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Guest Post: What If The Consensus Is Wrong?

Tyler Durden's picture


Submitted byCharles Hugh Smith from Of Two Minds

What If the Consensus Is Wrong?

We all know the mainstream consensus is wrong, but what about the non-mainstream consensus? Maybe it's equally misguided.

There are a variety of consensus views floating around the Mainstream Media and the blogosphere. The two sets of consensus don't align on much, as might be expected: the financial MSM is still spouting the Federal Reserve/Wall Street's "happy story" about how the recovery is weak but muddling forward with "uneven growth" (i.e. someone else got laid off, you still have a job) but corporate profits (the only metric of "growth" that counts) will still be rising forever (as usual).

The financial blogosphere consensus is more or less that the fiscal-stimulus/Fed-goosed "recovery" is obviously rolling over here, and since inflation and fear are baked in, gold will continue its steady climb towards $3,000 an ounce and beyond. Oil, meanwhile, is poised to rise as suppliers either lose production to depletion or ratchet production down to support prices.

We all know about confirmation bias, the tendency to seek evidence which supports our views after they have hardened into conviction.

Seasoned traders practice the opposite: they actively seek out arguments against their current views. If these "Devil's Advocate" arguments are more compelling than their current convictions, then they change their minds and their trading positions (or at least slap on a nice thick hedge).

Which leads me to play Devil's Advocate: what if both consensus camps are wrong?

Again, this is a thought experiment which traders go through to avoid confirmation bias.

1. What if the economy rolls over hard? The Fed and mainstream economists are expecting a "soft patch" based on "mixed data," i.e. the top 20% are still "consuming" while everyone below the top 20% whithers on the vine.

Expect a hard rollover to show up all over the place in July and August data: container shipments, gasoline consumption, retails sales, auto sales, Christmas orders, tax collections, etc.

2. If the dollar rises substantially, then corporate profits will tank. Much of the big jump in corporate profits came not from actual net but from overseas sales converted into a weakening dollar.

Zero Hedge presented an excellent technical case by John Noyce for the dollar rising as the euro falls to 1.15 or lower: The Charts That Matter Next Week.

Recall that the DXY dollar index is essentially a see-saw, with the USD on one end and the euro on the other, and the other currencies adjusting to the primary trend in the see-saw.

Does anyone seriously expect the euro to rise from here? Based on what? A rescue of Greece by Alpha Centaurians bearing quatloos?

3. Gold is looking kinda heavy here (technical pun intended). Gold is in a long-term uptrend, but it has occasionally swooned for long chunks of time without threatening the long-term trendline.

We might ask: what happened in 2008 when the whole bogus fraud-ridden scheme of leverage, debt, propaganda and risk-trades imploded? Both oil and gold also tanked as debtors with margin calls or equivalent scurried out to unload whatever assets still retained some value, with a preference for selling those which retained the most value, i.e. gold and oil.

If all the world has done is push the cleansing that started in 2008 forward three years, then December 2008 is a pretty good model of what to expect going forward
as the exact same forces will eventually unleash their creative destruction again, only this time with greater force and at higher levels of non-linearity.

Depending on what you look at technically, there are some major divergences popping up in gold's chart as MACD, RSI and other indicators have been sagging even as price held on until recently.

4. Oil and gasoline are also looking toppy. The consensus is watching the shaky supply situation and seeing all sorts of reasons for supply to decline, but if the global economy rolls over hard, then demand could fall faster than supply, pushing prices off a cliff.

One feature of the "oil curse" is that the oil exporters have no other revenue stream to fund their regimes and welfare states.
Saudi Arabia has enough other investments in the West to weather a downturn, but the rapid rise in the cost of extraction, population and welfare has pushed up the fiscal pain point even for the Saudis.

Iran and other exporters have a wafer-thin fiscal break-even point: if oil slumps to $50/barrel, the Iranian government budget is in serious shortfall.

As I noted in Oil: One Last Head-Fake? (May 9, 2008), despite brave talk to the contrary, exporters have no choice politically but to pump and sell every barrel they can, as oil revenue is the foundation of the government's spending and legitimacy.

As demand crashes in a global rollover, oil plummets below fiscal break-even for exporters, who must then pump even more to keep revenues from destroying their domestic legitimacy and power base.

Supply won't drop as fast as demand, and that will push prices down hard at the margin, where prices are set. And as the U.S. dollar shoots up, then oil will cost a lot more in weaker currencies. That will further suppress demand and thus price.

Those two dynamics will reinforce each other in positive feedback loops, pushing prices down lower than the consensus thinks possible.

"Impossible"? Where have we heard that before? Lehman going belly-up was impossible, as I recall, and so was the housing bubble bursting, to name but two previously "impossible" financial events.

