2008

2008 may turn out to be a good year for the environment. Thanks to sky-high oil prices followed by a financial crash, many people have decided to drive less and fly less. They are also traveling less and spending less. All of that is really great news for our survival on the planet.

To recant an old phrase with a new meaning, when it comes to pollution and destroying habitats: it's the economy, stupid. What is wrong is not oil, inefficient light bulbs, oversized SUV's, global warming, etc. What is wrong, plain and simple, is too many people using too many resources.

Since 2/3's of our economy is in consumer spending, and 90% of that spending ends up in the trash within 6 months, it should be rather clear that we need to change our ways. It should also be clear that this cannot be done without "damage" to the economy. What we affectionately call the economy is really a huge churning waste generator.

We need to reduce our spending and consumption rather dramatically if we are to stand a chance of surviving for much longer on this planet. "Much longer" could be as short as 50 years but it may well be 500 to 1,000. If you think that is absurd, just remember that 1,000 years isn't all that long in the scheme of things. I doubt that it will take that long though. All future predictions are fraught with error so we need a bit of a fudge factor. A couple 100 years is in the noise, when it comes to planetary events.

So, even though you may feel 2008 was an annus horribilis, look at the bright side. At least we are on the right track to saving our existence. Happy New Year.

duplication

Here is one fundamental culprit of environmental destruction. It is called duplication, or to be more numerically correct, quadruplication or quintuplication. It is the basis of the consumer society that we live in. Let's start with a simple example: the toilet, often called the bathroom or restroom for modesty reasons.

It all started with an outhouse located some distance from the main dwelling, or, when space was tight in a lean-too building. That made good sense as toilets are associated with smells and sounds that are somewhat obnoxious and distasteful. 

Having an outhouse can be problematic, especially for the elderly and the obese and those who cannot walk easily. It is also a chilly experience in winter especially in those climates that have harsh winters. To say nothing of night time evacuation, something that may affect the younger, the elderly, and the infirm. The night pail with cover provides some relief but it is not an appealing solution.

To solve these problems engineers devised a remedy that -all things considered- is very wasteful and very inefficient. The remedy is the flush toilet with siphon. The siphon is a device, a kink in the tubing, that retains some water and thereby blocks offending smells from rising up. But it also prevents material from going down, and it needs a certain amount of water to block the pipe.

So we flush. We are so used to flushing that many of us can no longer imagine a world without it. Save for those who are involved in athletic activities, or visit parks, or do outdoor labor, where porta-potties provide relief, the "civilized" among us always flush.

Flushing accounts for the majority of water usage in the West. Furthermore, since virtually nobody uses grey water, flushing uses clean, potable water that is brought in, filtered and treated at great cost. Dams are built, ecosystems destroyed, salmon go extinct, rivers are polluted so we can flush in the privacy and warmth of our own homes.

Modern toilets do not solve the instantaneous smell problem. So the bathroom needs ventilation and since few bathrooms are sealed off, the bathroom becomes a major source of heat loss or heat intrusion for the house. That little room not only wastes vast quantities of good water, it also wastes tons of air conditioning and heating. It has a huge carbon footprint.

Houses used to have one bathroom. They also used to have five or more residents. All that was not a major problem "back then." Now houses have on average 2.1 residents and few of those can imagine living with just one bathroom. "Oh dear, that must be hell." So here comes duplication.

The consumer society loves duplicates and triplicates. Now you need to buy three or more toilets, three or more fans, three or more sinks, mirrors, lights, etc. Everyone living in the house has their own bathroom, and it doesn't stop there. Any decent home has a few extra rooms just in case. And those rooms too have bathrooms. What about the guests dear, surely they can't use our bathroom?

A "normal" sized home now has two or three bathrooms. Some have five or six. More heat intrusion or heat loss. More pipes, more vents, more copper wire. More air freshener spray cans. More odor-repellant boxes, dried leaves, and other contraptions. More toilet brushes, light bulbs, mirrors, cabinets, toilet paper stands, garbage cans, soap dishes, soap, etc.

Where do all these consumables and waste products end up? A large part goes to sewage treatment plants. More energy usage to "treat" something that would make excellent fertilizer. But who in their right mind would go there? One can buy nice clean fertilizer from Home Depot. White pellets in paper bags to drop on the lawn.

business failure

American businesses have failed us. Lured in by Wall Street they have become agents in the financial Ponzi scheme we talked about before. They corrupted their standards and defrauded us. Our public companies are acting in ways that are destructive to us ( their owners) in the long run. They became willing collaborators in the financial Ponzi scheme.

A little over two decades ago Wall Street financiers started convincing CEO's and board members that all business needed to do was to generate ever larger profits. They told management to put aside their standards and ethics and to focus on short term profits only. The next quarterly earnings report. And if managers had to take decisions that ignored the long term well-being of the business, so be it. Even the outright cheaters were not just condoned by praised.

Wall Street created a culture of lies and deception. A culture that fueled bubbles and made some people incredibly rich. Wall Street became an engine for shifting wealth instead of creating wealth.

Steering by quarterly earnings is bad business. Even kids know as much. It also ignores most duties an ethical business has. The Wall Street money men said to management: "Your fiduciary duty is to shareholders only and shareholders only care about revenues. Never mind laying off workers, as long as it helps the bottom line. Never mind uprooting communities, as long as profits soar." That was false and dishonest. That was not what the owners (the public) wanted.

Wall Street had the owners in its pockets though. By promising them ever greater returns they preyed on the greed of the ignorant. The financial "engineers" lured companies into their bubble game by forcing them to take on more debt. More debt not only made companies more dependent on financiers, it also generated commissions and fees everywhere. In return, Wall Street rewarded such mismanaged companies with higher share prices. They did so by talking up their prospects. They knew this could not last, but they were happy to cash in on fees while it lasted.

Well run companies, with responsible management that refused to take on excessive debt and make outrageous claims were punished. Their stock prices floundered, their managers were put down, their practices were called outdated. Their P/E went to 1.0. In many cases, eager young financial minds engineered hostile take-overs. Like buccaneers they could not wait to board the ship, fill their pockets, and lay the rest to waste.

We, the American public let it all happen. Because we were greedy. Because we got to have more microwaves, more TVs, more refrigerators, and bigger cars. We ignored the plight of so many who were robbed blind, because our 401K's were flying high. Hot air lifts all bubbles. 

Unfortunately the party can't last. No Ponzi scheme can run forever. And the higher one flies the harder the crash.

ponzi in the open

I have to say, the P-word is becoming quite popular. First regulators uncovered "super-genius" investor and all time star Madoff, who practiced the "pure" form of this art. That was followed by a long series of articles, some of which went to great lengths to explain to people what Ponzi schemes are and how they work.

Then today, Nobel Laureate Krugman went a step further and called our beloved financial system a Ponzi scheme. He went about it in a very systematic way and pointed out why this is so. He then highlighted how Mr. Madoff fit into this picture. He showed how others did exactly what Madoff had done but with a few extra steps. It can't get any more basic than this. 

And there you have it folks, from a true expert, something I have been saying all along: our Western financial system is a Ponzi scheme.

Guess what, we just authorized our government to pump $700 billion into that system to make sure it survives. Because, as W would say, it is fundamentally a "good" system and we want to keep it around. There were just a few rotten apples and we should not throw out the baby with the bath water, as the old cliche goes.

Unfortunately, reality is a bit different. The system apparently is rotten to the core and maybe there are a few unspoiled apples, and perhaps many apples that look OK but are really rotten inside, who knows?

The more we find out the more America in the 21st Century starts looking like Rome in the 3rd century. And we all known what happened there next.

deflation is happening right now

You know how it always takes a year or more before officials declare we are in a recession? No doubt they hope the recession will be over before they admit to it so they never have to acknowledge its existence, except in retrospect. While the country is suffering, everyone keeps on repeating, "we may be in a recession, if this keeps going, we will end up in a recession, the fears of recession run high, etc., etc."

Well, this time around there is no such quibbling. The current "recession"  has been confirmed. Furthermore, we have heard it has already lasted over a year. But does that mean officials are reverting to straight talk? Dream on.

First of all, we are NOT in a recession, we are in a depression. How long will it take before someone is willing to state that obvious fact? We are just reading the same evasive sentences with a different noun. "People fear the recession may give way to depression, there is a chance of depression, the likelihood of depression goes up, if the economy continues to slip, we may enter a depression, blah, blah."

Next, deflation is for real too. We are, right now and at this very time, experiencing deflation. We are not "in danger of, slipping into, fearful of, etc," deflation is here and it is here NOW. Everybody knows prices are going down instead of up. Everybody is expecting and waiting for them to drop further. Just try to sell something and you will see. 

Normally selling something around christmas is the easiest thing in the world. People are in buying mode at this time of year. You can sell ice to the eskimos at christmas. Not so in 2008. Not so unless you are willing to discount the hell out of things and give freebies on top of it.

