immune systems, and of course in prices.
Previously, people perceived that stocks were quite safe, as in a “safe haven.” Then, when stocks fell, people perceived that real estate was safe. Then, when real estate was safe, people perceived that all commodities, including gold and silver, would be safe.
However, silver prices fell over 90%  from 1980 to 2000. Is that the kind of safety that people are seeking?
In late 2008, the Euro was safer than most alternatives (rising against a wide variety of alternatives), and the US Dollar was even safer than that. This time, the Euro may not do so well. The entire EU may not do so well.
The economy of the EU is much more dependent on foreign oil than the US. The economy of the EU is a bit more like the economy of Japan, which is even more dependent on foreign oil, and has been in a deflation for nearly 22 years now.
Will Europeans (others who have been invested in the EU) flood to the US Dollar and US economy? I think so. However, I do not think that the US economy will do well.
In fact,  as we look at the chart above of Japan, the Japanese currency (Yen) has done extremely well in recent decades even though the economy there (and stock market prices) have not done so well. As the court system in Japan is recognized as more and more crucial to the economy of Japan, the Yen have been very well-respected by the Japanese and others.
Will the Yen or the Euro or the US Dollar collapse in to hyperinflation or a civil split (civil war) resulting in the use of multiple currencies? Or, will the global centralizing of court systems continue as the UN, World Court, World Bank, and BIS continue extending their empire?
In the case of the USSR, the central government disbanded, but initially a monetary union was maintained by 15 of the independent states (operations of organized coercion). As time went on, the various independent jurisdictions (of organized coercion) issued their own currencies.
See http://en.wikipedia.org/wiki/Soviet_ruble#Replacement_currencies_in_the_former_Soviet_republics
Russia continued to use rubles, but in the old USSR, rubles were only good to purchase certain things from the government, rather like credits for a prisoner in jail or like gift certificates that can only be used with a certain store or certain catalog. The rubles had no particular functionality outside of the USSR. Now, Russian rubles are traded in open market exchanges at variable rates with other national currencies.
Relative to the US and the $, the EU and the Euro may do well, but I do not expect so at least in the mid-term. While many in the US are concerned about the creditworthiness of the US Treasury, everything is relative in investment markets.
Relative to US real estate, US Dollars have done very well for several years. Relative to US stocks, US Dollars did so well in 2008 alone that stocks are still way behind and, as of recent months, have resumed falling.
Today, I have titled this blog post “when do global stock markets crash” because today is an interesting juncture in global stock markets. In 2003, I was already forecasting the type of stock decline that developed in 2007. I am clear, especially when looking at prices of global stocks relative to global commodities, that the decline that began in 2007, which I forecast back in 2003, did not end.
Further, in the days and weeks and months ahead, I expect that more and more will realize that the global stock market top in 2007 is not going to be exceeded any time soon. I expect that market pricing of global stocks, including in the US, will reflect that recognition with a series of large declines and increasing volatility.
In other words, people will increasingly recognize the value of the operations of organized coercion within their midst and increasingly recognize the instability of most if not all private lending institutions. I expect that the attention to credit ratings as if they are anywhere near as important as cash and cash flow will end.
English: Various Euro bills.

