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Guest Post: Moving into Bonds - From Frying Pan to Fire

Tyler Durden's picture




 

Submitted by David Galland and Kevin Brekke at Casey Research

The other day, I came across an article that said, while
individuals may be moving their money out of equities, they have been
moving into bond funds – and in a big way.

It’s called jumping from the frying fan into the fire.

Based on my experience as a co-founder of a mutual fund group, I
can tell you that if there is one sure thing in this world, it’s that
when investors rush en masse into an investment category, it is
invariably at almost exactly the wrong time to do so. Is that the case
with today’s rush into bonds?

To shed some light on that point, Casey Research Switzerland-based
editor Kevin Brekke volunteered to look into the correlation between
bond flows and performance. Here’s his report…


Thinking About Bonds

By Kevin Brekke

With the great bond stampede that began in 2009 continuing, giving
rise to the very real possibility of a bond bubble, we decided to check
the relationship between bond returns and bond fund inflows to see if
there might be a correlation. Take a look at this chart:

    (1) Measured as the year-over-year change in the Citigroup Broad Investment Grade Bond Index.

    (2) Plotted as the three-month moving average of net new cash flow
    as a percentage of previous month-end assets. The data exclude flows to
    high-yield bond funds.

As suspected, the rise and fall in total return from bond funds is
accompanied by an influx or exodus of bond investors. Data to construct
the chart were taken from the Investment Company Institute’s (ICI) 2010 Fact Book where they state, 

    In 2009, investors added a record $376
    billion to their bond fund holdings, up substantially from the $28
    billion pace of net investment in the previous year. Traditionally,
    cash flow into bond funds is highly correlated with the performance of
    bonds. The U.S. interest rate environment typically has played a
    prominent role in the demand for bond funds. Movements in short- and
    long-term interest rates can significantly impact the returns offered
    by these types of funds and, in turn, influence retail and
    institutional investor demand for bond funds.”

 ICI continues by noting that secular and demographic trends have
tempered the appetite for equities. An aging population tends to become
risk averse, and the Baby Boomers are entering retirement and seeking a
safer alternative to the stock market. This occurrence is clearly
shown on the right side of the chart. Following the stock market crash
in 2008, investors exited stocks and bonds as general panic
prevailed. As investor calm returned, a tidal wave of new money flowed
into bond funds, turning 2009 into a record year.

And the popularity of bond funds continues. So far this year,
investors have funneled $200 billion in new money into bond funds. 2009
was also a record year for total assets and net new capital in bond
funds from retirement accounts.

That is the view through the macro lens. Switching to a wide-angle lens gives one pause.

We can’t help but draw similarities to the housing bubble that
began inflating at the start of the new century. As home prices started
escalating, they drew the attention of a growing pool of investors. And
soon this becomes a self-reinforcing phenomenon; higher prices attract
greater numbers of investors that drive prices higher. Likewise for
bonds. Bond returns are rising because bond returns are rising. Got it?

We have entered the terminal phase of a bond bull market ushered in
thirty years ago by Paul Volcker, who drove interest rates over 20%.
With 30-year U.S. government paper now under 4%, the easy profits have
been made and the low-hanging fruit consumed. Investors today are
shimmying out on a very tall and thin branch in search of higher “total
return.” The snapping of the branch – sending investors big losses –
may not be imminent, but it is inevitable.

As we at Casey Research have discussed and warned about often, the
fiscal misadventures of the U.S. government will have their
consequences. And one of the first victims will be bond investors as
interest rates are forced higher, much higher, to attract buyers,
particularly foreign buyers. When this happens, the total return on
bond funds will be smashed.

The sad and pathetic irony: to escape the beatings endured in the
stock markets, millions have sought safety in bonds. The punishment is
not over.

We are afraid an awful lot of investors will be left asking, “What was I thinking?”

 

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Sat, 09/04/2010 - 21:10 | 564130 deadparrot
deadparrot's picture

And the worst thing about a bond market implosion is there is no safe harbor. How do you think real estate and equities will be doing when interest rates are in the low teens?

