Off On A Tangent

At school the other day, during recess, Jaime picked a large handful of dandelions.  When he returned to class, he gave a dandelion to the teacher.  Then he decided to hand out dandelions to all the students (20+).  Everyone was very excited to get dandelions and surrounded Jaime waiting their turn to get them.  Those who didn’t come and get them, Jaime made sure to deliver individually.  In Montessori, students are supposed to work individually and be respectful of other students doing their work.  Jaime’s flower gifts disrupted every student in the class, but the teacher’s couldn’t bring themselves to do anything more than shrug their shoulders and wait for Jaime to finish.

Jaime learned to catch with his hands over the weekend.  As opposed to just holding out his arms and “catching” when a ball or object lands and sticks, he learned this weekend to catch with his hands by timing the ball into his hands and grasping.  I was a proud papa, and Jaime and I played catch in the living room several times.

…and it’s too late to give out any decent (capital-preserving) market advice.  I’m truly sorry what advice I did give was probably too vaguely worded and too infrequent (and too optimistic, I think!).  Not that anyone really reads this blog, but I’d feel better had I done a better job writing here.

So, the markets are falling fast now.  There will be a bounce at some point - probably a sizable one.  But I see no way of knowing when that will be.  It would be extremely foolish to try and catch some profits on that future bounce.  Being wrong in your timing could be disastrous, as we are in a position now where the market can very easily react to some unexpected bad news with a 10% drop in a day (at which point the market is closed).

However, since there is every reason to expect fundamentals to erode further from here - housing prices will fall further, unemployment will rise more, credit will continue to tighten, debt is increasing faster now than ever, consumer spending will fall from here - then it does make sense to wait for the bounce to happen and then sell into it.  If you’re willing to take a short position that is (which doesn’t have to mean shorting a stock, it can mean buying an etf that tracks the inverse of a market index).  Wait for the bounce and then sell it.  It won’t matter a whole lot how you time that bounce, because the market will almost surely thereafter retreat below whatever temporary bottom the bounce starts at.

I believe we are in for a 2-4 year downturn and a grinding market bottom of up to 90% down from the highs is pretty likely.  Once unemployment begins to rise fast, all our debt is going to eat this economy alive, and the debt will be defaulted on person by person, household by household, corporation by corporation, municipality by municipality, and possibly even state by state.  That defaulting on debt will make matters worse each time, exacerbating the feedback effect.  The end result is a 90% downturn (and that’s the good outcome) or hyper-inflation, in which case the economy is just toast anyway and we’ll either be going to war or rebooting the financial system with a new currency and across-the-board debt forgiveness.

I’m having nightmares now about basic utilities being shut down due to lack of credit to pay employees and pay for commodiites (ie, natural gas, water, coal, uranium, etc).  If the credit markets fall apart and paychecks bounce, what keeps people going to work to provide the water, the natural gas, the electricity that comes to my house that is needed for life?  I’m guessing the answer will be a government mandate to go to work possibly enforced by the national guard (are they all back from Iraq yet?  Looks like we might need them).  But I’m having nightmares of keeping my family warm during a cold winter, of feeding them, of feeding my baby megan with formula.  I have some rice and beans stocked up that the rest of us can eat - I think I probably need more though.  I need to update my disaster supply list and get moving in buying some - it could become too late to do so within days.

Such has been the response many times when I’ve argued that Peak Oil was going to be a huge problem for our society.  “We’ll just switch to more efficient cars” goes the response.  Big deal, we’ll all get high mpg cars, or hybrids, or electric cars will become available.  Or hydrogen fuel cell research will make breakthroughs and we’ll all drive on clean-burning hydrogen.  In the face of this argument I’ve tried to outline the scale of the problem and the scale of this “solution”.  Replacing our entire fleet of cars is expensive.  Hybrids and EVs are excessively expensive.  Research and development into technologies like batteries and hydrogen fuel cells is expensive and risky.  It would take 20 years to replace our fleet of cars, and a lot of money.

Well now credit is drying up.  It’s becoming more and more clear to everyone that we are already bankrupt, even before we try any of the above solutions.  Loans and grants for research is going to dry up.  Companies are going to restrict their technology research and development, preferring instead to hold onto what little money they have.  Companies already in a lot of debt will likely go bankrupt, and companies with cash will hoard for their own protection.  A wealthy nation might have been able to mitigate the effects of peak oil.  A debt-ridden bankrupt nation cannot.

Oil and gas have been dropping in price lately, this despite hugely problematic shortages in the SE US, despite gasoline inventories at record lows (in terms of Days of Supply), despite shut-in oil production due to hurricanes Gustav and Ike.  They are dropping in price because of demand destruction due to a faltering economy and because of deflation due to the credit markets drying up.  In the near-term one of two things will likely happen: oil and gas will again shoot up in price in order to rebuild inventories, or demand will drop dramatically (more than it already has) as a result of a severe economic downturn.

Of course, severe economic downturn is inevitable at this point, but I’m just not sure it’s going to happen fast enough to avoid a fast increase in gas and oil prices.  We’ll see.  What I am sure of, however, is that :

1. During this severe economic downturn that will last years, planning for Peak Oil mitigation will be the last thing on anyone’s mind.  The price signal of oil will be buried in an avalanche of more terrible and more immediate economic signals.  Demand destruction will keep the price relatively low most of the time.
2. Few will be making large investments in energy efficient technologies as a result of #1.
3. When the credit crisis finally resolves, or begins to resolve, an economic recovery will immediately slam into a ceiling of Peak Oil.  World production by that time will be considerably lower than it is currently.  The newborn economic recovery will be immediately squashed by a spike in energy costs.

