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John Taylor: "The Collapse Of Europe Has Begun, The Euro Will Trade Like The Lira In A Few Months"
Fasten Your Seatbelt
November 11, 2010
By John R. Taylor, Jr.
Chief Investment Officer, FX Concepts
Now that Ben Bernanke has re-introduced quantitative easing (QE2) to a mostly incredulous world and, across the ocean, the Eurozone has begun unraveling again, our thoughts should turn to the parlous state of the world and the risks ahead. These are amazing times and seem to grow more so every day. Policy errors are popping up everywhere and are likely to multiply dramatically as the political problems are serious, answers hard to find, and the decision makers are not up to the task. Bernanke has proven that he is more a college professor and less a trader, which will cost the world dearly. Sometime between June and August Bernanke lost his stomach for the “exit strategy,” probably influenced by his predecessor’s summer announcement that the US economy had ‘hit an invisible wall.” While it can be argued that QE1 has been a success due to the liquidity crisis, it did not expand the Fed’s balance sheet and came when the economy was still reeling. This new edition dramatically expands the balance sheet, actually funding the entire projected government deficit over the next few months. Although the world believes that QE2 is there to push the dollar sharply lower, Bernanke argued that his goal was something else. On the day after the Fed’s move, he wrote in a Washington Post editorial piece that QE2 would push up the equity market, bonds, and other risky securities thereby stimulating consumption and economic activity. Even Greenspan did not publicly proclaim his “put,” but now Bernanke has made it the centerpiece of US strategy. Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. Speculation is now more American than apple pie – but this is a very risky time to practice it. As one highly respected analyst noted about Bernanke’s article, “these are undoubtedly among the most ignorant remarks ever made by a central banker.” As we and many others have noted that QE has shown little or no positive impact on actual economic activity, so the Fed has taken a big gamble, and if it fails as we expect it will have nowhere else to go. With the Republican victory tainted by the Tea Party “starve the beast” mentality, austerity has come to Washington. This next year will be a terrible one for the world’s biggest economy, so we would go against Bernanke on the equity side, but buy government bonds along with him.
The Eurozone has begun its collapse a little later than we thought. My compliments to the political prowess of the euro-leaders for holding things together for so long, but this is an impossible situation and the crisis is on its way. Jean-Claude Trichet caught the spirit of the situation today in Seoul when he said that “it is absolutely necessary to change the governance of Europe” and called for moving “as far as possible in the direction of an economic and budgetary quasi-federation.” I only disagree with part of one word, ‘quasi,‘ as Europe must move to a full economic federation if the euro is to survive. With 16 countries using the euro and Estonia on the way, the odds of moving there is currently lower than infinitesimal. Things will change after the approaching horrible economic and political catastrophes that will wrack some of these economies and societies. Unfortunately nothing will happen before the current situation gets unbearable – this is the way of democratic politics. As all the leaders are still working toward the same goals, and no one has stepped forward express the inchoate fears of the European populace, this should take years. By the start of next year the Eurozone will enter a recession that will test the current leadership. The euro, which has been perceived as if it were a German mark, has already topped and will decline until it is priced like an Italian lira in the next few months. With Europe and the US in recession next year, commodity prices will drop again and global growth will suffer despite the outperformance of domestic Asian economies. With the policy stresses, and the risk of significant errors in judgment, international strife becomes more likely as well.
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bingo. This is what Mako calls the "liquidation of nonperforming assets".
Wouldn't that depend on whether or not the cost increases are the result of fundamentals or speculation? The inputs might be mor eexpensive right now, but in a speculative rush, they can drop pretty quickly as well.
Not saying you are wrong, but the asymptotic rise in cotton probably does not reflect true supply/demand anyway.
And why would we equate "true supply/demand" with price again???
On a long enough time line - sure, maybe.
But hello people, look around.
What the hell do you think all this Bubble business is all about?
We have been avoiding "true supply/demand" for years, and are working really really hard to continue avoiding it, for years and years more.
By the time Truth comes knocking, we are all likely to have died of boredom - or starvation.
Turd, I like the way you splain things where dumb-asses such as myself, can comprende.....I am in agreement with you it is coming, prepare accordingly...
Remember your Econ 101. There are two types of inflation, not just one. All anyone thinks of anymore is demand-pull inflation. Rising wages, economic expansion, increased employment can all lead to demand-pull inflation. Since this is the world we've inhabited (thanks to the Fed) for most of our lives, its all anyone recalls from their Econ classes.
What is coming is cost-push inflation. It has nothing to do with demand. Cost-push inflation is generated by the rising cost of inputs to final products. What are inputs? Basic core materials such as cotton, sugar, oil, wheat and on and on. If producers do not pass along these cost increases to consumers, the producers will go out of business as their margins go flat to negative.
Oh yes, inflation is coming. It is most definitely coming whether you care to see it or not.
Yes - thank you very much for that. There are actually 3 other factors in play that everyone seems to forget about. However before laying those out - I'll say this. Even though demand-pull and cost-push inflation are different things, driven by different factors - they are not independent. All things being equal (which they aren't - see 3 factors below) eventually they must equalize. E.g. if cost-push continues, eventually everyone simply runs out of money to buy stuff, and the economy grinds to a halt, and there's no money flowing into the commodities world anymore to push prices up (this is assuming the artificial supply from the Fed eventually goes away); and prices will fall.
The three overlooked factors:
1. Time Horizons. There's a significant lag between the time that new money flows into the system and the employment/wage situation improves (assuming it does eventually). During that time there can be significant price inflation without wage inflation. That is where we are now. Later eventually the wage/employment situation can improve - but if and only if the new money flooded into the system is allocated properly (e.g. not concentrated in one sector - like commodities).
2. Non-U.S. demand. Taylor and others seem to think that because the U.S. economy stinks (9.6% unemployment etc.) that demand should be ultra-low. But they're ignoring the demand from other countries whose economies are much better off! (e.g. China, Brazil, India, etc.). These actually are exerting significant demand-pull inflation on commodites.
3. Federal Borrowing. Many argue that we can't have significant inflation until "the credit spigot is turned back on", but they're completely ignoring the credit customer that is the U.S. government! Hello!!! U.S. government borrowing, and spending, has skyrocketed since 2008. The credit spigot very much is on - just mostly in the public sector. Banks are lending like crazy right now - to the Federal Government.