Sat, 09/04/2010 - 21:53 | 564156 Eternal Student
Eternal Student's picture

People have a hard time with the concept of capital destruction, even though it's a required part of our system, and it's happening every second. They have an especially hard time when it's their capital.

 

Sat, 09/04/2010 - 22:59 | 564231 traderjoe
traderjoe's picture

It's one thing to own an individual bond that you can hold to maturity (not that I think that will happen). 

Another thing when you own a bond fund that tries to maintain some constant duration level. Yikes. 

Sun, 09/05/2010 - 11:35 | 564590 deadparrot
deadparrot's picture

This is really a difficult scenario for insurance companies. They have the vast majority of their investments in fixed income. Thanks to this Fed-engineered bond bubble, prices are great. Too bad insurance companies don't have the option of selling high. They have to keep plowing proceeds from maturing securities into bonds with ever-lower yields. I'd be popping antacids like candy if I was an insurance company's portfolio manager right now. What choice do they have but to buy the junkiest investment-grade securities available AND STILL fall short of their target yield.

Mon, 09/06/2010 - 00:46 | 565458 ToNYC
ToNYC's picture

Fools and their money are soon parted.

Sat, 09/04/2010 - 22:37 | 564204 Dr. Sandi
Dr. Sandi's picture

Here's a thought.

Buy physical gold and silver. Paper is for personal hygiene.

Sat, 09/04/2010 - 23:49 | 564275 Spitzer
Spitzer's picture

haha, how long have you been reading ZH ?

Sun, 09/05/2010 - 01:04 | 564329 pitz
pitz's picture

Some equities are countercylical.  For instance, the Canadian market tends to outperform during a rising interest rate environment, against the US market.  This is because, disproportionately represented amongst Canadian stocks are those in oil and gas, mining/gold, and banks that have positioned themselves to have little or no interest rate risk.

The 'stock market' is not a monolithic thing.  Certain countries are positioned better than others. 

Sun, 09/05/2010 - 10:21 | 564538 Young
Young's picture

Oh so you have a more aggressive PPT than the states now?

Sun, 09/05/2010 - 14:18 | 564809 pitz
pitz's picture

PPT? 

No, the reason for such is that the inflation that is co-occurs with depreciating currency and depreciating long-term bond prices,  tends to be very beneficial to resource-based economies such as Canada. 

Sun, 09/05/2010 - 01:10 | 564334 Auric Goldfinger
Auric Goldfinger's picture

Deadparrot alludes to what I suspect is a common dilemma for average morons like me...

The fuckers have me by the short-hairs. Got largish 401(k) with equity, bond, and treasury options- and that's it. Too chickenshit to cash-out and PM IRAs don't get it done as I prefer physical. 

How about we dial down the ridicule a little (I'm looking at you, Spitzer) and give a little help to those who have only recently taken the Red Pill. 

 

 

Sun, 09/05/2010 - 09:36 | 564516 tmosley
tmosley's picture

Well, you're either going to have to get over your fear of cashing in your retirement fund, or find some entity that you trust implicitly and buy their paper.

The only alternative is to see if you can borrow against your retirement fund and use that to buy physical.

Sun, 09/05/2010 - 10:49 | 564554 trav7777
trav7777's picture

I think a bond collapse is further out, if at all.  Yields cannot rise at this point, there is no demand at 5%, what demand will there be to borrow at 15%?

Roll your 401 into self-directed.  Then you can buy whatever you want.

There is no 401 safe harbor from bond crash, because none have a true cash option and the MMAs can buck-break.  I'm in GSE sponsored debt and miners...there are some trades to be had on foreign funds, but the volatility out there on carry trade targets is often severe.

Sun, 09/05/2010 - 14:20 | 564813 pitz
pitz's picture

No demand at 5%??  LOL!  What ya be smokin today Sir? 

Sun, 09/05/2010 - 15:24 | 564925 dogbreath
dogbreath's picture

I recently met someone who cashed his 401k.  He was informed by some apocalyptic christian publication - go figure.  Anyway his 60k turned into 43k after taxes.  His co-workers who thought he was crazy and didn't cash out like he reccomended have 12k remaining. 

