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January 30, 2006

Soaring commodity prices

Jeffrey Frankel, Professor of Economics at Harvard University, argues that U.S. monetary policy may be part of the explanation. Low real interest rates, he notes, lower the cost of carrying physical inventories and increase the attractiveness of speculating in commodities relative to holding Treasury bills. He documents an impressive historical correlation as revealed by the scatter diagram at the left: those years in which the real interest rate was lowest tended also to be years in which commodity prices were high relative to other prices.

Video of the week

Re-entry of the Stardust comet sample return mission was successful and the re-entry was on target. My cool video of the day is a movie taken by a crew out of the Ames Research Center whose mission statement is to run "An airborne and ground observing campaign to test thermal protection systems in the fastest re-entries since Apollo and probe the delivery of organics for life’s origins by measuring the physical conditions during re-entry."

This video is the standout, but there are a few good ones on the site.
Getting towed off the coast of Maui to gain the speed you need to take off on waves like this.
If you have seen any cool video clips, please let me know!


Peak Metals?

New Haven, Conn. - Researchers studying supplies of copper, zinc and other metals have determined that these finite resources, even if recycled, may not meet the needs of the global population forever, according to a study published in the Proceedings of the National Academy of Sciences.
According to the study, even the full extraction of metals from the Earth's crust and extensive recycling programs may not meet future demand if all nations begin to use the same services enjoyed in developed nations.

The researchers - Robert Gordon and Thomas Graedel of Yale University and Marlen Bertram of the Organisation of European Aluminum Refiners - suggest that the environmental and social consequences of metals depletion became clear from studies of metal stocks-in the Earth, in use by people and lost in landfills-instead of tracking the flow of metal through the economy in a given time and region.

"There is a direct relation between requisite stock, standard of living and technology in use at a given time," said Gordon, professor of geology and geophysics. "We offer a different approach to studying use of finite resources-one that is more directly related to environmental concerns than are the discussions found in the economics literature."

Using copper stocks in North America as a starting point, the researchers tracked the evolution of copper mining, use and loss during the 20th century. Then the researchers applied their findings and additional data to an estimate of global demand for copper and other metals if all nations were fully developed and used modern technologies.

According to the study, titled "Metal Stocks and Sustainability," all of the copper in ore, plus all of the copper currently in use, would be required to bring the world to the level of the developed nations for power transmission, construction and other services and products that depend on copper.

For the entire globe, the researchers estimate that 26 percent of extractable copper in the Earth's crust is now lost in non-recycled wastes; for zinc, it is 19 percent. Current prices do not reflect those losses because supplies are still large enough to meet demand, and new methods have helped mines produce material more efficiently.

The study suggests these metals are not at risk of depletion in the immediate future. However, the researchers believe scarce metals, such as platinum, risk depletion in this century because there is no suitable substitute for use in devices such as catalytic converters and hydrogen fuel cells. They also found that, for many metals, the average rate of use per person continues to rise. As a result, the report says, even the more plentiful metals may face similar depletion risks in the future.

"This is looking at recycling on a broader scale," said Cynthia Ekstein, the National Science Foundation (NSF) officer who oversees the Yale award. "This is looking at the metal lifecycle from cradle to grave."

The research emerged from collaboration among researchers funded by the NSF Biocomplexity in the Environment-Materials Use: Science, Engineering and Society program.

Citation: Proc. Natl. Acad, Sci. USA: early online (January 23, 2006)

January 29, 2006

A clear and present danger to America

George W. Bush, the out-of-control despot who thinks the Presidency of the United States is a license to lie at will, wage war on a whim and break the law without recrimination, put on his "I am in charge" face Thursday and, for all practical purposes, told anyone who thinks his powers should be subject to review or oversight to go screw themselves. Bush told reporters that he will assert his "presidential prerogatives" any damn way he pleases and will do so without apology, without question and without concern for the law, the Constitution or the rights of Americans. His press conference was a frightening study of a madman on a tear, an insane, power-mad tyrant who believes he is above the law and cannot be questioned. Sadly, it appears no one has the balls to questions his lunacy. "I'm going to continue do everything within my authority to protect the American people," Bush told reporters. That’s Bushspeak for "I’m in charge here you dumb pukes and there ain’t a damn thing you can do about it." "We'll continue our terrorist surveillance program against al Qaeda. Congress must reauthorize the Patriot Act so that our law enforcement and intelligence and homeland security officers have the tools they need to route the terrorists -- terrorists who could be planning and plotting within our borders," he said. Translation: "I’ll spy on Americans, I’m use the Constitution to wipe my ass and I’ll declare marital law and run this country like the dictator I want so desperately to be." On his illegal actions authorizing the National Security Agency to spy on Americans, Bush said "If the attempt to write law is likely to expose the nature of the program, I'll resist it." What he is saying is "I’m above the law, goddamnit, and I’ll fight every attempt to make me obey the law. On the Iraq war, Bush declared: "there is an act passed by Congress in 2001 which said that I must have the power to conduct this war using the incidents of war. In other words, we believe there's a constitutional power granted to Presidents, as well as, this case, a statutory power. And I'm intending to use that power -- Congress says, go ahead and conduct the war, we're not going to tell you how to do it. I worked on Capitol Hill for a number of years and wrote more than my share of legislation. I know a thing or two about how the government is designed to work and the checks and balances that are supposed to be built into the system. I’ve also read what Congress passed and nothing in that act or the Constitution gives Bush the authority he claims or the power he abuses.  He’s not just a liar. He’s a god-damned liar.     The arrogance surfaced often as he faced the press. His eyes darted from side to side, blinking rapidly, a textbook example of a maniac on the loose.  His temper threatened to erupt more than once because a couple of reporters actually had the gall to actually question his motives.          After too many years watching this man destroy what once was a great nation, I can only conclude that Bush is insane and his insanity is protected by a brain-dead populace and a power-mad political party that can’t possibly accept the sad fact that they helped put a madman in charge of our government and have kept him there.  I believe with all my soul that George W. Bush and the Republicans who rubber-stamp his actions represent a clear and present danger to the peace and security of the United States and all must be removed from office immediately if this nation is to survive.  And those are words I never, ever, thought I’d write about a President or other elected officials of this country. And I wish, with all my heart that I did not have to write them now. But those who love this country and put patriotism above politics must act. America, if it wishes to remain America, must remove the cancer that threatens to destroy it.
© Copyright 2006 by Capitol Hill Blue

January 28, 2006

US fiscal facts of life...

President Bush signed legislation last Friday raising the government's debt limit by $800 billion and clearing the way for Congress to send him an overdue $388 billion spending bill to finance most federal agencies. The new federal borrowing cap is $8.18 trillion; that's 70 percent the size of the entire U.S. economy, and more than $2.4 trillion higher than the debt Mr. Bush inherited upon taking office in 2001. The US government is 8.5 trilion dollars in debt and the deficit this year is 336 billion. A scary perspective... It's only a billion. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into perspective in one of its releases. (www.lemetroplecafe.com)

A billion seconds ago it was 1959.
A billion minutes ago Jesus was alive.
A billion hours ago our ancestors were living in the Stone Age.
A billion days ago no one walked on earth.
A billion dollars ago was only 8 hours and 20 minutes, at the rate (the US) government spends it. Got Gold & Silver dudes....


January 27, 2006

Russia plans Helium 3 mine on the moon by 2020

Russia is planning to mine Helium 3 on the moon by 2020 with a permanent base and a heavy-cargo transport link, a Russian space official said Wednesday.

"We are planning to build a permanent base on the moon by 2015 and by 2020 we can begin the industrial-scale delivery... of the rare isotope Helium-3," Nikolai Sevastyanov, head of the Energia space corporation, was quoted by ITAR-TASS news agency as saying at an academic conference.

The International Space Station (ISS) would play a key role in the project and a regular transport relay to the moon would be established with the help of the planned Clipper spaceship and the Parom, a space capsule intended to tug heavy cargo containers around space, Sevastyanov said.

Helium-3 is a non-radioactive isotope of helium that can be used in nuclear fusion.

Rare on earth but plentiful on the moon, it is seen by some experts as an ideal fuel because it is powerful, non-polluting and generates almost no radioactive by-product.

January 26, 2006

New 18 year High for Silver!


 I've been investing in Silver due to its long term supply deficit, you can probably tell I'm pleased. You see, for the last 15 years, we’ve had a deficit between mine supply and global demand. In 1980 we had about 1.5 billion ounces more silver above ground than we have today, so the stockpiles have been eaten away slowly but surely. I believe the average consumption rate has been about 100 million ounces a year. And just now the best studies in the world think that there are probably about a billion ounces of total silver, and only half of that is in bullion form, meaning 500 million ounces. That means that there are only about five years’ worth left. Expect to see $50.00 Silver in a few years.

January 25, 2006

2005 warmest year in "several thousand years"

The year 2005 may have been the warmest year in a century, according to NASA scientists studying temperature data from around the world. In descending order, the years with the highest global average annual temperatures were 2005, 1998, 2002, 2003 and 2004, NASA said in a statement. "It's fair to say that it probably is the warmest since we have modern meteorological records," said Drew Shindell of the NASA institute in New York City."Using indirect measurements that go back farther, I think it's even fair to say that it's the warmest in the last several thousand years.

Peak Oil is Past

Kenneth Deffeyes' December 1, 2005 Lauritsen Lecture at the California Institute of Technology, entitled The Peak of World Oil Production: Thanksgiving Day 2005". "The methods which M. King Hubbert used to predict the peak of United States oil production can now be applied to world production. Dr. Deffeyes's analysis places the world oil production peak on Thanksgiving Day, 2005. Severe consequences are to be expected for transportation and for agriculture. It may be too late to arrange for a soft landing; the consequences of a hard landing are not cheerful to contemplate."