Nobody in their right mind will pay full price for anything anymore. Nobody will buy items that are on sale if "on sale" means a meager 10-20% off. People expect prices to be AT LEAST 30% off and I won't buy anything unless it is 50% off. Neither should you, unless you are tired of your money.

That is deflation. Serious deflation!

Even the government's own figures show deflation is real. After extensive data massaging to make something look good, all officials can come up with is an inflation rate of 0.1% (0.2% for the optimists). But anything less than 1% inflation is de facto deflation. 

You heard it here. Look around, it is there for everyone to see. Prices are dropping like bricks from the sky.

Meanwhile, the Fed is expected to lower interest rates to 0.5%. Big deal. Last week they sold treasuries at 0%, a guaranteed loss after expenses. Investors are willing to lend Uncle Sam money for free. They are willing to pay Uncle Sam to lend money to him!

And guess what? The offering was FOUR TIMES oversubscribed. That, my dear friends, is called deflation !

the crisis explained-without equations or buzz words

The current economic crisis is easy enough to understand. There is no need for fancy (or at least fancy-looking) equations or buzz words such as "the liquidity trap." It is quite simple and also easy to see why it has not hit bottom yet and will continue for a long time to come.

It all started with housing. The bubble burst. Too many people had bought houses they could not afford, or houses they never intended to live in but were going to "flip" for a quick profit, or extra houses they did not need. More people had refinanced their existing homes to cash out equity and spend it on frivolous things that they did not need.

The whole financial system went along with this, happily making money. As time went on, the finance guys got bolder and bolder, inventing ever more creative ways to get commissions and reap benefits. They lured developers, builders, appraisers, land speculators and others into their game. Everyone was getting drunk with success, and the more drunk they got, the more risky and borderline their moves became. Quite a few stepped over the line too.

The financiers also snared local and foreign investors with complex financial arrangements. Soon enough the insurers found ways to participate as well.

Each step along the way, everyone added some leverage. More and more hot air entered the bubble. Eventually it burst. It burst with a loud pop, but because it was so large and convoluted and had some many compartments, it is still popping left and right and leaking excess as we speak. In fact there are many parts of it that are still hyperinflated and have not felt the inevitable pop yet.

Now we have many folks who lost their homes. A significant number of them counted on their home, not just to live in, but to fund their retirement and their children's education. On top of it all, many of these people also lost what meager savings they had in their retirement accounts.

Huge numbers are "underwater" with their mortgages. They owe more than their house is worth. Even if they stay put, they perceive a huge loss and many of them too counted on their home to pay for future expenses.

Everybody lost big in their retirement savings. With so many baby boomers close to retirement and therefore unable to recover easily, the trouble and the fear are widespread. 

With the loss of retirement people think they will need to work longer. But jobs are disappearing too. Even those with jobs today, face uncertainty. Those who lost their job are close to despair. Nearly everyone is without savings to fall back on so the fear of joblessness is truly paralyzing for many.

Meanwhile credit has dried up. Faced with huge losses, complicated financial instruments that are incomprehensible and likely worthless, widespread fraud, and a poor economy, nobody is willing to lend money anymore. All cash influxes are immediately earmarked to fill the black hole of losses or perceived losses and no amount of cash influx increases the appetite to lend or to spend. All the money the government doles out disappears in a black hole.

Consumers refrain from replacing items that work. They postpone expenditures, they forgo luxuries or anything that is not necessary. They cancel trips and vacations. Many make deep cuts that may even include seeking medical help. They are in survival mode. All cash provided to them is immediately sucked into their own personal black hole.

Meanwhile there is excess inventory. There are too many houses and more appear every day. Prices crater, causing more problems for those with mortgages trying to survive. There are no buyers. Nobody is in the mood to think long term. Few have money to spend, some want to wait because they think prices will fall further and a lot are cut out because there is no credit even for those with good scores.

There is also excess inventory in other goods, including non-durables. All these were produced and are produced based on projections that are now far too optimistic. Inventories grow and companies slash prices and start layoffs. That further reduces the buyer pool and leads to expectations of more price drops.

Consumers are no longer interested in discretionary spending. They are no longer into bargains. They are in survival mode. Other things are no longer in their minds. They are deaf to the siren call of advertisers. They are saving and looking to save more.

New investment is halted because nobody wants to consider it. There are no buyers, and even the dreamers have ceased to dream. Nobody wants to focus on the long haul when they fear near term disaster. People dying of thirst in the desert are immune to 80% discounts on clothing.

Additionally, bad memories linger much longer than good ones. So expect people to take a very long time to change their habits -even if they could, but most can't anyhow.

Welcome to the depression of 2008. I'll be surprised if it clears before 2015. As you can see, I am an optimist. It took over 10 years and a world war to resolve the 1930's depression. 

the implosion continues

Chinese exports dropped significantly in November. The magnitude shocked economists. Read about it in the New York Times today. See my other postings on China. This turned out to be an easy prediction.

It is also a further indication that the crisis is far from over. Seriously, the worst is yet to come. For those of you who think we reached bottom, think again. I also stick to my prediction of a Dow 6000. I don't see any improvement until at least mid-2010. Most economists believe things will turn around in mid-2009, but then again, they don't get paid to spread bad news. And economists have been wrong before. Recently, as a matter of fact.

global warming is not the problem..

and technology is not the answer.

Global warming is but one symptom of humans destroying their habitat. There are many other, equally disturbing conditions. Trash is building up, fisheries are disappearing, pollution is destroying water supplies, the list is endless. All these are due to one thing and one thing only, too many humans using too many resources too quickly. We are overgrowing our fish bowl.

The answer to these problems is quite simple: we need to cut back. We don't need new green technology, and we certainly don't need people trashing good stuff just to buy new energy efficient gadgets. We need people to stop buying new things all the time.

That will mean our economy will contract. But that is a positive thing. There will be some pain of course, but it will be much less than the pain we will inflict upon ourselves if we keep going the way we are now. Driven by out-of-control consumerism.

Consumerism has several origins. As any species, we are opportunistic. When we have plenty we quickly expand to use it all. We expand by generating more offspring, but also by increasing our individual consumption. That is all fine but we are setting ourselves up for massive losses at a later time. No species can keep growing at the rate we are.

Spending is also deeply ingrained in our brains. It is key to reproductive success. It is "sexy" as some might say. Males spend to impress females. Females choose males who have plenty as that will enhance the chances for their offspring. Both sexes are involved in a never ending quest to consume more. Nobody is keeping an eye on the future.

Unfortunately, we are on a runaway course. We have very few enemies and nothing significant to trim our numbers, other than massive disasters. And massive disasters are in our future if we keep going. 

What form those disasters will take is anyone's guess. But they will surely happen and they will be of enormous magnitude. Just like housing prices can't keep going up forever, or the Dow can't stay on its hockey stick curve, human populations will not be able to keep up their present expansion. Serious and devastating cutbacks will happen. 

Unless we use our brains and voluntarily cut back. Don't count on it though!

thainted

Mr. Thain wants his $10 million bonus. Merrill's board is not too happy but I am sure they will eventually cave. After all he has been on the job almost a year, and he "saved" Merrill Lynch by selling it to Bank of America. He also made sure BoA will give him a job and in doing so he will no doubt get his "full" bonus a year from now, when all is calm and close scrutiny is a thing of the past.

Just exactly what did Mr Thain do that he "deserves" such a premium? Well, he happened to be in the right place at the right time. Next to a large pot of money that is. In the overall scheme of these things, his mere $10 million looks small and puny. In the eyes of those losing their jobs it probably looks a bit different.

But the true touch of genius was to sell and make sure he got a good deal for himself at BoA. So you could argue, maybe he does deserve his exorbitant pay after all?

The trouble with excessive pay packages is that they only make people more greedy. They only encourage them to line their pockets even more. The pay, which is meant to encourage the executive to do the right thing is corrupting him or her. Just like absolute power absolutely corrupts, excessive pay leads to excessive greed and excessive self-interest.

Detroit green (and red)

Cadillac just introduced its version of a green car. The Escalade hybrid, a $72,865 monster with a 6.0 liter, V8 engine. Its gas mileage rating is 20/21 mpg. Even the Wall Street Journal thinks the monster is so overloaded with junk that its gas mileage suffers. That should tell you something.

Chrysler too, launched its solution to greenhouse gases. The 2009 Aspen Hybrid 4WD. At $45,570 it is a whole lot cheaper than the Cadillac shoebox, but energy wise, it is a serious competitor. It has a 5.7 liter V8, that gets an amazing 20/22 rating.

You should know that hybrid technology is really a hoax. See some of my earlier postings for more on that. Nevertheless, most hybrid makers do try to save gas in some ways and that is helpful. So hats off to Toyota!

Detroit on the other hand does not even try. And that is why we should let the go out of business. We, the taxpayers should say no to the whiners from Michigan.

