Thursday, July 31, 2008

Cramer Calls a Bottom

"We are not going to get to the the July 15th lows. That was it!" - Jim Cramer, 31 July 2008

New leadership or a suckers' rally in the bank stocks? That will be a huge, huge question for the entire system of fiat money, debt-based capital system that has fueled consumerism in the US over the last several decades.

I will allow Afroman to provide what I think Jim is showing symptoms of:


"Americans will put up with anything provided it doesn't block traffic." - Dan Rather

"Pemex cuts target to 2.8M barrels a day" - Calgary Herald, 31 July 2008

Here's a chart I whipped up from EIA data. Note the significant trend line break. I wonder what it will look like six months from now? A year from now? I wonder what the morning commute will be like for a few hundred million Americans?

Monday, July 28, 2008

Rebuilding Community

The point of Reslient Communities/Networked Tribes will be to make various communities places worth caring about in the long run.

Getting local policymakers to rewire their perceptions and completely re-orient 50 years worth of devotion to auto-centric development is asking a lot from folks...

Friday, July 25, 2008

Meditation Exercise for Friday July 25th

Meditate on this statement. Repeat it to yourself out loud and think about the what it says about the elites who guide policy and macro decision-making in the USA. Do two separate meditations - one where Messr. Paulson truly believes every word he utters and a second where he is lying:

"I don't see subprime mortgage market troubles imposing a serious problem. I think it's going to be largely contained," -US Treasury Secretary Hank Paulson, April 2007

Bonus Meditation: The Mogambo Guru issued a similar class exercise several years ago. I bring it out now for your consideration - To what circle of Hell, as depicted by Dante, will Alan Greenspan be consigned for his part in fueling the Greatest Credit Bubble of All Time?

Thursday, July 24, 2008

California DeathWatch (Part Five)

They are beginning to reap the whirlwind out in the Golden State -

"...administration officials, who asked to remain anonymous, said that about 200,000 of the state's 245,000 workers, both hourly and salaried, will see their pay trimmed back to the federal minimum wage of $6.55 an hour, saving the state up to $1.2 billion a month. Dropping the temporary and short-time workers will save an additional $28.5 million each month..." -'Governor plans to slash state workers' pay,' San Francisco Chronicle

"...Facing a billion dollar and growing pension deficit, City officials have traded away road repair, water security, and fire prevention to pay employees more to retire than to work..." - City Attorney Analysis, City of San Diego Structural Budget Deficit

"...California lawmakers' inability to pass a budget on time is threatening the cash flow of health clinics that are funded by Medi-Cal and serve some of the state's poorest residents..." - 'Budget impasse threatens Medi-Cal clinic funding,' The Mercury News

Reslience Check

California may wind up being a significant test case for the development of "resilient communities" as a result of the coming debt default tsunami. I am unfortunately pessimistic that we'll see much resilience. The current system is "brittle" in the sense that significant portions of the population rely on direct government assistance. When the cash flow stops, the ability to deploy capital to creating a "resilient community" will dry up as well. RCs may be the wave of the future, but in a crisis, most people tend to sit on their hands and their money and avoid risk.

Fighting to completely change your community and reframe it in a sustainable mode will go up against:

  • Powerful public worker unions that want tax-paying types of development to pay their salaries and benefits
  • Entrenched laws and mindsets geared towards suburban development, strip mall construction, light service industry type of communities and these laws and the associated boards and commissions that enforce them, won't play nice with efforts to expand permaculture into abandoned property or construction of rainwater collection systems that work outside the municipal water system or efforts at biogas production or large-scale composting of wastes
  • Local violence as various gangs lose their cash flow from drug sales and turn to petty crime to fill their coffers
  • Hope will remain that "normal" will return, that the old lifestyle of big homes and big cars and big salaries will return "after this economic correction plays out" and so most won't want to fight city hall or the their local homeowners association to completely restructure life as we know it

California will lead the way. Let's hope that's a candle in the darkness we see, not the approach of an oncoming train...