Image via Wikipedia

When a currency is only accepted by one particular government and that government operation of organized coercion has a functional monopoly on the operation of all businesses within a jurisdiction, credit ratings may simply not be an issue. Similarly, with food stamps, there is no issue of credit rating. Prisoners are not lent funds by the prison. Soldiers do not apply for credit lines at the commissary, but are issued a ration of coupons. During wartime, that is also common for civilians, and something similar happened in the US in the 1970s in regard to gasoline.
Private credit markets are destabilizing. I have published warnings about this since 2003. But that is just the symptom of a simpler issue.
Human populations are increasingly demanding access to diminishing resources. Governments will change or arise to stabilize and regulate access to resources.
Governments are operations of organized coercion. Organized coercion is the basis of the purchasing power of all currencies (and all financial contracts).
Increasingly, populations will recognize the value of organized coercion to maintain order. They will seek to pay off old debt and will diminish involvement in borrowing as well as lending. Private credit markets as we know them may cease to function, as in the case of jurisdictions like the USSR or Cuba. Public trading of private corporations may drop in volume considerably, or private corporations may be socialized, as we see happening in the US within such fields as education, gambling, health insurance, and health care, plus, as of 2008, the auto industry and banking industry. Of course, the US national government with the FDIC, FHA, HUD, GNMA, FNMA, FDMC, SLMA and so on… have long been involved in direct financial responsibility for much of the US economy.
50 years ago, what percentage of the public lived in government housing? 50 years ago, what percentage of the population received subsidies (like social security or unemployment) from the federal government?
How about 100 years ago? Socialism has made immense progress in the US in the last 100 years, though many might resist even considering that idea or would at least propose some other alternative as favorable.
Imagine that if the bureaucracy of the EU were to so dominate the economy of Europe that after, for instance, 150 or 250 years, Europeans forgot that Germany and France were ever not united? That would be like New Yorkers and Georgians forgetting their historical roots- back when they had independent currencies and very distinct cultures, and even fought in wars against each other. Impossible?
However, a major logistical problem in the EU is the absence of a common language. Will a global empire establish English as the imperial language, or will the EU dissolve, or what?
Well, I do not know yet. But the EU is facing huge logistical problems, especially due to rising gasoline prices which have recently approached their highs of 2008 (in Europe and elsewhere), and the US is in position to receive a huge surge of people seeking a “safe haven.” However, perceived safe havens have a history of being perceived as safe only temporarily.
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first harmony then prosperity

August 9, 2011
Harmony internally, then prosperity externally

Yes, “there is more to life than money.” Also important, “a fool and his money are soon parted.”

So be aware of the possibility of being foolish about wealth. Be aware of the possibility of being foolish about all of life or any of it. Then be aware of the possibility of being calm and clear and courageous about life, including the aspect of life regarding wealth.
Lately, many people are talking about financial risk and results that they have called surprising. Many of them have been investing their trust in mass media or massive bureaucracies like the insurance company AIG or the Federal Reserve or the government of the USSR– you thought I was going to say US, didn’t you?
What have been the consequences of investing trust in the mass media and massive bureaucracies? Have those results (perhaps such as being unpleasantly surprised) raised the question as to whether those methods might have been foolish? Is it possible that foolish methods of investing trust may produce the result of financial losses, rather like the saying goes that “a fool and his money are soon parted?”
What about discounting the importance of financial realities? Are finances suddenly important to you or were they always important and only recently recognized as important? How about this: are gasoline or electricity suddenly important to you or were they always important and only recently recognized as important because we could take them for granted until prices reached a point that we altered our perspective and our behavior based on things like rising gasoline prices.
For many years, I have been focusing on the possibility of rising fuel prices and their consequences on the economies of Japan, the USSR, Europe, and the US. My publication in 2004 of “the Real US Deficit: OIL” featured a section called “the DominOIL effect” relating to why I expected fuel prices to continue their dramatic rise that began in 1999 and what consequences I expected in the US, which I expected to be similar to what had been happening in Japan since 1989 and the UK and EU since 1999.
The next chart shows the all-time low of inflation-adjusted prices of gasoline in the US in 1999. Global oil prices also made a major low in 1999.
The last chart is a chart of the stock market of the UK. Next, here is what gas prices in the US were near the time of that article in 2004:
My central question (in this 2004 publication: www.gold-eagle.com/editorials_04/fibonacci110704.html) was “how many dollars will it cost to buy a gallon of gasoline next year?” Here is an 8-year chart of what happened:
(from here: http://www.indexmundi.com/commodities/?commodity=rbob-gasoline&months=120)
Some people have questioned my logic because of oil and gasoline prices falling sharply in 2008.  However, for those that have the courage to read my old articles, I did not say that demand for fuel would never drop or that prices would never drop.
On the contrary, I simply said that diminishing supplies (since the easily predictable peaking of global oil production in 2006) would raise prices enough to slow down the global economy, including that of the US. That predictable slowing of economic activity would predictably reduce demand for fuel, which would predictably drop prices. The drop in 2008 does not disprove the accuracy of the logic, but establish it. I may have even published all of that content, but it is pretty easy to see the logic one’s self if one is willing and able to face the simple facts.
How can the global economy expand after the 2006 peak in oil production? It must contract. Economic activity drops as fuel supply drops. Things like currency inflation or credit deflation are secondary financial measures relative to a primary tangible economic issue like an empty fuel tank in your car. Having lots of cash or credit but being out of gas in the middle of a desolate highway do not make a fool into a genius. Primary functional economic tangibles like gasoline and food are the things that we value having currency to access. No one cares much about currency (or gold) when they are starving, right?
So, it was the spiking of fuel prices by 2007 that were accompanied by the steep decline of global stock prices in 2008. After stocks began to plummet, fuel prices did too eventually- all as I predicted. Further, real estate borrowing had predictably diminished considerably as well, so real estate prices predictably declined dramatically, which resulted in financial trouble for many financial institutions, such as FNMA, AIG, and WaMu, as I specifically predicted in a video that has been online since 2006. (I can send a link to those interested.)
Once fuel prices fell, the global stock market began to recover. However, gasoline prices in the US recently approached their 2008 highs again (in red below).