Confirmation bias has its own positive feedback called the herd instinct. When the herd reaches a consensus, it's hard not to follow along with what is "obvious."

Sometimes what's obvious isn't "obvious" at all.


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Mon, 06/27/2011 - 11:35 | 1405536 Ancona
Ancona's picture

That light in the tunnel you see is not daylight, it's the headlights of the train that is on target to crash.


Time to put on some big-boy pants and buckle up.

Mon, 06/27/2011 - 11:46 | 1405574 Ahmeexnal
Ahmeexnal's picture

Alpha Centaurian quatloos are worthless paper too.

Zeta Reticuli trakkans however, are .9999 gold coins!!!

Mon, 06/27/2011 - 13:31 | 1405878 DoChenRollingBearing
DoChenRollingBearing's picture

C. H. Smith writes a nice piece here.  The Bearing is a well known physical gold advocate, I believe the upward price potential is enormous.

But, nothing is for sure.  That's why I like articles like this (as well as hearing about alien money)...  Makes you re-think...

Since the future is so unpredictable, I am diversified.  Diversification!  One of your very best friends.

Mon, 06/27/2011 - 18:43 | 1406785 FEDbuster
FEDbuster's picture

Make sure to include some five gal. pails of oatmeal and ammo cans stuffed with .223 in your basket of S.H.T.F. investments.

C.H. Smith is worth reading on a regular basis.  Most of his articles are posted here at ZH, but just in case you missed a couple:

Mon, 06/27/2011 - 13:59 | 1405958 sgt_doom
sgt_doom's picture

Either you read really oooollldd sci-fi, or you are ancient like me?

Interesting short SF story, that one!

Mon, 06/27/2011 - 12:19 | 1405648 monkeyshine
monkeyshine's picture

I share much of the Devil's Advocate views here. I cannot see Euro strenghtening much and am short via EUO though I worry that ECB rate rise (they are simply inflation hawks they won't print Europe's wat out of debt e.g. they do Germany's bidding by design). 

I believe Gold and Silver don't have room to run here and the idea that gold $3000 is inevitable is unfounded based on the idea that QE is over, EU will fall and dollar will rise.  No reason, without more QE, to believe dollar will fall more or euro will rise more.

KSA does have room to increase production by 40% to 14 million bbl/day. They would do this as part of their geopolitical war with Iran. Cost to produce KSA oil is much lower than Iranian oil so the lower oil prices go the less profit Iran has and the more pressure the Iranian goverment faces internally. Iran is playing games in every corner of MENA but the KSA wants them isolated. Drying up their funds of course inhibits their ability to fund others in that they must choose where to put money - domestically or abroad. KSA would love to see more internal protests in Iran. Together with GCC states they may raise output though I see this could take until December before the markets realize what is going on as that is when Russian production tends to be inflexible due to winters. 

I have given up trying to predict where the market indexes will move they have been divorced from reality for too long thanks to QE and as noted by forex profits, but I will say the market has been quick to respond to the topping of the Euro, which leads me to wonder if I should get out of short euro and into short market... except as I said I decided to give up predicting the index movements.


Mon, 06/27/2011 - 13:46 | 1405803 SWRichmond
SWRichmond's picture

No reason, without more QE, to believe dollar will fall more or euro will rise more.

Disagree.  The dollar will fall as the ability of U.S. fed dot gov to actually simultaneously pay interest AND pay the (Denninger's aptly-named) free shit army to sit around and vote to enslave me, as this realization pans out in the face of ever-lower tax revenues.  The capital is gone; we ate it.  Then, we borrowed more, and ate that, too. 

Mon, 06/27/2011 - 14:43 | 1406138 malikai
malikai's picture

We didn't eat it all. There's loads of it in the landfills.

Mon, 06/27/2011 - 17:23 | 1406563 tip e. canoe
tip e. canoe's picture


Mon, 06/27/2011 - 17:16 | 1406565 tip e. canoe
tip e. canoe's picture

yes, but you have to wait for it to compost.  that means making peace with the worms & flies, otherwise, the shit starts to smell somethin fierce.

Mon, 06/27/2011 - 11:35 | 1405537 Internet Tough Guy
Internet Tough Guy's picture

What are those saudi investments in the west worth if the west doesn't have reliable cheap oil?

Mon, 06/27/2011 - 11:35 | 1405541 kato
kato's picture

why bother a) write this b) publish this? it is simply saying pourquoi? pourquoi non?

Mon, 06/27/2011 - 11:41 | 1405547 SheepDog-One
SheepDog-One's picture

Someone writing on a napkin while sipping a latte...

Mon, 06/27/2011 - 11:38 | 1405548 traderjoe
traderjoe's picture

why bother comment?

Mon, 06/27/2011 - 12:00 | 1405613 WonderDawg
WonderDawg's picture

Maybe the author wrote it in hopes that it would stimulate some thought. You know, get you to use your fucking brain for something other than posting assinine comments?