Wednesday, July 23, 2008

Foreclosure Sanctuary

Oh this is going to be good. My guess is that Messr. Aguirre is out for a shakedown of the banks and looking for some side deals or campaign contributions for a run at statewide office. Here's hoping so, because if he is serious and manages to pull it off, welcome to chaos when it comes to mortgage markets, to property transactions, and to property title insurance - just to scratch the surface of blowback effects this could cause:

San Diego sues Bank of America over foreclosures
Reporting by Marty Graham in San Diego; Writing by Jim Christie; editing by Mark Porter and Carol Bishopric
SAN DIEGO (Reuters) - San Diego City Attorney Michael Aguirre said on Wednesday he had filed a lawsuit against Bank of America Corp and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in his city, which he aims to make a "foreclosure sanctuary."

Aguirre said he plans to file similar lawsuits against Washington Mutual Inc, Wells Fargo & Co and Wachovia Corp in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure.

"We would like to see San Diego become a foreclosure sanctuary," Aguirre said. "We haven't seen the lawsuit and can't comment," said Bank of America spokeswoman Shirley Norton.

Talk about a hot meme that could spread like wildfire if we do see a continuing descent into severe recession. This could be the seed of something huge. Might want to keep an eye on this lawsuit.


Jim Kunstler is on a rampage again:

...Among the many developments in the story last week was the solidifying consensus that the nation is in really serious trouble, and the noticeable slippage of legitimacy among those pretending to run financial affairs. The howler of the week was the Securities and Exchange Commission's edict that Wall Street sportsters would be prohibited from trafficking in so-called "naked short" sales against a cherry-picked bunch of 19 banks and financial companies for the next two weeks. A cute trick, naked shorting is done by pretending to borrow a bunch of stocks, pretending to sell them high just before the share-price falls, pretending to buy them back at a lower price when the share price has fallen, and then pretending to return exactly the same number of lower-priced shares to the lender, pocketing the difference...

We looked at the crime of naked short selling - and how it has been ignored by the SEC for over a decade in Something to Ponder. The unraveling we are seeing in the financial markets is amazing and Jim Kunstler adds his typical fury and bile to the story.

What absolutely stuns me, though, is that it seems every single choice being made, every action taken by the elites, is nothing but short-sighted and guided by greed and parochialism. I don't use the term "elites" as a disparaging moniker - a nation is only as strong as the political, educational and scientific elites it produces. This current crop running the big circus inside the Beltway has got to be the most feckless, corrupt and incompetent bunch seen on the banks of the Potomac since the Civil War era.

The masses of the United States are slow to anger, but once the socionomic balance tips towards rage, when the educated sliver of the public realizes just how devastating the coming debt tsunami is going to be, the results are going to be like nothing seen in U.S. politics and society in over 232 years. We honestly could be looking at a Second American Revolution in the sense that politics will not be the same this time next year (in my opinion and bearing in mind my relatively lousy track record at predicting events).

Enjoy this wonderful summer lull. The markets are still holding up. Real progress is being made between the Israelis and Syrians and between the U.S. and Iran. If we can get the bigger flashpoints damped down before anger fills every corner of the political system, hopefully we can avert a global military catastrophe.

Pause for a sunset. Smell a flower. Gather up a stock of good books. Reconnect with old friends and family. I give us until roughly October or November before reality really begins to sink in.

Monday, July 21, 2008

A Hot Georgian Summer

I've held off from looking at the rising tensions between Russia and the Republic of Georgia and the Mexican Standoff they find themselves in over Abkhazia (click here for previous blog posts on the ups and downs in tensions). This is mainly because I figured it would end like most other flare-ups have over the last few years - in a flurry of words, but no bullets.

This may be changing.

Stratfor just sent this out:

Georgia: Tensions in the Kodori Gorge
Georgia has put its troops on the border with the breakaway region of Abkhazia on combat alert because Russia is amassing special troops on the edge of the Kodori Gorge, a strategically important area in Abkhazia that is currently under Georgian control. Russia’s troop movements are meant to keep pressure on Georgia, which is dragging out negotiations with its large northern neighbor. Even if the talks began moving quickly, two groups — the Abkhaz and the Svans — have motivations for trying to spoil an agreement between Moscow and Tbilisi...