In 2007, stocks peaked while gasoline (and silver) rose. Then silver peaked next in early 2008), then gasoline. Doesn’t that imply that rising fuel prices may have been the cause of the decline in prices of stocks (in the US and globally) and even of silver? Or maybe it was the high silver prices that brought down everything, right? 😉
When gasoline prices in the US reached a high enough level in April to reverse the spending behavior of the US economy, dropping demand enough to reduce purchases and bring down gasoline prices. However, that reduction in a fundamental behavior within the US economy also brought down the prices of the US stock market (blue above) and even of silver (green above).
In fact, those three things peaked on the exact same day: April 29th, 2011 (close-up shown below). But no one could have predicted that rising gasoline prices would have in any way effected the US economy or spending habits or stock prices or even silver prices, right? Rising fuel prices could not really have any effect on popping bubbles of speculative mania, would they?


Then again, maybe the cause was President Bush or President Obama, not gasoline prices. Or maybe they are personally responsible for gasoline prices- like maybe whether the prices of gasoline rise or fall is totally dependent on the choices of exactly one person.
But why did the Japanese economy slow down in 1989? Why did European economies begin to slow in 1999? Did $11 gallons of diesel in the UK in 2008 have any effect on the spending behaviors and economic activities of business and consumers within the UK?
Possible? Yes.
Predictable? Yes!
So, what is coming next? More selling of stocks and real estate. I’ve been warning of that since before 2004. I knew that the speculative bubbles would not last forever and were nearing their extremes. Real estate began peaking in 2005 (in places like Phoenix) and soon extended to most of the US (and much of Europe etc).  Stocks began peaking in the US in 2007 (at least for most sectors, excluding high tech, which peaked several years prior).
Of course there were a few exceptions, like the US stock sector HUI (shown above). However, the mining stocks of HUI are part of the same economy, too. They actually peaked in early April this year (pink):
What has done well? Here are a few examples of gains approaching 100% gains in the last 10 days:
What else did well lately? I sold a put option for $1.07 today that closed Friday at $.17. That change (up over 400%) is a pretty decent increase for a single day, right?
But remember, the mass media and massive bureaucracies may indicate that there is no such thing as predictability, or at least not in certain instances. Even notice that as you are reading this sentence, there is absolutely no way to predict that this sentence is going to end with a punctuation mark, is there?
No one could have predicted any of this. The future is completely unrelated to the past- not just your personal future, but even the future of how this sentence is going to end.
Nature does not have any patterns in it. And that, as always, is entirely the fault of the US President. Or the Federal Reserve. Or OPEC. Or this sentence.
So how are we going to fix the problem of nature not having any predictable patterns in it? First, let’s blame someone else because that has always worked marvelously in the past, right? Then let’s wait for the person that we blame to save us from them. Finally, let’s complain about how waiting for them to save us from them is still not working again as usual as always.
Just do not adjust. After all, adjusting could effect your actual results, and no one is interested in financial security or economic prosperity because that would be evil and shameful and of no functional relevance whatsoever. So, is any of this fooling you?
Keep in mind that sometimes translations can shift the implication of a message. If someone were to suggest that proudly foolish naivete about financial speculative bubbles was a major risk, deserving great caution, do you think that message might be translated like this: “proud attachment to ideals about wealth is dangerous” or even “the love of money is the root of all evil?”
It’s not ignorance that is most risky. It is believing that something is so when in fact it is not.
From an emotional or irrational attachment to false presumptions, blame and anger and grief and agonizing and proud argumentativeness and shame all may arise predictably. Learn that, either the easy way or the hard way, but learn it fast.
By the way, yesterday at the close of trading (Monday 8/8/2011), I purchased some call options on the US Stock market. Those positions rise in value when stock prices rise. After one of the biggest down days in US stocks in decades, I understood that the panic of the masses after the weekend downgrade of US debt could be a short-term buy signal for US stocks.
So, after stock futures dropped another 2% in overnight trading, they then reversed 4% and are again pushing toward an open of more than 2% up. That should produce overnight gains of well over 100% for those instruments.
UPDATE:
I sold those call options for a gain of only 40% overnight. But that was just the start of the day. It got better…..
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“negativity” about when gas prices will be 65 cents again