Mon, 06/27/2011 - 14:02 | 1405970 sgt_doom
sgt_doom's picture

Doubtful, WonderDawg, as it is replete with some pretty mindless assumptions.

First, this claptrap about this so-called "MainStreamMedia" --- now just where in perdition is this mythical creature?

There is essentially one corporation which now controls the bulk of the American media, which those several corporations which are supposed to be managing/owning it (officially five at last count, down from over 1,000 back in 1960) laughingly refer to -- in their private inhouse memos -- as the American Media Corporation, or AMC.

Don't think any such "MainSteamMedia" or MSM, exists.

Mon, 06/27/2011 - 14:13 | 1406016 WonderDawg
WonderDawg's picture

I think you missed the point, Sgt, but you described it very well. The American Media Corporation, as you describe it, is the MainStreamMedia, or MSM. MSM is used to describe the corporate owned propoganda machine employed by the .gov and the banksters. The "mythical creature" is the one corporation that controls the bulk of American media, aka, the MSM.

Mon, 06/27/2011 - 11:43 | 1405556 americanspirit
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Then there's all those potential outlier events - Monju, New Madrid, Armageddon, Fort Charles, the Cascadian Plate, Yellowstone, Straits of Hormuz, etc, etc. BTW - anybody seen all that Sarin that disappeared from Lybia a few months back? I think it's pretty clear that both concensus worldviews are pretty fragile. Interesting times.

Mon, 06/27/2011 - 11:47 | 1405566 SheepDog-One
SheepDog-One's picture

Nebraskashima nuclear meltdowns about to take place, while Soros buys midwest farmland hand over fist. Even the smart people in the room are so far off on their concensus its surreal.

Mon, 06/27/2011 - 12:00 | 1405616 Uncle Remus
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Hmmm. I heard it as Fukomaha.

Mon, 06/27/2011 - 20:14 | 1407096 Sokhmate
Sokhmate's picture

fukuyu ..fukumi .. what's the difference! it's all Japanese

Mon, 06/27/2011 - 11:56 | 1405598 vamoose1
vamoose1's picture

Joe Granville said it best in 1980  to wit "the obvious is obviously wrong".

Mon, 06/27/2011 - 14:00 | 1405976 sgt_doom
sgt_doom's picture

A play on Thorstein Veblen's "What is, is wrong" and well done at that!

Economic surplus....surplus revenues....Other People's Money (OPM)...public funds for private use.

Civilization is just about over....


Mon, 06/27/2011 - 11:56 | 1405599 vamoose1
vamoose1's picture

Joe Granville said it best in 1980  to wit "the obvious is obviously wrong".

Mon, 06/27/2011 - 12:35 | 1405687 Salah
Salah's picture

Libya had (past tense) hundreds of Russian made, shoulder-fired SAMs.  That's why we're there; you might want to think twice on going to Europe in the next few years, and flying around that southern Mediterranean air corridor.

"Missing SAMs in Libya alarms the West" (6/23/11)

Mon, 06/27/2011 - 23:05 | 1407688 Estrella
Estrella's picture

The link you mentioned states, as I thought, SA-7s. First generation type stuff, very limited, if even operable (batteries have a limited life and SA-7s are old). Never a good thing to lose control of a weapon, but, this is not a particularly potent weapon.

Mon, 06/27/2011 - 11:44 | 1405558 SheepDog-One
SheepDog-One's picture

I dont know what 'the concensus' is, but the reality is all systems are about to be imploded, all pensions, 401K's, IRA's seized due to the sudden economic state of emergency, and the planned 1 world govt 1 world currency will be implemented and no one will do jack shit about it because theres no IPhone app for it.

Mon, 06/27/2011 - 11:47 | 1405564 Version 7
Version 7's picture

"Absolutely SheepDog-One"



Mon, 06/27/2011 - 12:05 | 1405618 Uncle Remus
Uncle Remus's picture

Translation: No bag limit, any means.

Mon, 06/27/2011 - 12:52 | 1405736 DaveyJones
DaveyJones's picture

wonder how many people in history have said it can never happen here  

Mon, 06/27/2011 - 14:06 | 1405987 sgt_doom
sgt_doom's picture

Well said, more or less.

Evidently the blog post author believes that the hedge funds (American Enterprise Institute), the oil cartel (Pew various frigging outlets and the Cato Institute), the Heritage Foundation, and all the other foundations which are owned by the same few, and forever quoted as the news by Foxtard and that Fox Stealth Network (NPR), constitute the "consensus" in this author's view????