Just to refresh - there are multiple reasons for Moscow to drop the hammer on Georgia with a punitive expedition of some sort in support of the breakaway regions of Georgia. It could serve as another way to show the Kremlin's displeasure over the ongoing Missile Defense deal that Bush 43 has been pimping out. It could show support for some "allies" and give a little street cred back to the Russians after the beat down on Serbia resulted in Kosovo being sheared off, in the face of Russian antipathy. Maybe they want to threaten the B-T-C pipeline and goose petroleum prices higher - another instance of Russia using the energy sword to shove people around. Or maybe a combination of all the above or other reasons I am not privy to.

As we've said before, it bears watching because Georgia is a fairly stalwart Western ally. I wouldn't expect much more than a large raid in force. Russia doesn't want to occupy ground (at least, I wouldn't think so) given their experience with the Chechens and before that, Afghanistan.

Keep an eye on the situation. The effects could be coming to a gas pump near you.

Who Is Feeding Your Mind?

Mish provides another reason to be highly skeptical of official data. In Transition Ages like the one we are in (possibly the most profound since the late 1800's) the impetus to pretend all is well can become overwhelming to bureaucratic organizations that rely on some form of stability.

BLS BS Exposed: Commercial Bankruptcies Soar
Mike Shedlock
...It was the 10th straight quarter that business bankruptcy filings have increased. Nearly 29,000 companies filed in the first half of 2008. Another 60,000 to 90,000 others probably have closed, because roughly two to three businesses fold for every one that files for bankruptcy, said Jack Williams, resident scholar at the American Bankruptcy Institute...

...The BLS reported net expansion of new businesses in all but 3 of the past 15 months. January and July are months in which they partially correct for the ridiculous assumptions made in the other months...

This is not necessarily part of some great conspiracy. Most likely it is normal human behavior. The world has changed, dramatically. It will take awhile for folks to update the software that guides their thinking and their actions. That upgrade process can be messy and, unfortunately, can last longer than we'd like.

Friday, July 18, 2008

Demography and Macro Trends

For those of you living in, or who own significant property in, Southern California, Arizona, New Mexico and Texas - something to chew on:

War of the Babies--When Modern Warfare and Demography Square Off, Demography Wins
Gary Brecher, AKA The War Nerd
What was the most important battle of the late 20th century? You could argue it was the one that took place on the southern border of Morocco on November 6, 1975. Of course, we’re not talking about another Stalingrad here. In fact, what happened that day isn’t usually called a battle at all. Its official name is “The Green March.” On one side were 350,000 unarmed Moroccan civilians carrying green (Islamic) flags, and on the other—miles inside the border, because they were hoping not to have to confront any of the marchers—was a shaky, demoralized token force of Spanish troops pretending to defend a former Spanish colony, the Spanish Sahara...

...It may not have been very exciting for combat fans, but it was an extremely effective invasion. The Spanish troops didn’t fire a shot. The marchers walked over the border, got sand in their shoes, shouted about how this sacred patch of waterless, flat desert was now an integral part of the Kingdom of Morocco, and went back home. And since then, the Spanish Sahara has been dominated by Morocco, although the local guerrilla army, POLISARIO, gave them some serious problems for a while...

Hat tip to Fabius Maximus for the link.

The Worst-Case Model

Here's a new thought exercise for you to try out in the coming weeks. When thinking about how you would react to a severe recession and market crunch, try this new model on for size. Every time a critical juncture is reached where policy-makers can choose the hard path to cleansing the system or the easier path of trying to pander to emotion and ignore what's going on in the reality-based community, assume that through the end of the year the choice will always be to pander.

This adds a lot of spice to watching the infotainment channels like CNBC, CNN , et al. Medicare is going to bankrupt the country? Expand spending. Debt service on housing loans and credit cards are a cancer eating away at the majority of the population? Encourage taking on more debt.

I propose this model, courtesy of a recent story from The Onion:

Recession-Plagued Nation Demands New Bubble To Invest In

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution..."

If only this satire wasn't playing out as policy...