+1
+3 @ packman
No Turd, you are both correct in your analysis, its just that Orly is right about its ultimate effect...
What you do not understand is that cost push inflation is in actual fact, net deflationary UNLESS END CONSUMER PURCHASING POWER INCREASES AT A RATE GREATER THAN RISING PRICES!!!
What does one call a market in which rising prices are determined by human speculative/manipulative externalities outside of producer/consumer, supply/demand market equilibrium... Oh yeah, A BUBBLE!!! And what happens to bubbles??? Well I don't have a crystal ball but if history is can teach us anything, they always implode under the forces of their own disequilibrium...
Sustained demand for goods and services of rising price can only be met when the end consumer has the means (and the will) to exchange a medium (or representation thereof, ie money) of value for these rising prices. If the nominal values of lifes little necessities are rising in excess of nominal end consumer income, the real value for these necessities are rising and thus, REAL END CONSUMER INCOME IS FALLING, DEFLATION. Remember econ 101 and nominal vs real value?
Now for my disclaimer...
I reserve the right to change my views based upon updated information received at any time...
E.g. If Bernanke has the C-5 Galaxy's airdrop pallet loads of freshly printed cash to the unemployed/under-employed/underpaid masses (ie the majority of the worlds end consumers), and he can drop enough of it in time to replace the destruction of credit money units. If/when this happens, asset prices may become sustainable, demand and the ability to service debt will increase, demand for goods and services will increase and thus employment and real income which all add up to a new positive feedback debt bubble paradigm and good times until the next crisis. Only then will we see the kind of monetary demand pull inflation one would like to hedge against with gold/silver, energy and commodities. Everything is in a bubble, its size only relative to how far back into our net energy history you would like to go. Personally, I date this bubble from the early 20th century when Ford gave the world the model T or even as far back as the coal fueled industrial revolution. But on the short to midterm basis, I think the mid 80's would be good place to start. Face it, there is nowhere to hide exchange value from a bubble this big. Invest in self sufficiency.
"REAL END CONSUMER INCOME IS FALLING"
In the US, anyway. In the rest of the world, however...
Question: Do you think that the US exists in a vacuum?
PS
Love the disclaimer.
No, I do not... But those in developing nations are dependent upon the production of goods for export are they not which reguires a consumer... Oh sure, China could eventually switch its economy to more internal demand but guess what, in such case so will the developed nations but they have the benefit of highly developed infrastructure and social cohesion. If the United States can go from producing 10k aircraft in 1940 to 100k plus in 1945, not to mention tanks, guns, ships etc. I believe you will not have much problem retooling for televisions and nike shoes. China knows this, either way they have much more to lose but thats what makes them dangerous. Yes, the US track record is not so flash but at the end of the day, they are liberated (and armed) people, only by public consent have things gotten so far out of hand but that will change. It always does. But we are all wealthier from having opened up the world by capital globalism, it has been painful but it has opened up communication, international co-operation and a sense of global citizenship and shared common interests. Things we will require much more of if we are to navigate a future of increasing resource scarcity and environmental destruction with a new global economic system without first destroying the planet through nuclear conflict. The profit system naturally seeks equilibrium, that means global energy equality and we will have to make this change voluntarily, we don't have the time to go with the flow so to speak. The world must share limited energy resources. That ultimately means we are all in the same income boat, there is no income "vacuum" left in the world... Read my comment further below, crazy stuff haha ;-)...
Well said Orly. There is no structural inflation. Only more damn bubbles. What we do see in the States is a depression in real estate and household net worth, and ongoing job destruction as the public sector finally tops out.
I think many of us are biased toward an inflationary outcome, because we know how to deal with that. The depression we have is a much nastier beast.
Hi,
Hope you are warm where you are. :-)
I am going to argue the bubble thing. My head is stuck in this space where I believe commodities have to go up, because much of the rest of the economy is not based on things that are real. Inflation and deflation do not capture it. Commodities up would reflect the real value of the commodities, with the Ponzi removed from the system. True, printing makes things worse, but before there can be any system stability, the things that are not real (CDS, MBS, etc) must be removed from the system and unwound. In that unwind, the only safe place is commodities. But beyond safe, commodities should and would be higher, except for the lie that is the rest of our system. People have invested in lies and that is an evolutionary dead end. People need to be holding real things, real assets.
Commodities, over the long run, are not in a bubble.
Good and warm, loafing at the beach house, thank you.
I see your point, but I think "commodities" is too broad a term for where we are.
As to metals, I agree with you. That stuff is expensive, dirty, dangerous, and in some cases, genuinely in short supply. Inflation lives elsewhere, in grains and energy.
My grandfathers loved to say "they aren't making any more farm land." True, but irrelevant. Slightly more intensive agriculture can produce exponential increases in food production. Think about a couple of gardens and a greenhouse as opposed to a hundred acres of cow pasture.
Energy is a wild card, but I think nat gas will replace much of our oil use soon. The US will be a net energy exporter again, if the sabetours can be controlled. In any case, we haven't begun to conserve. Look at damn Escalades, and Mercedes SUVs as opposed to European cars.
The government wants and desperately needs inflation, but after two years of this crap they haven't stopped the collapse of real estate or wages. But it's different this time, right? ;)
Your line of thought is flawed by one great big assumption... For this to be correct you must assume that the value of all monetary units within an economy are a true reflection of the market value for all real assets within the economy in which case, we would not be having this conversation.
I'll attempt to explain haha but first you must understand and agree that at any point in time, the sum value of a stable economies monetary supply must reflect the sum market value of all tradable assets. That is the point of money is it not, fair market value exchange? If the sum value of the economies assets were to decrease in value, the monetary supply value must also and vice versa.
Now whats the problem? Credit of course.
Credit by my definition is a false claim on exchange value. We all create credit when we exchange goods and services because to create a monetary profit, we must add a nominal (energy) value claim in excess of the value (energy) embodied into the production of goods and services of exchange, the net gain is a win for the seller and a loss to the value of the total money supply. Profit is a zero sum game. In order for the sum value of an economies money supply to return to its value eguilibrium (historic purchasing power) due the profit margins false claim on non existent (future) value, more goods and services of monetary value must be introduced into the economy. The profit system of value (energy) exchange is an infinite growth ponzi in itself but thats another story. Eg. If every profit margin was say, 10%, then 10% of new value must be introduced into the economy in a timely manner, otherwise the monetary value must decrease. In the real world, second hand goods are often exchanged below embodied production value so fortunately, some of the base money supply value is reclaimed.