Here is failure number one about to happen, for the Democrats and the Obama team. Most likely they will decide they need to save the car makers. Not because it makes any sense whatsoever, but because their constituents and donors at UAW will force their hand. Saving the "big three" is a dumb thing to do, even from a purely economic point of view.  But for Obama, who made energy policy and climate change a big campaign issue, it is a litmus test. Even in these dire economic times, he should stand firm. Especially now.

He should stand firm because climate change is real and it will cost real jobs. There are no two ways about it. It will cause pain and suffering, and if Obama or anyone else for that matter, can't do it in a situation were it makes economic sense, what can we expect in other situations?

The sad truth is that Obama raised a record $750 million to win this campaign. While this is universally praised and admired, it is a setback of unheard of proportions. Not to be too cynical and call it a shame.

So, get ready for step one in the grand dance of paybacks. Saving dinosaurs who day in and day out prove to us that they deserve to go under.

When Cadillac disappears from the face of the planet, it will be a great day for all.

adult(erated) living

There is an article in today's WSJ about "adult living communities." This crazy idea, thought up by a fellow called Del Webb, attracted many well-off baby boomers, who envisioned an "active" retirement life-style. Active but without noisy children or misbehaving teens. In short, an artificial consumer-oriented life-style that is foreign to the human condition.

These aging baby-boomers wanted to be safe and isolated in their gated communities. Ensconced in their fairway villas and green lawns. Far away from the nuisances of life, they would devote their golden years to playing dominoes and golf with like minded friends. Unfortunately the financial crisis caught up with them. Maybe they don't realize it is a good thing. Bring some new life in the game before their graveyard hideaway becomes just that.

Now they are forced to admit younger residents to help pay the bills. But with younger residents come children, teens, and young adults. Oh horror of horrors !

It is not just the aging adults in their protective cocoons who are complaining. Cities too are unhappy because now they will have to provide services like schools, etc. That cuts into their profits. In some cases, cities had granted tax breaks to the adult communities. Adding services that are unpaid for is not to their liking. However, it is not the profit and loss that strikes me as odd. Surely people will find a way to handle all that. 

It is the very (sick) notion that drives people away from one another into secluded hiding with like minded individuals. Sadly enough, for seniors such an idyllic hideaway slowly decays in synch with their aging bodies. Soon enough they won't leave their homes. With nothing to watch except other aging creatures stumbling around on artificially green links, life will seem desperate indeed. I am not sure it is that much better than looking at an abandoned construction site. 

Why these people want to depart the real world in order to cling to a virtual reality is beyond me. It is all part of consumerism I guess.

Essay

Roger Howard, the author of "The Oil Hunters: Exploration and Espionage in the Middle East," wrote an essay in the Sat/Sun WSJ. It is entitled "An Ode to Oil." It displays some fascinating reasoning. The essence is quite simple.

We, in America, are addicted to oil. But we also hold the technology to find more oil in these difficult times. Difficult because all the "easy" oil is gone and most of the existing fields are past their peak. Also difficult because the countries where those fields are,  those countries that lived of oil revenues have prospered for a long time and their populations have surged and now they need more dollars and more oil to keep feeding their own habits. 

That is one thing about oil, the suppliers are addicts too. Actually everyone is an addict including the pushers, who are the executives and investors of the big oil companies. These guys are mostly American. They hold the key to the technology. But I digress.

Let's go back to the argument. Howard says we are addicted and the suppliers need our technology to keep supplying us. They need to keep supplying us because otherwise they will starve. And that will be worse now than a few decades ago, because all this time they have benefited and now they have many more mouths to feed. Ergo, oil can be a stabilizing, peace-bringing force. Did you get that last part?

What Howard really means is we own the technology and we are the buyers so we are in the driver's seat. Our dependency is our strength. And since we are, by definition, the only and all that is good in the world, our strength means oil is the great pacifier of the 21st century. Everybody will have to listen to us -and by definition again, that is good, so he really says, everybody will have to be peaceful and happy.

Nil nove sub sole.

setback or progress?

It is now quite common to read stories about how the recession will roll back environmental rules and regulations. How the need to create jobs and keep the economy going will put environmental incentives on the back burner. How we will lose years of gains in a matter of months. How efficiency will suffer.

These stories are often found in publications such as the WSJ, Forbes, the Economist, and others that otherwise show little or no concern for environmental regulation. Not to be totally cynical and say that these publications often oppose pro-environment rules or promote rollbacks of such rules and regulations. How come these anti-environmental publications are suddenly so worried about green?

I think what these people are trying to tell us is that a thriving economy is good for the environment. That success lifts all boats. That we should work hard to keep the economy going so we can protect the environment. Remember, the more you buy the more you save. You can drink the kool-aid too.

I have previously remarked on how easy it is to attach a label of environmentalist to oneself. However, true environmentalism means less consumption. No new houses, no new cars, hybrid or otherwise, no thrashing perfectly good items to replace them with newer gadgets, no shopping at WalMart or anywhere else for that matter.

True environmentalism means going on a walk in nature on Black Friday. Turning off you TV instead of buying a flat screen. No driving to the mall and no bargain hunting. It has nothing to do with CFL's, hybrids, or efficiency. Efficiency does not matter to the environment. Absolute values are the only ones that matter.

Every item you buy to replace an older but functional item is a vote for environmental destruction.

Remember that none of the so-called environmental regulations has had much effect. Efficiency gains in gas and oil have been more than offset by increased travel, more driving, and larger homes. I could go on forever. The upshot is that these measures don't matter and their roll back or abolition does not matter either.

Reality is that economic slow downs are good for the environment because they reduce consumption. People spend less. They drive less. They stay home. They eat at home. Those are the only things that matter. Less consumption, less waste.

the P word

There is one word that is probably more upsetting to US policy makers than the trio, recession, depression and deflation. That is the P-word, or Ponzi-scheme. The reason why is that while recessions, depressions, and deflation are serious to very serious, these conditions are not seen as criminal. Ponzi schemes are. In a Ponzi scheme money is taken from the masses and funneled into the pockets of a few. Ponzi schemes grow quickly based on deception, and when they inevitably collapse, they leave many victims in their wake.

When George W. went out repeatedly to tell the world that US style capitalism and the free markets are basically wonderful and should not be discarded, he is in essence saying our economy is legitimate. Our financial systems are legitimate. They are not there to make some people rich by deceiving everyone else. They actually do create wealth. It is not a Ponzi scheme. 

Unfortunately, our current financial system is a Ponzi scheme. It does not create wealth as much as shifting it from the poor to the very rich. While most of the victims are in other countries, ordinary Americans were not ignored in this latest crisis. 

Our financial system did deceive people and it did so on a grand scale. During the 90's it valued companies with no revenues higher than some of the world's most profitable and solid corporations. In the 21st century it valued essentially worthless housing in the remote desert areas at top location rates.

Additionally, the system introduced leverage at every level. Worthless houses were overvalued by 10 fold, and these mortgages were then wrapped in securities with another 10 fold markup. Securities that were then repackaged in derivatives with yet another order of magnitude markup, and bought with borrowed money to introduce yet another order of magnitude of leverage. In the end, less than 1/100th of 1% of what was sold was backed up by reality. 

All along the way people were deceived. Deceived into believing that their house was worth more than it was. That they could pay for it with money they did not have, because it was only going to up in value and they would flip it and cash out big. Investors were told these securities were solid, backed up by ever-more valuable real estate. It goes on and on.

It was a Ponzi scheme of the vilest kind.

And while you may think this is an extremist view, I am glad to see that the most recent Nobel Laureate in Economics thinks so too. He is a man who knows.

Here is Paul Krugman, commenting on the tech bubble and the housing bubble that followed:

"Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?" 

Needless to say our financial system needs a major overhaul. It is not a legitimate system in any sense of the word. Not in its current implementation.

thanksgiving

It is that time of year again. Time for the harvest festival of plenty. Only this time around there isn't as much plenty as there once was. Although the dramatic reduction everyone talks about is rather minor. Numbers like a 0.5% contraction in GDP or a 2% drop in spending may worry economists and politicians but it is not the end of the world (yet). I am afraid we will have to be prepared for a lot more if we want to create a sustainable environment.

There is some good news. Holiday travel will be less than last year. Probably by some minuscule number, but a small percentage here is huge in absolute carbon terms. Unfortunately gas prices cratered right before the holiday. The drug pushers at Exxon-Mobil, Chevron, and Conoco-Phillips probably realized that it was now or never. Better make sure the "stuff" is cheap when a big consumption blob is expected.

Furthermore, many predict that retail sales will be dismal. Likely another reduction by a percentage point or two, but all little bits help. The less we consume, the less we damage the environment. The end-of-year shopping season is a hugely wasteful activity. It is a time when people buy useless trinkets that they give to family and friends, who are then left with having to throw these items in the trash when nobody watches. But it doesn't stop there. The useless trinkets are packaged in tons of paper and accompanied by well-wishing cards, ribbons, and other solid waste. 