Mon, 06/27/2011 - 11:42 | 1405561 alexwest
alexwest's picture

2. If the dollar rises substantially, then corporate profits will tank. Much of the big jump in corporate profits came not from actual net but

actually they already did..
corp taxes paid are jsut 5% y/y, strip profits of oil/finance companies, well rest of is in negaive territory..

i dont give a flying fuck about earning reported, its jsut bunch of lies, but paid taxes are real money ..


Mon, 06/27/2011 - 11:50 | 1405575 SheepDog-One
SheepDog-One's picture

Yea I also could give a flying fuck about how the transparent Ponzi is going to be floated further. Anyone with half a brain should be revolting from this system, but denial is a powerful thing indeed.

Mon, 06/27/2011 - 13:33 | 1405900 DoChenRollingBearing
DoChenRollingBearing's picture

+ 100

"...transparent Ponzi is going to be floated further."

Action is needed to protect yourself from all of the lies.  Buy gold.  Stay out of debt.  DIVERSIFY!  Get off the grid to the extent you can.

Denial is indeed a powerful thing.  Swimming upstream is harder, but staying in the Sheeple Herd is very dangerous.  Prepare...

Mon, 06/27/2011 - 15:24 | 1406280 Apocalicious
Apocalicious's picture

Or even better, buy gold on credit cards. Default on cards, abscond with gold, exit stage left. Stay off the grid and fuck the banksters.

Mon, 06/27/2011 - 11:49 | 1405569 Bastiat
Bastiat's picture

Yep old helicopter Ben could just push the stick forward and fly the sucker right into the ground.  When the smoke clears fiat will be worth nothing. 

Mon, 06/27/2011 - 11:45 | 1405571 Re-Discovery
Re-Discovery's picture

I tend to agree that the likelihood of the Rosenberg/This Post deflationary outcome is growing daily.  QE did not inflate incomes.  As such, many Americans are forcibly going cold turkey on spending.  Even the Gov't can only do so much. 

Mon, 06/27/2011 - 11:47 | 1405578 SheepDog-One
SheepDog-One's picture

Funny how broke unemployed people cant pay more for things, scratching the 'hyperinflation' theory off the board.

Mon, 06/27/2011 - 11:58 | 1405606 sasebo
sasebo's picture

The guvmunt can't do nothing. They're too stupid. Or we wouldn't be here

Mon, 06/27/2011 - 11:47 | 1405576 Cole Younger
Cole Younger's picture

I have difficulties grasping some of this like " Saudi's investment in the west " because if the west takes a dump. so does the Saudi's. A 2008 crash would hurt the Saudi's and being that there only real export is oil, they would have to push the price up in terms of U.S. dollars to survive.

Mon, 06/27/2011 - 12:18 | 1405652 AnAnonymous
AnAnonymous's picture

More. If the Saudis do not input what is needed to fuel  the West, their papers are worth nothing.


With US victimology, this simple point is near impossible to get through as in the mind of US citizens, they have the wrong bargain side, they are pushing money paper against resources and goods. In US mind, people on the right side of the bargain are people who receive paper money against resources and goods.

Yep, the US citizens nature is eternal.

Mon, 06/27/2011 - 11:55 | 1405587 richard in norway
richard in norway's picture

i thought this article would trash the zerohedge consensus, not that it needs trashing, but sometimes i wonder if I've fallen in love with gloom and doom

Mon, 06/27/2011 - 11:54 | 1405595 qussl3
qussl3's picture

We're all closet masochists.


Mon, 06/27/2011 - 12:58 | 1405741 DaveyJones
DaveyJones's picture

I like to close the door on my hand every time I go in.

Mon, 06/27/2011 - 13:21 | 1405826 TheMerryPrankster
TheMerryPrankster's picture

I prefer banging my head on the door frame on the way in and out. The blue sparks quiet the voices for a moment and create an immediate sense of transition. I also have problems remembering to duck my head.

Mon, 06/27/2011 - 12:01 | 1405605 r101958
r101958's picture

Perhaps you just prefer reality.....which to some is 'gloom and doom'.

Mon, 06/27/2011 - 12:02 | 1405615 qussl3
qussl3's picture

Dupe. Banana Ben printing inflation in cyberspace too.


Mon, 06/27/2011 - 11:53 | 1405593 Gully Foyle
Gully Foyle's picture

Hey now Billy ever watch Rashomon?

The Rashomon effect is the effect of the subjectivity of perception on recollection, by which observers of an event are able to produce substantially different but equally plausible accounts of it.

We forget everything is true/false/meaningless in some sense and only our relative subjective observation/interpretation carries any weight in our reality grid.

Or to paraphrase Bobby Goren " Everyone lies all the time".



Mon, 06/27/2011 - 11:59 | 1405596 billwilson
billwilson's picture

- And I want US$???? No end in sight to new issuances of debt. Got to love a currency where the government spends $20 billion a year air conditioning tents in Iraq and Afghanistan.