The point is, bank credit is created in exactly the same way. It is just a larger fractal of the profit exchange mechanism just as an outright asset bubble is an even larger fractal of the sum bank credit supply. It is a claim on non-existent value. There are no underlying assets at which credit represents, a false claim. The only way this false claim can reach price equilibrium is through the increased introduction of new assets into the economy but as all exchange is done as profit (for a false claim), well I don't think I need explain. The profit/credit economy of production and exchange is an infinite growth ponzi and energy is its limiting factor.
All goods/services of monetary value require an underlying natural resource which requires a net energy surplus in order to extract, shape, transport, consume and dispose off within its lifcycle. Thus, as a profit/credit economy must grow, its energy supply must also grow. Of course growth is always positive thus generally exponential, even though the growth rate is not always constant (or positive).
In order to have growth, whether its our bodys, bacteria or an economy. We must consume more energy and there are only two ways to do it. Either extract greater rates of energy from your environment, and/or, use each extracted unit of energy with greater work efficiency thus increased net consumption. Like the saying goes, a penny saved is a penny earned. Its funny how economics blends so well with physics ay?
So ultimately.
1... The energy resources we utilize to gain net energy surplus are finite, thus not compatible with the infinite growth.
2... The second law of thermodynamics (entropy law) which governs all energy/matter within the universe makes perfect energy efficiency impossible, thus, not compatible with infinite growth.
3... Mankind will only get one chance to abolish the now obsolete profit system if we are to progress into an unlimited future. That collective choice must be made now for if we consume the last remaining surplus stores of sunlight energy, mankind will never again have the net energy surplus available to produce more sustainable energy extraction technology and its back to the stone age. Its a matter of when, not if and we have been on the per capita energy downhill since around 1979. We are now due to fall off the energy/population cliff.
The good news is that production and information technology today is so efficient that it can easily provide every person on earth with all the goods and services that make a wealthy life and we can do it with amazing efficiency. All it takes is to end the profit system and property rights and replace it with a global energy income and the aknowledgement that all natural resources are of common inheritence to all people. No profit, we all fit into an income class based on our position in life and thats it. Students, retirees, workers all fall into an energy income bracket. Whatever work we chose to apply our time and energy into will be done out of passion and/or the common social interest. As there would be very little work actually required in a non profit system, compulsory work may only be for 5/10? years before eligable for retirement income although I doubt that will mean we will all be sitting aroung getting high. Man will be free to pursue whatever makes one happy.
But yeah, I'm a dreamer haha ;-)
Thank you, kaiser, for the kind words. When the speculative money runs out of gold, runs out of cotton and just runs out of money, things will seem much different to the Turd Furgeson's of the world.
The economy of the western world is going through a deflationary contraction the likes of which we have never seen. Blowing more invisible and unused "money" into the carcass isn't going to do anything.
It's not inflationary. It is deflationary.
I guess we'll just disagree on this one and sit back to see what happens.
I suppose it could be a little of both. First, massive deflation, then (even more) massive printing to respond to it. Lack of faith in the currency might or might not follow. If this is so, then be in cash now, buy commodities during the collapse, and come out the other end with tangible, valuable assets. I don't know if that window will ever materialize, though.
Real deflation has only ever occurred in terms of weight units of gold. Sorry to burst your bubble, but that is the way it is, and always has been. 2008 was the only episode of deflation in a fiat currency that I have ever seen or heard of, and it was short and shallow.
What we have is a mass delusion that the dollar is worth something based purely on historical trends that have fully reversed themselves. Might as well save in the Sudanese dinar.
From the perspective of the USD, this depends entirely on the actions of BB and Friends ,does it not?
that's what makes our current condition unique: the real estate market collapses but the price of consumables, taxes, utilities, education, healthcare, etc...have all soared. This is empirically unsustainable and has made me a firm believer in those who predict a hyperinflation. The reality and stasis of government (since we don't have a Republican President but a Republican House and as I recall my "government 101" the budget originates from the President--which means there will be no serious attempt at cutting spending and amazingly "only an interest in cutting taxes." We shall see if the "Health Insurance Requirment" will bring in enough money to delay the day of reckoning. That could be worth 100's of billions--maybe even a trillion dollars worth of immediate revenue. Of course "the Republicans want to ditch that, too." I love it!
The budget originates with congress since all appropriations come from congress. Historically, Presidents have proposed budget items that they want appropriations for but, Presidents have no power to create or approve a budget or appropriate any money either.
You are right, along with some others in the strange biflationary period we are in untils you look at it again.
What assets are deflating? Well, two basic classes of assets. Real Estate and Artificial assets. Why those? Because the pricing is artificial! The Fed inflated the Real Estate class with easy credit. These easy credit assets spawned CDS and MBS's. So, yeah, they are deflating BECAUSE THEY WERE OVERPRICED. But the problem now is a frantic attempt by the Fed to treat the disease with chemo. Instead of removing the useless appendix they are using curare to try to heal it. This will kill the patient. The new credit fluidity to the banks would have meant nothing if it would have stayed in the banks balance sheets and never leaked out. I am even willing to go as far to say that all the Federal Debt held by the Fed and all the additional debt they are taking and all the bailouts to the banks would mean absolutely nothing to the economy in general and would not by themselves be inflationary (other than re-inflating Real Estate which was in an inflationary bubble to start with). Except, it does. Here is how:
1. Money that is now been lent to the Federal Government is not just entries in a bank ledger. It is real fluidity that is going directly into the market. That is like bypassing the stomach and injecting the poison straight to the veins. There is no way around a period of very high inflation in all those commodities that were not overpriced. Like your food. Like oil. Like anything you need! And foreign markets know this. The Chinese know this. The Germans know this. Brazil knows this. It is not a game. They know that driving the value of the dollar lower devalues the dollars they now hold in reserve and the outstanding loans they hold. They know that they are now holding a toxic asset. The dollar.