August 7, 2011

Let’s start with an analogy. Then, I will tell you about when gas will be 65 cents per gallon again and when the US economy will recover. Okay?

Do you know how much the speed limit is for a school zone? Many school zones have speed limits around 25 miles per hour, but they can even be as low as 15. Imagine, however, that someone was driving through a school zone at about 50 miles per hour. This was during school hours, but there all that happened in this case was that the driver hit a speed bump pretty hard and was startled to notice that there was a bump there and only then noticed that the speed limit was 25.

Now, I do not know how many of you know any 84 year-old women. However, some 84 year-old women do not like the idea of speed bumps. Some of them say things like “I am concerned that this speed bump could damage my car.”

I might say, “the speed bumps are not likely to damage your car if you drive over them at 15 miles per hour instead of, for instance, 50 miles per hour.” She might say, “yeah, but I do not appreciate those people trying to damage my car like that. It’s just not right!”

So, this is how I found out about the 50 mile per hour race through the school zone and her startling discovery of a speed bump right there in the middle of the school zone. I said to her “wow, you know that driving 50 miles per hour over a speed bump can damage your car, right?”

She said, “Yes, but I do not appreciate your negativity about the subject. Think positive.”

I said, “I am thinking positive. I am thinking that because you like to stay out of jail, then you can observe the speed limit, especially in the school zones, and make sure to slow down before you drive over those speed bumps. It’s just not safe to drive that fast in a school zone.”

“So what you are saying is that should I buckle my seat belt? You always say that and it is so annoying!” she said.

“Didn’t you have it on?” I replied.

“No, I don’t like how they feel. You know that the strap just bothers my neck,” She said.

So, that is sometimes how conversations go. People may categorize as negative something that they would prefer to dismiss.

Categorizing something as negative- other than a negative number or a negative ion– can actually be a process of dismissing it or negating it. The so-called negativity of a recommendation to slow down before driving over a speed bump is not inherent in the recommendation or the speed bump. The label of negativity implies a contrast between positive reinforcement or encouragement and negative reinforcement or discouragement.

Now let’s talk about gas prices. Gas prices used to be 65 cents in the United States. That was many decades ago, but many people remember when prices were around 65 cents or even lower.

Imagine that someone asked in 1980, “when are gas prices in the US going to recover to their prior level of 65 cents?” I might say, “never.” They might say, “do not be so negative. Think positive!”

Next, imagine that someone asked in 1990, when are gas prices in the US going to recover to their prior level of 65 cents? I might say, “never.” Again they might say, “do not be so negative. Think positive!”