If you want to be an environmentalist this holiday season, give nothing and ask for nothing except hugs and kisses. Don't replace your TV, turn it off instead. Don't buy the latest PDA or cellphone gadget, and vow to keep your car for a couple more years. Forget the bargains. Much, much better bargains are on the way if the depression keeps unfolding the way it currently is.

The sad news is that holiday activity supports people's lifestyle. Many in the country are employed directly or indirectly by consumer retail. Our economy depends on it for almost 3/4's of its value. A huge knickknack-to-trash churning machine it is and we need to turn if off. That means that there will be plenty of pain to go around.

This thanksgiving, let's give thanks for the things that really matter. Friends, family, and the reduction of wasteful consumption.

we're going to six

The Dow went down in the 7,000 range today. Just as I predicted a while ago. And we are not done yet. I am sure we will go into the 6,000's before long. I also think the threat of deflation is now very real. The administration keeps on saying the chances are low, but they also said the American economy was fundamentally sound. I think it is fundamentally flawed.

They also said a lot of other things that make no sense, like housing prices always go up, and any housing market is local, and we may go into a recession -we already are-, and we should invade Iraq, and they have WMD's. Fortunately the administration is on its way out. The new one promised change and we will give it the benefit of the doubt, at least for now. Don't hold your breath though, you might suffocate.

Believe it or not, but what is happening in the market is good news. I say that even though my savings and retirement accounts are losing money like leaky sieves. I am somewhat worried too, but ultimately I see it as a sacrifice for the common good.

We are going to become more frugal and any sane environmentalist needs to applaud such a move. Unfortunately, in an economy that relies on consumer spending, that means great and widespread pain is inevitable. But the end result can be a good thing. It's a bit like giving birth. It hurts but in the end it is worth it. 

What we need now is for someone to step in and raise gas prices. I know many of you think I am crazy for saying this, but it is necessary. Like a cigarette tax, we need to get people away from gas and energy waste. The sooner we do so the better. I hope -but doubt- that Obama has the guts.

solar misconception

Today's WSJ has a special section on Energy. It starts with an article on our addiction to oil and what, if anything we should do about it. Then some about better batteries, and so on. Not much new there. However, what caught my eye was an article entitled:"Consumers as Producers." It discusses solar energy and whether people who install solar cells and supply power to the grid should be paid, and if so, at what rate.

Various arguments can be made in favor of, or against reimbursing customers. The article goes through all of them, highlighting the various pros and cons. It has no conclusion, other than to say, it is too early to tell. Because, in true WSJ fashion, the free market has to decide what works best. What "works best" means who gets to install the most solar cells. I.e. who consumes the most.

I am sorry but the article totally misses the point. The point being that people should use less energy. They should conserve energy. That should be the primary motivation: to use less of whatever energy it is they use. Instead we are once again seeing the opposite knee jerk reaction. Homeowners who want to produce energy to get paid, others who want solar so they can use more energy without having to pay, still others who go on use more to spite the utility that won't pay them for the extra juice they produce, etc. etc.

Earlier I told a story of a neighbor who installed solar panels so he could run the AC and the heater simultaneously. He wanted to use more power but did not want to pay the high rates. On top of it, he sincerely believed he was doing something good for the planet and even wrote an essay in a Segway contest on how he was environmentally aware. Guess what, he won the Segway too. So now he can use solar energy to drive his Segway instead of walking!

What we need to realize is that we use too much energy. We Americans use twice as much energy as rich Europeans -and they use too much to begin with. We need to use less. All energy use is polluting and there is no such thing as clean energy.

Unfortunately, the only remedy appears to be high prices. It is a solution nobody likes but it is the only one that works. We will need to tax ourselves heavily lest we pollute ourselves out of existence.

what change?

It is easy to talk about change. Much easier than making it happen. There is an old Roman proverb that reads, nil nove sub sole. Although 2,000 years old, it is as relevant today as it was when first written. The truth is that over those 2,000 years very little has changed. So little in fact that if we were to magically resurrect the Romans -like the dinosaurs in Jurassic Park- they would not find it very hard to comprehend or adapt to our society.

Sure, they might be in awe when they first see airplanes, cars, cell phones and TV's. But that would not last too long. The Roman elite would quickly grasp how to use these modern tools to further their ancient goals of domination and control. Despite the new toys the basic concepts are unchanged. 

The Romans knew a highway infrastructure was important in ruling the empire. So they built one, and a rather high quality one too. Many of the Roman roads are functional today. How is that for infrastructure? Roman roads can rival American bridges. It is not a big step to go from wagons to semi's. I am sure the Roman architects fantasized about these in any case. It would be no shock to them to see their fantasies become reality.

When it comes to change, take a closer look to see history in action. The people overseeing and administering the financial bail-out and rescue plans are the same people that got us in the mess in the first place. The CEOs of failed companies are now heading the government panels overseeing the rescue operations. The politicians, lobbyists and pundits of yesterday are staffing the new administration. The same very rich are financing it all. Every cycle these guys put in more money and every cycle the elected officials become more beholden to the powers that be. It would not be surprising if we, like Rome, suddenly changed our system to a dictatorship with emperors.

Sure, there are slight shifts every few years. One cycle the more conservative and hawkish members hold sway and then the more moderate and liberal ones take over. But they are all part of the same club. The same families and dynasties that ruled our country in the past century are still at the helm today. Only a few of the old guard have fallen by the wayside due to unfortunate events, and a few new ones have joined. In essence the rulers are the same. So are the rules.

We will inaugurate a black president, but the color of money stays as green as ever. Only the face on the stamps changes. We have a new actor for an entrenched role. A fresh face to sell the same old message.

the dreaded R-word

It is always ironic to see how nobody wants to admit that we are in a recession. Everyone stubbornly keeps on repeating: less consumer spending may lead to a recession, the economy may be entering a recession, these events raise the probability of a recession, etc. etc. All the while hoping that by the time it is all confirmed the recession will be over. That way one never has to say the dreaded R-word. 

This time around though there is "help" from another source. It is not the type of "help" we all hope for but it is there nonetheless. We will never have to admit that we are in a recession because by the time we finally capitulate, we will be in a deep depression. That is right folks, we are entering a depression. Take it from George Soros for confirmation. He said as much in testimony to Congress today.

Since most of us are not old enough to remember a real depression, we can all be a little aloof or smug about it. It sounds bad, but it is hard to imagine that things will really get that bad now. Surely things will get better soon. Maybe Obama will save us?

I suspect "reported" unemployment may go as high as 12-15%. The real unemployment will be more like 20-25%. I also think the risk of deflation is now very high. An informal sort of deflation is already happening and luxury goods are routinely sold for 20-30% less than "manufacturer's suggested retail prices," or MSRP. 

The WSJ had an article today highlighting this phenomenon. It had an upbeat title announcing bargains to be had. But pretty soon those $80 designer jeans (down from $200+ MSRP) will remain on racks.

The poor can't afford them, pretty soon the middle class won't want to spend this much either, and the rich will have to "hide" lest they become victims of jean-jacking.

On another note, George W. went on record defending free trade. There, now you know free trade is in trouble. Once George W. has to take up its cause, the end is near. The free market is now on par with success in Iraq. We're turning the corner folks. Just hold on for a while longer.

abundance

You could ask, why are we so wasteful? Why do we use so much energy? The straightforward answer is because we can. We have found cheap energy sources such as coal, natural gas, and oil and we know how to use these quickly and efficiently. We are victims of our success.

When we say cheap, we mean it is cheap to exploit these sources. We conveniently ignore the (huge) hidden costs of mining, transporting, and burning those fuels. These hidden costs include habitat destruction, resource depletion, pollution, and global warming. 

The overconsumption is somewhat of a vicious circle. Because we have all this cheap energy, we managed to industrialize food production which in turn led to more people wasting more. In 1940, one farmer could feed only 19 people. Today, one farmer can feed 129 people. The difference is due to extra vehicles, more mechanized equipment, energy consuming irrigation systems, and petroleum derived fertilizers and pesticides. We have also developed ways to transport food over long distances. That includes extra energy consumption caused by necessary refrigeration.

The large efficiency gain has resulted in an extra 110 individuals (per food producer) that don't need to bother growing food. These individuals can engage in other activities. Other activities that are wasting more energy. An elaborate services economy was created that recently surpassed food production and other basic necessities in number of participants.

Unfortunately it will only go on like this until the bubble bursts. And burst it will because our current economy is unsustainable. Ever more people are born and need to be fed with ever fewer resources. The hidden costs are also catching up with us, both indirectly by making less land and water available, and directly by making us sick.

A logical solution would be voluntary cutbacks and rationing. Despite our great "intelligence," it appears we'd rather go bust.

ticking time bombs

You may wonder why do people not spend? Why are American consumers capitulating? 