January 24, 2006

"War of the Worlds" as a Social Barometer

"Skirts are getting longer. Movies are getting darker. The country seems a bit on edge, as if it waiting for another shoe to drop, after 9/11. Stories abound of a real estate bubble. Bush's polls are much below where Reagan or Clinton were at this point, down to the abysmal levels of Nixon's second term. Support for Iraq is where it was for Vietnam in 1968 when the country turned against the war.  Even that icon of the bull market, Arnold Schwarzenegger, is at such low poll numbers it is doubtful if he will run for re-election. Into this comes a very different type of Spielberg sci-fi movie. A dark one, a pessimistic one. One in which the aliens come out of the blue, from beneath the ground (from China, perhaps?). What does this say about the social mood of the US?

No where is this movies-as-a social-barometer captured better than in the history of the "War of the Worlds."  The book came out in 1898, at the peak of European Civilization, and told a cautionary tale not to fall in love with all of our marvelous machines.  The aliens in science fiction movies are of course not truly aliens, but metaphors for whomever are our enemies.  In the case of H. G. Well's book, the enemy was us.  His book presages WWI, where we turned our terrible toys on ourselves, and ripped apart society. The Orson Welles famed radio broadcast came out in 1938, as we in the US watched in horror as Europe seemed on the brink of war again.  Given we were then in a terrible bear market, it was a dark and frightening treatment of the book. The aliens suddenly invading New Jersey were the Nazi's, of course, with their new weapons of war.  Ironic then that this radio broadcast presaged Pearl Harbor, and the invaders turned out to come from a different direction.  The first movie version of the book came out in 1953 when the US was wrapped up in an inordinate fear of communism; the aliens were the Red Scare.  We had created the first super weapon, the atomic bomb; but the Russians had not only caught up, they had built even bigger ones.  Could their science suddenly bring them to our shores with technical breakthroughs we could not defeat?  The hero of that treatment was a scientist, and we were ever hopeful our science could keep us safe.  That movie presaged Sputnik, where the Russian trumped the US and created the ICBM, which could bring these terrible weapons to our shores.  The Space Race was on.  It culminated with the moon landing in 1969, and brought is a great bull market movie, "2001: A Space Odyssey," where the spaceships were antiseptic and the aliens our own creations, artificial intelligent computers.

Spielberg has done science fiction before, with a paradigmatic bull market movie in 1982: "E.T.," where the alien was misunderstood, and friendly, and our government was the enemy.  Now he brings us a dark and different type of "War of the Worlds."  The hero is an ordinary man, divorced, self-centered, angry, and dismissive of his kids.  He does not want to save the world, just his family; and he argues with his son, who wishes to join the fight.  The treatment is all about his personal battle, not the larger war with the aliens.  A very different approach than the 1953 movie.  All of our weapons and science fail us. As a people we do not act heroically, but as a mob, or as unbalanced. In the end, one of God's creations saves humanity.

The aliens in this movie are of course terrorists, the enemy du jour.  In the opening sequence, the initial alien destruction rains dust on our hero, reminding us of the vast dust which covered NYC after the collapse of the twin towers.  The clothes of the dead often flutter from the sky, as we saw the paper debris drifting down after the collapse of the towers.  The people fleeing the aliens put up bulletin boards looking for missing ones, as also happened in NYC after 9/11.  The movie refers to events post 9/11, in particular the invasion of Iraq.  References abound to continued resistance against the alien invaders despite their technical advantage - and thus by implication to the resistance the Iraqi insurgents against us.  Even the son's forgotten homework assignment is topical - the failure of the French occupation in Algeria.

The aliens themselves look like the invaders in a bull market sci-fi movie, "Independence Day." Is this simply a paean to an earlier blockbuster?   In that movie, the aliens are interplanetary locusts, who come and strip a planet, and move on.  Perhaps there is more to this, given our war with Islamism.  It was once asked of a 14th Century Muslim Philosopher, why do Muslims prefer deserts?  His answer was that Muslims create deserts.  Hence an allusion to locust-like aliens is somehow fitting, if not very politically correct.  (But then, political correctness is a bull market phenomenon.  In a bear market, ethnic humor will re-emerge, from below ground, as it were.)

But there is more to these aliens than a reflection of 9/11.  They are an event or enemy yet undefined - something that is about to happen.  In the movie, the aliens emerge inexplicably from underground, from where they lay in wait for millennia.  Perhaps presaging another terrorist attack, but perhaps something else."

January 22, 2006

13 Trading Rules


R U L E # 1
Never, ever, under any circumstance, should one add to a losing position ... not EVER!

Averaging down into a losing trade is the only thing that will assuredly take you out of the investment business. This is what took LTCM out. This is what took Barings Brothers out; this is what took Sumitomo Copper out, and this is what takes most losing investors out. The only thing that can happen to you when you average down into a long position (or up into a short position) is that your net worth must decline. Oh, it may turn around eventually and your decision to average down may be proven fortuitous, but for every example of fortune shining we can give an example of fortune turning bleak and deadly.

By contrast, if you buy a stock or a commodity or a currency at progressively higher prices, the only thing that can happen to your net worth is that it shall rise. Eventually, all prices tumble. Eventually, the last position you buy, at progressively higher prices, shall prove to be a loser, and it is at that point that you will have to exit your position. However, as long as you buy at higher prices, the market is telling you that you are correct in your analysis and you should continue to trade accordingly.

R U L E # 2
Never, ever, under any circumstance, should one add to a losing position ... not EVER!

We trust our point is made. If "location, location, location" are the first three rules of investing in real estate, then the first two rules of trading equities, debt, commodities, currencies, and so on are these: never add to a losing position.


R U L E # 3
Learn to trade like a mercenary guerrilla.

The great Jesse Livermore once said that it is not our duty to trade upon the bullish side, nor the bearish side, but upon the winning side. This is brilliance of the first order. We must indeed learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.

Once, when Lord Keynes was appearing at a conference he had spoken to the year previous, at which he had suggested an investment in a particular stock that he was now suggesting should be shorted, a gentleman in the audience took him to task for having changed his view. This gentleman wondered how it was possible that Lord Keynes could shift in this manner and thought that Keynes was a charlatan for having changed his opinion. Lord Keynes responded in a wonderfully prescient manner when he said, "Sir, the facts have changed regarding this company, and when the facts change, I change. What do you do, Sir?" Lord Keynes understood the rationality of trading as a mercenary guerrilla, choosing to invest/fight upon the winning side. When the facts change, we must change. It is illogical to do otherwise.


R U L E # 4
Capital is in two varieties: Mental and Real, and, of the two, the mental capital is the most important.

Holding on to losing positions costs real capital as one's account balance is depleted, but it can exhaust one's mental capital even more seriously as one holds to the losing trade, becoming more and more fearful with each passing minute, day and week, avoiding potentially profitable trades while one nurtures the losing position.


R U L E # 5
The objective of what we are after is not to buy low and to sell high, but to buy high and to sell higher, or to sell short low and to buy lower.

We can never know what price is really "low," nor what price is really "high." We can, however, have a modest chance at knowing what the trend is and acting on that trend. We can buy higher and we can sell higher still if the trend is up. Conversely, we can sell short at low prices and we can cover at lower prices if the trend is still down. However, we've no idea how high high is, nor how low low is.

Nortel went from approximately the split-adjusted price of $1 share back in the early 1980s, to just under $90/share in early 2000 and back to near $1 share by 2002 (where it has hovered ever since). On the way up, it looked expensive at $20, at $30, at $70, and at $85, and on the way down it may have looked inexpensive at $70, and $30, and $20--and even at $10 and $5. The lesson here is that we really cannot tell what is high and/or what is low, but when the trend becomes established, it can run far farther than the most optimistic or most pessimistic among us can foresee.

R U L E # 6
Sell markets that show the greatest weakness; buy markets that show the greatest strength.

Metaphorically, when bearish we need to throw our rocks into the wettest paper sack for it will break the most readily, while in bull markets we need to ride the strongest wind for it shall carry us farther than others.

Those in the women's apparel business understand this rule better than others, for when they carry an inventory of various dresses and designers they watch which designer's work moves off the shelf most readily and which do not. They instinctively mark down the work of those designers who sell poorly, recovering what capital then can as swiftly as they can, and use that capital to buy more works by the successful designer. To do otherwise is counterintuitive. They instinctively buy the "strongest" designers and sell the "weakest." Investors in stocks all too often and by contrast, watch their portfolio shift over time and sell out the best stocks, often deploying this capital into the shares that have lagged. They are, in essence, selling the best designers while buying more of the worst. A clothing shop owner would never do this; stock investors do it all the time and think they are wise for doing so!


R U L E # 7
In a Bull Market we can only be long or neutral; in a bear market we can only be bearish or neutral.

Rule 6 addresses what might seem like a logical play: selling out of a long position after a sharp rush higher or covering a short position after a sharp break lower--and then trying to play the market from the other direction, hoping to profit from the supposedly inevitable correction, only to see the market continue on in the original direction that we had gotten ourselves exposed to. At this point, we are not only losing real capital, we are losing mental capital at an explosive rate, and we are bound to make more and more errors of judgment along the way.

Actually, in a bull market we can be neutral, modestly long, or aggressively long--getting into the last position after a protracted bull run into which we've added to our winning position all along the way. Conversely, in a bear market we can be neutral, modestly short, or aggressively short, but never, ever can we--or should we--be the opposite way even so slightly.

