Provisional Truth | Comment | 2008
Comment:
Something To Think About...
07/09/2008
July 9, 2008:
And Now for Something Completely Different...
What began three years ago as my "observations regarding
humankind's essential quest for truth" - Provisional Truth -
so often has ranged far afield into many other disciplines,
especially economics, that I have decided to create a
separate venue to pursue my interest in the "dismal
science," a field of study which exists, according to John
Kenneth Galbraith, only "to make astrology look
respectable."
So, with apologies to J.K. Galbraith, historian Thomas
Carlyle (who coined the term "dismal science") and Monty
Python...Now for Something Completely Different:
Anecdotal Economics
At
Anecdotal Economics you will find my entire archives of
essays and commentaries about the current state of affairs
in global economics, finance and investment, along with new,
regularly posted insights, and, mostly, as with all other
forecasters and predictors (and astrologers), guesses as to
what may come in an unknowable future. I will list my
Anecdotal Economics comment titles here at Provisional
Truth, with links to each post, so it will be easy to
navigate back and forth.
I hope you enjoy Anecdotal Economics and continue to visit
Provisional Truth for non-economic observations regarding
humankind's essential quest for truth.
Top
05/10/2008
May 10, 2008:
The
New Inflationary Epoch
Doug Noland who writes the
prescient and superb
Credit Bubble Bulletin at Prudent Bear picks up on our
theme regarding some of the causes of current and future
commodity inflation (See
Food for Thought and
Inflation's Early Warning System Validated)
in his
05/09/2008 post:
Especially since the Fed’s Credit System Bailout,
anticipating Heightened Global Monetary Disorder has
been a key CBB theme. The ongoing relevant question:
how much would (in particular) China, India, Russia and
Asia be willing to pay to procure adequate supplies of
food and energy for their populations and economies?The
obvious answer is “we have no way of knowing”, but the
market is becoming increasingly cognizant of the reality
that today’s massive international reserve positions
provide
virtually unlimited purchasing power.
The bidding war has begun in earnest, in what
increasingly appears A New Inflationary Epoch.
Noland observes the
international reserves positions of BRIC (Brazil, Russia,
India and China), OPEC nations and other countries are
significant, and almost exponentially have grown in the last
decade, and provide a handy bankroll with which these
countries, mostly authoritarian regimes, may buy social
peace, continuing:
I
don’t believe it is mere coincidence that crude has
posted about a 30% y-t-d price surge at the same time as
international reserve positions have expanded at about a
30% annualized rate - to a stunning $6.769 TN. Over the
past 4 ½ years, official international reserves have
ballooned an unprecedented $3.921 trillion, or 138%.
During this period, crude prices surged almost 300%.
Chinese reserves ballooned more than four-fold over this
period to $1.68 Trillion; India’s reserve position
tripled to $303bn; and Brazil enjoyed a four-fold
increase to $189bn. After beginning 2004 at $73bn,
Russian reserves have almost reached the half Trillion
mark ($493bn). And in just the past year, OPEC reserves
have inflated 42% to $490bn. To be sure, the world
is awash like never before in excess “liquidity” for
which to bid up prices of critical tradable resources.
Evidence of
the firepower of international reserves already is
registering in various commodity indices, and in our daily
lives in the form of higher food and fuel prices:
The CRB Commodities index closed today at
an all-time high, sporting a y-t-d gain of 19% and
one-year rise of 37%. The Goldman Sachs Commodities
index, also ending at a record high, has gained 28% so
far this year and 68% over the past 12 months. During
the past year, soybeans have gained 85%, corn 72%, and
wheat 68%. Prices for iron ore, steel and hard
commodities have experienced similar price inflation.
Gasoline prices are up almost 40%, natural gas about
50%, and heating oil about 90% over the past year.
But countries seeking to quell
any possibility of social disorder can explain only a
portion of the dramatic disruption of global commodities
markets in the last 12 months. As the residential
mortgage bubble began bursting a year ago, a tsunami of
speculative liquidity seized on commodities markets as the
next great bull market opportunity for huge profits.