More Free Stuff from EWI

For those of you interested in the commodities markets, especially oil, EWI is hosting another Free Week at their site. You get access to their commodities analysis subscription services that normally cost in the hundreds of bucks. I'd suggest clicking on the Javascript ad at the top of this blog and at least checking out what they have to say about oil. Talk about a whipsaw in prices recently. You can view their material and make up your own mind as to its worth. I highly recommend it.

Have a safe, productive and happy weekend.

Thursday, July 17, 2008

It's Good to be the King

Why you should always be nice to your Sys Admin...

Computer engineer keeping quiet on lockout
Jaxon Van Derbeken, San Francisco Chronicle
The San Francisco computer engineer charged with masterminding a cyber-coup of the city's network is being paid as he sits in jail, refusing to allow other administrators to get into the system that controls e-mails, law enforcement records and payroll documents, authorities said Tuesday...

Wednesday, July 16, 2008

Oil, Mood Swings and the DJIA

Wednesday we saw another substantial drop in oil prices, with NYMEX crude settling at a dime above $135.00, ostensibly on rising US inventories. Whether this is a just a pause of a few days, or a full-blown final head-fake to the downside in oil prices, I urge you to pay as much, if not more, attention to the emotional reactions to this story as to the text of the "news" stories themselves.

As Jeff Vail points out, worldwide demand probably, especially from the IC of the BRIC countries isn't likely to slow appreciably. For a fungible commodity like oil, this has serious implications for the supply-demand picture.

Keep your eyes on the emotions behind the news. Analyze what are considered stories. Watch the anger building against scapegoats such as speculators, watch as the financial titans eat their own (Bear, gone. Lehman sniping and blaming others for their trouble - not their leveraged balance sheet.) and watch for other socionomic signals to continue to pop up.

Here's hoping we have a good solid rally over the coming weeks. I think this is possible. We are dancing on and around major trendlines here and I think a solid run-up to the high 11,000's is quite possible. But use this opportunity to finalize any plans you have to rearrange your financial situation. If you have over $100,000 in any bank, please consider splitting that among strong banks.

Things are weird out there, friends. This transition is, in my opinion, going to end with a snap crash. Like boiling a toad, we are in the warm water right now - but it feels good for the most part. When it flashes over to a boil, it will be too late.

Monday, July 14, 2008

They Used to Tell Us Not To Deposit in a Bank in Mexico...

Please pay close attention to the short interview clip with the Mexcian gentleman.

The Bank Danger Zone

Welcome to Banana Republic, USA...

Sorry for no embedded video - CNBC is stuck in the 1990's with their website.

I still don't think this is "it." But please, please, please - if you have more than $100,000 deposited in any single bank, consider moving the difference to another institution.

Thursday, July 10, 2008

A Meditation During the Twilight

Think about the implications of this quote - I mean really think about it.

"...[Fannie Mae and Freddie Mac] have about $80 billion of regulatory capital supporting $5.2 trillion of mortgages..." - Bloomberg, Fannie, Freddie `Insolvent' After Losses, Poole Says

Wednesday, July 9, 2008

The Disaster in Microcosm

If you want to get a snapshot of what hubris and blatantly ignoring economic reality will get you in the long run, check out Autoextremists' Rant #453.

...After years of writing about this industry and analyzing GM, I can safely say the answer comes down to a very simple realization, and that is that no one at GM – from CEO Rick Wagoner on down – ever actually believed that what was happening in the U.S. market was really going to continue, that somehow, some way GM would rise up again and return to its rightful place as the biggest car company in the world. In other words, a level of hubris is alive and well within General Motors that is absolutely breathtaking to contemplate...

Few realize that the quote from GM's Charlie Wilson back in 1952 still obtains - "What's good for General Motors is good for the country." It's not nice to say it these days, but GM and the other auto manufacturers are still a key component of the wage base, tax base and manufacturing base for the United States. That such a major company could have ignored the reality of the auto market for over a decade and a half, ignoring the obvious course of action to remedy the situation, wishing and hoping that things will turn around if we just think happy thoughts long enough - it is a microcosm for the behavior patterns of millions of Americans and for the U.S. Federal Government.