Sun, 09/05/2010 - 12:34 | 564635 quintago
quintago's picture

that was a lot to write to explain that when people stop buying prices fall

Sun, 09/05/2010 - 12:57 | 564669 FoodTiger
FoodTiger's picture

Safe harbor?

What about going into Money Market funds?

Sat, 09/04/2010 - 21:18 | 564134 AUD
AUD's picture

As I understand it, a small decrease in yields can lead to a large 'capital' gain.

There is room for Gov. bond yields to fall. I wouldn't agree that corporate bonds in general are a bubble though.

Until people realise that the bond is the dollar (the dollar is a bond) & thus a bond rising in price against the dollar is rising in price against itself!, the charade will probably continue.

Sat, 09/04/2010 - 22:36 | 564199 DoctoRx
DoctoRx's picture

Presumably you refer to a dollar BILL.  The dollar as commonly referred to is a bill, not a bond, and it is a special type of bill that pays no interest.  MZM.  And unlike a bond, which is a form of a derivative as compared to currency ("money"), the dollar bill is the "real" deal.

But all this is O/T re the post above.  So what he has shown is that money chases returns.  And sometimes it is a leading indicator.  What you can't tell from this chart though is the to-date secular bull market in interest rates and whether it has finally ended.  Should investors/traders buy the next bump-up in rates?  Was the NAZ overpriced Jan 1, 1999?  Did it more than double in the next 14 months?

So, AUD, perhaps the bond bull either has died of old age and Timmy's (et al) excesses, or it hasn't died yet; but the realization that a dollar bill is technically a "bill" or a "note" (Federal Reserve obligation) I doubt will be required for the bull to turn into a bear.  Perhaps it will simply end when JPM and GS are short enough bonds.

 

Sat, 09/04/2010 - 23:55 | 564278 Spitzer
Spitzer's picture

what he meant sir, is that that bonds back the dollar. When bonds crash, the full faith and CREDIT will be lost.

Sat, 09/04/2010 - 21:27 | 564140 bugs_
bugs_'s picture

Especially muni bonds.  Oh the pain coming down!

Sat, 09/04/2010 - 22:57 | 564228 traderjoe
traderjoe's picture

There will be no bids for general GO debt of troubled muni's, especially as the insurance companies start going BK. Defaults, defaults, and more defaults. Capital destruction. 

Sat, 09/04/2010 - 21:54 | 564159 RockyRacoon
RockyRacoon's picture

When in danger, worry, doubt,
Run in circles, scream and shout.
Burma Shave

Sun, 09/05/2010 - 07:57 | 564466 ExistentialSkeptic
ExistentialSkeptic's picture

Love it Rocky.

Sat, 09/04/2010 - 22:16 | 564180 Belrev
Belrev's picture

With unlimited credit (money) supply made available by US Federal Reserve (and other central banks for that matter) I am puzzled to see how the price of money (interest) can go very high. It surely fluctuates but for it to jump by any measurable amount there must be a shortage of capital. And who cares about foreign buyers, the FED can step in and buy USTs instead to keep them bid up. Incidentally China has been reducing their net UST holdings and as we all see bond yields are near record lows. So it seems to me that the foreigners dumping USTs and causing a collapse is as much a myth as the decoupling theory.

Sat, 09/04/2010 - 22:54 | 564223 traderjoe
traderjoe's picture

That's the sort of logic that occurs at the end of bubbles - that "this time will be different". Yes, the Fed can buy UST's. Yes, it could even buy all of them being issued. Could even buy all of them outstanding. The Fed can print unlimited money. 

But can it? Confidence in a fiat currency is lost slowly at first, quickly in the middle, and shockingly quickly in the end. In Weimer Germany, hyper-inflation blossomed in 2-4 months. It slowly built over time, and then exploded. 

If the Fed was buying all of our UST's and everyone knew that NO ONE else wanted them - what would happen to their prices? Interest rates? Can the US afford to finance the debt at 10% interest rates? What happens when the average citizen wakes up to the fact that the Fed is privately held (I'm not holding my breath on this one)? [How about what happens people wake up to the fact that the US Treasury <could> issue their own money without having to pay interest? I'm no MMT'er, but that would be the only way to actually legally issue currency - especially if it was backed by PM's.]