Many years ago I was standing on the top step of the CBOT bond-trading pit with an old friend Bradley Rotter, looking down into the tumult below in awe. When asked what he thought, Brad replied, "I'm flat ... and I'm nervous." That, we think, says it all...that the markets are often so terrifying that no position is a position of consequence.

R U L E # 8
"Markets can remain illogical far longer than you or I can remain solvent."

I understand that it was Lord Keynes who said this first, but the first time I heard it was one morning many years ago when talking with a very good friend, and mentor, Dr. A. Gary Shilling, as he worried over a position in U.S. debt that was going against him and seemed to go against the most obvious economic fundamentals at the time. Worried about his losing position and obviously dismayed by it, Gary said over the phone, "Dennis, the markets are illogical at times, and they can remain illogical far longer than you or I can remain solvent." The University of Chicago "boys" have argued for decades that the markets are rational, but we in the markets every day know otherwise. We must learn to accept that irrationality, deal with it, and move on. There is not much else one can say. (Dr. Shilling's position shortly thereafter proved to have been wise and profitable, but not before further "mental" capital was expended.)

R U L E # 9
Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly.

The academics will never understand this, but those of us who trade for a living know that there are times when every trade we make (even the errors) is profitable and there is nothing we can do to change that. Conversely, there are times that no matter what we do--no matter how wise and considered are our insights; no matter how sophisticated our analysis--our trades will surrender nothing other than losses. Thus, when things are going well, trade often, trade large, and try to maximize the good fortune that is being bestowed upon you. However, when trading poorly, trade infrequently, trade very small, and continue to get steadily smaller until the winds have changed and the trading "gods" have chosen to smile upon you once again. The latter usually happens when we begin following the rules of trading again. Funny how that happens!


R U L E # 10
To trade/invest successfully, think like a fundamentalist; trade like a technician.

It is obviously imperative that we understand the economic fundamentals that will drive a market higher or lower, but we must understand the technicals as well. When we do, then and only then can we, or should we, trade. If the market fundamentals as we understand them are bullish and the trend is down, it is illogical to buy; conversely, if the fundamentals as we understand them are bearish but the market's trend is up, it is illogical to sell that market short. Ah, but if we understand the market's fundamentals to be bullish and if the trend is up, it is even more illogical not to trade bullishly.

R U L E # 11
Keep your technical systems simple.

Over the years we have listened to inordinately bright young men and women explain the most complicated and clearly sophisticated trading systems. These are systems that they have labored over; nurtured; expended huge sums of money and time upon, but our history has shown that they rarely make money for those employing them. Complexity breeds confusion; simplicity breeds an ability to make decisions swiftly, and to admit error when wrong. Simplicity breeds elegance.

The greatest traders/investors we've had the honor to know over the years continue to employ the simplest trading schemes. They draw simple trend lines, they see and act on simple technical signals, they react swiftly, and they attribute it to their knowledge gained over the years that complexity is the home of the young and untested.


R U L E # 12
In trading/investing, an understanding of mass psychology is often more important than an understanding of economics.

Markets are, as we like to say, the sum total of the wisdom and stupidity of all who trade in them, and they are collectively given over to the most basic components of the collective psychology. The dot-com bubble was indeed a bubble, but it grew from a small group to a larger group to the largest group, collectively fed by mass mania, until it ended. The economists among us missed the bull-run entirely, but that proves only that markets can indeed remain irrational, and that economic fundamentals may eventually hold the day but in the interim, psychology holds the moment.

And finally the most important rule of all:


R U L E # 13
Do more of that which is working and do less of that which is not.

This is a simple rule in writing; this is a difficult rule to act upon. However, it synthesizes all the modest wisdom we've accumulated over thirty years of watching and trading in markets. Adding to a winning trade while cutting back on losing trades is the one true rule that holds--and it holds in life as well as in trading/investing.

If you would go to the golf course to play a tournament and find at the practice tee that you are hitting the ball with a slight "left-to-right" tendency that day, it would be best to take that notion out to the course rather than attempt to re-work your swing. Doing more of what is working works on the golf course, and it works in investing.

If you find that writing thank you notes, following the niceties of life that are extended to you, gets you more niceties in the future, you should write more thank you notes. If you find that being pleasant to those around you elicits more pleasantness, then be more pleasant.

And if you find that cutting losses while letting profits run--or even more directly, that cutting losses and adding to winning trades works best of all--then that is the course of action you must take when trading/investing. Here in our offices, as we trade for our own account, we constantly ask each other, "What's working today, and what's not?" Then we try to the very best of our ability "to do more of that which is working and less of that which is not." We've no set rule on how much more or how much less we are to do, we know only that we are to do "some" more of the former and "some" less of the latter. If our long positions are up, we look at which of those long positions is doing us the most good and we do more of that. If short positions are also up, we cut back on that which is doing us the most ill. Our process is simple.

We are certain that great--even vast--holes can and will be proven in our rules by doctoral candidates in business and economics, but we care not a whit, for they work. They've proven so through time and under pressure. We try our best to adhere to them.

This is what I have learned about the world of investing over three decades. I try each day to stand by my rules. I fail miserably at times, for I break them often, and when I do I lose money and mental capital, until such time as I return to my rules and try my very best to hold strongly to them. The losses incurred are the inevitable tithe I must make to the markets to atone for my trading sins. I accept them, and I move on, but only after vowing that "I'll never do that again."

What they don't want you to know about the coming oil crisis


 Soaring fuel prices, rumours of winter power cuts, panic over the gas supply from Russia, abrupt changes to forecasts of crude output... Is something sinister going on? Yes, says former oil man Jeremy Leggett, and it's time to face the fact that the supplies we so depend on are going to run out

"Having built their cases, the two spelt out the consequences of the early topping point. "The perception of looming decline may be worse than the decline itself," Campbell said. "There will be panic. The market overreacts to even small imbalances. Prices are set to soar in the absence of spare capacity until demand is cut by recessions. We will enter a volatile epoch of price shocks and recessions in increasingly vicious circles. A stock-market crash is inevitable."

January 21, 2006

America's day as a superpower over

Creators Syndicate
Jan 12, 2006

President George W. Bush has destroyed America's economy, along with America's reputation as a truthful, compassionate, peace-loving nation that values civil liberties and human rights.

Nobel Prize-winning economist Joseph Stiglitz and Harvard University budget expert Linda Bilmes have calculated the cost to Americans of Bush's Iraq war to be between $1 trillion and $2 trillion. This figure is five to 10 times higher than the $200 billion Bush's economic adviser Larry Lindsey estimated.

Lindsey was fired by Bush because his estimate was three times higher than the $70 billion figure that the Bush administration used to mislead Congress and the American voters about the burden of the war. You can't work in the Bush administration unless you are willing to lie for Dub-ya.

Americans need to ask themselves if the White House is in competent hands when a $70 billion war becomes a $2 trillion war. Bush sold his war by understating its cost by a factor of 28.57. Any financial officer anywhere in the world whose project was 2,857 percent over budget would instantly be fired for utter incompetence.

Bush's war cost almost 30 times more than he said it would because the moronic neoconservatives that he stupidly appointed to policy positions told him the invasion would be a cakewalk. Neocons promised minimal U.S. casualties. Iraq already has cost 2,200 dead Americans and 16,000 seriously wounded - and Bush's war is not over yet. The cost of lifetime care and disability payments for the thousands of U.S. troops who have suffered brain and spinal damage was not part of the unrealistic rosy picture that Bush painted.

Stiglitz's $2 trillion estimate is OK as far as it goes. But it doesn't go far enough. My own estimate is a multiple of Stiglitz's.

Stiglitz correctly includes the cost of lifetime care of the wounded, the economic value of destroyed and lost lives, and the opportunity cost of the resources diverted to war destruction. What he leaves out is the war's diversion of the nation's attention away from the ongoing erosion of the U.S. economy. War and the accompanying domestic police state have filled the attention span of Americans and their government. Meanwhile, the U.S. economy has been rapidly deteriorating.

In 2005, for the first time on record, consumer, business and government spending exceeded the total income of the country.

America can consume more than it produces only if foreigners supply the difference. China recently announced that it intends to diversify its foreign exchange holdings away from the U.S. dollar. If this is not merely a threat in order to extort even more concessions from Bush, Americans' ability to consume will be brought up short by a fall in the dollar's value, as China ceases to be a sponge that is absorbing an excessive outpouring of dollars. Oil-producing countries might follow China's lead.

Now that Americans are dependent on imports for their clothing, manufactured goods, and even high technology products, a decline in the dollar's value will make all these products much more expensive. American living standards, which have been treading water, will sink.

A decline in living standards is an enormous cost and will make existing debt burdens unbearable. Stiglitz did not include this cost in his estimate.

Even more serious is the war's diversion of attention from the disappearance of middle-class jobs for university graduates. The ladders of upward mobility are being rapidly dismantled by offshore production for U.S. markets, job outsourcing and importation of foreign professionals on work visas. In almost every U.S. corporation, U.S. employees are being dismissed and replaced by foreigners who work for lower pay. Even American public school teachers and hospital nurses are being replaced by foreigners imported on work visas.

The American Dream has become a nightmare for college graduates who cannot find meaningful work.

This fact is made abundantly clear from the payroll jobs data over the past five years. December's numbers, released on Jan. 6, show the same pattern that I have reported each month for years. Under pressure from offshore outsourcing, the U.S. economy only creates low-productivity jobs in low-pay domestic services.

