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Six Months Warning - Profit for the Taking? Or a Loss in the Making?Jul 24 '06 Write an essay on this topic.
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The Bottom Line Outlines some major likely pitfalls going forward in the US economy. Potential profits are highlighted.
Six Month Warning Optimism is not a quality I have in abundance. I never have, and now that we are in for a horrific repeat of the 70’s, I have even less. So, it is in that spirit, with only a bit of a wink, that I have to say that we probably have six months to prepare for What is to Come. Of course – I mean, financially. DISCLAIMER Consult your financial professional before making investment decisions. Do you own research, past and the future aren’t the same, etc etc. So, What’s To Come? Here I will lay out some of the looming crisis. All of them are problems essentially of basic math. We consume more than is sustainable. It is essentially that simple. North American Natural Gas Crisis – North American natural gas production is entering terminal decline, and there is a large and growing gap between production capabilities and consumption needs. The problem? LNG tankers and ports aren’t being built fast enough. Another problem? Read on. Electricity Crisis – Nuclear plants take a decade or more to build in the US. We have built too many “peak” power stations that run on natural gas. No natural gas – no electricity – no electricity - huge problems. Speaking of “peak” Peak Oil – Oil doesn’t proceed through the decline phase as fast as natural gas; but it does enter a phase where production volumes decline. This occurs on any given individual oil field, and when you work it out, it also happens in the world. If you believe in biogenic oil (as opposed to a-biogenic oil) this is called “Peak Oil”, the day, week, month or year where you have pumped as much oil as you would ever produce. After that point, there is less and less and less and less forever and ever and ever, until it runs o Grain Crisis – A bit further out but very real is the problem of grain production. Modern systems of agriculture require HUGE quantities of oil and natural gas to do everything from grow the plants to the processing and shipping of the goods. Food has traveled quite a bit and has usually acquired quite a bit of chemical products in its life before it enters your stomach. Dollar Debt Crisis – It is somewhat amazing that this, which used to worry me the most, has become the fifth issue to write about; but the reason for it is simple. All the other problems are problems of nature. We cannot argue with it, and if we are mistaken about it, we learn it the harsh way. The dollar/dollar denominated debt crisis on the other hand is entirely within the hands of people. Not that this makes it any better; people have a remarkable tendency to create a lot of misery so they can preserve their own power. But it makes it at the least possible to deal with it in some way. The IMF, BIS, The Fed, BOJ, ECB, all of them cant be totally useless. A simpler reason is that since about this January I have considered it pretty much a foregone conclusion that this will materialize, due especially to now clear splattering of the real estate bubble. So, Something About Money? Okay, well, to get to the point – the world is quite a bit worse than is being understood by people, and this is in a world where people’s outlook has become noticeably less gung-ho. I have had people express to me deep doubts about the nature of the economy, essentially they no longer believe that it works for them. One women, a nice older lady working at Saks Fifth Avenue, told me that no one she knows has had their lives get better; that almost everyone she knows is worse off than they were before. I think many people have this exact same story; it is dangerous to have this level of discontent in a nation built on the presupposition of material contentment. Yeah, but the Money? Get about 10% of your portfolio together, open an Interactive Brokers account, and if you see something like what I see, you may look at something (note: really really really risky! Okay?) like this: Natural Gas Futures – hm. The summers are assumed to be non peak demand for natural gas. I wonder how true that is...especially a few years out when natural gas production suddenly starts to plummet, since nat gas tends to do that and those power plants sure are hungry… Gold Futures – not so strongly, but a good hedge bet against rampant dollar declines, which btw are most likely if oil prices soar. Uncertainty is what Gold breeds on. Oil – either as futures or as USO type investments. Again, go forward a few years and what you’ll get is less production. We are at the Peak at the moment, or are very close to it, without knowing in which direction we are. I’m going to bet that we are past it, and the peak happened in 2004. Oil alone can cripple the US economy. Oil and Natural Gas together are more or less likely to do so. 1. Buy a lot of time. And 2. Hold. NOTE: Like I say, this is very risky indeed. I am generally leery of such leveraged positions, but this is one of those instances (rarity of which I cannot yet really speak to) where it is actually less risky to have a bet on a bad outcome that is very heavily leveraged. But you CAN lose all your money, and it certainly isn’t Treasury debt; which btw, I think is about as 10x risky as currently believed to be. TLT might be a good traditional options play in that arena. Conclusion I often say “Stupidity is where the money is” – and I think this is especially true today. There has been a tremendous amount of it, and it is about to cash its check. I say be prepared for the bounce. You probably have anywhere from 6 months to a year to prepare for it. I plan on making my bets, then possibly literally taking a year long holiday somewhere nice and wait it out. Of course, I could be very wrong. Next Topic! - Post crisis profiteering! Join the legions of billionaires doing the same thing!  |
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