In the year 2000 or 2010 or 2020 or 2030, someone might keep asking me when gas prices will recover to their prior levels. I may keep answering the same answer. They may keep dismissing my answer as negative.

Next, let’s talk about stock market prices in Japan. We could be talking about real estate prices in Japan, but let’s talk about stock market prices in Japan.

In 1990, someone might have asked when are stock prices in Japan going to recover to their 1989 high. Someone might answer, “they might not ever recover to that level.” That might be called “negative,” right?

In 2000, someone might have asked again when are stock prices in Japan going to recover to their 1989 high. Someone might answer again, “they might not ever recover to that level.” That still might be called “negative,” right?

In 2010 or 2020 or 2030, someone might continue to ask when will the Japanese economy recover, when will stock prices recover, or when will real estate prices recover. The answer may still be “maybe never.” That answer still may be dismissed as negative.

Consider that one factor in the Japanese economy is the cost of fuel, which was recently over 7 dollars per gallon when priced in US Dollars. As fuel prices rose there, that effected the spending and borrowing behaviors of businesses and individuals. Their economy slowed down, kind of like an 84 year-old woman who was already startled by a speed bump the last time that she drove through that particular school zone. High fuel prices were like a speed bump interrupting the prior economic patterns from when gasoline was 65 cents a gallon.

In 2008, prices of diesel briefly exceeded $11 per gallon in the UK. As fuel prices rose since 1999, the economy of the UK hit a speed bump. People bought less stocks and sold more stocks. Stock prices came down since 1999. Real estate prices came down, too.

Many people asked when would the UK recover. Other people said “maybe never.” Some people dismissed that answer as negative.

(UK stock market prices 1984-2011):

Now, let’s talk about a few price forecasts. In 2004, I published a forecast of rising prices for fuel worldwide and a series of predictable consequences on prices of other things, such as US real estate and US stocks.

These forecasts were based in part on the observation of prior developments such as in Japan or the UK. Even moreso, these forecasts were also based on reports from oil geologists going back to the 1950s.

I first published a warning about a decline in US real estate prices in 2003. I saw the change in lending behavior (in credit markets) and deduced the eventual consequences of it. At the time, I did not connect the change in lending behavior to the change in fuel prices. That was in 2004.

Many people have called my forecasts “negative.” In fact, my forecasts of a drop in price in various markets were forecasts of negative price change for those markets. My forecasts for rising prices for oil and gasoline (when that was my current forecast at the time) were forecasts of positive percent increases as in rising price change.

In my 2003 publication, I featured a US stock sector that was doing much better than the rest of the US stock market at that time. By 2010, the stock prices of that group of US stocks was up over 1600%. That would be a positive change in price. Prices of other things decreased or changed at a negative rate. Some forecasts are negative and some are positive.

Right now, I also forecast that driving over speed bumps at 50 miles per hour can damage a car. We could call that a forecast of a negative consequence. It is not positive thinking to talk about how driving over a speed bump can damage a car. Positive thinking would be something else entirely, like thinking positively of driving 25 miles per hour in a school zone while actually driving 50 miles per hour in a school zone.

So, when will the economy of Japan recover to what it was when gas was 65 cents per gallon? It might not. When will driving over a speed bump at 50 miles per hour be safe? It might not.

“Yeah, but when is someone going to remove that horrible speed bump from that annoying school zone?” They might. However, now the speed bump is there.

“Yeah, but when will gasoline be 65 cents per gallon again?” It might. However, it isn’t that now. It is something else.

In fact, gasoline prices are not the same everywhere. We mentioned that gas prices in Japan and the UK were higher than some other places. There is a table of prices here: http://en.wikipedia.org/wiki/Gasoline_and_diesel_usage_and_pricing

For instance, in Saudi Arabia or Iran or Libya, gasoline prices have recently been about 65 cents per gallon (with prices converted to US Dollars). Those places have a lot of oil and not so much demand from cars. You can imagine how people in Japan or the UK feel about gasoline prices that are less than ten percent of what the Japanese and British pay in those places with high demand for auto fuel and little or no crude oil.

