Walk Backwards...

Greetings good citizen,

It’s been a while since I wrote a ‘free-form’ opinion piece on a topic not in the headlines, er, per se.

I watched National Geographic’s ‘Doomsday Preppers’ last night and it was quite a trip.

They took each ‘clan’ as a group and even provided what they were supposedly ‘prepping’ for.

From a ‘casting’ point of view it was a bonanza! From a credibility point of view, not so much.

Although I think one of the, er, ‘statistics’ they flashed in the second episode provides us with a hint as to why the exec’s at Nat’l Geo green lighted such an unlikely project.

More then fifty percent of US citizens (and probably even more ‘Americans’) fear a ‘financial collapse’ in the next twenty-five years!

Which is weird because anybody who has been paying attention already KNOWS the global financial system is totally ‘insolvent’ and has been to the last three years!

The ONLY thing keeping the lights on and the doors open is ‘creative accounting’!

Without those ‘off-balance sheet’ entries, we’d be fucked! (And guess who CAN’T get away with, er, ‘hiding’ their losses? That’s right…got a mirror?)

Did I mention that YOU are being ‘cheated’?

Just something to keep in the back of your mind as you stumble along, trying to get by here in ‘Wonderland’…

Um, to their credit, Nat’l Geo didn’t play ‘favorites’, they ‘dissed’ every prepper’s claims of pending disaster, regardless of, er, ‘plausibility’.

It was also curious to see that of the 8 ‘vignettes’ I watched last night, 5 of them were ‘fiscal mismanagement’ related.

So by ‘simple majority’ MOST ‘preppers’ are worried about the same thing!

(I find that ‘comforting’ because it indicates more people are ‘paying attention’ than the corporate owned media would have you believe!)

Which is neither here nor there. While many of these survivor groups doubled as ‘networks’, survival/personal is pretty much an ‘all you’ proposition. Some of the ‘well prepared’ (people with years of food for dozens of people) have figured the encounter with the occasional stranger into their ‘survival budget’ but most ‘preppers’ were hard pressed to lay enough aside to meet their own needs, even for a little while.

Only one of last night’s ‘preppers’ followed the, er, ‘correct’ path of survival, ‘don’t have anything worth getting killed for’ (just don’t do it!)

It would literally be a ‘waste of good lead’ to shoot this guy for what he had, (and that’s the way to do it!) He is ALREADY ‘living off the land’, surviving on wild edibles!

He’ll be living even better once the bureaucracy that prevents you from picking up nature’s bounty for yourself (without a license) goes away!

If you don’t have a license to fish, hunt or dig clams, you are legally ‘poaching’ and can be locked up for it!

Not that disputes over ‘whose’ (fill in the variety of wildlife) will, er, ‘end’ once civil order collapses…they’ll just be ‘settled’ in a more immediate and absolute manner.

Which is to advocate the ‘buddy system’, never go fishing, hunting, digging alone (unless you’re the stealthiest son of a bitch in the valley!) Always bring a guard/lookout!

Always ‘assume’ someone else thinks what you’ve found is ‘theirs’ and will be willing to kill you to protect it.

This extends, unreasonably enough, to game ‘on the hoof’. Let word get out that you bagged a deer and don’t be surprised when a group of, er, ‘collectors’ show up on your doorstep, looking for a fee (the balance of the meat and, at the very least, the hyde!)

You’ll be able to tell because they will arrive, loudly pronouncing ‘We don’t want any trouble’ which is code for, We came to make trouble for YOU! (PLEASE wait until we have dismounted our loud, rumbling bikes that are intended to scare the shit out of YOU before you start shooting!)

While we’re here it is a good idea to advise your guards to FIRE WITHOUT HESITATION on anyone STUPID enough to try intimidating you with a fucking motorcycle!

You cannot ride a motorcycle and shoot at the same time!

Here’s another tidbit, for the most part, handguns are USELESS if you aren’t literally on top of your target (within twenty feet.) At 75 feet, your just as well off throwing the fucking thing!

And the only weapon you can fire while riding a motorcycle…is a handgun!

Even then you’re still ‘shooting from the hip’ (meaning you’re not taking the time to ‘aim’.) If you hit somebody it is sheer luck!

But enough ‘nonsense’! (although what would one of my posts be if I DIDN’T digress wildly?)