...the leveraged speculator and sovereign
wealth fund communities remain awash in financial
resources that embolden huge speculative positions in
various energy and commodities markets – essentially
“front-running” real economy purchases. It’s turning
into a battle royal – and a prime dynamic of A New
Inflationary Epoch. Perhaps others recall the
commercials that seemed to run nonstop on CNBC during
the 1996/97 Asian crisis: Make easy currency trading
profits from the collapse in the Thai baht, Indonesian
rupiah, the Malaysian ringgit, and the South Korean
won. I remember thinking at the time how repulsed Asian
policymakers must be at the thought of retail U.S.
speculators shorting their currencies, while their
citizens and economies suffered through such devastating
financial, economic, and social upheaval.
Led by fast-money hedge
funds, Wall Street isn't far behind as new "financial
products" are rushed to market to capture the ultimate
source of liquidity necessary in all bubbles: the gullible
finances of Main Street. A number of commodity indexes
now are widely followed, including the energy-dominated
Goldman Sachs index, a Dow Jones-AIG index and the (Jim)
Rogers International Commodity Index, and a couple of dozen
or more Exchange Traded Notes (ETNs) have been introduced in
the last year or so. (See
Elements ETNs,
iShares Commodity Indexed Trust,
iPath DJ-AIG ETNs.)
Not to be outdone, this
month Morgan Stanley is introducing its
Commodities Alpha Fund to "high net worth" investors,
which it describes as "an actively managed mutual fund that
offers high net worth investors the opportunity to gain
direct access to the potential return and portfolio
diversification benefits of the commodities market and the
expertise of MSIM’s Quantitative and Structured Solutions
investment team."
No doubt the phrase
"potential return and portfolio diversification
benefits...and the expertise of MSIM’s Quantitative and
Structured Solutions investment team" figured prominently in
Morgan Stanley's promotional literature to clients for
previous investment products such as Structured Investment
Vehicles, Residential Mortgage Backed Securities (hey
they're AAA-rated!) and Collateralized Debt Obligations.
Other Wall Street firms
soon will follow with similar offerings to its "retail"
clients, of which these firms require an abundant supply to
suck up even more casino liquidity to blow this emerging
bubble into stratospheric proportions.
These clients, as in the
dot.com bubble fewer than 10 years ago, and the currently
deflating housing bubble, will scramble en masse to throw
money at the latest get-rich-quick investment opportunity,
only to be burned yet again when the commodity bubble pops
(and it will). " 'Deal faster,' cried the losers," I once
overheard in Las Vegas. Some things will never change.
Noland concludes
the world's forces of speculative finance today are focused
on energy, commodities and the “emerging” economies:
Unlike tech stocks/junk bonds, and U.S.
mortgages/houses, it is today extremely difficult to
meaningfully increase the supply of energy, agricultural
commodities, and many natural resources. Moreover, the
longer this boom is sustained the greater the demand for
energy and commodities from the likes of China, India,
greater Asia and the Middle East. And the higher prices
rise, the greater the tendency for hoarding and
problematic supply disruptions – only aggravating
supply/demand imbalances and emboldening aggressive
speculation. And unlike previous inflation
manifestations that tended to remain largely contained
within asset markets, today’s virulent energy and
commodities inflation will spawn broad-based secondary
price effects. As recent trends corroborate, inflation
begets only greater inflation.
The reality that powerful inflationary psychology has
taken hold - and that the world’s leading central banks
show no inclination to confront this worsening problem -
motivates tonight’s title, “A New Inflationary Epoch.”
And so we proceed from
bubble to bubble to bubble. Now that the Federal
Reserve and other central bankers have provided the illusion
the impending global financial meltdown, which reached
crescendo in mid-March, has been stanched and the crisis has
passed, its back to business as usual as Wall Street
scrambles to take advantage of this latest opportunity for
big-time profits.
Wall Street cannot create
more oil, gold or grain, but - watch out - in can create the
paper necessary, and in vast quantities, to give its
dupes very good clients the illusion of a new
source of easy wealth, but at what cost around the world.
Top
02/26/2008
February 26, 2008: The Next Crisis
I used to think that
the fastest way to become worried about markets was
to stare into the bowels of a monoline. No longer. A
few days ago, I happened to hear Goldman Sachs
discuss the state of the global financial system
with European clients.