Let me first say that this may be bad news in the short to medium term, especially given the fact that our economy depends on consumer spending, but in the long run this is exactly what we need: less spending, less consumption, more savings.

Right now though, it is painful, and believe me, it will get much more painful soon enough.

The word on the street is that the American consumer has stopped spending because of the uncertain economic outlook and the uncertain labor market.  But we have been through recessions before and we have dealt with job losses and high unemployment before. But that did not stop consumers from spending. In some instances, we appear -appear is the right word- to have spent our way out of a recession. So what is different now?

What is happening is that there are a whole group of people who seem to be doing fine and who are making payments on their loans, but who can see foreclosure coming. Like deer in the headlights of an oncoming truck, these consumers are paralyzed. And as surely as the deer, they are about to get run over. The only difference is that they are not only paralyzed, they can't move even if they wanted to. They are sitting on a ticking time bomb.

We are talking about the households with interest-only, and pay-as-you-go ARMs. The folks whose mortgages are negatively amortized. The people who are in for a whopping reset. A reset that will start happening soon.

The vast majority of these folks live in Arizona, California, Florida, Nevada, and other states already hard hit by the current crisis. So far, they are still making payments because their loans haven't reset yet. They are the invisible problem. As time goes by, they are also increasingly underwater, meaning they owe more than their house is worth. 

There are two forces at work here. As prices drop, more of them go under, and as time goes by their principal grows -because they pay less than is needed. These folks are terrified and they stopped buying. They are hoping for a bail-out. They are holding on for as long as they can. They are selling assets to survive. They are further depressing prices.

We are entering a vicious circle. Actually we are already in, but there is still time for a fix. That time however is running out. Another time-bomb is waiting in the wings. It is called the Christmas shopping season. It is what retailers depend on for 25%-50% of their annual income. It promises to be a major disaster. Given how many people's livelihoods depend on retail that means a big jump in unemployment around New Year. More unpaid mortgages will result. Even people who have fixed rate loans and are able to make payments and who have good credit will now be affected.

The result is a third time-bomb to start ticking. It is the investor time bomb. At some point investors will capitulate too. They will panic, or they will need the money in their meager savings and 401k's to survive. That will cause the market to fall further. Previously I mentioned a Dow at 7000. Now I am projecting 6000. It seems all but inevitable.

energy

A great quote from Vaclav Smil in a NYT blog: 

The new president needs to "Explain to the nation that the Americans, who consume twice as much energy per capita as rich Europeans (and have nothing to show for it, as they are not richer, do not live longer, are not better educated and do not work less) should embark on a long road of trying to live within some sensible limits, which means less and not more."

A great truth that does not just apply to energy and the environment, but also to our financial crisis. We are living without limits and it is not a happy life. It is an isolated life where our well being is constantly threatened by outside forces. We may lose our job, our health care, our status. Our neighbors may outdo us and make us feel inadequate by having a bigger house, a wider TV screen, a greener lawn, a bulkier car, or what have you. They unsettle us by going on longer and more expensive trips, making us feel small and irrelevant.

It is a life-style driven by inane consumerism that does nobody any good. Endlessly churning through stuff, we need more oil, more water, more materials than any other country in the world. 

Our endless pursuit for more stuff leaves us constantly in need of more. As soon as we get something we quickly trash it (up to 90% of the items bought end up in the trash within 6 months) and go look for other -even better- stuff. We want to be movers-and-shakers, having access to the latest must-have gadget, only to replace it by another must-have gadget within 6 months, like rats endlessly pressing levers to get more drug.

We isolate ourselves in ever bigger houses, with our own bedrooms, bathrooms, living spaces,TV sets, stereos, etc. Constantly putting up barriers and removing ourselves from others. We are addicted to cell phones, iPods, and other devices that interrupt our social lives, isolate us acoustically, and attention-wise from the world around us. Nothing like going to lunch with someone who spends the entire time talking to others on their cell phone. And why? To show us how indispensable they really are? Is that the idea? To invite us so they can show us how important they are?

Wake up America, ditch your car, your TV, your iPod, your cell phone, and all that other isolating, energy wasting junk that clutters up your lives. Go on a walk and talk to your friends.

america turns blue

It is a historic election. The first African American president in US history. Everyone is elated, both here and abroad. Maybe the people outside the US even more so than we are. They finally see an opening after eight years of bullying, non-cooperation, pre-emptive strikes, and other destabilizing mayhem. They hope the US will take a leadership role once again, instead of being a stick-in-the-mud aggressor.

At home though, the euphoria will quickly die out. I doubt that there will be a honey moon period. America may have turned blue, but it is also singing the blues. Already the stock market brushed off the good news and turned to the sagging economy. There was more bad news from China too. Car makers who had hoped China would rescue them are bracing themselves for more bad news.

Good morning America! Maybe we are sexist but at least we seem to have dispelled the notion of racism. One tiny step for (a) man...

scenario number one

On January 9th, 2008, I went on record predicting one of three possible outcomes to the "Chinese miracle." It appears scenario #1, a Chinese implosion is starting to materialize. Today's Washington Post article, "As China's Losses Mount, Confidence Turns to Fear," implies as much. Somewhat ironically, and just to show you that predicting the future is problematic for all, China's implosion is not just due to it choking on growth, although that growth played a key role. It turns out the Western depression -recession is too mild a word- is the proximate cause.

Although I wrote that "if we somehow started consuming less," and called it "unlikely to the point of being ridiculous," it did in fact happen. We are consuming less. Not by choice mind you, but because we overspent so wildly for so long that we could no longer pretend business as usual. We can no longer pay our bills, let alone buy stuff from China.

Now China, having grown so crazily to supply us and the rest of the world with goodies, finds itself suffering from a very nasty hang-over. It has built factories, supply chains, infrastructure, etc. to produce useless junk that people suddenly no longer want to buy.

Add in the many scandals of tainted toys, tainted toothpaste, and tainted food and you can see that a long downhill slide is very likely. That too, won't be pretty.

a billion dollars later

We are in the home stretch. After raising over a billion dollars -who said there is a financial crisis?- voters will finally cast their ballots. Actually, many already have, so really what November 4 means is that we will finally know who they voted for. But that too we already know, so where is the news? There are more news-men (and women) than news.

It appears Obama will win this "historic" election. What makes it historic is surely the amount of money spent on it. That is $1 billion change you can believe in. Not small change either. As for the other change, we'll wait and see but don't hold your breath. What seems most likely is a lot of quiet backtracking and a ton of well worded and aptly delivered excuses. Why?

Because fundamentally people don't change. What we Americans really want is to keep living it up forever and then some. We want to spend more, burn more gas, buy more items, consume more. What we really want is (much) more of the same. The change has been all around us. The world has changed. The excesses of the past have come back to haunt us. The houses, trucks, boats, vacations, etc. that we could not afford. Now we want to change it all back.

Unfortunately, it is time to pay the piper. Not because of eight years of lack of oversight or trickle down, or anything like it. It is a quarter century or more of living beyond our means that is coming to get us. Twenty five plus years of the "American dream." Consumption that is about to consume us.

Let us go back to $1 gas, back to V8 trucks with leather seats and cup holders,  back to McMansions, back to cruises and other wild vacations. Back to the times of plenty. If only George Bush hadn't destroyed all our fun. But did he? For all the blame and and the low poll numbers, George W. did very little. Even his pal Cheney did very little other than make his friends tons of money, shoot his hunting buddies, drink too much, and fuel his ambitions of Stalin-like world domination. But we knew Stalin, and you Mr. Cheney are no Stalin!

The magic has not ended. Now, Mr. Obama will levy a carbon tax without raising gas prices, get universal health care without raising taxes, fix education so everyone can go to Harvard, give the middle class a break paid for by the very rich -who will probably abscond to the tax havens in the Caribbean or Bermuda- all while fighting what is probably a decade long depression, a quagmire in the Middle East, and  a  few many-trillion-dollar deficits. 

Not that McCain would do any better. He might have been more fun to watch, though. Sadly, what we really should have done is save that billion dollars for the many rainy days ahead.

the return of the gas guzzlers and more waste

Unfortunately, gas prices have dipped considerably in the past few months. That has people "changing" their driving habits again. Some psychologists and other luminaries, who probably never heard of addiction before, had already been wondering if Americans had truly changed their minds on driving. Give me a break ! There is no way people could change these habits even if they wanted to. They are addicts. 

All summer long they were like smokers sitting through a long flight, eager to light up as soon as they got off the plane. Now that they are on safe ground again, they are fuming like the old smokestack.

Today we read that Ford has recalled 1,000 workers to build more F-150's next year. The F-150 is one of those gas-guzzling monster pickups that people had been craving but were forced to hold off on because of the $4 a gallon gas prices. Now Ford is convinced there is pent-up demand "from business users who need it for their jobs." Seriously, that is what they said. If you believe that you believe in Santa Claus too. It is the season after all.