Back in the financial panic of 2008, I was buying corporate bonds for 50 cents on the dollar. Levi's, RCL, Smithfield, Dole, etc. There were no buyers. 

Can't happen again? Can't happen to UST's? You just wait. Grab some popcorn. It's going to be a doozy. 

Sun, 09/05/2010 - 08:35 | 564477 A Proud Canadian
A Proud Canadian's picture

What happens when the average citizen wakes up to the fact that the Fed is privately held (I'm not holding my breath on this one)?

And, why would the Fed, being privately owned by US and European banks buy every UST when it becomes clear to them that it isn't in their interest to bankrupt themselves to save the US?   The Treasury may have to go down with the ship but the Bank owned Fed would likely save themselves at some point before self destructing.

Sun, 09/05/2010 - 09:45 | 564520 tmosley
tmosley's picture

Uhhh, you do know that the Fed can print money, right?  It can't go bankrupt.  It can bankrupt the economy, but the Fed itself always has access to as many dollars as it wants.

Also, they already have gold, so I doubt they would complain about it going up in value once they see the writing on the wall (or they no longer have their gold, and they are just trapped and/or don't know what they are doing, as they are run by economic witch doctors).

Mon, 09/06/2010 - 04:10 | 565534 1984
1984's picture

Sure they can print all they want and try to buy up all the gov't papers.  But what would happen to prices of everything else?  Weimar rings a bell?  Maybe Zimbabwe?

Tue, 09/07/2010 - 06:03 | 566809 A Proud Canadian
A Proud Canadian's picture

I realize that they can print out of thin air but, why wouldn't they, at some point se that that would lead to hyperinflation ....wouldn't the self preservation instincts of the Rothschild's, UBS elements of the Fed trump the urge to "save" the US?

Sun, 09/05/2010 - 21:15 | 565268 greyghost
greyghost's picture

LONG LIVE UNITED STATES NOTES

Sat, 09/04/2010 - 22:54 | 564221 Gordon Freeman
Gordon Freeman's picture

Why do these articles always claim that bond traders are looking for "safe yield"?? It's simply a macro play on the deflationary collapse of Western Civ--and so far, it's been paying off in spades, for all this "dumb money".  Safe yield, my ass...

Sun, 09/05/2010 - 00:00 | 564286 Spitzer
Spitzer's picture

So when this deflatinary collapse happens, who pays the interest on the bond ?

Where is all the tax revenue going to come from when "western civ " collapses ?

The Nasdaq paid off in sapades for a while too, back in 1999.

Sun, 09/05/2010 - 00:57 | 564324 pitz
pitz's picture

Yeah no kidding, the modern version of 'deflation' assumes that governments can remain extremely irresponsible, and that the welfare state is sustainable, worn out and largely depleted industry (worldwide) be damned.

Really, 'deflation' is just a ludicrous plot by the bankers to get you to invest all your money in bonds, and pay back debt.  They know what's coming, that's why they're on the opposite end of the trade.

Sun, 09/05/2010 - 01:24 | 564342 camoes
camoes's picture

contrarian investing bitchez - leveraged 200% in equities baby...papa need a new pair of shoes!

Sun, 09/05/2010 - 01:30 | 564343 pitz
pitz's picture

Funny how the average man on the street would call you 'insane', yet think nothing of buying a house with a 10% downpayment (=leveraged 1000%!).

I'd argue that equities are safer than owning a house over the long term. 

Mon, 09/06/2010 - 23:31 | 566545 camoes
camoes's picture

That's so true Pitz, people think it's normal to be levered 9:1 with an illiquid and non-divisible asset such as a house, but they think you're crazy to be levered in a highly diversified portfolio (mine is diversified along US, eafe, emerging markets, real estate, etc,  etfs). So even if I levered close to a margin call (which I don't, I keep leverage with a wiggle room before it ever got close to margin calls) and got a margin call, at most I would have to liquidate part of my portfolio, while if a house gets underwater or you can't make payments (equivalent to a margin call), you have to liquidate the whole house - at least I never heard of just giving up a room or a bathtub to the bank.