In a word, boring!

Before we got carried away with defensive strategy we were discussing the, er, ‘likelihood’ of financial collapse.

Since all money is funny and our civilization is extremely poorly managed, the ‘trigger’ of a financial collapse will NOT be financial, it will be resource related!

So is it ‘all good’ until we run our of gypsum? (I’m ragging on you here, you know I‘m referring to oil!)

More importantly, will we really be ‘out’ when the managers of our society claim we are, er, ‘short’?

The answer here is NO.

We only just recently passed the estimated ‘half-way’ mark…there is, for now, plenty of oil.

The problem is there soon won’t be. The number of end users is growing exponentially!

How do they ‘fix’ runaway demand on a finite, dwindling resource?

Er, ‘reduce the number of end users?’

Simply enough this would mean pricing oil prohibitively!

But how can you do that without freezing two-thirds of the world’s population to death?

Our entire ‘social model’ is based on ‘cheap abundant energy’ when energy is neither cheap nor abundant, it falls apart, literally collapses!

Very much like the song that tells how the parts of the body are linked by the skeleton, our economy is inseparably linked via energy!

Without energy the entire supply chain literally falls apart.

Knowing this, how wise is/was it to eliminate ‘redundancy’ throughout the supply chain and move to ‘on demand, just in time’ production protocols?

Looks batshit insane if you ask me but unlike our highly compensated MBA’s, I’m looking at the situation from a ‘practical’ point of view and not from a ‘quarterly profit’ perspective.

Did I mention that our civilization is badly mismanaged?

I’ve said this multiple times before and I’ll say it a thousand more times, NONE of this is an ‘accident’! If I were a prosecuting attorney, a ‘murder one conviction’ would be a lead pipe cinch!

There’s ‘pre-meditation’ everywhere you look, so it will be laughable to see the billions of people who are ‘blindsided’ by the coming collapse!

Remember ‘globalization’ was NOT done FOR you, it has been done TO YOU!

We’re in ‘overtime’ here so I’ll try to wrap this up.

Returning to our energy problem and the inability to use ‘price’ to stretch out the energy supply we have another budget problem connected to energy, the cost of producing and harvesting/transporting food.

Since energy is literally ‘dollars’, the higher the cost of energy translates directly into the cost of food! Hyper-inflation results when the cost of living outstrips worker’s purchasing power!

Followed closely by the collapse of civil order…something they are narrowly avoiding in Greece at the moment…

Oh, and if Israel attacks Iran. AND the Iranians close the straits of Hormuz…instant ‘shit soup!

How’s JIT looking for ya now?

Thanks for letting me inside your head,

Gegner

Informed consent

Greetings good citizen,

As you know I’m chock full of little sayings and one of them I haven’t had cause to use in quite a while charged to the forefront this morning.

Are you ready?

It’s stupid really…and it is a sad indictment of our species to even go there but, it is what it is.

‘You can’t make (fill in the adjective here) decisions without accurate information’ (but, sadly, we do it all the time because most things can’t wait until the truth is dragged out into the light, kicking and screaming…)

The sad part here is the notorious ‘poor quality’ of the information we do have access to.

The hope here is that those actually acting upon the part of the story you’ve been allowed to glimpse have ‘more’ information than you do. The scary part is this is often a ‘sometimes yes and sometimes no.’ proposition.

Worse, we are often subject to the ‘prejudices of the observer’ so the information is ‘tainted’ from the get-go.

That said, and totally ‘tangential’ to the subject, is the debate over ‘hyper-inflation vs. deflation’.

I have stuck to my guns because it is picking fly shit out of pepper to argue that ‘falling value’ is any different from ‘increased worthlessness’.

WTF is wrong with these people?

Anyway, at least Mr. Panzer agrees with me:

Hyperinflation is a fiscal phenomenon borne out of a bankrupt state that can’t service its debts. Monetization is a trigger while a rise in consumption and velocity is a psychological effect, as Hazlitt notes. After all, if massive inflation is coming, what's the first thing you want to do? You’ll position yourself in hard assets well ahead of thinking “I need to spend now because this money will be worthless later.”

It’s not ‘too much money chasing too few goods’ as the idiots explained it back in the Eighties, it’s people trying to ‘rid’ themselves of increasingly worthless ‘cash’ as fast as they could/can.