F-150's are largely bought by people who don't need a truck but who have an intense desire to show off in public. People who are no doubt very insecure and have wet dreams about Rambo at night. I don't doubt that there are a few small businesses who legitimately need a truck but one look at the F-150 will tell you that this truck was not designed for that crowd. The F-150 is designed for the average commuter who wants to tell other commuters, look at me, I am powerful.

Needless to say this is another dumb decision. Gas prices are sure to go up again as soon as people start driving again. Now is not the time to load up on cars that will soon have to be abandoned because you hate the $100+ fill-up at the pump.

Unfortunately, our great politicians missed another chance to do something smart and to prevent future headaches. If the government is going to give money to Ford, they should at least tell them to stop making these types of vehicles.

Meanwhile, the bankers on Wall Street are going to pay $40 billion in bonuses, fees, pensions and other goodies to their "hard-working" executives. That is more than they will pay for all their other workers combined. And guess where they will get the money? Bail-out? BINGO. You said it!!

footprints

For a while now you have heard talk about your carbon footprint. Maybe the British oil company "beyond" petroleum told you about it. They did that so you would think they were the good guys and keep buying their gas. Besides, drug dealers can tell addicts anything they like about their drugs, it really does not matter. Addicts have what is called inelastic demand. They want their fix no matter what you tell them about the benefits or drawbacks of the product.

Despite all the talk about carbon footprints, and other awareness building efforts relating to global warming, nothing much has happened other than ever increasing carbon shoe sizes. It has gotten to the point where most people are starting to feel numb, and many Republicans are already past that stage and full tilt into mockery as evidenced by their "drill baby" chants at the convention. Can you imagine the passengers of the Titanic singing, "sink baby, sink?"

Unfortunately, carbon footprints aren't the only trouble awaiting us. There is what the Global Footprint Network calls the ecological footprint. How big are our overall resource requirements? And the water footprint, how much water do we need per capita to live our lifestyles?

Needless to say that when it comes to footprints, North America, and especially the US are on top of the list. But the rest of the so-called Western World isn't far behind. China and India are also big players but mostly because they have so many people. 

Our current footprint exceeds what is available on the planet by nearly threefold. What that means is that if we just wanted to bring everybody up to our current level, we would need three planets to do it. Maybe all those people wanting to save the third world should think about that?

Our water footprint is similarly out of whack. Not only do we insist on pouring good water down our toilets everyday -so we can have toilets inside the house and won't have to freeze or be inconvenienced in the middle of the night. We also waste it on growing beef, cotton, and our other favorite drug, sugar.

In short, if we want to keep living happily ever after, we in the West will have to change our lifestyles quite a bit, and in the very near future too. Because most indices predict disastrous crashes before mid-century.

If you think this cannot possibly happen, just remember what they used to say about housing prices. Plain old common sense will tell you that nothing, absolutely nothing can keep going up forever. Think about that before you turn on your TV and drink the kool-aid.

numbers that matter

Forget about can-do spirit, yankee ingenuity, free markets, democracy, and other reasons often invoked to explain economic prosperity. Take a look at the real data. When Europeans arrived in North America, they found a continent that was virtually empty -it wasn't really but the diseases they imported quickly made that happen- full of goodies that the locals were unable to exploit.

North America was a continent where conditions were rather unfavorable for those living there, but very favorable for new intruders with more advanced technology. North America was by far the most favorable continent for exploitation. Africa, while closer to Europe, had too many nasty diseases and other competition, and even today Europeans have a hard time surviving in Africa. Australia, was simply too extreme and the landscape cannot support large numbers of people regardless of their technology.

Such geologic, ecologic, and other basic facts can explain most of the variability associated with a population's success or failure. This premise is not new, and Jared Diamond has based his best-selling novels, "Guns, germs, and steel," and "Collapse," on it. 

Population data can also be used on a smaller scale to explain otherwise curious events. The current economic downturn for example is mainly due to demographics. So was the preceding expansion and the series of bubbles that followed. But now things are changing. Here is some change you can believe in, my friends.

With an aging baby-boomer generation, and not enough young people to replace them, the economy of 21st century America is in for some serious downturns. The process has already started and it is very likely not going to end before 2025. There may be brief upswings, but overall the trend is down and down we go.

The baby-boomers grew up in good times. Their net worth is higher than that of their parents. They never experienced a serious downturn or a major war. Consequently, they did not save. With more money to spend, times were wild. Now those same baby-boomers are deeply in debt but they still have many years to live.

First they spent their cash, and then they borrowed more. All of it went into luxury goods, travel, McMansions, spas, V-8 cars, trucks, boats, jetskis, etc. Now those baby boomers are getting older. They can no longer afford their life-styles, either because they overspent or because their old age limits what they can do. There are excess oversized houses on the market and no buyers. The rush to monetize assets to cover debt is leading to a huge deflation of value. There are not enough young buyers and too many elderly owners.

It is a disaster that can be postponed, but ultimately the reckoning will come.

As for the current crisis, I stick to my prediction, made weeks ago, that the Dow won't hit bottom until we hit 7,000 or less. Despite a recent drop in gold prices, I still think gold is the best way to go to weather the upcoming storm.

follow the money and other tales

Those looking for change may be in for a surprise. If Barack Obama wins, which now seems all but certain, his successful fundraising may come to haunt his presidency. According to the latest numbers, Obama has raised well over $650 million and that is more than any other presidential candidate ever. And no, these are not the little $25 contributions coming in over the internet, as the party would want you to believe.

Fully three-quarters of Obama's fundraising is big money donations. Big, big money. The type of big money that is looking for favors. And who is there you may ask? How about those investment bankers in need of a government bailout and in fear of more regulation? Some of the people who got Wall Street into trouble may be advising McCain, but the people running those banks, the "greedy Wall Street bankers" are the ones filling Obama's coffers. Those same bankers were more than a little bit ticked off at McCain's language of late.

The GOP depends on two constituencies that have little in common: the fundamentalist christians, and the superrich elite. The elite provides the money, while the christians make up the bodies. McCain may be a maverick but he should know better than antagonize the money men. Sarah maybe delivering the christians but without the money it won't matter much. Those money men have already run over to the other side. They weren't too thrilled with all the talk about "cleaning out Wall Street."

What that also means is that Obama may soon do a Bill Clinton on that tax break for the middle class that will be funded by milking the superrich. We have heard all these promises before. All that talk about change is nothing new. The only thing that ever changes is the "face" in the White House. As I have indicated before, that face is just a face. An actor or puppet, beholden to the puppeteers who hold the money strings. It appears this will soon be more true than ever. $$$

sarah palin fan club

I've been thinking about starting a Sarah Palin fan club. Face it, Sarah is a star. Even those who don't like her have to admit that the Veep candidate has star power. Real star power. Her performance on SNL was a smash hit. Her rallies attract as much, if not more enthusiasm than the famous professor Obama. Never mind the dull Biden, or our hero McCain. They all pale in contrast to pale-in.

I think some people don't like Sarah because they are afraid of her success. But take a look at main street. How many politicians have a hairdo and glasses that have become a fashion in its own right? And how many have her lively personality? Sarah is a champion of the right without having to be Ann Coulterish. She is warm and charming. Well-liked. Not spewing venom -or if she is, she does it in such a nice way you don't even feel it.

No, I don't agree with everything Sarah Palin says. Actually I disagree with almost everything she promotes or believes in. But boy, what a trip she is. We haven't had this much fun in politics since.., well since.. I don't know when (maybe Arnold?)

carbon tax

With the upcoming presidential elections, some are worried, while  others think it is about time we should have a carbon tax to fight global warming. But what is a carbon tax other than higher gas prices? And we all know how well that went. Everybody is already rejoicing the fall in gas prices. As soon as gas hit a paltry $4 a gallon, Americans were crying foul.

I have said it many times. If we had just one politician worth his or her salt, they would be calling for $5 a gallon gas minimum. $10 would be much better. That is the best way to discourage wasting oil and gas. It is also the only way that works to reduce greenhouse gases. This past summer, driving was off almost 10%, airlines were cutting back flights, and conservation was on everyone's mind. Our greenhouse gas emissions showed a decline for the first time in 30 years.

Where are our politicians when you need them? At least McCain is open about it and has no trouble admitting he isn't serious. There is something to be said for honesty, even if it is honesty to pander to popular demand.

McCain wants to drill his way out of the "problem." Never mind that it won't work to reduce gas prices or to remove our dependence on foreign oil. What it does, is admit that we do not care more about greenhouse gases and global warming other than saying we do. If we did we would realize that high gas prices are the solution not the problem. If he did, Al Gore would move out of his 35 room mansion and go live in a sensible house.

Obama, the professor and self-proclaimed conservationist, just wants to increase fuel efficiency. We all know -or should know- how that works. It doesn't. Fuel efficiency has made enormous strides over the past 25-30 years, yet we keep on consuming more gas. Fuel efficiency just encourages people to drive bigger cars and drive more. It encourages car makers to load up cars like stuffed McMansions on wheels.