Well, as a wise man once said, wish in one hand and shit in the other, then tell me which one fills up first. The Xanax and Prozac driven era of foggy thinking and happy wishing is about to be confronted with debt tsunami and employment crisis unlike anything witnessed in living memory. Mood matters. If people were true "rational economic actors" GM would have been restructured long ago and no one would be buying U.S. Treasuries right now. When the mood shifts, when the realization of just how bad things are sets in, then, finally, we can begin the rebuilding process.

Reading Autoextremist's take on GM is a great parable for the rest of us to contemplate.

Tuesday, July 8, 2008


In times of radical change the first thing that MUST change, if you are going to survive and thrive, is your thinking about the very foundations of society itself. You must upgrade, or at least change, the mental "software" that governs what you regard as a meaningful work, your expectations for the future and how you will participate in your local economy.

This talk by Charles Leadbeater describes one optimistic path that society can choose. Think about how you would participate in a world where this sort of Pro-Am, open-source began to work as well as, or better than, the current industrial-government-services model.

Then think of how you would transition to such a model. What legal hurdles would you face? How do you avoid the walls and oppostion thrown up by those with an entrenched emotional opposition by those wedded to the old system?

How do you deal with a zoning request to the local county or city board when you want to take over the shell of a big box store, remove portions of the roof, build allottment gardens inside the walls and use the roof beams to hang your cisterns, water catchments and solar panels? Imagine the fury from local home "owners" who don't want an "eyesore" going up near them, from pro-growth (old industrial model version) local business types, from the city itself which will hold out hope that once gas gets back down real cheap a new Wal-Mart or Target is sure to move in?

This is what I mean by the "chump phase" of the coming Transition. There may be plenty of new systems that would work just as well, in some ways, as this late-stage corporate capitalism we have in the U.S. But how do you transition to it without your structure being torn to pieces through lawsuits over intellectual property rights, various ownership rights, taxation of "donated" time and talent, challenges to the existing suburban real estate - commuter model of work, etc.?

Hat tip to Jeff Vail for the link to Mr. LeadBeater's site and online chapters of his book.

Monday, July 7, 2008

An October Surprise (Part Three)

In my opinion, the only way that a truly historic crash in stock prices, house prices and all the associated anger and fear associated with a collapse in social mood towards negativity, is to have most of your population living in a state of supreme denial or have their mental "wetware" programmed and maintained in such a way that the masses behave in a manner extremely divorced from the underlying reality. The crash comes with the CollapseShock - the recognition that the absurdities that were only news stories or tiresome rants by "permabears" were actually reality.

"Every time I saw a car towing a motorboat this holiday weekend, I wondered what was going through the head of the towee. Did they have a sense that darkness was falling on their careers in motor sports? Did they have an inkling that an oil-and-gas crisis is upon us and just not give a shit? Or were they just going through the motions, following some implacable rote programming induced by, say, forty-odd years of TV addiction and a diet based on corn-syrup byproducts?" - James Howard Kunstler, 7 July 2008

I have harped and will continue to harp upon this fact. I think Kunstler is closer to being correct than most any economist you can name. Mood makes the news. You can take the exact same events and play them at different times in history and depending upon the temper of the times, you will get vastly different responses.

"There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.” - Shakespeare

Most people behave as if this was 1985. The tide was rushing back in for America back then. Most, but not all, look out over the horizon towards what appears to be a sunny dawn, when in fact they are waking up after a week-long bender, still drunk but feeling the onrushing hangover, standing on a platform with rotten supports, looking at the sun setting on an era of consumption and greed unlike anything witnessed in all of American history.

Sure, people acknowledge there are lot's of problems, but most, I wager, will tell you that "things will work out." Which is true - but not in the way the probably expect. Strike up a conversation with five different people over the course of the coming week. Start off with gas prices and move the convesation towards just the headliner Riders of the Apocalypse headed our way - an insolvent Federal Government, a collapse in credit tied to the crashing house market and Peak Oil. Then try to get one single proactive way to deal with any or all of the problems from them. See what happens.

There are plenty of people amongst the financial and political elites who will continue to tell you that all is well.