In Venezuela, gas prices have been about 10 cents per gallon for many years (with prices converted to US Dollars). Again, you can probably imagine how jealous the people in Arabia or Libya feel about gas prices of only 10 cents per gallon.

Someone recently asked me “when are prices of gasoline going to be 10 cents again in Saudi Arabia? They are all the way up to 65 cents per gallon now- isn’t that just horrible?” Can you guess what I told them?

Naturally, what I told them is that gasoline prices will only recover after people stop driving 50 miles per hour over speed bumps. Further, US economic growth will not recover to come close to what it was when gasoline here was 65 cents per gallon unless it does. It might. It might not. It hasn’t yet.

It is interesting to note that, in Kuwait, the net trade surplus from oil is over $33,000 per year per person. That is an unusually large transfer of wealth from other nations to that one, like for an infant who happens to be born there.

My forecast continues to be that oil-rich regions like Alaska, Arabia, and Alberta will continue to experience profound economic growth relative to places like the UK or Japan or Nevada. I might be wrong, though. After all, the Soviet Union dissolved even though it was one of the most oil-rich regions of the planet (but not per capita- just overall).

Eventually, one of my forecasts will probably be wrong- even inevitably. So far though, there has been a distinctively positive correlation between my forecasts and actual developments. Many other people have made alternate forecasts based on such methodologies as “positive thinking” and “hope for change” and “irrational exuberance,” but there has been a negative correlation between their declared forecasts and the actual reality that emerged.

Now, I have a few more questions for you. If a person has $50,000 of cash and then they make a new promise to pay $500,000 on a mortgage, then how much additional cash do they have after making that new promise and spending $5,000 as a down payment on their real estate speculation? Did you notice that the question itself reveals a lack of comprehension of the subject matter?

Next, if an insurance company has $50 million dollars and then they make new promises to pay up to $500 million dollars in policy claims, then how much additional cash do they have after making all those new promises and spending $5 million in paying out prior debts? Again, did you notice that the question itself reveals a lack of comprehension of the subject matter?

If a bunch of naive stock market speculators pour millions of dollars in to trading the stocks of various companies, such as AIG (pictured above) how much does that increase the profitability of those companies? In other words, how much does it increase net profits of a company when investors buy and sell stocks of a company? It doesn’t.

Similarly, when investors buy and sell stocks of other companies, driving up those share prices, does that really have any lasting effect on the tangible book value of other companies who also own sharing of, for instance, Enron or AIG or FNMA? How do fluctuations in the market pricing of the stocks for a company filing bankruptcy effect the debt to asset ratio of the company (their solvency)? It doesn’t.

To compute the book value of one thing off of the market pricing and recent comps of another thing is one method of computing a book value figure. However, to do so reflects some fundamental presumptions about prices, the stability of prices, and, in particular, the risk of the sudden deflating of credit bubbles (as in bubbles of legally valid promises for future performance which may or may not actually occur in the future as promised).

I assert that most people are not related realistically to the reality of prices (or speculative bubble of credit promises). For instance, they may not be related to the reality of how gasoline prices vary from place to place and from time to time. They may even call such variations in pricing unpredictable or incomprehensible or horrible or negative or unfair.

Similarly, most people may not be related to a realistic future cash value of their insurance policies or their real estate or their stocks. They may be surprised by future variations in pricing.

Accountants may know the term “Tangible Book Value Per Share.”
http://www.investopedia.com/terms/t/TBVPS.asp

That is a computation of the value of a business based in large part on current assessed value of current assets. Some companies may have a negative “book value,” such as insurance companies who regularly make promises far in excess of their current capacity to pay.

Again, those computations are based on current assessments, including current assessed value of their stock holdings in other companies and current assessed value of their real estate holdings. But that is a problem. “Book values” are being computed based on other assessed values (current market pricing), not on other “book values.”

Accountants may also recognize other ratios such as Price to Book Value. That means a ratio of the difference between the market pricing or assessed value and the book value, which is computed off of other market pricing or assess values. Again, do you notice the irony in this?