Only a paltry number of private sector jobs were created - 94,000. Of these 94,000 jobs, 35,800 - or 38 percent - are for waitresses and bartenders. Health care and social assistance account for 28 percent of the new jobs, and temporary workers account for 10 percent. These three categories of low-tech, nontradable domestic services account for 76 percent of the new jobs. This is the jobs pattern of a poor Third World economy that consumes more than it produces.

America's so-called First World superpower economy was only able to create in December a measly 12,000 jobs in goods-producing industries, of which 77 percent are accounted for by wood products and fabricated metal products - the furniture and roofing metal of the housing boom that has now come to an end. U.S. employment declined in machinery, electronic instruments, and motor vehicles and parts.

Two thousand six hundred jobs were created in computer systems design and related services, depressing news for the several hundred thousand unemployed American computer and software engineers.

When manufacturing leaves a country, engineering, R&D and innovation rapidly follow. Now that outsourcing has killed employment opportunities for U.S. citizens and even General Motors and Ford are failing, U.S. economic growth depends on how much longer the rest of the world will absorb our debt and finance our consumption.

How much longer will it be before "the world's only remaining superpower" is universally acknowledged as a debt-ridden, hollowed-out economy desperately in need of IMF bailout?

Paul Craig Roberts, senior research fellow at the Hoover Institution at Stanford University, writes for Creators Syndicate.

Management bent on worst practice

Dennis Tourish
18 January 2006

I CAME to Australia in 1999 to work at a sandstone university. But within three months of my arrival I started applying for jobs back in Britain and left within a year. My recent visits tell me that many of the problems that existed then have intensified. At the bottom, these can be summed up in one word: managerialism. This is the wholly unreasonable conviction that those at the top always know better than those they manage, who must bow in all matters to the wisdom of their betters.

Thus, university management in Australia increasingly seeks to casualise labour by reducing the proportion of tenured faculty; undermine collegiality and involvement in decision-making by centralising power; reduce real academic salaries; and preside over a widening status gap between managers and the managed.
These approaches contradict research into what the most effective organisations actually do. Studies looking for what distinguishes the best performers from the worst suggest the following lessons for Australian higher education today.
First, improve employment security. Higher education increasingly relies on vast numbers of people who have no permanent relationship with universities. However, research evidence suggests that productivity improvements, staff loyalty, high quality and innovations in work practices are hard to sustain when people become terrified of losing their jobs, or feel semi-detached from a business.
A more positive example is that of the US retail chain Men's Wearhouse. It recently achieved a five-year compounded annual growth rate of 26 per cent in revenues and 29 per cent in net income, in a market where men have been spending less on tailored clothing. A leading reason for its success has been reliance on a permanent, full-time work force. Only 12 per cent of its staff are part time, a much lower figure than the industry norm.
A contingent work force is less loyal (as its employer is less loyal to it), understands less about the core business, has little incentive to deliver superior customer satisfaction, is more preoccupied by its own unmet needs and has a lower skills base than its more secure counterpart.
Yet university managers increasingly talk of having a much larger periphery of semi-experts who can be hired or fired at will. This supposedly new and "virtual" approach is more like a method known in the late 1700s as "putting out", where workers owned their own looms and spinning wheels and provided finished product to a merchant putter outer. The system failed because of poor quality.
Second, decentralise decision-making. Workers with greater autonomy and discretion have higher job satisfaction and therefore outperform those in tightly supervised groups. For example, a manufacturing plant that introduced self-managing teams found defect rates were reduced by 38 per cent and productivity rose by 20 per cent.
In contrast, the Queensland University of Technology's vice-chancellor Peter Coaldrake has publicly endorsed the view that academics "had better get used to new impositions of accountability and performance as quickly as possible". The suggestion is that it is the job of managers to think and that of others to do, and do what they are told.
Compare his tone with that of Lawrence Bossidy, former chief executive of the multibillion-dollar company Allied Signal: "The day when you could yell and scream and beat people into good performance is over." Many businesses are embracing forms of collegiality found in traditional universities, while universities in Australia are emulating a managerialism now largely disdained in the corporate world where it originated.
Third, improve pay and encourage trade union organisation. Higher pay attracts the brightest and the best, and is a characteristic of businesses that manage to sustain top performance over an extended period. Individual contracts tend to reduce the median level of pay while undermining the team spirit central to organisational success. Research has also found that higher rates of unionisation are connected to higher productivity and profits.
One study looked at 600 manufacturing companies in the US. It found that unionised firms had productivity levels 16 per cent above the norm. There are exceptions, but I am drawing attention to general trends. Productivity in non-unionised firms was 11 per cent lower. Southwest Airlines has been dubbed the best company to work for in the US by Fortune magazine, is the safest of the world's 85 major airlines and is the only US airline to have been profitable for more than 26 years. It is also the country's most highly unionised, with membership levels of 84 per cent.
The two are connected. Unions tend to want higher pay, which means the better qualified candidates are more likely to seek jobs with the organisation concerned. In turn, higher productivity from a motivated and loyal work force more than compensates for above-average pay levels.
By any reasonable standard, academic productivity and performance have soared. Pay has not (vice-chancellors aside). Trade unions have also been demonised as an enemy within, rather than viewed as potential partners. Of late the Howard Government has made extra money available for universities but it is contingent on staff being offered individual contracts.
The hope is that trade unions, a lingering remnant of the staff voice, will be further marginalised. Clearly, this is more likely to generate internal conflict than world-beating performance. An organisation at war with itself rather than the competition rarely sustains a pre-eminent position.
What next? I have highlighted only some of what effective organisations in the real world do. The Australian Government champions none of them. Its approach embodies the folk wisdom of an untrained supervisor in a mid-19th-century textile factory. Given that none of its policies are remotely original, the most that can be said in the Government's favour is that it at least has the courage of other people's destructive convictions.
It is time for higher education to start afresh. The prospect of a career in Australian academe grows steadily less alluring. Can demoralisation and disempowerment really produce a clever country? The Howard Government seems to think so.
My novel suggestion is that, for a change, management in universities should be modelled on best practice and the theory that summarises it, instead of the worst.
Dennis Tourish is professor of management and leadership at Aberdeen Business School in Scotland.

January 20, 2006

What the Iran 'nuclear issue' is really about

Jan 21, 2006
By Chris Cook

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say.

It is said that there is the reason they give; and then there is the real reason. Nowhere is this more true, perhaps, than in Iran.

My experience with Iran began four and a half years ago in June 2001 when, through my Iranian business partner, I wrote to the then governor of the Iranian central bank, Dr Mohsen Nourbakhsh.
This letter was written on the basis of my experience as a former director of the International Petroleum Exchange and in the aftermath of allegations I made in relation to market manipulation on the IPE the previous year, which were dismissed by a commissioner appointed by the exchange. I still regret that I used the description "systematic" rather than "systemic" of this alleged manipulation, but that is another story.

In this letter I pointed out that the structure of global oil markets massively favors intermediary traders and particularly investment banks, and that both consumers and producers such as Iran are adversely affected by this. I recommended that Iran consider as a matter of urgency the creation of a Middle Eastern energy exchange, and particularly a new Persian Gulf benchmark oil price.

It is therefore with wry amusement that I have seen a myth being widely propagated on the Internet that the genesis of this "Iran bourse" project is a wish to subvert the US dollar by denominating oil pricing in euros.

As anyone familiar with the Organization of Petroleum Exporting Countries will know, the denomination of oil sales in currencies other than the dollar is not a new subject, and as anyone familiar with economics will tell you, the denomination of oil sales is merely a transactional issue: what matters is in what assets (or, in the case of the United States, liabilities ) these proceeds are then invested.

After a couple of years of apparent inaction, my colleague and I were invited to put together a consortium to tender for a project to create such an exchange and, after a presentation at the central bank in Tehran in May 2004, we were successful, as reported in The Guardian at the time. We subsequently learned that the delay had been due to initial opposition from the Saudis and this opposition was withdrawn after the attacks of September 11, 2001, and the subsequent US-led invasion of Iraq.

A major feasibility study was carried out in the summer of 2004 - for which we still have not been paid by the Iranian Oil Ministry - and after this, the process became bogged down in turf battles between the Oil Ministry and the Ministry for the Economy.

We met president Mohammad Khatami in December 2004 to resolve this problem and then spent considerable time with his close advisers, from whom we received powerful backing. Progress was made, to the extent that an exchange entity was incorporated and premises purchased on Kish Island in the Persian Gulf.

In the second quarter of 2005 the real opposition from within the Oil Ministry - from factions opposed to shedding any light on the sales regime - was becoming apparent. However, as the battle was about to be joined, Khatami's period in office came to an end and the presidential election in August intervened.

Neither we, nor anyone we knew, expected the result of the election, still less the events after it. Three times over a period of three months an oil minister was nominated by the new president, Mahmud Ahmadinejad, from among his trusted colleagues and three times they were turned down by the majlis (Iranian parliament), until finally an experienced insider was appointed in early December. Only now are further levels of appointments being made by the new minister.

Ahmadinejad is on record as saying that he favors transparency in the Iranian oil market. As anyone familiar with the City of London and Wall Street will know, transparency is the enemy of private profit, and it is this factor that was behind the delays in developing the bourse project.

However, we remain hopeful that the strategy we recommended, which is based upon (a) gradual and organic introduction of pricing built upon the neutral function of transaction registration and (b) a simple (and Islamically sound) partnership-based "clearing union" synthesis of bilateral trading and a multilateral guarantee, will in due course be taken forward.