The craziest is to actually have most of your wealth invested in one asset class, be it bonds, houses or equities (among those, I'd go with equities, cause they are real claims in assets which may include, real estate and bonds, commodities, products, etc...)

I even talked to people who say margin is risky, but then they use options to "hedge" risk. Options are so much worser than margin, cause you have a pre-defined margin call date, and if the market is against your position at exp date, tough luck, you lose everything you invested!

Anyway, maybe I'm a risk lover, but I still think it's safer to be short a fiat currency with benny money printing and long equities than putting money in us treasury bonds, but I guess I understand the baby boomers who are scared shitless from equities and don't have the option to wait for equities to recover in the long term...

PS: This same people also think us and developed equities were safe and emerging markets risky, but if you look at long term past and future perspectives, disconsidering short term volatility, emerging were the safest and best performing assets in the last 10-20 years (if you're highly diversified among countries and equities of course, I'm comparing indexes, not individual companies or countries)

I just feel sorry for the people who got raped in real estate and equities, sold off during the crisis and now are being fooled again by investing in long term bonds.

 

 

Sun, 09/05/2010 - 01:32 | 564346 Village Idiot
Village Idiot's picture

OT:  Avatar who junked VI on the Dylan Grice post, i have a friendly message for you. Read it.

Sun, 09/05/2010 - 15:55 | 564957 Village Idiot
Village Idiot's picture

"OT:  Avatar who junked VI on the Dylan Grice post, i have a friendly message for you. Read it."

 

message updated.

Sun, 09/05/2010 - 05:54 | 564438 GreatTimeToBuy
GreatTimeToBuy's picture

so should you short bonds?

Sun, 09/05/2010 - 08:53 | 564489 tom
tom's picture

Only if you're sure the Fed won't go ahead with QE2. Bonds can go bad either by prices dropping (if there's no QE2) or inflation (if there is QE2). Going long you get killed either way. Going short you collect on the former, but still get killed on the latter.

Sun, 09/05/2010 - 08:59 | 564491 Gordon Freeman
Gordon Freeman's picture

Yeah--where are the big leveraged bond shorts?  Doesn't work so well, does it?

Seriously, what is going to keep the long bond from 3%, under the circumstances we have, today, and for a very long time?  These same circumstances are not exactly manna for equities...

Sun, 09/05/2010 - 09:28 | 564511 thepigman
thepigman's picture

I call BS. Investors
are returning to the
the pre-equity cult
mix of 50-50 stocks/
bonds because stocks
are at least 30% overpriced on a GAAP
earnings basis and
delivered 0% returns
over the last 10 years. Even so, most
folks still hold too
high a proportion of
stocks today (about
70%) relative to bonds. There's a long way to go on bonds just to get back to a saner pre-1982 mix.

Sun, 09/05/2010 - 09:49 | 564524 thepigman
thepigman's picture

Your great grandpa
knew equities were a
scam. What goes around
comes
around,eventually.

Sun, 09/05/2010 - 09:55 | 564526 tom
tom's picture

In theory yes, but it's not only a question of how much capital is looking for safer returns. When too much spending is brought forward, and too much nominal wealth is in the form of claims against future production, and nominal wealth exceeds the prospective productivity of the population and its real assets, one way or another that excess nominal wealth will get wiped out. First, equity implodes and safety-seekers pile into bonds, but if that's not enough, and in our case it's certainly not enough, then later the bond holders must get crushed, either through default or inflation.

Sun, 09/05/2010 - 10:35 | 564543 thepigman
thepigman's picture

Fair statement. But I'll jump that
bridge when we come to it. For the
moment, most of the "bond bubble" calls are coming from sell side equity
strategists trying to herd the sheeple
back into stocks for a final shearing.

Sun, 09/05/2010 - 10:20 | 564537 Young
Young's picture

Oh so you have a more aggressive PPT than the states now?