How much additional cash does an insurance company have after making new promises totaling $500 million in debt? They might not have any new cash based on taking on new debt.

How much additional cash does a real estate borrower have after making new promises totaling $500,000 in debt? They might not have any new cash based on taking on new debt.

Finally, how much additional tangible book value does a company have if the market pricing of it’s own assets rises by 100%? If those assets with rising market prices are just inflated real estate mortgage contracts or inflated stock prices or inflated promises from insurance policies, there might not be any new tangible value in that company.

New promises do not in themselves produce new tangible value. New debts do not equal new net profits.

Call this comment negative if you like, but going 50 miles per hour does not remove the speed bump from the road ahead or convert the school zone into an abandoned highway. Consider also that there is an immense opportunity present, but it is not available by presuming first that prices never change, and second that when they do, those changes are totally unpredictable.



www.OneEyedKingsWealthClub.com
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worth its weight in oil PART 2

October 29, 2010
The shift of influence from the USA to the Middle East
Shifts in influence and power are inevitable, and even constant. Let’s focus first on one of the most obvious developments of the last one or two hundred years: the rise to global prominence of the USA.

Of course, the USA is only a few hundred years old, but it has been a very distinctive emergence. In particular, an enormous shift of influence away from Europe to North America, particularly the USA, has developed in the last hundred years or so.

After several prior centuries in which European empires have been prominent worldwide (such as the Roman Empire or the colonization of the Americas by the British, Spanish, and French), for at least the last one hundred years, European authority has been receding. The USA is widely identified as the subsequent center of imperialism, with the only major competition to the imperial dominance of the USA in the 20th century coming from the USSR.

In the 20th century, what distinguished the USA (and the USSR) from the previously dominant regions of Europe? How about the most important new commodity in the world: oil?

The USA was the home of the development of the oil industry. The USSR was the host of some of the largest deposits of oil discovered in the early 20th century. By the 1940s, Germany and Italy, two of the last of the old European powers, surged across Europe into the USSR. The UK and later the USA partnered with the USSR to oppose the advance led by Germany. By the end of the conflict, Germany and the UK (and France among others) were ravaged and receded from global prominence.

The USSR had 22 million casualties, yet still emerged as a primary global influence, second only to the USA (or first, depending on who is ranking the two). But beyond the rivalry of these two, no other rivals were even close as of the 1950s or 1960s.

Русский: Марка СССР English: June 14, day of A...

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So, oil brought the USA and USSR to global prominence. By the mid-20th century, the world’s two leading producers of oil were the USA and the USSR, which were military allies in World War 2. These two countries were also the leading exporters of oil.

Countries that produce and export oil can be called “oil producing and exporting countries,” as in O.P.E.C. By 1973, the term OPEC became associated not so much with the original leaders in the oil industry (the USA and USSR), but with Middle Eastern nations such as Saudi Arabia and Iran, where recent discoveries of oil- indeed a majority of the world’s remaining oil deposits- catapulted that region into global prominence. That brings us to a predictable shift in the near future: the continuing rise to global prominence of the Middle East, with the foundation for riches and influence still being oil and the associated petrochemical industry (including gasoline, plastic, pesticides, medicines, etc).

However, there are many contrasts between the rise of the USA and USSR compared to the rise of the Middle East. Note that Middle Eastern countries have a single dominant language, Arabic, and the populations are overwhelming of the Muslim traditions (Shi’ite in particular).

That internal consistency constrasts sharply with the previously dominant regions of the world, the USA, USSR, and Europe. In those areas, populations are predominantly of Christian heritage, even if not actively religious. But even more dramatic is the tremendous variety of languages across the regions prominent in the 20th and 19th centuries. Even the written alphabets vary considerably, ranging from Russian with Cyrillic characters to vowels with a variety of complex accent marks across Europe.