2. Moral Hazard. QE light money was used to prop up the market directly. If you can play the market without a downside, why wouldn't you? What POMO has done is told the market that they can buy shares on margin and never loose. This is no different than your unemployed brother in law that gets a mortgage, runs up his credit cards knowing his intent has always been to declare bankruptcy and default on all loans. Free money, Weee!
But is not free money. Inflation is a tax on all that holds the currency. So your brother in law defaults on his loans, but you are the co-signer! He walks away and leaves you holding the bag.
Certain commodities could suffer, though. Commodities that are entirely industrial could show supply and demand concerns. He seems to be oversimplifying it.
Recession or depression or whatever they want to call it, food/energy/PMs will be the place to be. People have to eat, people still need a way to store wealth. Although, I guess oil, specifically, could suffer.
oil won't suffer...it is going to go into terminal scarcity, and we got 6.x billion muffuggas who gotta eat.
Oil is a real thing, the Thing that Causeth to Become and the lynchpin underlying our entire industrial economy and what we call "the world as we know it."
If you want to move or create or reconfigure anything, you will need this substance. Even to mine gold.
Mad Max, bitchez.
Just leave the oil...just walk away....walk away....
People will flee things that are not real and pile into what is real, commodities. It may happen in herks and jerks, sputters and spazzes, but too much of the economy has been built on Ponzi and smoke and mirrors. That must clear from the system by unwinding. In the unwind, commodities will dip as dumps happen, but the big trend will be up, eager hands will be waiting at every dip to take those commodities.
People are waking up and headed for the door, trying not to run for the exits and spook the rest of the herd. Some of the herd is still trying to get some green before they bolt. They play a dangerous game. I am glad I am out.
We certainly agree on the herd thing. Try this. Farm land, guns, silver, bourbon, are effective stores of value. The trouble with commodities in general is that someone gets stuck with delivery. The soybean contract is 5,000 bushels. That's a lot of tofu.
CNBC just did a segment "You have to get into commodities trade .. If you stay out of margin just own the contract, like a micro contract for gold. $13,000 ... what? ... do you think it is going to go to zero?" I shouted at the TV "you can't eat it." Then the guest says "Buy corn at $3. Hold the contract. Do you think people are not going to eat?"
Pretty convincing. Might have to dust off the old trading computer.
That is me - trying to pick pennies in front of a steam roller.
while the Fed feeds the TBTFs free monie, which is used to short those very same "commodities" thus artificially supressing price.
From where I sit, it is WORSE than this, far worse.
The Fed and all the banker/economists have misdiagnosed the disease. They see this as a simple monetary burp when we are in fact, due to the oil supply curve, entering a new age of aggregate contraction. The economists think they can stimulate, at the lowest level, additional production of oil by lowering the cost of credit. However, past-peak, that CANNOT BE DONE by ANY means, as a matter of physics.
Consequently, as oil production declines, we will have more money not chasing a level supply of goods, but a DIMINISHING one.
We have hit an epoch where we see how truly silly economics as a "study" is and the massive chasm between it and real science. Major schools of economics FAIL to understand the REAL world.
so true, most of these analyses presume a constant or a substitute or some sort of "adjustment." All are impossible. We have never been at this point in human history. Our entire society - food source, transportation, means of production, materials is built on this stuff. I think the problem is that the problem is so grand, so fundamental that we have a hard time imagining the consequence
Oil has enabled a false sense of safety. We are alienated from our animal condition, cut off from knowing who and what we really are. A big reminder is coming. It will be time to go camping, for a long damn time. Maybe not this year, but I expect by retirement time (I am in my 40s) it will be well upon us.
Greetings, Ms. Creant. Long-time reader of your posts. I thank you for your enlightening input.
Allow me to disagree, please, by saying that anything oil can do, natgas can do better- and not a crazy amount of re-tooling is required to make the transition.
Problem (mostly...) solved.
:D
HORSESHIT.
Do not be a Polyanna.
NG peaks too. The people who constantly bang this substitution meme are FOOLS because they have not accounted for LOST GROWTH.
Look, even if we came up with magic solar that could substitute for ALL of our oil consumption and let's just arguendo say oil production fell to zero. We're NOT out of the woods because our economic model REQUIRES growth; it assumes it.
We need a new, GROWABLE energy supply. Solar and wind are not growable unless it gets sunnier or windier.
The deficit is two-fold; one for the oil we use now, two for the additional oil we expect to use in the growth future.
Back to your claim about NG, supplies of this will entire terminal decline VERY rapidly if we start "transitioning" from oil to NG. Burning NG is the stupidest thing imaginable for a variety of reasons.
You know, I love you and agree with you Ocsar, but you are such a grouch.
The only viable oil replacement potential is in Hydrogen if and when researchers find a way to easily and cheaply extract it from water through some type of chemical process that does not require high energy input.
I believe that when peak oil becomes indisputably evident, atempt to research this will start and will succeed.
Your take.
Hydrogen produced by electrolysis from nuclear power plants. Hydrogen combustion engines for cars, which can run on either gasoline or hydrogen at the flick of a switch. (Not fuel cells).
geothermal
http://cluborlov.blogspot.com/2010/11/peak-oil-is-history.html
Substitution has been good enough for mankind since he first ran out of firewood 6000 years ago.
Our economy is NOT predicated on growth. That is just what we have had. You see it all the time in microbiology. Bugs grow until they run out of digestible media, then they level off and reduce slightly, and slowly go dormant. Outside of the lab, nutrient comes along from some source eventually, or they get enough to survive from the sun.
We are not, I repeat NOT all going to die next Thursday because thee is no more cheap oil. Everything can be solved with a little ingenuity, at least in the absence of government regulation. If that means people have to move back into the cities because they can't afford to fuel their cars (where the cities are supplied by trains powered by the remaining diesel, or coal, or solar generated electricity, or onboard nuclear reactors, or something else, then so be it. It will happen naturally. Remove the government from the equation, and those resources that remain will be used in the most efficient manner, and new resources will be developed, until we have made a nice Dyson sphere, and are colonizing other star systems. Or until we slowly reduce our population (naturally) to the point where those remaining have comfortable and sustainable lifestyles, while continuing research on how to find energy to begin expansion again.
This is all natural, and happens EVERY DAY, despite those bacteria constantly screaming about "peak agar".