- Godl will go where it wants to go. Don't want $, don't want Euros, get me physical. 

- Much more liquidity this time around, the money ahs to flow somewhere.


Mon, 06/27/2011 - 15:55 | 1406380 Bananamerican
Bananamerican's picture

"Got to love a currency where the government spends $20 billion a year air conditioning tents in Iraq and Afghanistan."


Mon, 06/27/2011 - 12:00 | 1405601 sasebo
sasebo's picture

The guvmunt can't do nothing. They're too stupid. Or we wouldn't be here.

Mon, 06/27/2011 - 12:06 | 1405608 oldmanagain
oldmanagain's picture

The Gov't did not try to do more.  Propped up some businesses, hurried some infrastructure completions.

Vital long term projects such as education, infrastucture, world scarcity of resources, erratic climate, high cost of medical care, on and on, were left behind.

At this moment the world is sweating out the sins of banks, blaming greedy workers, the old, the lame, the frail, anything but the failed promise of Austrian financial gas chambers.

Mon, 06/27/2011 - 12:09 | 1405631 Uncle Remus
Uncle Remus's picture

Don't know why people insist on including "education". Lack of money for "education" is not the problem, it is too much money spent improperly.

Mon, 06/27/2011 - 12:55 | 1405748 DaveyJones
DaveyJones's picture

funny, I've noticed that problem in a lot of areas

Mon, 06/27/2011 - 14:08 | 1406012 piceridu
piceridu's picture

+ The Department of Education is the problem. 

Mon, 06/27/2011 - 20:25 | 1407124 Sokhmate
Sokhmate's picture

The problem of education is the department.

Mon, 06/27/2011 - 12:22 | 1405649 goldsaver
goldsaver's picture

Vital long term projects such as education, infrastructure, world scarcity of resources, erratic climate, high cost of medical care, on and on, were left behind.

Vital to whom? The recipient of the largess?

Please explain how any of those are the responsibility of the "government" any more than bailing out banksters or TBTF corporations?


Or put another way; why is it my finacial responsibility to pay for your kid's education? Or solving erratic climate? (really need to explain what technology could solve that one), High cost of medical care (other than my own. Sorry Charlie, your grandma's chemotherapy is not my responsibility)? and on and on?


When government finances these "long term projects" it does so by plundering my pocket to pad yours. No thanks. I'll pay for my kids education, you pay for yours. Deal?


BTW, the only gas chambers in history came from the fascist side. You know, the National Socialist Workers Party of Germany?

Mon, 06/27/2011 - 12:38 | 1405695 Syrin
Syrin's picture

THANK YOU.   You made three key points I make to people about this issue all the damn time.   Why is it we need to preserve gov't programs?   Programs that take from the private sector, aka the wealth producing sector, destroy 30% of it in the bureaucracy to pump the remainder out as hand outs to those who never earned it and don't deserve it.   Let people keep their money, call it something fancy like "capital", and let THEM decide the best way to use those dollars.


I saw this quote at, and I've held onto it ever since.


Since when does one man's need give them a claim to another person's property?   THAT'S the point!   That's why gov't handouts are little more than armed robbery.


Your last point is also a crucial one to remember.   It was the fascist socialists who practiced genocide.

Mon, 06/27/2011 - 14:07 | 1406006 sgt_doom
sgt_doom's picture

"Programs that take from the private sector, aka the wealth producing sector,.."

Hhhhhmmmm...Oh, you mean that fantasy finance sector, which has produced -- actually they produced themselves, in a fraudulent manner of speaking -- all these debt-financed billionaires?

If you are referring to the sector which has dismantled the American economy, as they have so many others, to enrich themselves while destroying progress (and FYI, no-brow, the hyper-concentration of wealth -- i.e., monopolization of everything -- slows down and destroys all chance of progress, while the spreading of resources always serves to increase progress in human affairs), you are definitely a bit misguided, chum.

Mon, 06/27/2011 - 15:26 | 1406303 Apocalicious
Apocalicious's picture

The allocation of costs from high revenue producing areas to low ones always speeds up obsolescence and decay. No one's supporting the bankers. They're just saying keep your social agenda out of our wallet. Who do you think the redistribution of wealth agenda is serving best? Poor, minorities, laborers, or big bankers? Democrats, Republicans, Wall Street, Corporate Lobby....they're all the same. Shrink the government, shrink oligopolies.

Mon, 06/27/2011 - 16:11 | 1406421 Syrin
Syrin's picture

Misguided?   No, that would be you who chose a phrase of my post, converted it to mean the finance sector specifically when I am refering to truly, the private sector be it manufacturing, small businesses, medicine, whatever, and then hopped on your soap box.   Come back down to earth, stop inserting non-existent words into my post.