To claim that lower producer prices is the cause of this is, well, insane (not that there is any shortage of whackos out there…)

This, ironically, brings us full circle to our original premise…you can’t make, er, ‘decisions’ without, er, ‘solid’ information.

Yet we do it all the time.

Because we have to…

Indecisiveness has its price too.

Did I mention that this little tidbit had a ‘dumb’ side to it? There it is. Probably why I haven’t wheeled out this little nugget in a long time, it’s a ‘paradox’.

Conundrum or not, it is still something important to be mindful of.

Which is to say your decisions will only be as good as the information they’re based on.

Garbage in = Garbage out.

Shifting back to our supply line example here, hyper-inflation is driven by scarcity. As more and more people try to ‘convert’ their cash into a dwindling supply of resources, prices go ballistic.

So the knot heads preaching the ‘danger’ of falling prices have it exactly backwards, it is the rapidly shrinking ‘supply line’ that will be the cause for, er, ‘panic’.

What, good citizen, have I been telling you for over three years now?

That ‘collapse’ will come when the global supply lines ‘crash’. (There are dozens of ‘drivers’ of this scenario but the end result is the same…)

Ironically, the single largest likely driver is the ‘value’ of the global reserve currency.

Any ‘disagreement’ about the value of the dollar could trigger the ‘vaporization’ of the world’s financial markets.

You can play out this ‘thought experiment’ in your own head, good citizen.

How likely do YOU think it is that the USA will ‘default’ on its debts?

Thank you for letting me inside your head,

Gegner

Skip, hop, stumble, splat...

Greetings good citizen,

After spending the majority of the day in negative territory, the ‘stupidity index’ limped into positive territory shortly before the close to finish the day at plus 34 points. Um, besides the US, only Mexico and China posted gains today, all of the other (major) markets closed lower.

Naturally, the Dow reaching positive territory altered the headline accompanying tonight’s offering it now reads how markets climbed, even if only a tiny amount.

Wall St Wanders as It Tries to Gauge Dubai Fallout

By JAVIER C. HERNANDEZ and MATTHEW SALTMARSH
Published: November 30, 2009

Wall Street shares fluctuated on Monday as investors gauged the fallout from Dubai’s debt crisis and weighed results from the first weekend of holiday shopping.

The sales on the weekend after Thanksgiving provided a first snapshot of consumer spending for the holidays. Some 195 million people visited stores and shopped online over the weekend, up from 172 million last year, the National Retail Federation reported on Sunday. But total spending was virtually unchanged at $41.2 billion, and the average shopper spending fell to $343.31 a person, from $372.57 a year ago. [How about that good citizen, twenty million more shoppers this year than there were last year and they still only managed to spend the same amount of money as last year…I’m having a hard time counting that one as a ‘win’…]

As investors try to get a sense of the strength of the economic recovery, a report on business activity in the Midwest stirred some hopes. The Institute for Supply Management in Chicago recorded an unexpected pick-up in new orders in November, bringing the group’s business barometer to its highest level since August 2008. [How many of you will be surprised when these ‘unexpected orders’ turn out to be one time orders for military items?]

But traders on Monday seemed more focused on the situation in Dubai, where Dubai World, the emirate’s investment arm, said last week that it would not be able to make on-time payments for some of its $59 billion in debt. [But the Emirates have oil, the universal global currency. It’s hard not to view this as a contrived crisis…]

That rattled the markets Thursday and Friday, but on Sunday, the central bank in the United Arab Emirates tried to reassure investors by pledging to make extra financing available to all banks in the country, including foreign institutions with local branches.

Uri Landesman, head of global growth at ING, said investors saw danger in the potential ripple effects to other developing economies, even if American banks are not affected.

“What people are more concerned about are the other emerging market situations like this that could impact global banks,” he said. “This is still a very news-sensitive market.”

He called the retail numbers a “mixed bag,” but said there were signs of strength in consumer electronics sales.

On Wall Street, markets alternated between gains and losses on Monday. At midday, the Dow Jones industrial average and the broader Standard & Poor’s 500-stock index were down 0.2 percent. The Nasdaq was 0.5 percent lower.