"Everything can be solved with a little ingenuity, at least in the absence of government regulation."
Necessity is the mother of invention...
TED TALK on PLANNING FOR THE END OF OIL
http://www.ted.com/talks/lang/eng/richard_sears_planning_for_the_end_of_...
Solar tech is the only hope other than a new fuel source (hemp maybe) and even then oil (and other industrial commodities such as PMs) are needed for the production of solar voltaic panels. I say solar because we may not, and I do not believe we have, maxed its potential yet. It is too young a technology to say there will be no more innovation to the industry. The other technologies (wind, hydro, nuclear) have met innovation peaks already. Maybe nuclear gets a boost from Therium or something, but not in the next few years, and oil will move to the backside of its production curve sooner than that. Wind we harnessed hundreds of years ago, and we have not gained significant abilities from it for a while. I think batteries and storing the power is the problem there. I will point out once again for the sake of things that as of now, all energy sources require oil in their production. To build a nuclear power plant one must use oil in the machines doing the building. Same with hydro, and on and on. There will always be a need for oil.
Also, for anyone not considering these ideas please understand it is not that there will be "a last drop of oil", it is merely the production function by the consumption function. Production levels have peaked, consumption is rising, and as of now the two are dead even. If oil production falls, viola. If consumption rises, the price of oil will rise. If or rather when the combo of the two happen, then prices sky rocket, and oil rationing begins and never ends.
Hi Orly,
I have always loved the beautiful picture you have for your avatar. I think this one is a second version. I have read your natural gas posts with interest. I hope you are right, but from what I read elsewhere (Kunstler, Simmons, Ruppert, Deffeyes, others) it does not scale for our car oriented lifestyles and heavy transport can't be run on it. There would be a huge amount of infrastructure needed that does not currently exist. I believe that even if you are right and we do make the save with natural gas (get infrastructure in place, invent the right transport, harvest the stuff with a sustainable ROEI), we will still have a period for a while where we will brown out as a society to make the transition. I think this is true for any alternative we could get to work. I hope I am wrong, that would be good news.
I also worry about pollution.
Whilst attempting to remain upbeat amidst this alarming trend in ecology, finance, energy and human responsibility; this theory keeps me soberly grounded:
http://www.mnforsustain.org/oil_duncan_r_olduvai_theory.htm
@ MsCreant,
Peru has a fairly large percentage of their automotive fleet that runs on gas, they have been doing this for some 4 years. They have tried to get it to work for heavy vehicles (trucks and buses), but have not made that work yet.
If Peru can get the infrastructure for Nat Gas, why can't we?
Southampton used to have LPG powered buses (UK) - seemed to work well although I have no idea as to fuel consumption or reliability!
Problem (mostly...) solved.
While I am a big fan of natural gas, it might behove you to look at the proven reserves of natural gas in Canada and US (reference site of your choice, just make sure they are 'proven'), then look at our total energy usage (just consider barrels of oil) and see just how long those reserves will last.
Not long.......
If energy consumption were to continue at its present pace and natural gas were to replace oil completely in order to maintain the current level of oil consumption (23 Gb), and if the current consumption of natural gas were to continue unabated (14 Gboe), then global natural gas supplies would be exhausted in 35 years:
1,280 Gboe/(23 Gb + 14 Gboe) = 35 years
If the combined consumption of oil and natural gas were to be reduced to the present level of oil consumption, then natural gas could continue for:
1,280 Gboe/(23 Gb) = 56 years
While reserves:production ratios are highly misleading, and these assumptions grossly oversimplify the likely real situation, this calculation gives one an appreciation for the limited time that humanity can postpone the inevitable by substituting natural gas for oil.
http://www.oilcrisis.com/gas/
(of course all these numbers are in a perfect abstract analysis. The timeline is probably significantly shorter).
"...then global natural gas supplies would be exhausted in 35 years..."
I somehow doubt that the Russians are even looking too hard...they've found enough of it already.
These ideas about peak natural gas (I said, "proven reserves...") is just silly. There's plenty, trust me. And if you want to give America a hand, how about pumping trillions of dollars into a natural gas infrastructure, including pipelines, wells, drill bits, pumps, compressors, storage facilities, CNG stations (now there's a franchise for the next hundred years. We'll call it Orly Gas...), and on and on.
"There's plenty, trust me."
Well, I suppose a bit more evidence than your statement would be required by most folks here... : )
Think 35yrs ago. No cell phones. Pagers still unusual. Faxes rare. No www. internet No desk tops let alone laptops. No digital copiers. Remember smelling the pages hot off an old "ditto" machine?
Just think what it could be like in 35yrs
If people would get serious about what research needs to be done, instead of wringing another .02% out of a dying system, 35yrs would buy a heck of a lot of time.
Stop dismissing anything that doesn't live up to the silver bullet standard, and start thinking what will build a bridge to the future?
You want to stimulate the economy and create real jobs?
What if we went "manhattan" project on nuke construction, how many plants could we have in 35yrs? and that would provide all the power we need for: water purification, electric cars, hydrogen extraction, you name it.
Don't worry Bernanke and Geithner are planning on building bridges with worn out Netflix DVDs, Kindles, and iPads.
And how do you pay for that again...
Ohh right, that's what printing presses are for - silly me.
Orly, let me start by saying that NG may act as a buffer, but let us ask for whom (or rather geographically, where will it be used) and how? First, America is cut off from the major Nat Gas producers of the world by two large oceans (Atlantis and Pacifica) and in order for NG to be shipped here it requires the gas to be changed into liquid, then the process must occur again, to get it back to gas. This process is highly dangerous; if there was an explosion it could decimate everything in a multiple mile radius of the site. Therefore, the plants would have to be far enough from cities to be safe, and the cities would have to be close enough for workers to migrate.
I was thinking about how there will be large sectors of America that are left in masse during the exudus that will soon occur (the South West, AZ, NV, SoCal to be specific) and can not help but think many will move to not only Europe, but the Mid East! I find this amusing as I know most would never fathom it now, but once oil production peaks, anything is possible. Also NG peak will occur around 2040.
Lets go camping !!!
well said. Some (other) blowhard lawyer was going off in the office yesterday defending the dump saying it would create jobs and make our goods "more affordable." I asked him how in the hell it would make anything more affordable for americans. He didn't understand the question
He does not understand that the "dump" steals from him, or he would have a different take on it. When folks get it that inflation steals what they tried to store, for the government, look out.