Sun, 09/05/2010 - 10:42 | 564546 Leo Kolivakis
Leo Kolivakis's picture

Let's get one thing straight: if you're absolutely convinced we're heading towards a protracted debt deflation cycle, keep buying them long bonds, they will outperform everything else. If on the other hand, you think stagflation is in the cards, then you will get burned on nominal bonds. Only inflation-sensitive bonds will protect you if stagflation occurs.

Sun, 09/05/2010 - 22:20 | 565341 pitz
pitz's picture

That is, if CPI (or whatever inflation index used) is actually reported correctly.  And why not just buy equities instead if you believe in the scenario where the inflation-adjusted bonds are going to have value?  A 1% real yield on TIPS is like a P/E of 100 on a stock (but you can buy the market for far less than 15X earnings right now!).

Sun, 09/05/2010 - 10:43 | 564547 CrashisOptimistic
CrashisOptimistic's picture

I continue to think you guys, especially in gold, have this wrong.

I'm generally okay with the rationale of "historical preservation of wealth" theory for gold, though I am strongly inclined to believe it will prove wrong for the simple reason that there is no history of a global civilization that falls from lack of oil.

But beyond that, here's the thing.  Mortgages default.  In the trillions.  That's not an increase in money supply.  That's a decrease.  When the Fed buys bonds to hold their price up, and does so every single time there appears to be a risk to the bonds, they are not "flooding the world with fiat currency and debasing its value".  They are not ADDING.  They are REPLACING.  

The housing collapse eliminated net worth.  It eliminated dollars from existence, and this will go on until starvation from oil scarcity sets in.  As that money is erased from the universe, the Fed is printing to replace it.  

Replacement is not going to destroy the value of the money so that gold emerges triumphant.  Replacement is just going to buy time until oil, and then food, disappears.

Sun, 09/05/2010 - 10:46 | 564550 brandy night rocks
brandy night rocks's picture

Love the posts about the bond bubble and Weimar-Around-The-Corner.  I'll know to exit my positions once I see them stop.

David Rosenberg >>> all you faggots.

Sun, 09/05/2010 - 12:12 | 564614 jm
jm's picture

So accoding to the chart, the worst point for IG was in 1995, losing ~-4% total return.

I dare you to overlay the S&P500 over that and then talk about a bond bubble.

CPI is 0.9%.

Sun, 09/05/2010 - 14:09 | 564788 Invisible Hand
Invisible Hand's picture

Hate to keep beating the same (not so dead) horse.  But for all you physical PM people:  Does 1933 ring a bell?  FDR confiscated all the gold in the US paying about 15% of its market value.  Sure, you could bury it in the back yard rather than turn it in but what good does it do you there?  And what prevents someone who knows you own PM's from turning you in for a reward?  It was over 40 years before owning gold (as bullion) was legal again.  Unless you're a teenager, gold may be too long term of an investment.

Now that there is no silver in coins, I bet the next time they will take silver also.  Where is your PM stored?  The first Americans heard about this confiscation was when all the safe deposit boxes in the US were sealed until any gold in them was confiscated.

So yeah, buy physical PM's if you plan to have to barter with Mad Max (why he would trade for gold rather than kill you and take it, I'll leave to you...) but otherwise it is not a solution, only a Teddy Bear (gives you a warm fuzzy feeling but doesn't protect you).

If we continue to bump along without a major collapse (possible) and the govt doesn't decide it needs your PM's more than you do (not too likely), and you don't have enough assets to need a secure place to store your PM's, some PM is not a bad idea, but it isn't an investment plan.  However, if the world doesn't end, I think PM mutual funds that invest in miners may be the best bet to get some benefit from rising PM values (I don't see how that won't happen) and not get screwed when they come to take you gold and silver because Michelle needs a fancy vacation more than you need your PM's.

You may think it can't happen in America (already has) or it can't happen to you (wouldn't bet on it).  However, I think realizing that there is no safe harbor when an old world order dies and a new one is born is probably the best approach.  There is no simple one size fits all way to protect yourself from sovereign default, deflation followed by hyperinflation, societal collapse, collapse of international trade, war or the dozen possible scenarios that may play out (one or more of these bad things almost certainly will happen over the next few years).