It is sad more haven’t read the Hirsch report, which describes all this in some detail, and which comes to the conclusion that successful mitigation of Peak Oil would require that we start 20 prior to the arrival of Peak Oil.  Oops, it would appear we’re already 20 years late in starting, and on top of that we have to first wait until the distraction of a multi-year recession passes before we’ll again have a chance to address PO.
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Jaime for the first time today put on his underwear and pants without any help - holding them open with his hands and wriggling his feet into the correct holes.  I was a very proud papa :-)

We have been having some problems with his Montessori school lately.  He is in the toddler program (18mo - 3yr), but is showing very clear signs of being ready to move up to the Primary program (3yr-5yr).  He’s bored and is acting out in class, and expresses very strongly that he does not want to be there.  But when you ask him if he’d like to go to the class for older kids, he gets very excited about it.  Some days it gets so bad that he’d rather sit in time out than get ready for school.  Today he got “written up” by the school for pushing other kids and hitting the teacher.

We started talking with the school about moving him up a week ago.  Since then, we’ve gotten a series of delay tactics on the part of the school.  “Give me a couple days to look into it” and then raising “concerns” about his potty training, when they know damn well he’s fully potty trained.  He’s had no accidents in school this year so far.  At home, he takes care of his potty needs himself (he still asks for a diaper for when he wants to poop though, which is usually once a day and never at school).  Now, the school is indicating they’ll be ready to move Jaime up on his birthday - Nov 8th, and that they can’t move him sooner.  But that’s ridiculous.  We know other kids hav moved up prior to their 3rd birthday, and we also know that the toddler class is doing Jaime no good right now, and Jaime is doing the toddler class no good either, so why continue sending him?  I am of the opinion that we should just keep Jaime home until the school is ready to move him to the Primary class.  Vivi thinks the school might kick us out if we do, but I don’t think I’d want to send Jaime to the school if that is their response.  It seems very anti-Montessori for the school to want to keep Jaime in a class that is not working for him.  They were the ones who made it clear when we started that kids are moved up when they show the signs that they’re ready, and Jaime is showing all the signs they mentioned.

Megan is starting to hold her own bottle and feed herself.  She loves to eat too - she loves butternut squash and soups made from butternut ,carrot, and potato.  She’s not very fond of banana or peach, and kind of neutral toward yam.  Not a sweet tooth as of yet.  That will probably change!  She is very interactive - very grabby.  It is hard to prevent her from grabbing anything that comes within her reach, which makes it tough to hold her and eat at the same time, or hold her and sit at the computer, or hold a tv remote.  Everything will be grabbed!  She’s a thumb-sucker, especially when she sleeps, and she’s a very very good sleeper.  She puts herself to sleep with no trouble every time - you just have to put her in the crib.  How different from Jaime!  But, she won’t sleep through the night, as the night hours are apparently her favorite hours to eat - again, how different from Jaime, who slept through the night starting at 3 months.  Megan is 7 months and is always hungry in the middle of the night.

So, gas shortages are here for real in the southeast US.  It is interesting reading the comments on the web about people’s experience with gas.  So far, most of the anecdotes seem to be of the “we were just about out of gas when we finally found a station with a little left” variety.  Also reading about significantly reduced traffic levels in places like Asheville NC, Nashville TN, and in Atlanta Georgia.  Unfortunately, it’s likely to get worse in these places before it gets better because the refineries are still operating at severely restricted levels.  Gas supplies will continue to decrease for the next week and probably for the next 2-3 weeks.  I suspect there will be some very bad trouble spots in some of these areas being hit by shortages.  If only they could raise their prices, those areas might attract more gas shipments, but people are apparently hunting for “price gougers”, and in the process, hurting themselves because gas stations would rather run out of gas than raise prices to $6+ and be accused of price gouging.

And now, in addition to worrying about societal collapse due to peak oil, I have to worry about economic meltdown due to the financial crisis.  Apparently last Thursday we were minutes away from a freeze up of the money markets that could have resulted in virtually all monetary transactions grinding to a halt, since credit cards and check-clearing are usually worked through money-market type accounts.  Yeah, credit card transactions failing by the millions and no checks clearing, including payroll checks.  That would have been fun.  It is apparently why the gov stepped in and guaranteed money market accounts, and that is probably something like the scenario that Bernake and Paulson scared Congress with in the secret closed door session.

So I have been thinking about disaster preparations.

If gas shortages spread, or if financial dislocations become severe, we could see disruptions in shipping that could result in food shortages.  It’s already getting difficult for truckers to travel routes that go through the southeast.  Food has to be number one on the list of disaster preparation.  So far, I have some - some rice, some beans, tuna, cans of corn and green beans.  Not much really.  I should make a list and get more.  Some other thoughts:

• diesel generator for powering important appliances, like a freezer
• gas and diesel fuel
• cash
• gold & silver
• sundries (toothpaste, soap, deoderant, etc)
• canning supplies and appliances
• bicycles in good working order
• bicycle accessories (cart for kids to be pulled in)

I’ll have to think what else I should add to the list and get working on it.