And what struck me
most forcefully from this analysis - aside from the
usual, horrific litany of bank woes - was just how
much trouble is quietly brewing in corners of the
commodities world.
Never mind that oil
prices are high; that problem is already well known
and reams of ink have been spilt debating that,
along with the pressures in metals and mineral
spheres.
Instead, what is
really catching the attention of Goldman Sachs now
is the outlook for agricultural prices. Or as Jeff
Currie, head of commodities research at the US bank,
says with disarming cheer: "We think we could go
into crisis mode in many commodities sectors in the
next 12 to 18 months . . . and I would argue that
agriculture is key here."
Continue Reading
The Next Crisis...
Top
February 3, 2008: Chicken Soup for the U.S. Economy
A head cold
lasts a week if you treat it, seven days if you don’t.
Chicken soup often makes one feel better, as do some
medications, but they do nothing to cure an illness caused
by a constantly mutating virus. A cold’s symptoms, the
sneezing, runny nose and congestion which make one feel
miserable, are not caused by the infecting virus, but, in
fact, by the defense mechanisms employed by the body to rid
itself of the infection.
The U.S.
economy has caught cold, and it will last the usual amount
of time, about half a year for a mild case. Symptoms only
now are beginning to be evident: slowing economic growth,
rising unemployment and jobless claims, a weakening dollar
and falling asset prices in residential real estate and the
stock market. The Federal Reserve is ladling out economic
chicken soup as fast as it can in the form of liquidity
injections and slashed fed funds target rates, but the
economy still is starting to feel lousy.
We view the
current recession as that seven-day cold (and it sure seems
like we’re in a mild one now, with preliminary 4th
Quarter 2007 GDP falling to +0.6%). Annoying, frustrating
and to be ignored only at a greater risk of developing
something far worse from a weakened immune system, but not
something to be overtreated. But, of all the luck,
we’re in the middle of an election year.
And so we are
seeing a concerted effort to “treat” the symptoms which have
been caused by the economy’s own infection-fighting
mechanism designed to wring excesses from the system. The
Fed and the U.S. Treasury have run to the Congressional drug
store for a strong dose of good-old-fashioned fiscal
stimulus, which may mask some of these symptoms but will do
nothing to cure the disorder. That the economy must do for
itself. Whether it can, or lapses into something worse, is
the trillion-dollar question.
Continue Reading
Chicken Soup for the U.S. Economy...
Top
08/05/2007
August 5, 2007: What a Difference a Fortnight Makes
Pop. That would be the sound of a bubble bursting. From
gushing liquidity to credit crunch in two weeks.
Thursday, July 19th, Wall Street celebrated a
closing Dow Jones Industrial Average above 14,000,
concluding a four-month, 2,000 point run-up. Private equity
fund and hedge fund managers were riding a tsunami of global
liquidity with which no takeover deal would be left behind
and every opportunity would be leveraged to the hilt.
Friday, August 3rd, as the Dow was plunging 280
points in the wake of Bear Stearns' CFO proclaiming bond
market turmoil the worst in 22 years, fears of a global
credit crunch gained traction.
From “What, Me Worry?” in mid-July to
CNBC clown prince
Jim “Boo-Yah” Cramer Friday afternoon screaming the Fed
had to “do something” to keep the liquidity engine from
seizing.
Cramer effectively was lobbying for a federal bailout of
Bear Stearns and Countrywide Financial and other lenders,
and for the Fed to lower rates to lower interest rates on
the ridiculous premise that lower rates would allow troubled
mortgages to be refinanced, ending the sub-prime mortgage
meltdown.
“If the Federal Reserve lowers rates,” according to Cramer,
“people will refinance, the liquidity will come back, and
not only will this problem go away, but we'll (the Dow) will
go up a thousand points. (See it
here.)
Please note, Mr. Cramer, sub-prime and Alt-A homeowners
granted “liar loans” for overpriced real estate using
dubious, or outright fraudulent, documentation will NOT be
able to refinance their mortgages under any conditions which
would allow them to keep their homes.
Continue Reading
What a Difference a Fortnight Makes...