'We'll all be in recession next year...therefore commodity prices will be cheaper'
Where the hell do modern day economists get their education and degrees, at a carnival sideshow?
Actually, someone who grew up working in a carny would probably be WORLDS ahead of these assclowns in economic accumen.
That's where you lost me. I think it's the wrong metaphor.
Nobody is going to weather this storm, because it is not a storm. It is a conflagration. When it passes nothing will be left.
The only way to prepare for it would have been to stop it from starting. But it's totally on now.
I won't blame Bernanke, though he might have been able to do something productive at the very moment he took the Chair. But not now. Not at this this late date. This game is on.
Thank you.
Storm sounds like it will pass at some point and things will return to before.
Not Gonna Happen. (and its only just begun)
Well, I did it.
At the urging of several fellow ZHers, I've started my blog. Mainly this will allow me to post charts so that anyone can see how I form my opinions.
http://tfmetalsreport.blogspot.com/
I look forward to any and all feedback. Thanks! TF
Parlous state of the world... Yes, they are always talking.
Once again, the dollar is the valedictorian of Summer School.
European lira vs american peso? Well, my bet is on the lira.
they will print money...they always do.
Default of euronations = drop in euro. We saw this film last year.
QUESTION
If the market breaks hard and the sell off kicks in, what happens to gold? How does it react?
The PMs will only enter a sustained decline if there is a "global margin call" event, similar to fall 2008. Remember, beginning tomorrow and through next Friday, the Fed is pumping $41,000,000,000 into the PDs. Shit ain't goin down.
Love the hat Turd.
Thanks. It matches my eyes.
They need to put Scotty in charge of POMO, he can "give it all she's got"
http://lightwater.files.wordpress.com/2007/07/star-treks-scotty.jpg
Paper gold will drop down hardly, probably to zero.
Real metal will be taken completely out of trade. And after some time it reappears probbaly at about 20,000 FRNs (35 US dolar) per ounce.
$42.20
edit: $42.22, but whos counting when the numbers are ficticious?
Paper gold goes with it.
Deflation Bullshit...
Not until the inflation strikes first ....(per the def mandate)
"Equities are already overpriced, with profit margins at all-time highs and PE ratios far above average. "
Shouldn't that have read "profit margins at all time lows", unless he is talking about banks only?
ORI
http://aadivaahan.wordpress.com
John Taylor obviously has an agenda - I mean, he does sell paper to his clients.
Speaking of the collapse of Europe. Police legions stopped cold in Teutoburger Wald in Lower Saxony almost 2000 years later from the date that Roman legions were stopped in the same area in 9AD. The people, well read and well informed, stepped up and made the choice and without firing a shot, stopped a police force of 17,000 men and also stopped the train they call the Chernobyl train. , the train from hell. Good for them. This insanity must stop. As can be seen from this, what was created for bad, is now being used for good, so far. The word got out about this courtesy of the internet and connectivity that is now so prevelant in this world. Then we have the blogs now and people are questioning the main stream news media as well they should. http://alethonews.wordpress.com/2010/11/09/german-people-in-unprecedente...
Can I just point out that the Teutoburger Wald isn't actually in Lower Saxony?
Oops! My bad. God bless em anyway. I wish we would be more like this. But getting the lazy American up off of his big fat ass is a major work in progress. I certainly do hope that this is not the last time this sort of thing happens. Enough is enough. Maybe the Germans have had enough now and are ready to act like the English students appear to be also.
A start would be making them walk the drive-thru window.
Drifter:
"But getting the lazy American up off of his big fat ass is a major work in progress."
Maybe the first stirrings . . .
"The rebellion is surging, not only because of the noted health dangers of body scanners, but because the TSA has proven time and time again that its justification in treating the American people with less respect than farmyard animals is completely fraudulent.
As we reported yesterday, while TSA goons grope your wife or daughter’s genitals in the name of security, they simultaneously hire rapists and give the green light for illegal aliens to work in secure airport locations and even clear them to fly planes.
http://www.prisonplanet.com/drudge-stirs-national-debate-on-tsa-abuse.ht...Yes first you had goof balls working at the airports , in the luggage scanning booths. Then the government said. Now you are government employees and you have homeland insecurity agents (who also were made to be extra special by the government) as your backups in case one of those wascally sheep gets out of line. So the government made goof balls at the airports into government goof balls and now we call them security professionals. The government always does a great job at everything they do.
From that same article:
"If this is the resistance for Castor and Stuttgart 21, just imagine what will happen when Germans finally grasp the scale of the banking scam being carried out by their “elite.”
Germans don't seem in the mood to be coerced into supporting the PIIGS--they won't take Frances nuclear waste, they won't quietly take much more of Europes financial waste either.
I'm not so sure EUR will tank to the level of ITL any time soon. There's plenty of high value-add export goods still coming out of places like Germany and Finland that'd sell a little too well at that point. Any views on a _real_ target range?
I think that only if Germany will return to the DM, there will be an euro collapse. Too many political instability in the periferical area of the euro, could generate new indipendet movement/party; but the piigs have no alternative to the euro (for financing the debt).
EFFF YOU JOHN TAYLOR! YOU'RE STEALING MY THUNDER! :D
I SAID THAT 2+ YEARS AGO!
The EU will disintegrate. T-4 days
Taylor also said it would disintegrate 3 months ago, and got caught short and had his head handed to him.
I think a lot of people have been getting their asses handed to them long and short over the past months. And thats the overall plan, right? Bankrupt the system, take no prisoners.
He will be if he keeps shorting the Euro and buying US bonds.
EURUSD down 500+ in a few days
The initial downside target is 1.31. :D
Stick a robot on it!
his fund is up 14% for the year
for currencies that is HUGE!!!!
He could have bought gold or silver, sat back, and beat that number by 200%.
The only way to short anything these days is to do it in terms of gold and silver.
For my money, it's better to simply go long gold and silver.
The EU or the eurozone?
I think you meant the eurozone.
Euro like the Italian Lira? - Engage abacus - Gold in Euros 1020ish, multiplied by 1936.27 ...... makes me a very happy girl. When does all this happen please?