The "other" Obama remedy is technology of course. Green technology. Technology that will help us use more energy and produce less waste and pollution. Never mind the physics, my friends. If you demand it, the great Obama will show his magic and lead the way to greenhouse utopia.

By the way, it is shameful that candidates have now raised almost $1 billion to pay for their election campaign, while decrying the waste and greed on Wall Street. It is more than the bail-out package for big banks.

Yes, Mrs. Obama and McCain, have jointly received about $1 billion in support, about $700 million and $300 million respectively. Wait until all those donors come to the White House to ask for favors. See what will be left then to do the right thing. Why worry about democracy in the Middle East? How about America, folks?

five billion dollar sugar water

Coca-cola, riding on the image of America and the sugar in its bottled water reported better-than expected profits Wednesday. For the third quarter Coke's net was nearly $2 billion. The company has net income in well in excess of five billion dollars for the twelve months that just ended. All of that for sweetened bottled water, juice mixtures, and some, mostly citrus, fruit juices.

Ironically enough, despite promoting the image of American cool, Coke's revenues largely come from abroad. Coca Cola, for all its Americana is by and large a foreign company. Unlike its competitor PepsiCo Inc., whose profit is 70% US based, 81% of Coke's profit comes from outside North America.

Over the last four decades, Coca Cola has roamed the globe and largely displaced traditional local and healthier drinks in favor of its highly sweetened caramel bubbly and the image of success. On the home front, Coke is losing ground against its rival PepsiCo.

No wonder the world is getting fatter. So much for the image of success.

wall street platitudes

Here is some news for those of you who have been asleep the last two weeks: "Government investments in financial institutions could crimp executive pay on Wall Street, at least for a while,...." so far so good, but now get this, "and hinder firms' ability to attract and retain top talent."

We have gotten so used to this little add-on that most of you probably read right past it. It is the ubiquitous capitalist mantra, we need to pay people more to attract and retain top talent. It is considered so self-evident that nobody even pauses and wonders about it. The events of the past eight years however tell a distinctly different story.

For a long time Wall Street has been paying exorbitant amounts of money to its executives. Certainly over the past eight years, we have seen executive compensation skyrocket. Ergo, we can expect that Wall Street did this to attract and retain top talent. And given how much time has passed we can only assume that they were indeed led by top talent.

Would someone explain to me how this top talent, so amply rewarded, was able to mess up the world's financial system so quickly and so thoroughly?

It is obvious these guys were good at something. One has to be very good to make such a profound mess of things in such a short time.

The correlation between very high pay and talent is rather poor. Very high pay is mostly correlated with greed and ego, two rather undesirable characteristics, that have very little to do with talent. I can assure you that overpaid individuals are never as good as those paid a fair wage. Just as ultimate power ultimately corrupts, so ultimate greed clouds judgement and impairs performance. 

Executives drunk with compensation, perks, and other rewards, behave no better than addicts looking for an even higher high. Eventually they OD. All of Wall Street OD'd and now we are paying the price for it. 

Whatever top talent these executives may have had to get them there, their present situation is not conducive to productivity or performance, even at a marginal level. Much as Mr. Paulson would like to see it the other way, the data cannot be ignored.

it isn't over

You probably already knew that. Or you've come to expect "pessimistic views" from this blog. Let me assure you though that I am not a pessimist. I am very optimistic by nature and I really do enjoy life. I find it a pity and a shame that many are so destructive towards our habitat and so inconsiderate with precious resources. Others mean well but they are so spoiled they don't even see how much pollution and trash they generate.

America would do well if everyone cut everything in half. Half the size house, half the size car, half the miles driven, and in a lot of cases, half the body weight. You may find such a view frightening and horrible, but believe me, people would be better off and they would feel better too. They would be healthier and happier.

As for the economy. Don't let wishful thinking cloud your judgement. It isn't over yet. It will get (much) worse before it gets better. But that is only from the perspective of the current Western economy, where good means wasteful over-consumption. From an "environmental" perspective, things maybe getting a bit better. If people spend less, buy less, and drive less that may go a long way towards preserving our livelihood for generations to come.

Also, congratulations to Paul Krugman for his Nobel Prize. I always enjoy reading Paul's column in the New York Times. I know it has nothing to do with his Nobel-winning work, but it is a well written column that is a joy to read. No, I don't always agree with Paul but his viewpoints are always worth considering. He has been an outspoken critic of the current administration, but then again, who isn't? With an approval rating in the low 20s, not many people agree with George W. and his administration.

The war was a really dumb idea. Unfortunately, those driving SUVs, those calling for offshore drilling, and those crying foul for $4 gas, implicitly support the war. They are either ignorant or hypocritical if they don't want to live up to it. If you are really against the war, write your representative asking for a $5 a gallon minimum price. I did.

you be the judge

We read in today's WSJ Opinion columns that the panic of 2008 is a crisis of trust. Nobody trusts anybody else anymore and so the financial system "froze." So far so good. I think everybody more or less agrees with that viewpoint.

Then Mr. Crovitz, the article's author goes on to make a few other, rather remarkable statements. One he asks, "How did the smartest people at the best banks running the most sophisticated financial models fail to forecast the collapse of mortgage-related securities?" Well, to be quite honest, it beats me. For more than two years now it has been painfully obvious to me, not working at any bank and not using any "sophisticated" models that housing was going to collapse. And that was not just an idea among many others. All you had to do was look around you. Bay Area housing prices in Modesto?

One can only conclude that the most sophisticated models were not all that sophisticated. Maybe Mr. Crovitz realized that and the large cap insert shows the "Value at Risk Formula, complex as it is," that is surely meant to impress us with mathematical sophistication. Unfortunately long formulas like that do not impress me. For one, they often indicate a complicated data-fitting model that is by definition only as good as the data it is meant to fit. Great equations, such as e=mc2 are simple. Understanding is by definition simple. If you can't express it simply, you probably don't understand it.

Second, the "smartest people" are often those with little sense of reality. They hail from a distant orbit. Witness the fact that many don't know how to tie their shoe-laces or button their shirts. Such smarts may play well at the large hadron collider but they tend to underwhelm when it comes to day-to-day living. Once again we are not impressed. And as for the best banks, we will leave that one as a home work assignment.

There is more however. Mr. Crovitz thinks we need to examine the failures because, "modern finance has delivered enormous benefits." What those are, apart from millions of dollars in the pockets of the perpetrators is not quite clear to me. 

Once again, Mr. Crovitz must sense there is something wrong because he goes on to list the enormous benefits of modern finance. For example, it goes "from explaining to investors why they should diversify their investments," to "the creation of mutual and index funds."

Maybe you want to read that again. The "enormous benefits" of modern finance are, 1. don't put all your eggs in one basket (I thought this was a old idea, but you learn something new everyday), and 2. the mutual and index funds.

That is not all. "Related innovations helped financial institutions speed capital to its best use, fund new businesses and accelerate global prosperity."

All hail "modern finance" and the "smartest people at the best banks" for bringing us these wonderful gifts. Let's not forget to thank Mr. Crovitz for highlighting these gems too.

rain barrels

To my surprise I learned last night that the city of San Francisco is encouraging residents to buy rain barrels. We started our rain barrel "experiment" more than a year ago and it has saved us plenty. Our neighbors have been skeptical and many thought we were losing it, calling us modern day luddites. Fortunately there is no home owners association to stop us from doing the right thing. Rain barrels are not only the right thing to do, they are the smart thing to do.

Even in California, where a long dry summer is the rule, rain barrels can be put to good use. They fill very quickly during our regular rain storms and can provide us with all the water we need for at least six months out of the year. We use the water for everything except drinking. That has reduced our consumption of municipal water to below 50 gallons per day for a family of four. Using the water to drink is possible but it takes a rather expensive setup and constant monitoring. That, I believe is asking a lot and we are nowhere near needing to go there.

Apart from saving water, which is scarce today and projected to grow even scarcer over the next decade, rain barrels can also help with mud slides and overflowing storm drains. Much of the water in urban and suburban areas falls on roofs. Much of it falls within a very short period of time as California storms tend to be very intense. All of that translates in to torrential flows that can cause a lot of damage. Ironically enough residents here seem to believe that damage is inevitable and part of the deal. It shouldn't be.

Storm drains are a major expense for cities and tax payers. Much of your local tax money goes towards storm drains. Building them, maintaining them, and cleaning them. Every year many city crew work weeks go into cleaning drains that easily clog with dirt, dust, leaves, and debris.

If citizens did nothing but capture the water from their roofs during a storm and then release it slowly (and preferably over their vegetation) we could save tens of thousands of dollars in storm drain maintenance. We could prevent many of the feared mud slides that destroy homes and that nobody can insure against. We could prevent flooding that causes further havoc and destruction.