Top
June 29, 2007: American Empire
Retreats One Step New!
The American Empire retreated a step
yesterday, if only temporarily, when the President's sweeping
immigration bill failed to garner sufficient votes in the U.S.
Senate. The bill, which would have provided amnesty and a path
to U.S. citizenship for millions of illegal immigrants, evidently
offered something for everyone to hate, conservatives and liberals
alike, as it became loaded with amendments and side proposals to
address the complexity of what originally was perceived to be a
simple set of immigration issues.
One such proposal, entitled (apparently
with little sense of irony) DREAM, the Development, Relief, and
Education for Alien Minors Act, would have created America's
first true mercenary element within our armed forces.
DREAM would have applied to an estimated
750,000 undocumented residents of military age, and stipulated that
those who arrived in the United States before age 16, graduated from
high school, and meet other qualifications could immediately
enter the path to citizenship in exchange for at least two years'
service in the armed forces.
Continue Reading
American Empire Retreats One Step...
Top
Top
June 1, 2007: Credit Market "Bubble" May Be
At Bursting Point
This story by Mark Gilbert of Bloomberg News appeared
in the May 18, 2007 edition of The International Herald Tribune
(Read complete story here).
LONDON:
Calling
the turn in the cycle of the credit
markets has been a losing strategy in
recent years. War, pestilence, leveraged
buyouts and the collapse of the U.S.
subprime mortgage market have all been
unable to derail the rally in corporate
debt.
As the
reasons for concern accumulate,
strategists are starting to reach for
their bear suits.
"We are growing
extremely negative on credit markets,
which we see as in a bubble," Tim Bond,
head of asset allocation at Barclays
Capital in London, wrote this week.
"U.S. companies are releveraging
aggressively in an attempt to
substitute earnings-per-share growth for
earnings growth. 2008 should see a
fairly savage bear market for credit, a
large rise in defaults and an end to
easy liquidity conditions."
Dresdner
Kleinwort's analysts, led by Willem Sels,
the head of credit strategy, in London,
scrutinized U.S. earnings growth in the
past quarter. They concluded that the
average figure of 12.5 percent was
misleading because it measured earnings
per share and was distorted by stock
buybacks. Profit growth for the
companies in the Standard & Poor's 500
index is just 9 percent, and 3
percent for all U.S. companies.
"With net debt growing at 10 percent,
leverage ratios are deteriorating," the
Dresdner team wrote in a report this
week. "Clearly this is not in line with
unchanged credit spreads." (All emphasis
mine.)
This week
IBM announced it would fund a $12.5
billion share buyback, about 8 percent of
outstanding shares, by taking on $11.5
billion in fresh debt. Company
executives believe IBM to be underleveraged.
Continue
Reading
Credit Market "Bubble" May Be At Bursting
Point>>
Top
February 5, 2007: The
Agenda Restated by James Howard Kunstler
www.kunstler.com
Since discovering James Howard
Kunstler's website a year or so ago, and reading his gripping book
The Long Emergency, I have admired his straightforward, almost
calm approach to presenting solutions to the problems of everyday
life in a localized world emerging from a hydrocarbon-based economy,
quite likely in a future near you, sooner than most are aware or are
willing to contemplate.
Far from the "doom and gloom" which his
critics focus upon, Mr. Kunstler offers practical recommendations
for change which could, in fact, result in the simpler, more
meaningful life so many of us pretend to desire.
I have reproduced his commentary from
February 5, 2007, which summarizes his view of a post-hydrocarbon
America, and world, and the opportunities therein.
February 5, 2007 James H. Kunstler
http://www.kunstler.com/mags_diary20.html
The Agenda Restated
Out in the public arena, people frequently twang on me for
being "Mister Gloom'n'doom," or for "not offering any
solutions." I find this bizarre because I never fail to
present audiences with a long, explicit task list of
projects that American society needs to take up in the face
of the combined problems I have labeled The Long Emergency.
That the audience never hears this, and then indignantly
demands such instruction, only reinforces my sense that the
cognitive dissonance in our culture has gone totally off the
charts.