Oh yes, hi everyone. It's taken me two years to cease lurking at the Portuguese end of the planet
Greetings! And welcome to Zerohedge!
:D
Europe is undergoing austerity while the USA prints and spends. Euro isn't going to crash under these circumstances MORONS
Look who's back! Oh goodie, I'll get the pop corn. Let the fireworks begin.
Worthless money is still just as worthless as before. And bankrupt is still bankrupt. Moron.
Three words.. Pomo, Auction, Sticksave.
Anyone else notice that there is a lot of "Europe is collapsing" written here but really no reasons why. Seriously, there's nothing tangible. He says it's "unraveling" but doesn't say what leads him to that conclusion.
Kids, always pay attention to the sources and meat of the article, of which this has neither. Just commentary and opinion from what I'm reading.
Maybe due to the banking system?
So innocent. So funny!
I am not laughing.
Apologies. I thought we all knew that the global banking system is insolvent and it is just a question of who stops trying to hide it, first. Those who stop, fail, take their medicine and heal first stand the best chance of coming out of this "okay." I would invest in a country that had admitted its errors, tightened its belt, cleaned up its ponzi schemes, and opened for business. I thought your remark was sarcasm.
My response was part sarcasm and part incredulity since his post seemed to imply there are no underlying problems. As to the banking system, I do not have much trust or belief in whatever those institutions state. From what I gather though at least the EU is trying to cut spending although determining what areas to cut is not always politically easy.
'Europe is collapsing'? Ah, I see the problem, wrong tense! 'Europe HAS collapsed', far more proper.
And the reasoning why? Marshall Plan allowed socialist Utopias for many years which can no longer be sustained. Socialism always ends in collapse...somethin for nothing can only go on for so long.
Hey Harry, go use your reasoning on those Brit college students who just got their fees tripled, tell them all is well!
Harry--> YouTube - Animal House - All Is Well!
It is like this all across europe the pigs are in debt big time and the german,french banks are sitting on this ....
The EU is jawboning this issue again so the euro drops ....
Investors have piled pressure on Ireland amid growing concern over the potential cost to bondholders of any sovereign debt default.
The data is the net exposure of banks to central and local government debt at the end of March in euros, based on current exchange rates:
BANK NET EXPOSURE
(NET OF IMPAIRMENTS)
Hypo Real Estate* 10,280 mln
Royal Bank of Scotland 5,020 mln
Allied Irish Bank 4,136 mln
Bank of Ireland 1,186 mln
Credit Agricole 929 mln
Danske Bank 655 mln
HSBC 593 mln
BNP Paribas 571 mln
Group BPCE 491 mln
Societe Generale 453 mln
KBC Group 446 mln**
* Nationalised HRE said since assets have been transferred to a German government-backed 'bad bank', its exposure to Ireland has been reduced to a negligible amount, according to a presentation of Oct. 5.
** Gross exposure
Thanks. It's nice to see some numbers and facts associated with something rather than an opinion. We all know Europe is in trouble but please, if you're going to write an article at least provide info as Spalding has.
Plenty of informed comment on Alphaville if you want it!
Tyler had an article a while back showing graphically where the interdependencies between European governments and the banks lay. It wasn't pretty.
"If one falls, they all fall" was the takeaway. And it sure looks like Ireland is falling. Therefore, Europe will fall. That's all.
If you can find a false premise in there somewhere, please do. If there are none, then Europe is simply doomed.
How is europe going to fund the EFSF?
Why is going to stop the other PIIGS coming with paws out?
Bank stress tests will be bunk and questions of solvency will come back into play.
I agree that its stupid to fight the FED, but there are too many angles and too much shit coming out from europe to not at the very least kick the euro in the nuts for a couple of months.
More POMO please. And more Swaps please. And more armored trucks to ship the gold to the middle east.
What we need is cheaper and much thinner paper to print dollars on. The Treasury will never issue anything greater than $100, so whent the 1 quadrillion dollars for a postage stamp hits, it will take dump trucks of $100s to buy a stamp.
The treasury must protect the US from money laundering, so hey, nothing bigger than a C note.
No collapse but when the ECB follows the Fed with their QE, watch out, the mighty euro will fall hard!
The ECB won't follow. There's no need for it. You should have checked the organic economic growth in Europe first.
What we have to brace ourselves for are interest rate increases and a stronger Euro.
Who cares about Ireland when 50% of all US States or more are basically bankrupt. For every Ireland or Greece there's a California.
The real issue is the bankrupt US which has to print more of its own money to buy its own debt to service the existing debt which can never and will never be paid back.
Fuck why is that so difficult?
Ok, fair enough, let's presume there is massive organic growth in europe. (is that like the european stress tests?) What about the debt? Or am I missing something here? That long of a post and not a single mention of EU member nation debt/misappropriation of resources (toxic bullshit)?
In other words, europe only needs one more loan to get back on its feet through all that growth and we can stop the swap lines and other measures being implemented by the fed to pad other currencies. Got it.
I think what you need to brace yourself for is the unforgiving cock of austerity until you default on/repudiate your debt.
The problem with everything:
http://www.marketwatch.com/story/economy-stabilizing-top-forecasters-say...
Where do we send the baby powder? (Thanks, ol' Yeller)
I like the children's pictures there touted as "senior economists."
Journalists could become targets for bad things if the public perceives how much "untruth" telling is going on.
Incredible.
"“it is absolutely necessary to change the governance of Europe” and called for moving “as far as possible in the direction of an economic and budgetary quasi-federation.” I only disagree with part of one word, ‘quasi,‘ as Europe must move to a full economic federation if the euro is to survive."
He's calling for a coup. What a fascist.
John 'bend me over and stick it up my ass as hard as possible' Taylor.
Either Quasi or what the fasicst John Taylor wants is just that fascism.
Good luck with that. Like the people of euro need some brussells bankster dumbass cutting budgets they know nothing about in the other ~15 countries the dumbass isn't from.
Commodity prices will drop? They may have a drop, but overall they'll be much, much, HIGHER. Especially if gasp, the brussell with tussells doesn't gasp, take the bernanke way out and print.
You fascists are about to lose.
The economy has hit the invisible wall, held up by the invisible fist.
euro and dollar parity since we are in the same invisible boat.
forget euros and dollars, gbp is outperforming gold, i guess as a flight to safety?