Mon, 06/27/2011 - 14:16 | 1406053 rwe2late
rwe2late's picture

 Another misguided defense of the "property rights" of billionaire banksters and war merchants.

  The inequitable distribution of wealth and power cannot be corrected without changing the distribution of wealth and power. And that cannot be done while denying the possibility for a democratic government to amend the so-called "rights" of wealth, power, and property. 

There are no god-given "rights" to privatize water, land, patents, capital, for forming corporations, or for protections against extortion and fraud.  It is governments, preferably democratic ones, that establish the rules of trade and commerce.

Only the banksters and their acolytes defend the current distribution as equitable, god-given, or by "natural law". 

 Whenever humans organize, the organizations may bring benefits, but also bring the possibility for abuse. That is the human conundrum. There can be no protection from mafia thugs, street gangs, or Blackwater-XE mercenaries hired by the plutocrats ... without government. The problem of governance is intrinsic to government, but can only be remedied by (repeatedly and endlessly?) changing the governance for the better. Abolishing the official government would only result in a substitution of "unofficial" government organizations (mafia, gangs, XE, drug lords, war lords, etc.).

Mon, 06/27/2011 - 12:04 | 1405622 JW n FL
JW n FL's picture

The entire what if above excludes one very important fact which does steer all other issues, bar none.


there is no other issue than we can NOT pump enough energy to keep up with growth! its fucking over! and everyone or anyone can put lipstick on any pig they can find.. but all the spin in the world will not change the fact that we can NOT keep up with demand for energy.

Mon, 06/27/2011 - 12:11 | 1405636 richard in norway
richard in norway's picture


Mon, 06/27/2011 - 12:58 | 1405728 Hacksaw
Hacksaw's picture

Another view JW, what if growth is dead? What if there is 3, 4, or 5 decades of population decline, demand destruction, and lack of consumption. What do the oil producers do if they can't sell enough oil to feed all their people? What happens to the stock market if a third of all companies go out of business due to lack of demand? What if the real problem turns out to be peak demand and not peak oil? Has anyone seriously given any thought to the ramifications to a collapse in demand?

All this could be the elite looking into the future and trying to align things to make the 30 to 50 years of future decline as easy on themselves as possible.

Mon, 06/27/2011 - 12:13 | 1405632 CrashisOptimistic
CrashisOptimistic's picture

This is largely why one cannot "play" all this.

If economic ruin hits the whole planet, the First Law of 2008 comes into its own: In an Apocalypse, all cross correlations go to 1.0, and it all disintegrates.

There are no exceptions.  It ALL disintegrates.  

Mon, 06/27/2011 - 12:41 | 1405702 Syrin
Syrin's picture

Expand on this.   It we all crash, is it like all the boats floating at the pier when low tide comes?   The "things" still exist after the crash.   That new hospital, all the iPads, all the homes, etc. all still exist.   They don't vanish.   So what happens?   Great Depression?   Riots?   Revolution?   mad Max Thunderdome?   if so, why?

Mon, 06/27/2011 - 14:29 | 1406095 spinone
spinone's picture

If we do crash, it means the dollar crashed. Then all the dollars don't buy what they used to. Oil goes through the roof. World trade breaks down.

Mon, 06/27/2011 - 12:12 | 1405637 YHC-FTSE
YHC-FTSE's picture

These sound more like ZH consensus than alternative, "devil's advocate" arguments. It's not just ZH either, even some of the msm writers are catching on.

Mon, 06/27/2011 - 12:24 | 1405659 New_Meat
New_Meat's picture

The word "unexpectedly" comes to mind. - Ned

Mon, 06/27/2011 - 12:30 | 1405671 Jasper M
Jasper M's picture

Actually, this article represents most of My expectation biases. Though I am ever more bearish on gold. 

Mon, 06/27/2011 - 12:45 | 1405703 Bastiat
Bastiat's picture

vs bullish on what?

Mon, 06/27/2011 - 12:30 | 1405672 PulauHantu29
PulauHantu29's picture

"I'll have a bowl of those Green Shoots and a tall glass of ouzo, please."

Mon, 06/27/2011 - 12:39 | 1405696 imaginalis
imaginalis's picture

Consensus is never right except by coincidence

Mon, 06/27/2011 - 12:53 | 1405718 Sherman McCoy
Sherman McCoy's picture

This article is great. As someone who works for an OPEC producer, the "pump 'till you drop" philosophy is absolutely on-target. One missing component is the surge in domestic consumption in Gulf countries. Local demand is through the roof becasue petrol is only $1/gal, and most countries are grow at 2x the global average. Some countries that are exporters will become importers before the decade is out. If crude does dip, it will be the buy of the centurry.