Insofar as I just returned from a college lecture road trip,
and heard the same carping all over again, I conclude that
it's necessary for me to spell it all out a'fresh. I think
of this not so much as a roster of "solutions" but as a set
of reasonable responses to a new set of circumstances. (Not
everything we try to do will succeed, that is, be a
"solution.") So, for those of you who are tired of wringing
your hands, who would like to do something useful, or focus
your attention in a purposeful way, here it is.
-
Expand your view beyond the question of
how we will run all the cars
by means other than gasoline.
This obsession with keeping the cars running at all
costs could really prove fatal. It is especially
unhelpful that so many self-proclaimed "greens" and
political "progressives" are hung up on this
monomaniacal theme. Get this: the cars are not part of
the solution (whether they run on fossil fuels, vodka,
used frymax™ oil, or cow shit). They are at the heart of
the problem. And trying to salvage the entire Happy
Motoring system by shifting it from gasoline to other
fuels will only make things much worse. The bottom line
of this is: start thinking
beyond the car. We have to
make other arrangements for virtually all the common
activities of daily life.
Continue Reading
The Agenda
Restated>>
Top
January 18, 2007:
Social Insecurity 2007
Washington (AP) -- Federal
Reserve Chairman Ben Bernanke told Congress on January 18th
that the economy could be gravely hurt if the nation's
fiscal house is not put in order and Social Security and
Medicare aren't revamped. "If early and meaningful action is
not taken, the U.S. economy could be seriously weakened,"
Bernanke said in prepared testimony to the Senate Budget
Committee.
It marked the Fed chief's most
extensive comments to date on the challenges facing the
United States with the looming retirement of 78 million baby
boomers, the oldest of whom will start retiring next year.
This huge wave of retirees will hit the U.S. budget as well
as the economy, he said.
Absent policy changes by
Congress and the White House, rising budget deficits are
likely in the years ahead to increase the amount of federal
debt outstanding to unprecedented levels, Bernanke said.
That could propel interest rates for consumers and
businesses upward, which would be a worrisome development,
he said. "Thus a vicious cycle may develop in which large
deficits lead to rapid growth in debt and interest payments,
which in turn adds to subsequent deficits," he said.
Continue Reading
Social Insecurity 2007>>
Top
December
20, 2006:
The Age of Mammals
TomDispatch.com posted this year-end 2006 piece,
"Looking Back on the First Quarter of the Twenty-First Century," by
Rebecca Solnit (© 2006 by Rebecca Solnit) which offers her
fascinating, plausible look at what might be our near-term future.
Well-researched and thoroughly
documented, Solnit's alternate future presents a detailed account of
life on Earth in 2025, "gone-local" following a global energy
resource war in 2009 and a severe economic dislocation which
followed.
Continue Reading
The Age of Mammals>>
Top
December
07, 2006:
Malaise Anyone?
Webster's offers "a vague sense of mental or moral
ill-being" as a definition of malaise, as in
"something's bothering me but I'm not exactly sure what."
President Jimmy Carter never used the word malaise in his
July 1979
"Crisis of Confidence" speech which marked the beginning
of the end of his presidency, but it forever became known as
his "malaise" speech.
As some remember, he
remonstrated us, especially those with short tempers from long
gas-pump lines, to "snap out of it" and to be prepared to accept
limits and restrictions in our consumer-driven lives beyond
adjusting the thermostat or driving less.
Continue Reading
Malaise Anyone?>>
Top
November 24, 2006: Between Iraq and a Hard Place
With great sorrow and respect
for the Iraqi people dying daily in that country's
U.S.-sponsored civil war it has been more difficult to watch
the carnage knowing we have no idea what to do next in that
beleaguered country.
Do we self-absorbed,
Playstation-3-besotted, Thanksgiving-dinner-stuffed,
shopping-obsessed Americans have any idea what horror daily
life must be like for ordinary Iraqis only trying to survive
in their "liberated" country?
Continue Reading
Between Iraq and a Hard Place>>
Top
November 8, 2006: The Real Winners of Election 2006
Although Rush Limbaugh, Bill
O'Reilly and Ann Coulter may be
among the happiest citizens in the American empire this
week, what with the prospect of apoplectic ranting at
Nancy Pelosi in particular and the Democrats in general for the next two years, it is the American
people who are the real winners in Tuesday's elections.