One of the most interesting aspects of the process was that during our brief spell of contacts with decision-makers, some insight into current Iranian policy was possible - in particular, the nuclear question. In our conversations we were left in no doubt that it suits both the US and Iran for the issue to be seen to be that of the Iranian "threat" from nuclear weapons.

In fact the issue is a proxy for Iraq: try looking in the media prior to the events in Fallujah, Iraq, for anything more than desultory mention of this "issue". But once factions in Iran funded Muqtada al-Sadr to the tune of $50 million and the US body count started to rise, then the issue began to attain its current level of importance.

Now that pro-Iranian Shi'ite elements are taking a primary role in the emerging government in Iraq, we see the nuclear temperature rising further.

The realpolitik is of course that those in power in the US and Iran have the reason they give - and the real reason - for what they do: and for the US, the real reason is and has been for many years energy security above any other consideration.
Chris Cook is a former director of the International Petroleum Exchange. He is now a strategic market consultant, entrepreneur and commentator. Reprinted with permission from www.energybulletin.net.

Another item published by lockergnome

Science: don’t we just love it? When you consider the grand sweep of it, the only question that can’t be answered is just how school teachers managed to make it seem so boring to so many. Not me; I’m the nerd who hung around the library reading “Flight International” magazines, so one of my big Web pleasures is listening to great minds on the cutting edge. Here are a few of my favourites; professional broadcasts that started life boiling off the filaments of vacuum tubes.

January 19, 2006

The Mogambo is worth quoting in full

I knew something was wrong when I woke up Friday morning. Not only was my Wall Street Journal missing, but my wife was acting real nervous and suspicious, and the damned kid was hiding behind the couch. What the hell is going on? I soon found out, and, as obviously predicted, was highly frightened to see that Total Fed Credit actually declined by $17 billion last week! The ability, or actions, of the banks in creating money out of thin air was, gulp, lowered by $17 billion dollars? In one freaking WEEK?

To be fair, reversing the excesses of the customary end-of-year monetary goosing by the Federal Reserve is pretty par for the course, as it happens every year about this time. But meanwhile, the money supply is still growing quite handsomely, as reported by Bill Bonner at DailyReckoning.com, who writes "In the latest reported week, more than $25 billion was added to the nation’s money supply. If this were to continue, it would add more new money in 18 months than the present value of all the gold ever mined." Hahaha! The money supply is going up faster than the growth in the economy, which means that prices will increase (to absorb all that money), and the supply of money is increasing, in one lousy freaking year, more than the value of all the gold in the whole world? And now you wonder if gold is going to go up in price? Hahaha! It's not IF gold will go up, my darling little Mogambo larva (DLML), but how freaking MUCH it is going to go up in price! And I am betting gold will go up a LOT! And if it does not, then I will be surprised as hell (SAH) because this would be the first time in all of history when gold did NOT rise mightily in price when faced with the enormous economic idiocies, like the ones that currently bedevil us, especially when using a fiat currency as money!

But we aren't here to talk about gold and how freaking much money is going to be made in gold, although it is one of my favorite things to talk about. Instead, we were talking about the money supply, and almost as if by accident I happened upon the essay "The Fed's Money Supply Armament Is Underway" by Robert McHugh, which was posted on Financial Sense.com. He writes that the money supply figure known as M-3 "has been launched into outer space, up another $56.3 billion last week, up $92.4 billion over the past two. This is some real horsepower. Over six weeks," he says, M-3 is "up $177.8 billion. These annualized growth rates are 28.7 percent, 23.6 percent, and 15.3 percent respectively."

As soon as I read that, I gulped, suddenly nervous and edgy. He then soothingly adds that "Those are the seasonally adjusted figures." I think to myself "Whew! That was close! I coulda had a heart attack!" Now I am starting to relax a little, because adjusting "seasonally" and "annually" are two of my favorite statistical tricks. For example, suppose my wife starts up with that same old whining crap of hers, and says "You are a lazy, mean, worthless slob and I am sorry I married you, blah blah blah! And now I am going to make your life miserable, you smelly, horrible, disgusting creep blah blah blah."

In the past I would have suffered the humiliation like a manly Mogambo man (MMM), as she is (I am ashamed to say) right. But nowadays, things are different! Instead, I duck into a convenient phone booth, and emerge, seconds later, masked and caped, as Mogambo Statistician Man (MSM), whereupon I cleverly cut out her diabolical, hate-filled heart by brandishing real statistical proof (RSP) that she is a lying, hateful demon from hell.

"Wrong, hateful, lying she-devil (HLSD)!" I dramatically say. "I am NOT smelly, as I took a shower this morning! And adjusting the last few hours to an annual rate, I am thus proved to be ALWAYS fresh as a damned daisy, you hateful old crab!" If she is not soon reeling by this powerful statistical onslaught, then I hit her with my backup statistical proof, and triumphantly declare "And as for seasonally-adjusting, you nasty old biddy, since I took a shower today, historically this is very early in winter for me to be taking one. Seasonally adjusting the statistics, usually I have taken only 0.0042 baths so early in the year, and so I am waaaAAAaaayyy over trend here, so just shut the hell up! Shut up, shut up, shutupshutupshutup!" which does NOT, in case you are wondering, shut her up. Even though you just PROVED that she was an idiot who doesn't know what she is talking about! Sheesh! Women! Who can understand 'em, eh?

But this is not about how the heroic and long-suffering Mogambo tries so hard to be a good husband and father and how he is rewarded for his magnanimous efforts by treachery, although it DOES prey on my mind. Seeing that I am temporarily distracted, suddenly Mr. McHugh springs the trap, and says "The raw, non-seasonally adjusted, figure is up $293.3 billion over the past 12 weeks, on a pace to add $1.2 trillion in money to the economy." Bam! Right between the eyes! Stunned, I had to read that sentence several times, as my mind kept refusing to comprehend what I was reading, probably because I was screaming in fear. This kind of wild increase in money and debt gives me a case of the Screaming Mogambo Willies (SMW). Then he says, calmly, "Wow." That's it. Just "wow."

Outraged, I leap up and, utilizing my famous Mogambo Editor's Pen (MED), write in big, red letters on the wall, "Exclamation points missing! Exclamation points missing missing missing!!!" and I am angrily stabbing the wall with the pen for additional emphasis.

In fact, now that I think about it, this will be my entry into this year's hotly-awaited contest, the "International Most Egregious Lack Of Exclamation Points Competition"! In correct Mogambo literary style (CMLS), it should have read "Wow!!!!" which, when applied to economics, is your signal to buy more gold and wear a sidearm for the next couple of weeks, just in case. I urge these precautions because this kind of incredible, profligate, unbelievable monetary inflation means that we will get a corresponding price inflation after a just a little while, and people typically go berserk ("freaking bananas") when they can't afford to even live anymore because prices are so high, and then the kids start getting hungry and whiny and crybaby boo hoo hoo, and they think that just because I am their father that I am just going to, I suppose, voluntarily pay more money for food, like I have a magical money tree in the backyard or something.

But if you are sick of hearing me run my big, fat mouth and you want some hard, real evidence of inflation, then I can think of only two good sources. 1) Me grabbing you by the front of your shirt and screaming at you, while little drops of Mogambo spittle (LDOMS) hit you in the face, and your ears are ringing ringing ringing with the noise, and you cringe and struggle and cry, but I don’t stop until you admit that you truly believe that inflation is up dramatically, up horrifically, up destructively and you agree that "We're freaking doomed!"

The other, less fun way, hereby denoted as 2), is to read things like the article entitled "Energy costs drive US inflation" on the BBC.co.uk website. It read, "Wholesale prices in the US rose at their fastest rate in 15 years during 2005, as the effects of soaring energy prices took their toll." The fastest rise in price inflation in fifteen freaking years? My hands shake at the prospect.

The actual numbers are no picnic themselves, in that "The Labor Department producer price index (PPI) rose 5.4% in 2005, driven by a 23.9% hike in energy costs. For December, the PPI - which gauges price changes before they reach the customer - rose 0.9%, the biggest jump since September's 1.7%."

Not only that, but "Food costs moved up by nearly 1% in December, following a 0.5% November gain." If you are a carnivore, then you're in better shape than those poor vegetarians, who got clobbered in December as the price of vegetables "soared 22% during the month, the biggest gain in more than a year." But even we vicious, meat-eating, super-predator omnivores are looking at inflation in food prices that are, annualized, 12% a year! This is the stuff of Nightmares on Federal Reserve Street, which is not a movie, but if it was, it would scare the hell out of you, and you would die of a heart attack just from watching the fearful effects of inflation caused by creating too much money and credit, which is why they don't make the movie.

And speaking of rising energy costs, Doug Noland passes on the news from the Financial Times, where Carola Hoyos writes that “The oil revenues of the Organisation of the Petroleum Exporting Countries, the cartel that controls 40 per cent of the world’s oil supplies, will increase by 10 per cent to a record $522bn this year, the US Department of Energy forecasts."

Now, I am sure that you noticed that they didn't say that OPEC was going to be pumping 10% more oil, mostly because OPEC ain't a-gonna be pumping no 10% more oil. And in fact, if Peak Oil is here, they will probably be pumping LESS oil. So the increase in "oil revenues" that OPEC will be making must, by process of elimination, be because of higher prices. Yikes! So prices are going to be 10% higher?

Or, if you want more proof of inflation, how about Jeff Clark in the Rude Awakening column? He writes that "palladium and platinum are becoming so valuable, the St. Louis Post Dispatch reports, that they are become the target of thieves, who are stealing cars in order to extract these precious metals from catalytic converters."