If the USA and USSR had a more harmonious heritage and a common language, perhaps they would have remained allied beyond the 1940s. What if the advancing oil-rich Middle Eastern countries unite their influence under their common language and cultural heritage? Consider further that the USSR and Japan (another major economic force) deteriorated quickly as of the late 1980s. More recently, the USA, UK, and EU have also been reeling economically, perhaps heading for the same fate as Japan and the USSR.

Notice also the increasing criticism by the West toward Islam. Islam is not only a prominent part of the Middle Eastern nations, but also of the emerging economic powers of India, Indonesia, Malaysia, and so on. Should Westerners be concerned about the rising economic influence of the growing Islamic populations of the world?

The West is de-stabilizing economically and internal tensions are escalating. There is conflict between Greeks wanting to be bailed out by Germans, riots within italy and Mexico, and new animosity between political parties in the USA. At the same time, there is also a growing religious bias that is reminiscent of the beginnings of the Spanish Inquisition against the Muslims (or the Nazi crusades against the Jews). Is that all a coincidence?

Consider the issue of the treatment of women in Islamic countries. In some countries, it is about the same as it has been for quite a while. In other Muslim countries, treatment of women has shifted toward equality.

However, only recently (as distinct from in the 1930s or 1950s when this issue was ignored), Westerners are more frequently making critical references to the treatment of women in certain parts of the Middle East in particular. Is there much criticism of the treatment of women in Asian sweatshops? Walmart shoppers do not ask about the treatment of the garment makers much, yet the treatment of women in the Middle East may suddenly emerge as a target of scorn and moral outrage.

Could it be that the oil reserves of the Middle Easterners are attracting more and

Traditional definition of the Middle East G8 d...

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more attention from Americans and Europeans and Russians? Could it be that some of that attention is openly belligerent or at least condemning (“passive aggressive”)? Could there be new fear about cultural differences that simply were not relevant for the USA or USSR in 1930 or 1950, when those were the oil-rich nations on which importers like Germany and Japan depended for exports? Note that German and Japanese belligerence eventually was targeted at the USSR and USA, who were, by the 1940s, the world’s new emerging superpowers as “oil-producing and exporting countries.”

Are Westerners now organizing their attention on justifications for exerting military influence in the Middle East? In the mid-20th century, the US championed the Shah of Iran, marking a new level of direct involvement in Middle Estern politics by the USA. Western support for the formation of Israel is also distinctive, as well as lesser-known involvements such as in the case of the island of Diego Garcia. More openly admitted was the so-called civil war in Afghanistan in the 1980s, which was largely a conflict between the USSR and USA.

Western countries today may be overly dependent on imports of oil. If these western countries implode economically in debt crises (similar to that of Japan and the USSR by the early 1990s), will suburban populations begin to focus more on access to oil? Will westerners divide against themselves politically? Will they realize that cheap Chinese imports (from sweatshops or otherwise) are insignificant practically when compared to access to oil?

 

Will the baby boomers realize that oil is far more valuable to them than gold or any paper contracts, including any contracts relating to future possibilities involving gold or real estate or even oil itself? Thinking back to the oil shortages of 1973, would you rather have a paper coupon that might be redeemable for a gallon of gasoline… or the actual gallon of gasoline?

P.S. Note that the above is something of a follow-up to my article of five years ago in which I connected the idea of US dependence on foreign oil imports to a coming spike in oil prices and associated de-stabilizing of the US economy (which was headline news by 2008).

 
http://321energy.com/editorials/fibonacci/fibonacci090705.html
Navigating the New Economy, Lesson 1: “Worth its Weight in OIL”

 

 

 

J.R. Fibonacci
September 9th, 2005

That article was further cited in an MBA thesis by a Columbia University student:

http://www.google.com/url?sa=t&source=web&cd=1&ved=0CBMQFjAA&url=http%3A%2F%2Fwww.ldeo.columbia.edu%2F~odland%2FOdland_PeakOilMgt_Dissertation.pdf&ei=oG7KTISwB4musAOhraXmDg&usg=AFQjCNGsbUPEJzzjurbXiFSwTQCFqhkdeA&sig2=oqeMDB4NCZ05WLvb8jsBHQ

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