The losses came as investors abandoned shares of retailers like Macy’s and JC Penney, which fell 6 percent and 4.7 percent. Shares of financial companies led gainers; Citigroup shares were up 0.8 percent, JPMorgan Chase was up 0.9 percent and Bank of America 1.2 percent higher. [Now there’s a ‘logical’ move (on the verge of another banking crisis) sell retail and buy banks! WTF!!!]

Stephen Lewis, head of research at Monument Securities in London, said Dubai was not big enough to set off a chain of lasting repercussions outside the Middle East of the same magnitude as the crisis in September 2008, when the failure of Lehman Brothers heightened worries about all financial institutions.

Mr. Lewis said Dubai World’s overreaching was likely to have dampening effects on Middle Eastern economies for some time, while the Islamic bond market, construction companies and European banks that have existing bad debt problems could all expect longer-term fallout.

Indeed, stocks in Dubai dropped Monday, although not as much as feared, as the market there reopened after a four-day holiday and traders got their first chance to catch up with the Dubai World news. [Okay, this is literally a ‘tempest in a teapot’ but in the greater scheme of things, it’s hard to see this as much more than a distraction.]

Dubai’s key stock market index was down 7.3 percent on Monday, while stocks in Abu Dhabi — Dubai’s neighbor to the southwest and another member of the emirates — tumbled 8.3 percent. Other indexes in that region were stable.

Shares in Dubai World plunged 15 percent.

But the cost of insuring corporate and government debt fell slightly in the United Arab Emirates, after surging late last week. It now costs $594,000 to insure $10 million of Dubai sovereign debt against default for five years, down from $647,000 on Friday. In Abu Dhabi, the cost fell to $147,000 from $176,000.

Beyond Dubai, European investors are also worried about the possibility of default from countries with the largest fiscal imbalances, like Greece and Ireland and, to a lesser extent, Britain. Low-rated corporate and sovereign bonds are being shunned by some investors.

European shares were down at the end of trading. In London, the FTSE 100 fell 1.1 percent, the CAC-40 in Paris was 1.1 percent lower, and the DAX in Frankfurt was down about 1.1 percent.

In Japan, the benchmark Nikkei 225 index climbed 2.9 percent, recouping some of the losses it suffered Friday, when global market jitters over the news from Dubai spread to Asia. The country’s three main banks all jumped: Sumitomo Mitsui Financial Group by 8.9 percent, Mitsubishi UFJ by 8.6 percent and Mizuho Financial by 9.5 percent.

In Hong Kong, the Hang Seng index rose 3.25 percent. Only Singapore dropped. The Straits Times index sagged more than a percent as the market, which was closed for a public holiday Friday, played catch-up with the broad declines at the end of last week.

On the foreign exchange markets, the euro gained, touching $1.5040 and the pound weakened as some investors worried that the potential damage that problems in the United Arab Emirates could have on Britain’s financial sector.

The yen — which usually gains in times of uncertainty, as it is seen as a safe haven — eased back slightly against the United States dollar and the euro, yet another signal that confidence was returning. By mid-morning in Europe, it traded at around 86.4 yen to the dollar, and 130.0 per euro.

“On the global scale, this episode will likely be remembered as a local or regional one and a buying opportunity for risk assets elsewhere,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.

Bettina Wassener reported from Hong Kong.

I’m beginning to think they can’t put one of these stories in the pipe without quoting some obscure source that you’ve never heard of…(and will likely never hear from again.)

I wonder if this is ‘compensation’ for the period early in the crisis, when only certain pundits were quoted and how that gave the appearance of the media being myopic; although I can’t see how this change of tactics helps…

Leaving the news article behind, I encountered several disturbing reports today that made some of my more dire predictions look downright optimistic!

I admit it is difficult getting the timing right, but I’m still convinced that we are beyond the point of no return…life as we have come to know it won’t last much longer.

Where I differ from my gloomy peers is in the belief that the ‘muddle along’ phase will be short-lived. We will go from relative abundance to widespread scarcity virtually overnight. I also believe (save isolated, small-scale operations) that security will cease just as abruptly.

Once the supply lines breakdown, all bets are off…not in a couple of weeks but in a couple of minutes. Worse, the weak link here is right where you’d expect it to be…oil.

First they turn the money into confetti then we can’t get our hands on enough oil. (Because our money is no good.) Worse, we have nothing to trade for the oil except crowded, dangerous and therefore largely worthless ‘real estate’.