Mon, 06/27/2011 - 13:03 | 1405756 DaveyJones
DaveyJones's picture

this is also a component of peak, they will continue to keep more. Agree on the dip opportunity

Mon, 06/27/2011 - 12:54 | 1405727 pemdas
pemdas's picture

You are looking at non-consensus opinions.  You have "The economy rolls over hard". How about the real non-consensus opinion, "The economy recovers stronger than 98% of ZH'ers think possible"? 

Mon, 06/27/2011 - 13:13 | 1405792 Miles Kendig
Miles Kendig's picture

Considering that a fair portion of the ZH community is made up of IB'ers from the very institutions ZH loves to lambast I would suggest you try toting your water in a bucket that had a bottom.


Mon, 06/27/2011 - 13:33 | 1405888 DogSlime
DogSlime's picture

But how?  Given the fact that banks and sovreign finances are in as bad - or worse - state than in 2008, how can the economy recover strongly?  Surely the only thing that could produce that result would be a huge technological breakthrough (major new energy source, or AI singularity?).

There's nothing evident that can produce a recovery with the system as it is now.

Mass sovreign defaults?  Hit the reset button?  Maybe that is the path to recovery but it doesn't seem to be happening so far because the politicians and banksters are determined to keep the ponzi train rolling until it derails and explodes.  That derailment and explosion aren't likely to result in a rapid recovery.

How can such a recovery be feasible given the mess we're in? (that's not rhetorical - I would love for someone to have an answer)

Mon, 06/27/2011 - 14:09 | 1406007 YHC-FTSE
YHC-FTSE's picture

That's certainly an idea I'm willing to entertain, although all indications are that it is impossible. What's more likely is deception and fudge (we've seen how the CPI is going to be fudged recently) to make it seem as though the economy is on a strong mending curve. Things change with time, and if/when "perception" and market "sentiment", (The tiresome words that have replaced actually figuring out reality for a living) are in tune with those who provide false data, that will in turn reinforce a growth trend: A +ve feedback loop to unicorns and rainbows wherein everyone breaths sighs of relief that the economy is on track until another reality check hits them in the face. The last decade is a lesson in that strategy. Hiding subprime crap in "bad banks", keeping derivatives off-book, and buying your own debt are akin to sweeping dirt under the carpet, hiding dead bodies in the closet and shitting in bed. Sooner or later, somebody is going to notice the smell.


There's nobody more delusional than those who play the economy roulette, and Bernanke shits the best rainbows in bed. 

Mon, 06/27/2011 - 13:10 | 1405782 Miles Kendig
Miles Kendig's picture

One feature of the "oil curse" is that the oil exporters have no other revenue stream to fund their regimes and welfare states.

CHS - Does that also apply to Russia?

Mon, 06/27/2011 - 13:12 | 1405788 Cognitive Dissonance
Cognitive Dissonance's picture

Nope. They still have plenty of mail order brides left to sell. And with another batch still in the oven it appears they will never run out.

Mon, 06/27/2011 - 13:26 | 1405872 Miles Kendig
Miles Kendig's picture

That trade is mostly made up from rolling over Ukrainian asset backed paper coupons. ;)

Russia is fairly blessed with a whole spectrum of marketable .commodities.  I am just wondering when their long term neglect of their CL infrastructure will require rolling slowdowns for maintenance, just like north slope & BP action not too long ago.

Mon, 06/27/2011 - 13:16 | 1405796 PulauHantu29
PulauHantu29's picture

Shiller says bonds will rise.

Bill Gross says bonds will tank.


I agree with:

" will continue its steady climb towards $3,000 an ounce and beyond. Oil, meanwhile, is poised to rise as suppliers either lose production to depletion or ratchet production down to support prices."

Mon, 06/27/2011 - 13:17 | 1405827 David Davidson
David Davidson's picture

i have a idea..

lets "free" saudis or something(after the re-election ofc)

Mon, 06/27/2011 - 14:08 | 1406013 jmc8888
jmc8888's picture

No such thing as creative destruction, it's a fascist defintion, and it's wrong.  And it's immoral and unethical.  So all THREE. 

We'll just get the destruction.

Cancel the fraud via Glass-Steagall

It's like defaulting, except it's not on the people, but on the fraudusters that pushed it.

Canceled debt means no payment on that debt.  Not a reneging on paying the ect.

Big difference.

Glass-Steagall (there is no such thing as creative destruction...only destruction)

Mon, 06/27/2011 - 14:52 | 1406178 kevinearick
kevinearick's picture

Current, Currency, Travelers, & Investment

So, I get into town with X number of wave segments / economic gears left to build. By the time I get across town, I already know which are required locally and of those which will result in the most effective use of my time. I am looking at the number of churches per capita, etc, etc (passive), and I set down a pack of smokes to see how long it takes each class to steal them (active), etc, etc. What I want to know is the level of control exerted and how it is enforced, which delivers classic symptoms of gear/circulation failure.