So I raise my hand and say "Hey! Here's an idea! How about starting a company that manufactures booby traps for catalytic converters, so that if somebody tries to steal it, it blows their damned arms off?" A look of horror crosses his face, and taking a few steps away from me in disgust, he hurriedly goes on to say "The fundamental argument for owning palladium is growing stronger by the day. That's because industrial demand is growing stronger by the day. (And it probably doesn't hurt that commodity funds are continuing to pour money into the precious metals sector). Palladium can perform many of the same industrial uses as its sister metal, platinum. Therefore, in the palladium market, it is important to pay attention to the price relationship between these two metals."

"Hmmm!" I think to myself. "Is he talking about some linkage of the two metals that I can exploit? And maybe make a zillion dollars by exploiting this linkage between the two metals? And then maybe I can pay back some of the money I have borrowed from people all these years? Nah! But can I exploit the price linkage to maybe make a zillion dollars anyway?" Well, perhaps! Listen, as I did, as he explains, "Throughout the late 1990s, these two precious metals tracked each other pretty closely. But in 2000, the price of palladium spiked due to supply disruptions from Russia. As the palladium price soared, many industries began substituting other cheaper platinum group metals. So by the time Russia resumed shipping palladium, industrial demand had disappeared. The palladium price plummeted from more than $1,000 an ounce in 2000 to less than $200 an ounce by 2003. But palladium finally started inching up again late last year. This appears to be the start of something big." Why? He explains, "I expect industrial demand to continue booming, as long as the price spread between platinum and palladium remains as wide as it is currently." Oh! That's why; the linkage we were looking for, with which to make that zillion dollars! So buy palladium! I love this investing stuff because it is so easy!

Anyway, the bottom-line upshot of all of this is that today, right now, is the perfect time to buy palladium, as he more than intimates when he says "With platinum at $1,030 per ounce and palladium at $270 per ounce, the price differential between the two has reached a record-wide spread."

Bill Bonner abruptly comes out of his office, sniffs the air, and says "What in the hell stinks around here? Is the stupid Mogambo in the damned building again?" I pop up and say "Hi, Mr. Bonner!" and he demands to know who let me in, and I tell him we are talking about gold and palladium as I was just leaving. He looks me right in the eye and says that if you want to talk about gold, then we might be interested to learn that "The price has doubled since George W. Bush became president." Yes, that was sort interesting, but as an old-time Republican, I am ashamed and embarrassed to talk about it. Or Bush. Or neo-cons. As dispiriting as that is, my attitude is immediately improved when he goes on to say "Our guess is that it will double again before he leaves office"! Suddenly, without warning, the great grasping greed gland of The Mogambo (GGGGOTM) squirts out some hormone into my bloodstream ("squeeeshhhhh!"), and I instantly realize that 1) if the Constitution is still in force and 2) if the election goes off when planned, then 3) gold will double in a little more than two short years from now! Hahaha! And the shares of mining companies ought to, what? Triple? Quadruple? Hahaha! Bonanza! I love this investing stuff! It's so easy when central banks act so stupidly!

- Doug Casey, in an essay on the DailyReckoning.com site, gets into discussing government, and says "Frankly, I never expect anything good from government. And here I refer to the institution itself. How can you, considering that its main products are wars, pogroms, prosecutions, persecutions, taxation, regulation, inflation, and assorted idiocy?"

As if to prove the point, Bill Bonner reports that "Senator Max Baucus of Montana, along with many others, think there is something wrong. It seems to them that China must be getting away with something. They're not sure what it is that China is doing wrong, but they're determined to put a stop to it. 'Washington may take measures,' Baucus warned the Chinese."

Like what? Well, how about "Among the measures Washington may take is a trade tariff"? What is the effect of a tariff? It "would increase the cost of Chinese exports by nearly 30%." Hahaha! A thirty percent price inflation! Punishing the Chinese by making things more expensive for us? This idiot can't possibly be serious! I howl in my outrage! OwwwwWWWWwwww!

Bill Bonner is much more dignified when he says "What are the poor lumpenhouseholders to do? They pay more for energy. They pay more for healthcare. Their house-as-ATM financing strategy is breaking down. And they earn less money than they did two years ago. About the only thing they have left are those Everyday Low Prices on manufactured goods from China. And now, along comes a U.S. senator with a plan to force prices up."

But, then again, that is what government does! And it just keeps getting worse and worse because there is so much, so much, so much, so damned much government. And how big is the damned government, anyway? In a clever attempt to demonstrate with gestures, I stretch my arms out real wide and say "Bigger than this, even!" Carla Howell, writing the essay "Big Government Is Even Bigger Than You Think " on LewRockwell.com, laughs in contempt at my puny Mogambo efforts (PME), and has a better way of demonstrating how big the government is. "Federal, state, and local governments together," she writes, "directly spend a whopping $4.8 Trillion – every year." Assuming a $12 trillion dollar economy, this is 40% of GDP! Note the use of an exclamation point.

But then there is also the "off-budget" money. She writes "Conservative estimates give us total off-the-books federal, state, and local government spending of at least $700 billion annually. Add this to the on-the-books spending, and you get government spending of $5.5 Trillion – every year!" Again assuming a $12 trillion dollar economy, this is 46% of GDP!! Note the use of the rare double exclamation points.

"Big Government mandates – compels us to spend – another $1.5 Trillion to $3 Trillion every year. This is the externalized cost of government, i.e., the amount that governments force businesses, non-profits, and citizens to spend to comply with government regulations. Combined direct and mandated government spending may well exceed $7 Trillion." Yikes! The government spends more than half of the entire economy!!! Note the extremely rare triple exclamation points! This is big-time stuff in the category of "Economic insanity."

So how would you describe how big government is, but without actually using numbers? She thinks about it for a moment. "Big Government in America is so huge," she says, "it boggles the mind and numbs the senses."

And if you are thinking "What in the hell do they do with all the money?", then welcome to the club. Well, perhaps Robert B. can help enlighten us when he writes "The 10 Commandments: 179 words. The Declaration of Independence: 1,300 words. The US Government regulations on the sale of cabbage: 26,911 words. "Hahaha! Now you know what they are doing with their time!

- There has been a lot of consternation lately about whether another "confiscation" of gold, like FDR did in 1934, is right around the corner. To be accurate, I will quickly add that no gold was actually confiscated, as the owners of bullion gold took the gold (worth $20 dollars per ounce) to the bank, and the bank took the gold and gave them twenty bucks in cash for it. Remember, the purpose of rounding up the gold in 1934 was to "free up" idle wealth (in the form of gold tucked under the mattress) and put depreciating dollars in people's pockets, so that they would (theoretically and hopefully) spend some (increasing aggregate demand), and put some in the bank (creating bank reserves).

And another big, burning question for The Mogambo (BBQFTM) is "What about numismatic coins that are so rare that they acquire premiums over the melt value of the coin and were exempted from the FDR 'confiscation'?" The real reason that rare and valuable coins were exempted from the gold round-up was that the government would have to pay the higher prices, as the Constitution prevents the government from merely taking your coins, but has to pay full market price for them. So, paying $20 an ounce for 24K raw, bullion gold was plenty enough, but picking up one more stinking ounce in the form of a rare coin valued at $5,000 was another thing all together!

And besides, there weren't that many rare and valuable coins, and it wasn't worth the hassle nor expense, especially since Mogambo-hardened sharpies like you, seeing that the government had boxed itself in, would have colluded beforehand to bid up the price of rare coins, selling them back and forth between us, back and forth, around and around, driving the prices to astronomical levels, which the government would be, by law, required to pay. And THAT is why valuable and rare coins were exempted.

- I don't know why, but it struck me as real funny when Chris/Super says "That guy bringing all those gifts over the years wasn't Santa Claus, but a future bill collector wrapped in a China flag."

Glenn K also sent me the something else that confused me. It was a news bit from Reuters that read "Increased globalization has lessened the usefulness of concepts such as output gaps or capacity restraints for monetary policy-makers, Dallas Federal Reserve Bank President Richard Fisher said on Friday. The concepts of output gaps for economists or capacity constraints ... are rendered nonexistent." Huh? I am so confused that I don't know what to think. I include it because I am not only nonplussed and, thus, at a complete loss to even vaguely comprehend what he means, but also because it seems somehow important to know that such gibberish came out of the mouth of the president of a Federal Reserve Bank.

- Rick Ackerman of Rick's Picks actually used the phrase "global annihilation" in the context of something economic, like "We're freaking doomed to global annihilation, just like The Mogambo said we would! He is a god! Fall on your knees and worship Mogambo! All hail Mogambo!" Well, okay, truthfully, he did not, you know, actually use those EXACT words. But he DID use the phrase "global annihilation", which is bad enough!

Anyway, then he asked "Where is Klaatu when we need him?" Hahahaha! But is it entirely coincidental that Mr. Ackerman brought up Klaatu from the movie, "The Day the Earth Stood Still"? You be the judge: It is a little-known fact that if you play the famous phrase "Klaatu barada nictu" backward, you hear "Run for your freaking life, Klaatu! These people are freaking morons!" Which could, and probably does, explain why Mr. Ackerman mentioned both "global annihilation" and Klaatu at the same time!

- Adam Hamilton of Zeal LLC.com and appearing on SafeHaven.com hears me talking about gold, and says "prices trading near 25-year highs. The core tenet of successful investing is to buy low and sell high. So if an asset is trading at a quarter-century high-water mark, then odds are its price is pretty darned high at the moment and therefore a bad buy, right?" I silently nod my head like I understood what in the hell he was talking about.