We do have some of the largest coal deposits on the planet…but they (the same jokers responsible for turning our currency into confetti) are doing their damnedest to render that asset worthless/too expensive to use.

Yes good citizen, it seems as though the ‘optimists’ among us can’t get beyond the idea that the leash will remain intact, regardless of how society suffers…I’m just not that sanguine.

Thanks for letting me inside your head as another Monday makes its way into the history books.

Gegner

The 'Real' Stress test

Greetings good citizen,

Seeing that yesterday was my birthday I gave myself the night off. Given recent events, my biggest ‘birthday present’ this year is being here at all…and I’m not out of those woods yet.

But enough about me, our friend, Mr. Market, in anticipation of the arrival of September, has commenced to ‘retreat’ as Fear has (once again) beaten baseless Optimism to a bloody pulp.

It never ceases to frustrate those of us in the ‘doom and gloom’ crowd that we will never be considered a part of the ‘reality-based community’ (while the Pervasive Pollyanna’s of Prosperity are readily accepted, even while consistently being proven wrong.)

What’s this have to do with the price of tea in China? Well, tonight’s offering returns us to a subject we haven’t visited in quite a while, the topic of cascading systemic collapse.

Money & Company
Tracking the market and economic trends
that shape your finances.

James Kelleher at Reuters points up a risk to economic recovery that hasn't been much discussed: the potential drag on the manufacturing sector from the financial toll the recession has taken on smaller companies in the supply chain.

From Kelleher:

Call them zombie suppliers. Analysts say the speed with which major manufacturers cut output in this recession put unprecedented strain on thousands of small manufacturers that supply the industry with critical parts.

That has left the supply chain with an unknown number of suppliers who are dead but do not know it -- companies so undercapitalized and overleveraged they will never raise the money they need to get their idle plants running again.

"Their lenders are going to say, 'Sorry, we're not going to increase our exposure with you because we don't know if you're going to make it or not,' " says Bill Diehl, the chief executive of BBK, an advisory firm that does supply chain risk analysis.

And that, of course, would be a horror show for the publicly traded manufacturers that rely on these suppliers. It could leave them scrambling to secure components once the recovery starts -- and missing some of the rebound's benefits. [There’s a more frightening reality here and that is ‘sole-sourcing’, which is much more common than you’d think/have been lead to believe.]

This will be a big test of bankers' assertion that they're ready and willing to lend money again. Will they balk at extending new financing to many smaller manufacturers even if the companies can show rising orders? This may become a very big issue in greater Los Angeles, given the region's huge base of small and mid-sized manufacturers. [Worse, many of these suppliers are leaning heavily on their ‘sole source’ contracts, which the bankers are ignorant of.]

Japan had the opposite problem in its "lost decade" of the late 1990s and early 2000s: Its banks were under political pressure to keep alive zombie companies that no longer were viable.

As James Surowiecki at the New Yorker wrote in May, the popular recollection is that Japan's economy was held back by zombie banks that were propped up by the government but refused to lend. The reality, Surowiecki noted, was that many Japanese banks engaged in "evergreening" -- they kept pouring money into companies that already had loans with them, even if the companies' prospects were grim. [Were Japanese banks being stupid or are we witnessing the outcome of ‘sole source’ contracts? Where it isn’t worthwhile for the listed ‘alternative source’ to invest in the necessary equipment to produce ‘good’ parts.]

“The practice effectively meant that, instead of making good new loans, [the banks] were constantly throwing good money after bad. As a result, they were never able to earn their way back to health," Surowiecki wrote. [This argument ignores the case of the ‘preferred vendor’ over the ‘alternate vendor’, who isn’t given enough business to make the capital expenditure ‘profitable’.]

The challenge skittish U.S. bankers will face is in identifying which smaller manufacturers have a reasonable chance of bouncing back from the astounding collapse of industrial output that began last fall. The banks will face those decisions as companies ask for more credit to begin ramping up production -- which should happen soon in many industries that need to rebuild depleted inventories.

Kelleher quotes Craig Giffi, head of U.S. consumer and industrial products practice at accounting firm Deloitte:

"Until those companies have to produce something -- and to secure raw materials, to make a part, to hire more workers -- no one will know how weak their balance sheets and credit positions really are."