...Strategists at Deutsche Bank, Lehman Brothers and UBS are the most bullish and expect the benchmark for American equities to climb to a record in the second half. Binky Chadha, Deutsche Bank's New York-based chief strategist, says the S&P 500 will end the year at 1,650, up 29 percent from June 30.

Ian Scott, Lehman's global strategist, is predicting an advance of 27 percent to 1,630, while David Bianco at UBS says the index will increase at least 25 percent.

The S&P 500's rebound "is going to be one of the greatest roars we've seen,'' Bianco said. "The market has way too many fears baked into the valuation right now. The fear out there is the earnings are about to collapse and interest rates are about to surge on inflationary fears. Neither is going to happen...''
- from Bloomberg, 7 July 2008

You might want to write down that comment from Messr. Bianco, who neglects to mention from where these profits are going to come, or from whom he is buying his crack cocaine. The consumer, for the first time in decades, is watching access to credit contract. No more housing ATM. HELOCs are drying up. Credit cards are pulling back.

October 2008

The DJIA was at 7,253.23 when they shut down trading for three days. A "National Cooling Off Period" is how the shiny and well-scrubbed media flacks described it to the news-readers and press-release printers.

The fact that this locked up the banks, along with cascading effects into the bond market was ignored until the banks had to be shut down as was all trading in U.S. Treasuries. The bank decision came as a surprise to about 45% of the population - the ones who had believed all the pronouncements from the Fed that no such action would be taken. The others, the cynical ones, had pulled out a little cash just in time.

No one was sure how to handle the checks for rent, taxes, food, car payments (the ones still making payments on their cars) and the million transactions a minute that kept Consumer Nation humming along. Renters or house "owners" could prove to their landlords or the banks that the checks were good (well, most of them, at least...) by showing them a bank balance. But the checks couldn't clear. Some landlords chose to bounce the checks and demand cash. After the first reports of assault and battery, such demands died down.

The First Mover Disadvantage

There were a lot of "crazy" plans talked and about and a few even implemented as October bled its way into November. The markets reopened, but with a microscopic trace of previous volume and tight controls on the volatility allowed by exchange rules. The trend was down, with a week or two here and there lit up by a ferocious rally, which would only flame out in a burst of selling. Every rally that flamed and died eliminated more and more of the permabulls, until finally, on CNBC, there was talk of the "death of equities." Few noticed Warren Buffet began doing a few quiet deals as the value of the DJIA stocks vaporized down into the low thousands...

The downturn was manna from heaven for some groups - at least at first. All these ex-hippies and Peak Oil doomsters were ready to jump in and build up "sustainable villages" and "resilient communities." In several communities, activists took over manufacturing plants or gasoline stations, vowing to start them back up as cooperatives just like what happened to Argentina back in the early 2000's. With most of the facilities in some stage of foreclosure, the legal battles turned into street fights as police went in to evict the squatters.

Food distribution was a serious problem. Many called for "victory gardens" and "urban farming." The fact that it was late fall caused many of the more aware to sober up quickly. It was going to be a long road from seed to table. And winter was just around the corner.

The bando problem grew exponentially. Squatters took over entire subdivisions. A few exurbs were completely taken over and entirely new communities sprung up in a week. With gasoline rationed after the disastrous fallout from the Israeli bombing campaign in Iran, these new communities were able to get established, complete with greenhouses, generators and makeshift walls to guard against the the various gangs that couldn't make a living slinging drugs any more. The bloodshed that would follow in the spring as the banks and private equity groups that were the legal owners sent in mercs to reclaim "their" property from the bandos was still a distant storm on the horizon. The mercs were mostly unopposed in those first waves. But that was before the troops started returning home from Iraq in large numbers to an economy in shambles.

Then those former exurb communities became hubs of resistance instead of easy pickings. When a group of ex-Marines routed a force of Sherriff's deputies and mercenary troopers outside of Denver using hunting rifles, blackpowder IEDs and tactics learned from the long years in Anbar province, the bankers and private equity boyz began to realize that this wouldn't be quite like the Great Depression after all.

The devastation was too vast. The populace too angry. And they all had guns. Lot's of guns.