The bottom line is our govt and our economic system is near the end of the road in its current form.  What form of catastrophe will overtake us and what comes next is impossible to know.  However, the credit based, Keynesian, corporatist state (where power comes from the barrel of a welfare check-writing pen) that we live in is almost done.   Hopefully, we will go directly back to a more libertarian, hard money, balanced budget government, but it is not at all certain that we will do so.  Eventually, we'll get there because nothing else provides the economic wherewithal to support a society long term.  However, we may detour through Thunder Dome first.  Hope not, but in my opinion, PM's aren't any better of a long term store of wealth than lots of other investments and maybe worse than some (because of the populist appeal of confiscating the gold of the wicked rich--meaning anyone who has gold).

Still, this is just a forum for people to exchange ideas.  None of us know what will happen or how best to navigate these troubled waters.  Don't let me tell you what to do but at least think about alternate views and how best to position yourself.  Good luck!

PS.  For CrashisOptimistic: We aren't anywhere close to out of oil (especially if you look at the bigger picture of hydocarbons as a whole).  All energy, including hydrocarbons will probably get more expensive in the future, mainly because our govt is making all the wrong decisions (our society doesn't understand science and doesn't choose from our options rationally).  Certainly, most every resource is finite but we will have energy and humans will survive despite the tough times that are probably on the way.  Oil may be a great investment (or not so great) but for our lifetimes and many years thereafter, it will be a major part of our economy.

FYI: I grew up reading "Last Stand on Zanzibar" and the "Population Bomb."  The world was going to end because we couldn't grow enough food.  Then came the Green Revolution and growing enough food wasn't really too hard.  Now it is "Peak Oil" and "Global Warming" (no "Climate Change" which covers them whether it gets hotter or colder, or both, or neither--clever that).  But the world is cleaner, healthier and wealthier than it was 40 years ago.  No doomsday yet.  Don't give up on the world; try to make it better.  There have always been challenges but we have overcome them and can do so in the future, unless we quit trying.  GM food will be a big part of keeping us fed.  Alternate energy sources will be developed, if we let them, and life will go on and hopefully get better.  There was no golden age, no Garden of Eden.  We are living in the best of times (not the best imaginable or the best possible, only the best that have ever been).  Get over the pessimism and get to work developing solutions.

Sun, 09/05/2010 - 21:23 | 565293 joe.schmuck
joe.schmuck's picture

The first Americans heard about this confiscation was when all the safe deposit boxes in the US were sealed until any gold in them was confiscated.

The above statement is incorrect, see:

Wiki Link

In fact, safe deposit boxes held by individuals, were not forcibly searched or seized under the order and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes.

Mon, 09/06/2010 - 01:04 | 565467 CrashisOptimistic
CrashisOptimistic's picture

>>

PS.  For CrashisOptimistic: We aren't anywhere close to out of oil 

>>

That phrasing suggests you do not understand the issue.  It's too much to retype after the 500 comment thread on oil a few days ago.  

The condensed phrasing is . . . It's not the size of the tank.  It's the size of the siphon hose.  Oil scarcity is not about reserves.  It's about oil production.  

Do the reading about oil fields dying and new discoveries being **louder** than the dying ones.  This is utterly human nature and exactly what you'd expect.  People make money on new discoveries.  Discoveries get splashed in press releases.  No one makes any money when an old well is P&Aed (Plugged and Abandoned) so you don't hear about it.

But the math does.  The decline rate in production from old fields is about 4-5 million barrels per day -- each year.  You have to bring that much NEW production online every year just to break even.  It's not going to be possible as that 4-5 mbpd number grows (which it does when the water level providing pressure hits pipe level).


Sun, 09/05/2010 - 19:22 | 565184 desoto
desoto's picture

Good points Invisible Hand!!

As a side note, it is important for one to recognize that it is not the point at which we "run out of oil" that kicks off the crisis.  It is the point at which demand exceeds supply.  I agree with your belief that it is decades before oil runs out but only years before the point at which oil demand exceeds supply.  That will trigger an even bigger crisis because at that point the resouce will be available to fight over.

 

Mon, 09/06/2010 - 23:35 | 566547 pointingtrade
pointingtrade's picture

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