Once again good citizen there is ‘theory’ and then there’s reality. In ‘theory’, everything has multiple sources but in reality, this is seldom true. Certain components require such rigorous standards that those standards can only be met with highly specialized (and therefore expensive) equipment.

Naturally, it isn’t ‘cost effective’ to purchase such highly specialized equipment if the work for such a piece of capital is difficult to come by. If one were to make such an investment, one would want to be assured that you would receive enough work to at least amortize the investment…this is where ‘sole source’ contracts come in. This is still a gamble but at least, worst comes to worst, you should recoup most of the up front cost, even if you have to return the equipment to the vendor.

Like the parable ‘for want of a nail’, we have a rather similar situation on our hands here. You can’t make a ‘whole’ product without ‘all’ of the parts. The question we face here good citizen is which parts of the puzzle can we afford to do without and still avoid a cascading systemic meltdown?

The bankers don’t know the answer to this question, chances are excellent even purchasing agents can’t provide a satisfactory answer. They have more than one source for everything BUT they have never received ‘usable’ parts from the alternative vendor because they don’t have the right equipment (and sometimes, talent.)

Not frightening enough? Let’s add this tidbit about how only a few financials have ‘dominated’ trading at the NYSE for the past month…

If you think I’m tough on the financial media check out Yves Smith’s take on today’s rather glib report on how taxpayers have ‘profited’ from bailing out the banking system…

Twas a ‘hell of a day’, news-wise good citizen, the bears are just coming right out of the woodwork, again.

What the hell happened to that ‘global economic recovery’ they were all so sure of?

Thanks for letting me inside your head,

Gegner

joblessness

Greetings good citizen,

What part of no jobs means no recovery don’t’ you get? People without income can’t pay their debts so its pretty much a no brainer that folks no longer employed are also not paying they’re debts!

Yet the economists among us think (stupidly) that the people without income will somehow pay their debts, thus all the ‘green shoots’ they keep pointing to.

‘Green shoots’ has done wonders for the stock market, even if it has no basis in reality.


Worse, people currently losing their jobs have next to no chance of ever being re-hired. So we an only wonder how this translates into ‘green shoots….

These cuts aren’t ‘temporary’, they’re permanent!

So only an oaf would mis-interpret this as a temporary slow-down.

Not that we have a shortage of oafs…

There are still plenty of them saying we are only experiencing a ‘temporary downturn’.

Which doesn’t make them correct by any stretch of the imagination, it only makes them wrong on a grand scale.

Thank heavens for this nation’s waterways or there wouldn’t be anyone trading stock regardless of how far they were from the markets…

Yes good citizen, the ‘health’ of our economy is based almost solely upon the health of our import market.

If we fail to arrest our tumbling employment numbers we will soon find ourselves in that terrible crisis laid out in ‘for want of a nail’…

Not only will we find ourselves in the position of not being able to supply critical goods or services to society, but we will find ourselves trapped in a situation that there is no way out of.

Its bad enough that we have so many unemployed but hid compounds he problem of our money becoming more worthless.

That which we don’t produce for ourselves must come from somewhere else. This leads to the horrendous situation of how will we secure what we need if we cannot pay for it?

This is the ‘bottom line’ for an economy that imports more than it exports (and had done so for decades.)

If we don’t start making what we need we’re going to be forced to do without it because our credit card is just about max’ed out.

It’s bad enough that summer has been trimmed by a half dozen irreplaceable weeks, we are now in the sorry position of having to buy from someone else that which grows naturally here.

And we don’t have the funds.

Think unemployment is a big ‘whoop’, think again!

We’ve lost a lot of ‘core industries’ due to ‘profit minded’ investors now we find ourselves in the position of having to replace that lost production via the trade door…and its not there!


We are the ones living on a ‘war footing’, if our ability to make war is impacted, it only stands to reason that our ability to win wars is similarly left wanting.

Our tax base is a shambles because our spending is focused on war, not production.

Talk like this must seem pretty ridiculous to you but believe me, this is the handwriting on the wall.

I apologize for going off again about the unemployment numbers but once again it is important to reinforce the concept that there won’t be anything resembling a recovery until the employment figure are stabilized.

You know this, they know this…so why do they downplay the significance of the nightmares we’re all having?

Thanks for letting me inside your head,

Gegner