Then he says "But gold, believe it or not, is still a great contrarian investment even at today's quarter-century nominal highs. How is this seemingly absurd thesis possible?" Everybody is suddenly looking at me to supply the answer, as if I had any freaking clue. But being the classy guy that he is, Mr. Hamilton saves my bacon and immediately goes on to say "The answer is the measuring stick for any investment pricing, the US dollar, has radically changed in the last several decades. A dollar today is worth vastly less than a dollar was 25 years ago, the last time gold closed over $550."

He says to take a look at prices in the early 1980s. "They were almost trivial compared to what we face today," he writes. "The median home price in the US was $76k. You can hardly even buy an empty lot in suburbia for this today, let alone a house. The median American income was under $18k. Today $18k is actually below the official US poverty line for a family of four! A first-class postage stamp ran 15 ¢. The average new car was about $7k. So a quarter century ago the $550 it cost to buy an ounce of gold went a heck of lot farther in terms of buying real goods and services than it would today." Exactly, my man!

Then, because he is such a nice person, I suppose, he sums it up by stating the truism "Anytime the money supply of a particular era or place grows faster than the supply of goods and services on which to spend it, general prices are inevitably driven relentlessly higher. This financial law is as immutable as gravity."

So, how is gold doing in terms of gains in buying power over the intervening, inflationary years? "Gold last closed above $550 nominal on January 23rd, 1981," he says, "almost 25 years ago to the week. Yet adjusted for inflation, an ounce of gold was really worth $1266 that day in purchasing-power terms. Thus, in order to truly see the quarter-century gold highs that the financial media is wailing about, gold in today's dollars would have to head north of $1250." So gold is priced at less than HALF of its record price! Wow! What a bargain! Hahahaha! It's like oil selling for less than $30 a barrel! What a freaking bargain!

And with the relatively-near future value of the dollar being an estimated 30% lower than it is now, then gold is so cheap (audience yells out, "How cheap, Mogambo?") that if you are NOT buying gold, then I laugh at you, and disparage the intelligence of your parents that you are so stupid, and insult your significant-other that they are so completely worthless that they have to love a stupid clot like you, because nobody with any smarts or standards would have anything to do with you or them. And it sounds like this: "Hahahaha!"

And since we are talking about gold in terms of its buying power, he further calculates that "From the mid-1970s until the mid-1990s gold rarely went below $500 in today's dollars, so $500 gold really is historically cheap. Today gold would have to challenge $1000 before it started getting expensive and it would have to rocket up near $2200 to hit all-time real highs."

Then, saving the best for last, he says "Assuming these growth rates are roughly correct, and compounding them for the 25 years since 1980, the world's money supply has ballooned by 5.4x. Meanwhile the global gold supply is only up 1.3x. Dividing these 25-year growth estimates yields a ratio of global-fiat-currency-supplies-to-gold-supplies of about 4.2x. Now there is 4x as much fiat paper floating around relative to gold as there was in 1980! The $850 spike high in January 1980 multiplied by this ratio yields an all-time gold high of $3570 in today's dollars."

My ears prick up when he says $3,570 an ounce, but by this time my brain is numbed to senselessness by all these numbers whizzing about, and in a state of stunned semi-consciousness I am drooling down the front of my shirt. Disgusted at the sight, Mr. Hamilton tries to distract himself by trying to think of a way to impress upon dullards, like me, at least the bare rudimentary essence of what he was trying to say. Finally giving up, he merely says "My core thesis that gold is cheap today in real terms."

And if you wanted yet another reason to buy gold (although I personally find it hard to stand upright under the weight of the sheer tonnage of damned good reasons to buy gold right now), then Peter Spina of the Gold Forecaster-Global Watch newsletter has one for you. He writes that the gold market is changing, "Suddenly the Exchange Traded Funds took control. StreetTRACKS Gold Trust saw its holdings jump by an enormous 10% in the year to date (2006)! These volumes are sucking in all the Central Bank Sales and some. On the other side, no one wants to sell."

He then reports some impressive movements of gold into the Exchange Traded Funds. "The week to 2nd January saw them adding a 17.8 tonnes, followed by Wednesday, Thursday and Friday bringing another inflow of 23.5 tonnes, taking total gold holdings to 384 tonnes. This is an enormous rise." Yes, it IS enormous, Mr. Spina, and it means that demand is increasing dramatically, but since supply cannot increase, that means that the price will continue to go up and up and up as long as demand outstrips supply!

- From Doug Noland we get the chilling news that Bloomberg News reports “Venezuelan President Hugo Chavez said he plans to increase salaries for government workers by as much as 80 percent this year.” I hate to be a stickler here, but notice the lack of an exclamation point, which one would naturally expect when the government has just announced that they are going to shoot you, and everyone in your family, with a machine gun. Oops! I mean, when the government has just announced that they are going to destroy the money and the economy, which is just about the same thing.

The point is that if you know anybody in Venezuela, tell them that The Mogambo has put out an Important Mogambo Bulletin (IMB) that was obviously censored by the media since nobody seems to have read it, that the money of Venezuela is going to get destroyed with price inflation and government-expense inflation, and that I'll bet that smart people in Venezuela are screaming "The Mogambo was right! We're freaking doomed" and are buying gold right now, and I mean right freaking now. Anyway, that's what I would do. Ugh.

****Mogambo sez: Mogambo him say oil go up. Oil go up. Mogambo him say gold go up. Gold go up. Mogambo him say silver go up. Silver go up.

Mogambo him big medicine. Mogambo now say too buy heap big oil, gold, silver.

Richard Daughty, the angriest guy in economics
9241 54th Street North
Pinellas Park, FL 33782
727 546 5568
e-mail: scgcjs@gte.net

January 18, 2006

Clusterfuck Nation by Jim Kunstler


You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.

January 16, 2006

Lovelock says we are past the point on no return

We should be the heart and mind of the Earth, not its malady. So let us be brave and cease thinking of human needs and rights alone, and see that we have harmed the living Earth and need to make our peace with Gaia. We must do it while we are still strong enough to negotiate, and not a broken rabble led by brutal war lords. Most of all, we should remember that we are a part of it, and it is indeed our home.

Global warming to speed up as carbon levels show sharp rise

Through most of the past half-century, levels of the gas rose by an average of 1.3 parts per million a year; in the late 1990s, this figure rose to 1.6 ppm, and again to 2ppm in 2002 and 2003. But unpublished figures for the first 10 months of this year show a rise of 2.2ppm.

Why pebble-bed reactors are the go

Zhang Zuoyi, the project's 42-year-old director, explains why. The key trick is a phenomenon known as Doppler broadening - the hotter atoms get, the more they spread apart, making it harder for an incoming neutron to strike a nucleus. In the dense core of a conventional reactor, the effect is marginal. But HTR-10's carefully designed geometry, low fuel density, and small size make for a very different story. In the event of a catastrophic cooling-system failure, instead of skyrocketing into a bad movie plot, the core temperature climbs to only about 1,600 degrees Celsius - comfortably below the balls' 2,000-plus-degree melting point - and then falls. This temperature ceiling makes HTR-10 what engineers privately call walk-away safe. As in, you can walk away from any situation and go have a pizza.

"In a conventional reactor emergency, you have only seconds to make the right decision," Zhang notes. "With HTR-10, it's days, even weeks - as much time as we could ever need to fix a problem."

This unusual margin of safety isn't merely theoretical. INET's engineers have already done what would be unthinkable in a conventional reactor: switched off HTR-10's helium coolant and let the reactor cool down all by itself. Indeed, Zhang plans a show-stopping repeat performance at an international conference of reactor physicists in Beijing in September. "We think our kind of test may be required in the market someday," he adds.

Beware the fossil fools

The dismissal of climate change by journalistic nincompoops is a danger to us all.

Picture a situation in which most of the media, despite the overwhelming weight of medical opinion, refused to accept that there was a connection between smoking and lung cancer. Imagine that every time new evidence emerged, they asked someone with no medical qualifications to write a piece dismissing the evidence and claiming that there was no consensus on the issue.

Imagine that the BBC, in the interests of "debate", wheeled out one of the tiny number of scientists who says that smoking and cancer aren't linked, or that giving up isn't worth the trouble, every time the issue of cancer was raised.

Imagine that, as a result, next to nothing was done about the problem, to the delight of the tobacco industry and the detriment of millions of smokers. We would surely describe the newspapers and the BBC as grossly irresponsible.

Now stop imagining it, and take a look at what's happening. The issue is not smoking, but climate change. The scientific consensus is just as robust, the misreporting just as widespread, the consequences even graver.

If it is true, as the government's new report suggested last week, that it is now too late to prevent hundreds of thousands of British people from being flooded out of their homes, then the journalists who have consistently and deliberately downplayed the threat carry much of the responsibility for the problem. It is time we stopped treating them as bystanders. It is time we started holding them to account.

"The scientific community has reached a consensus," the government's chief scientific adviser, Professor David King, told the House of Lords last month. "I do not believe that amongst the scientists there is a discussion as to whether global warming is due to anthropogenic effects.

It is man-made and it is essentially [caused by] fossil fuel burning, increased methane production... and so on." Sir David chose his words carefully. There is a discussion about whether global warming is due to anthropogenic (man-made) effects. But it is not - or is only seldom - taking place among scientists. It is taking place in the media, and it seems to consist of a competition to establish the outer reaches of imbecility.

During the heatwave last year, the Spectator made the case that because there was widespread concern in the 1970s about the possibility of a new ice age, we can safely dismiss concerns about global warming today.

This is rather like saying that because Jean-Baptiste Lamarck's hypothesis on evolution once commanded scientific support and was later shown to be incorrect, then Charles Darwin's must also be wrong.