All of that can be done by simply cutting your downspouts and directing the flow into 55-65 gallon drums. A screen cover takes care of mosquito breeding. If you have a big roof, you may need a few drums in series, as one minor storm will easily fill all those drums in less than one hour.

The more uses you can find for the water the better. Easiest is to irrigate the yard (or your lawn). Next comes toilet flushing, which is a major environmental disaster and very easy to fix. However, people may not like the idea of doing so with buckets. It is trivial to install a small alternate flow head that fills the tank automatically, but it takes some expense and creativity. You need to build a parallel system that can use rain water and regular water. Also very easy is to fill the washing machine with a bucket (esp. top loaders that wastes water galore).

Rain water is very clean. It does not contain harmful chemicals and it is quite soft too. Once the roof is "washed clean" after the first storm of the season, the remaining water is some of the highest quality water you can get (if used immediately). If you plan to store water for more than a few days, you will need to take precautions to prevent bacterial growth. But that only matters if you plan to drink the water. For all other uses, only mosquito abatement is a concern. That is handled with a screen cover. If in doubt,  you can add some special mosquito tablets from the hardware store.

Time to get your rain barrels America.

dow 7000?

Mr. Smith, a professor of economics and a Nobel Laureate wrote an editorial in today's WSJ. It is entitled, "There's no easy way out of the bubble." Mr. Smith tries to clarify how we get into bubbles, and why it is so hard to get out of them. Like a true academic he references a paper he wrote in 1987 that showed through simulation how boom and bust cycles are inevitable. I wonder how many readers will go back to that November 17 issue of the WSJ to read up on bubbles. You never know.

Boom and bust cycles are an example of overshoots. People try to optimize their returns and in doing so they inevitably overshoot. As more people enter the market prices go up, attracting even more buying. Eventually we run out of headroom, but people are still buying. By the time these people realize what is happening, the situation is badly out of control.

Then suddenly, a few leave and everyone follows at once driven by ever increasing fear. The fear makes matters worse and leads to a severe and prolonged drop. Overshoots are at least partly due to lags, these inevitable time delays that are part and parcel of everything we do.

I have described these phenomena before in the context of pollution and greenhouse gases. The same mechanisms are at work there, and people will reproduce, waste resources, and pollute until their whole habitat collapses. Like the housing bubble, that will happen when enthusiasm and optimism are at their highest. Things will look up and people will tell one another how they will always keep getting better. And then one day, the "buyers" will disappear.

These societal collapses too, it seems, are inevitable, and there is plenty of evidence around to illustrate that point. Angkor Wat, Easter Island, the Maya, you name it. All these civilizations went into a big bubble and then collapsed. Only here, it wasn't the collapse of some real estate and paper, it was paid for in blood. It wasn't the equivalent of the Dow collapsing, it was the actual population.

Will people learn? I doubt it. The only thing we see over and over again, is always expanding bubbles that do ever more damage. The same applies to the environment. Now we are or very close to on a planet-wide scale. When that bubble collapses, it will be a disaster of unheard of proportions. We may not even survive as a species.

But why worry? Let's get back to the "real stuff" and worry about our 401k's. With the Dow heading for 7,000, there will be plenty to worry about for most of us.

no great depression (yet)

The financial news is split these days. On the one hand there are the headlines and front page stories telling us how bad it is and how we need to do something. On the other hand, there are the editorials and reviews reassuring us that this is not the Great Depression revisited.

To give credit where credit is due, the optimists and reviewers have more data to support their cause. But just how good is that data? We are told that during the Great Depression, unemployment stood at 25% and thousands of banks failed. In the Spring of 1929, 300 banks failed. That was almost six months before the stock market crash. In 1930, a thousand banks closed. By 1932, the Dow had lost 90% from its peak in 1929. Surely we are nowhere near these numbers.

That was at a time with no unemployment compensation, no FDIC to ensure deposits, and no stiff drinks to soften the blows. Nobody would even acknowledge that there was a problem and according to the WSJ, Herbert Hoover insisted that the "fundamental business of the country.. is on a sound and prosperous basis." Where have I heard that recently?

Surely, we must have learned something from the Great Depression? And according to Richard Quest of CNN London, we did. We did and we can rest assured that we won't make the same mistakes again. "We'll just make different mistakes," he quipped last night when the Japanese market tanked.

Let me go on record now. Our problems are much worse than they seem. The housing crisis is in full swing. One in six Californians is "under water" with their mortgage. At the time when most of the option ARMs are still in their five year honeymoon phase, where you can pay as much as you please. Well before the real crash so to speak.

Every day the headlines correct earlier estimates, and label them "too rosy." Everyday new revelations are made and all are bad to very bad. Unemployment may only be at 7% but you have to go past 7 to get to 25. If we learned anything in recent weeks, it is how incredibly fast we can move from seemingly innocuous difficulties to outright collapses.

The constant flow of information we are exposed to is not helping either. It is undermining our confidence. Many are already suffering from information overload paralysis. A lack of confidence is the key enemy of the American economy. That economy rests on consumer spending. In other words, it is unsustainable. But I would much prefer if it wound down gently instead of failing catastrophically as now seems more likely.

If half the population can no longer afford to spend money, and the other half prefers not to because they don't feel confident, then we are on a very slippery slope indeed.

I've said it before, time to buy gold. Cash is just paper, and when confidence is lost paper has no residual value.

retirement advice from the experts

I could not help but notice that three "eminent" financial institutions sent me invitations to retirement planning and wealth management seminars last week. I have received many such invitations before, and they come in a variety of "packaging."

Some are mere cardboard flyers sent out to everyone and their brother as part of our daily dose of junk mail. Others are printed on fine stationary and seated in thick padded envelopes. Some even include handwritten sections. All are there to let me know about seminars that will teach me how to manage my (non-existent) wealth or to plan my (still-far-off) retirement.

Isn't it somewhat ironic that the very people who are either teetering on the edge of bankruptcy or who have already gone over, are proposing to show me how to manage my money? The very same people who are now screaming for a government bail-out. Presumably, their track record speaks for themselves? It speaks louder to me than their gilded names, exquisite logos, copperplate, and stylized images that are supposed to evoke a sense of security, stability, and wisdom.

Here are a posy of "experts," certified with MBA's from the finest business schools in the country, who could not even manage to keep a financial firm going. An entity with no real operations, no equipment or hardware to take care of, no elaborate labor contracts, no complex logistics. A firm where people bring money in the back and you lend it out to someone else in front, reaping fees, commissions, interest, and other benefits for simply moving funds around.

Not only do the fat cats on Wall Street need my tax money to survive in their moment of need, they have simply have no shame. They have the audacity to want to teach something they obviously do not understand. Which goes to show you that their one and only skill and the source of their riches, is deception pure and simple.

reducing greenhouse gases

A statistical report by McKinsey & Co has confirmed what I have been saying on this blog all along: we the American people are the key to a reduction in greenhouse gases. Not big business, not the government, not the Chinese or the Indians, but we, meaning you and I. 

It is not the government and so the election won't matter one bit here. Neither Obama nor McCain, nor anyone else for that matter will solve this crisis. Only you and I. We will need to learn to get by with LESS. We need to consume less, we need to spend less, we need to buy less, we need to drive less. We need to fly less.

Passenger cars are responsible for 17% of all greenhouse gas emissions. More than half of that is a complete and utter waste of resources. People drive too much, too often and in cars that are too heavy and too big for their needs. Most people would do just fine driving a small four cylinder car and cutting their driving in half. There is no reason for the monster trucks -some are called SUV's because it sounds better- that Americans like to drive. No use for off-road capabilities, or towing capacity, or the hundreds of electrical gadgets that are packed into those cars.

Two percent is in airline travel. Once again, most of that could easily be avoided. Few of us really need to fly across the country all the time. 

Residential buildings and appliances are responsible for another 17%. Here again, waste is everywhere. Homes are way too big, too far away from everything, most are free-standing, and nearly all are constantly either heated or cooled ten or more degrees away from the ambient temperature. These homes are packed to the gills with stuff, most of it useless filler, and much of it energy dependent and plugged-in 24/7. 

You don't need to replace your light bulbs. You need to turn them off. You don't need a more efficient dryer. You need to hang your laundry outside.

Another 28% is under our indirect control. It includes such items as sea transportation, agriculture livestock, landfill emissions, commercial vehicles, and commercial buildings and appliances. 

Summing it all up, 64% of all greenhouse gas emissions are under our control. That is nearly 2/3's of all greenhouse gas emissions.

And here are some more interesting numbers:

We Americans make up 5% of the world's population but we burn 23% of the world's oil. We directly or indirectly control 64% of our greenhouse gas production, whereas the rest of the world only averages about 43%. That difference illustrates how wasteful we really are. Not only do we use more per capita, more of our uses are related to our personal "comfort" (read gross waste) than in other countries.

Face it, we are fat and filthy.