Nationwide it is estimated
only 40 percent of eligible Americans bothered to keep
the torch of democracy brightly lit at home by showing up at
the polls (once again denying the privilege to complain
anytime during the next two years from the remaining 60
percent who did not vote, as in "Didn't vote? Don't bitch").
Continue Reading
Real Winners>>
Top
November 6, 2006:
The Privilege of Voting
We
are so keen to export liberty, democracy and voting rights
throughout the world, sometimes by force, yet more unlikely to practice
it here at home. Nearly half of eligible adult Americans
each year refuse to vote, nonetheless still making a choice,
if only of one of expressing apathy or frustration.
Turnout for
presidential elections is not much better, about 60 percent
in 2004, which was the highest in nearly 40 years. Yet the
number of eligible adults who did not vote - 78 million -
outnumbered the votes garnered individually by each
candidate (Bush: 62 million, Kerry: 59 million).
Our voter turnout is pathetic by comparison to other
countries. In fact, more than 110 democracies around
the world have better voter participation, a number that
doesn't include the compulsory democracies where voters are
presented only one choice. Add those and in 130
countries more citizens turn out to cast ballots for the
candidates of their choice.
Continue Reading
Privilege of Voting>>
Top
October 27, 2006:
Embracing the Subtle Upside of Terror
By Garrison Keillor
Published October 25, 2006
Copyright © 2006,
Chicago Tribune
Link to Original
We are engaged in a struggle
between freedom and the forces of terror, my little macacas,
and mostly I side with freedom, such as the freedom to look
at big shots and stick out your tongue and blow, but of
course terror has its place too.
Continue Reading
Embracing the
Subtle Upside of Terror>>
Top
October 17, 2006:
Earl Doherty's Essay: Götterdämmerung
Earl Doherty's essay
"Götterdämmerung" (The Twilight of the Gods) appears on
one of two of his websites,
Age of Reason, and describes in terms of Richard
Wagner's opera of the same name, last of his four-part epic
"The Ring of the Nibelung," the
"insight and acceptance that the gods must pass away in
order to make room for something new."
Along the same lines as Sam
Harris, author of
The End of Faith: Religion, Terror and the Future of Reason,
Doherty argues "the gods"
are now "the greatest threat to our very progress and
survival. They can no longer be accommodated, for the truth
of the matter is that they have been commandeered by that
element of human society which is most unenlightened, most
irrational, most fanatical. Liberal religion has now been
marginalized; it is a spent, largely irrelevant force. It
has no control over the extremist expressions of the world's
major faiths."
Continue Reading
Götterdämmerung>>
Top
October 11, 2006:
James Kunstler's Essay: Twilight of Lumpenleisure
Read James Howard Kunstler's
essay "The Twilight of Lumpenleisure" at
www.kunstler.com for a concise portrayal of how we
arrived at the energy-dependent present and a description of
a quieter, less optimistic future as the world arrives at
peak-oil and begins a slow, traumatic descent into history's
and humankind's greatest challenge. This essay is a
brief version of the theme of Kunstler's book The Long
Emergency and his conclusion is presented below.
The
Twilight of Mechanized Lumpenleisure
By James
Howard Kunstler
Among the many wonders and
marvels of American life in the twentieth century,
especially after World War Two, when our country ruled much
of the world economically, was the astounding rise in
standards of living among social classes who had hardly
known leisure or had a dollar to spare on the accoutrements
of it from time immemorial. The subject of class itself in
America has been so sore, that we can barely acknowledge its
existence as a fact of life, despite the workings of whole
industries devoted to exploiting the envy of the lower
orders.
The very term I have just
used – lower orders – would be considered grounds
for sacking if I had the misfortune of teaching at a
college, and will certainly be seized on by critics of this
book as evidence of my intellectual unfittedness. In short,
any discourse on class consciousness is regarded in America
these days as an obscenity, far worse than yelling “fuck”
onstage in a Broadway theater, or stealing $100 million from
the shareholders of a telecom corporation.
Continue Reading
Twilight of Lumpenleisure>>
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