Science differs from the leader writers of the Spectator in that it learns from its mistakes. A hypothesis is advanced and tested. If the evidence suggests it is wrong, it is discarded. If the evidence appears to support it, it is refined and subjected to further testing. That some climatologists predicted an ice age in the 1970s, and that the idea was dropped when others found that their predictions were flawed, is a cause for confidence in climatology.

But the Spectator looks like the Journal of Atmospheric Physics compared to the Mail on Sunday and its Nobel laureate-in-waiting, Peter Hitchens. "The greenhouse effect probably doesn't exist," he wrote in 2001. "There is as yet no evidence for it." Perhaps Hitchens would care to explain why our climate differs from that of Mars.

That some of the heat from the sun is trapped in the Earth's atmosphere by gases (the greenhouse effect) has been established since the mid-19th century. But, like most of these nincompoops, Hitchens claims to be defending science from its opponents. "The only reason these facts are so little known", he tells us, is (apart from the reason that he has just made them up), "that a self-righteous love of 'the environment' has now replaced religion as the new orthodoxy".

Hitchens, in turn, is an Einstein beside that famous climate scientist Melanie Phillips. Writing in the Daily Mail in January, she dismissed the entire canon of climatology as "a global fraud" perpetrated by the "leftwing, anti-American, anti-west ideology which goes hand in hand with anti-globalisation and the belief that everything done by the industrialised world is wicked".

This belief must be shared by the Pentagon, whose recent report pictures climate change as the foremost threat to global security. In an earlier article, she claimed that "most independent climate specialists, far from supporting [global warming], are deeply sceptical". She managed to name only one, however, and he receives his funding from the fossil fuel industry.

Having blasted the world's climatologists for "scientific illiteracy", she then trumpeted her own. The latest report by the Intergovernmental Panel on Climate Change (which collates the findings of climatologists) is, she complained, "studded with weasel words" such as "very likely" and "best estimate". These weasel words are, of course, what make it a scientific report, rather than a column by Melanie Phillips.

If ever you meet one of these people, I suggest you ask them the following questions: 1. Does the atmosphere contain carbon dioxide? 2. Does atmospheric carbon dioxide influence global temperatures? 3. Will that influence be enhanced by the addition of more carbon dioxide? 4. Have human activities led to a net emission of carbon dioxide? It would be interesting to discover at which point they answer no - at which point, in other words, they choose to part company with basic physics.

But these dolts are rather less danger ous than the BBC, and its insistence on "balancing" its coverage of climate change. It appears to be incapable of running an item on the subject without inviting a sceptic to comment on it.

Usually this is either someone from a corporate-funded thinktank (who is, of course, never introduced as such) or the professional anti-environmentalist Philip Stott. Professor Stott is a retired biogeographer. Like almost all the prominent sceptics he has never published a peer-reviewed paper on climate change. But he has made himself available to dismiss climatologists' peer-reviewed work as the "lies" of ecofundamentalists.

This wouldn't be so objectionable if the BBC made it clear that these people are not climatologists, and the overwhelming majority of qualified scientific opinion is against them. Instead, it leaves us with the impression that professional opinion is split down the middle. It's a bit like continually bringing people on to the programme to suggest that there is no link between HIV and Aids.

What makes all this so dangerous is that it plays into the hands of corporate lobbyists. A recently leaked memo written by Frank Luntz, the US Republican and corporate strategist, warned that "The environment is probably the single issue on which Republicans in general - and President Bush in particular - are most vulnerable... Should the public come to believe that the scientific issues are settled, their views about global warming will change accordingly. Therefore, you need... to make the lack of scientific certainty a primary issue."

We can expect Professors Hitchens and Phillips to do what they're told. But isn't it time that the BBC stopped behaving like the public relations arm of the fossil fuel lobby?

All you need to know about Australia

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January 14, 2006

Ken Lay's defence.

He's being persecuted.

"TIME" reviews Battlestar Galactica

Most of you probably think this entry has got to be a joke. The rest of you have actually watched the show. Adapted from a cheesy '70s Star Wars clone of the same name, Galactica (returning in January) is a ripping sci-fi allegory of the war on terror, complete with religious fundamentalists (here, genocidal robots called Cylons), sleeper cells, civil-liberties crackdowns and even a prisoner-torture scandal. The basic-cable budget sometimes shows in the production, but the writing and performances are first-class, especially Edward James Olmos as the noble but authoritarian commander in charge of saving the last remnants of humanity. Laugh if you want, but this story of enemies within is dead serious, and seriously good.

Needless to say I'm a big fan!

January 13, 2006

Wrote my first item for Lockergnome.com

Called Nothin' But the Full Text.

We all like books, right? There is something about free full text that has always got me going and lately I’ve noticed a few gems available in Australia that you don’t find elsewhere.

January 12, 2006

Benefits of nuclear power

The audited environmental product statement of the Vattenfall Energy utility shows that their Nuclear Power Plants emit less than one hundreth the Greenhouse Gases of Coal or Gas fired power stations. If the Nuclear Power Industry lives up to it's promises for modern, 3rd generation plants, the total levelised cost of Nuclear Power including contruction, operational, waste disposal and decommissioning costs is in the range 3 - 5 cents per KiloWatt-Hour depending on the interest rate obtained for the construction. Nuclear Power plants pay back the energy required to build them in less than 2 months of operation. Current world proven reserves of Uranium are sufficient to supply current world demand for 50 years. Speculative reserves provide an additional 150 years of supply. The cost of Uranium Ore is a very small fraction of the operating costs of Nuclear Power. Fourth Generation Nuclear Plants can fully utilize all the energy in Natural Uranium. There is sufficient Uranium and Thorium on Earth for Fourth Generation reactors to supply the total World demand for energy for hundreds of centuries.

January 11, 2006

Time to Buy ERA.AX or other Unanium stocks? Maybe


January 10, 2006

S&P: Nuclear Power Carries High Business Risk

In the research report, "Credit Aspects of North American and European Nuclear Power," issued Monday, Standard & Poors credit analysts suggested that nuclear generation generally carries "the highest overall business risk compared with other types of [power] generation." In fact, the decommissioning risk is probably one of the most critical obstacles facing the nuclear power industry, according to S&P.

To put off dealing with the issue of decommissioning, many plant owners are seeking license extensions and are refurbishing existing units, according to S&P Credit Analysts John Kennedy in New York, Andreas Zsiga in Stockholm, Laurie Conheady in Toronto and Paul Lund in London

Google Pack seems like a good idea

  • Essential: Enjoy safe, useful software for your computer
  • Simple: Download and install everything in just a few clicks
  • Customizable: Choose only the software you want
  • Here it is
  • The Matrix lives

    Interesting set of papers on the question of if we are living in a sim.

    January 08, 2006

    The Bush Men Have "Form":

    "Form", is an Aussie term for someone who has pulled a fast
    one and gotten away with it.  Knowing this, most other Aussies
    expect the successful miscreant to try it again.  The Bush
    Administration certainly has "form".  Try this on for size.  At
    the end of fiscal 2000 (Sept. 29, 2000), shortly before Mr Bush
    was elected for the first time, US Treasury debt stood at $US 5
    TRILLION 674.1 Billion.  By December 30, 2005, that debt had
    risen to $US 8 TRILLION 170.4 Billion.  That shows that in a
    little more than five years, the "Bush Men" have added
    $US 2 TRILLION 496.4 Billion (44%) to the Treasury debt total.

    January 06, 2006

    Elliott Wave Analysis of a Leading Stock Index

    Over the last two years, absent of any long-term trends, the major US stock market indices have left technical analysts using trend-based tools dazed and confused. Pulling back to the longer term picture, and using Elliott Wave analysis provides some basis for recent market behavior, and more importantly, valuable insight into its possible future. The 3 wave advance of stock prices suggested in the Elliott Wave principle is also part of the rule books of a wide range of technical analysis methods from Dow Theory to the current successful guru, Investors Business Daily. (Stocks down. Gold up!)

    Clock is running down on 'cheap' (US) mortgages

    Fewer than 10 percent of the conventional conforming loans will reset in 2006-2007, but nearly two-thirds of sub-prime loans will. That is because a large portion of the sub-prime loans are two-year adjustables, says Berson, the Fannie Mae chief economist.

    Berson offered a typical example of what the industry calls a "2-28," an ARM in which the interest rate is fixed for the first two years and then adjusts regularly for the next 28 to whatever index the loan calls for. The average yearly cap on this loan is 2.3 percentage points per year.

    If the consumer took out this two-year ARM in December 2003, he started out paying a typical rate of 7.7 percent, Berson said.

    "You would be getting a letter from your lender this month telling you that next month, your rate would be going to 10 percent."

    Roughly speaking, a consumer's monthly bill could rise from $330 to as much as $1,425 to $1,755.

    January 03, 2006

    Let me tell you about 2006: Peak Oil is here

    There’s been only one lead mine opened in the world in over 25 years. The last lead smelter built in America was built in 1969. There’s been no great oil discovery in the world in over 35 years. Alaskan oil production is in decline now; Mexican oil production is in decline; England, which has been one of the great oil exporters in the world for the last 25 years, is now in decline – England will be importing oil within the decade – you know, the North Sea is in decline. So, as supplies dwindle, at the same time, Jim, you know what has happened in Asia,  demand has grown – in America, Europe and everywhere. So when you have demand growing and supply dwindling, that’s a bull market. And it’s always happened. And as I said, it has happened throughout history. It’s not simple, but it’s pretty basic economics and basic history.