Actually, that has been the main reason for this entire ramp, otherwise, the Pound would have collapsed a long time ago. Can't have the Bank of England go down in flames, now can we?
We should talk to Foundation X.
Look for a return to normalcy in the GBP crosses.
specially as uk sold its 400 t of gold at under 300 $ .....
and i am not sure if this is correct, but i read that switzerland and eu countries have half of the all gold. which makes me think they will do very well in near future.
They like to make fun of him in the halls of power. They like to say his name, slurringingly, through their nose, as though it were the natural pronunciation.
"mmmmmervvv."
Then giggle behind his back.
Perhaps the silver lining in the mushroom cloud will be that obese youngsters will get some exercise when they take to the streets to protest iTunes price increases.
You guys are over thinking all this. Our economy is not run by a bunch of idiots doing the wrong things. It is run by thoughtful, skilled, amoral people who have one goal in mind. To make the rich richer and the poor poorer. I believe there are reasons why the ruling class has decided to do this but that's another story.
EURUSD
Timmy isn't Irish is he.
http://99ercharts.blogspot.com/2010/11/eurusd_11.html
http://www.zerohedge.com/forum/99er-charts
There once was a fiat called Euro
It's value moved closer to zero
It was said by the masses, we better cover our asses
and they continued to print more dinero !
EURUSD is priced right at 1.35.
With the world colluding against the US and the USD as is happening behind the scenes, we will see EURUSD 1.55 backed by a)China b)Russia c)Arabs.
Yes, friends the 3 quasi enemies of the US are the friends of Europe and the Euro.
Arabs are buying Euro denominated assets hand over fist. China and Russia have bilateral trading contracts in commodities and services based on Euro.
Ben Bernanke is a puppet. Nobody takes him serious.
The world's biggest threat is a pissed off US loosing super power status and showing one last display that the dinosaur is not dead. If the US goes to war however, nobody will follow.
This is a different time and the balance of power no longer rests inside the Beltway.
Good comment. Yep, another US/Israeli false flag to
"shock and awe" the rest of the globe in to US submission, but it
will fail.
So what is your prediction exactly? Is the Euro a viable currency to overtake the Dollar? Exactly how long do you predict the Euro to remain in existence? Just curious.
More and more dollars chasing fewer and fewer non-renewable resources - can only be inflationary.
Once again, Turd is correct.
err, what about the other 95% of the money supply?
Well, if history is any judge, $1T buys about 6 months...
The time these things work for halves each instance. By this rule of thumb, it's now down to 3 months.
Also, not mentioned anywhere is the FACT that Zoellick is calling for a gold standard.
That is huge.
Bernanke won't hear any of it, I imagine.
The world's biggest threat is a US false flag. Otherwise we could be one happy planet.
Ja Germany actually needs the Euro to be much lower so everyone can buy a beautiful Mercedes Benz or a BMW in China and India. Ein lower Euro ist sehr gut für Export, ja ? Or does that only work for the US Dollar...Germans have huge savings tugged away for that rainy day, some wisdom we learned the hard way some time ago.A lower Euro will be good for the Euro Zone me thinks...;)
I kind of expected John Taylor's conflicted self back again today. Welcome back.
"the euro... will decline until it is priced like an Italian lira in the next few months."
John R. Taylor- it's great to see someone stand up and make a definitive prediction. I will be looking forward to your return "in a few months" and reviewing the situation.
It does occur to me that you didn't make any number- (read:reality) based prediction, so this is probably just the weasel-worded puff piece you intended it to be.
You secure that shit, Hudson!
I'm Hudson.
He's Hicks.
Hudson,
You folded like a cheap suit back there on LV-426. You're not fit to be a Colonial Marine!
Furthermore, I have it on good authority that you were the inspiration for the Stars Wars character Jar-Jar Binks!
KD has been banging on about margin compression at the MarketTicker. This issue is not just relevant to American companies. Indeed it seems that Germany being the manufacturing powerhouse of Europe may struggle with this problem acutely. Take a look at Pfleiderer today. They are the world's 2nd largest maker of chipboard/fibreboard. Shares down about 30%. Reason... downturn in construction in American market but mainly increased cost of raw marterials (wood bits and glue funnily enough). Unfortunately the cycle is margin compression because of high commodity prices causes companies to fold and creates recession. Only then may commodity prices drop some but it will be too late...
How would you build an Iran war-portfolio?
Chinese solars. Duh.
The Euro haters are too funny. You guys are being led to the slaughter betting against the Euro. Maybe you get a dollar bounce here or there vs the Euro. Maybe even one that runs for more than a month. But you are going to be some serious bagholders if you participate in the latest dollar prop job with any conviction. The amount of anti-euro pro-dollar propaganda being spewed is growing as fast as the spec long dollar positions. You had the rug pulled once. Look at the DXY. It pushed through critical support to the downside last week. This is just a retest. You are bottom fishing a currency and that is always a mistake. The charts say the DXY is about to get slammed down to 67.
Really. Mark this post and look at the DXY chart. Reference the support starting in April 08 until last week. I hope you get some kind of bounce. I just don't see it.
How about a fair test, instead? The DXY is an index taken off a range of currencies against the USD.
If we're going to measure this call, how about we just pull up a chart of the EURUSD in three months and see who was right?
John Taylor is in full Denial when he says: " The collapse of Europe has begun "
and: " A weak US Dollar is the correct Policy for US "
It is clear to me and many others that Europe's Austerity measures will work and most Europeans have actually accepted the fact, that there is a urgent need for such action.
Measures by German Chancellor Angela Merkel and British Prime Minister David Cameron to cut government spending and slash debt are making them standouts in the eyes of global investors.In Germany, unemployment dropped in October to the lowest since 1992, as the government raised its forecast for economic growth to 3.4 percent, the fastest pace since 1991. Business confidence in Europe’s largest economy climbed in October to the highest level in 3½ years. The benchmark DAX Index is up 12.8 percent this year, compared with the 7.5 percent advance for the U.K.’s FTSE 100 Index. Merkel has declared that Germany must lead the euro area’s deficit-cutting effort and has urged leaders of other governments to find ways to wean their economies from stimulus spending.
http://noir.bloomberg.com/apps/news?pid=20601108&sid=a8PRbJRZl6WA