No matter where I go, somebody “thinks” it’s a good idea to employ me as a dishwasher or something, “thinking” that the accounting profit is in their best interest. If you look, you see that the majority equate control with power, assuming a surplus of labor, and the control they seek is a function of their homogeneous filter, how they were bred to think.

Every person in that town has a filter-related problem, but most seek to capture a solution in a win-lose container/battery, for continuous use, ensuring that they lose regardless, because economies with greater circulation/current/power overwhelm them. Because they travel in a dc circle created for the purpose, they cannot see that the planet and universe are presenting increasingly difficult problem demands, faster and faster, as capitalism reaches its population saturation point.

The majority needs a new form of government that rewards a quantum increase in productive participation, while it waits for its self-interested representatives to solve the problem, throwing its wealth, its heritage, out the window for oil, and sells its children out for IOUS, extending and pretending, becoming relatively more ignorant with each passing day. The reptiles are starving, but they poisoned the sheep with inbreeding to increase efficient productivity, and all the doctor has to offer is another pill / addiction to speed up the process.

At the beginning, your algorithm solves small problems for people randomly, to identify the local characteristics of intelligent, win-win critters, which will eliminate your costs in exchange for solving their problems. In short order, you fall off Caesar’s radar, because the minions can’t see past immediate self-gratification in the positive feedback loop of their contrived history, which repeats in a self-fulfilling prophesy. That’s the nature of a homogeneous viral filter. It chokes itself to death with increasingly efficient resistor replication in a parallel circuit of parallel circuits.

Efficient investors bet to take advantage of growth in the filters, by ensuring a market for products that reinforce the feedback loop. Effective investors bet the viruses will consume themselves to death, following the thread of development as it comes out of the looking glass, Caesar twists it for use, the viruses consume themselves, and the next section is added. Investment return is all about timing, aggregate returns on risks over times. The effective investor only appears to be taking large (dumb) risks, to the homogenous filters.

It’s not how much monopoly accounting money you play with at the table; it’s how low the cost is to get in and what you take away, while the casino algorithm cameras watch at all times, giving the operators a false sense of information advantage, “thinking” that their box is bigger and better, because the historical probabilities favor their position. Caesar loses every time, so the only recourse is to rewrite History, and the TBTF segment of the process repeats itself.

Developers are not sitting in ivory towers, brainstorming in boardrooms, writing plans on the back of business cards, and implementing them in a garages. What kind of idiot thinks that 7 billion people can be fed, clothed, and housed with a process like that? The demographics of independent farmers and the energy technology cost structures driving big cities tell the tale.

You cannot swim out to a tsunami. You need a wave to throw you into a wave into a wave. It’s only a simple part of the surfing a tsunami problem, but take a look at that NatGas ping again. It should give you a few ideas. To the kid developer, the markets are just another video game. For them, Caesar is just a counterweight, and the people that pay tribute get what they get, IOUs in a TBTF, birth and death model, ponzi entitlement system. You want to be forming the curvature long before the tsunami hits, or betting on those intelligent enough to do so.

Architects are born, not chosen. Their conductivity depends upon the population’s representatives, but go ahead and analyze History to prove me wrong. The chamber is well beyond top dead center, so you might want to get the hell out of there instead. It’s about creation on the event horizon (effectiveness), not backwards engineering on the return stroke (efficiency).

She started paying me straight time for overtime hours when she got the word from the Family Law computers. I said something. The next week, she paid me straight time for overtime and shorted me 8 hours. Stimulus and response. Once I have two points on a line, I can expect the third point with certainty. Critters just can’t help themselves, because they are programmed not to accept sunk cost, which ensures gravity.

So, I build the gears that these towns desperately need. If they treat me well, I leave the gear behind. If not, I put it in the closet with all the rest. If you have different gases in a cylinder, what is the pressure on the lower gas as the upper gas approaches ignition? How do you completely combust a solid without physically touching it? How do you expel the gases?

The border patrol up here is acting like the mafia. Crack me up.

Mon, 06/27/2011 - 16:38 | 1406466 David Davidson
David Davidson's picture

nice reading.

choose not to choose, choose something else?

Mon, 06/27/2011 - 21:47 | 1407376 tip e. canoe
tip e. canoe's picture

vampires and reptiles and critters, oh my!

Mon, 06/27/2011 - 18:29 | 1406759 halvord
halvord's picture

Or, third: what if Krugman was right and dumping 2 trillion stimulus into a 3.6t hole will do nothing? And we're in a liquidity trap like Japan?


Mon, 06/27/2011 - 20:19 | 1407115 Kayman
Kayman's picture


Or if all the printing in the world, purportedly intended directly or indirectly to lift GDP (incomes), was solely intended to offset worthless assets on bank balance sheets.

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