It would a year before Texas and Ohio took the lead in legalizing the squatters, proclaiming the former ex-urbs the new frontier as part of a big micro-farming and "back to the land" push by governments. The fact that such a move was well underway already made the decisions by the legislatures easier than the might have been, especially since most of the PAC money had dried up long before and there were fewer special interests to piss off.

"There's something out there waiting for us, and it ain't no man." - Billy Bear, Predator, 1987

Billy's right. It's a bear market. A grizzly. The meanest bear to strike America since the War Between the States.

Are you ready?

I'll reiterate - this hypothetical October Crash is not the end of the world, just the end of Consumer Nation, which may feel like the end of the world at first. Until you, and me and our neighbors build something better on the ashes, one community at a time.

Thursday, July 3, 2008

When in the Course of Human Events

We've talked much about how to handle the coming storm. July 4th is the perfect time to reflect upon the fact that storms have hit societies before and that in the chaos and turmoil of war, economic collapse, currency hyperinflation, trade disruption, death and destruction, a People can forge a new and better world from the ashes of the old.

This is not to ignore the many failings of the early Republic, but one must acknowledge that considering the backgrounds and culture that shaped the men of the early Republic, they did great things, especially considering the baggage they carried.

The Revolution provided a new route for humanity. We may fail at times to live up to the standard they set, but we will hopefully turn to that Revolution for inspiration in the hard times to come. And when we are called upon to make great sacrifices in the coming years, may we reflect upon the Revolution and be willing to pledge to each other our Lives, our Fortunes, and our sacred Honor in pursuit of a better and more just world.

The unanimous Declaration of the thirteen united States of America

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world...

...We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these united Colonies are, and of Right ought to be Free and Independent States, that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. — And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.

Wednesday, July 2, 2008

An October Surprise (Part II)

So we postulate a "crash" of some sort on October 13, 2008 as a way of focusing our attention.

Big deal, you say. I'm in a short fund or, frankly, I'm so broke it won't matter if the Dow is at 10,000 or 1,000.

Well, there is more to the story. Much, much more. In today's highly leveraged environment a crash, like the one in 1987, would devastate much more than just some stockbrokers and rich investors. It would crash the big money-center banks like Lehman, Citi, et al and lock up many of the options and futures markets as trades fail to settle and counteparties collapse.

It's the blowback that we'll try to wade through now.

Bank Failures

Remember, banks operate much the same way as gas stations operate - there's just enough cash in the system for the needs of customers, plus some small cushion for an unexpected blip up in demand. The banks may have billions of dollars in assets - at least according to their computer databases. Actual cash on hand at branches that serve people may total in the hundreds of thousands or low millions for a region.

The same applies to ATMs.

If you are reading this blog, you that bank runs are (or at least have been) low probability events. But they are high-impact events. If just ten percent of a bank's customers wake up and see that a bunch of big banks have collapsed or are in trouble, they may go pull a few extra hundred bucks out. This could add up quickly.

In short - what would you do if you could not get currency from your bank or ATM for a one week period, due to failure or currency panic? Think about this one long and hard.

If this happens a few days after our "crash" in October, let's say El Presidente Bush gets all bold and declares a "Bank Holiday" just like FDR did back in the Great Depression. Now what? Will that affect online access to your account? Online bill pay? Will your checks clear for your house payment or rent?

Will your credit card work? Or will you be standing at the checkout counter, a harsh beep coming from the swipe box, telling you over and over, "Card Denied?" Now what?

Petrol Panic

Gas is expensive enough, most folks say. Well, if the banks are in trouble, quite a few people might make a rush to the pumps. Especially if they begin to hear stories that debit and credit cards are being denied due to banks failures or database overload in a panicked system.

How long would the gasoline in the stations last if, like in a bank, only ten or twenty percent of Americans went in on the same day to top off the tank, on top of normal demand?

How does it affect your travel plans, your shopping and your work commute if you know you may not be able to fill up your tank again for a week or ten days?

What is your backup plan?

Your Community

The weekend of October 18th rolls around. It's been a week of panic and stress. Store shelves are spotty if not bare. The experts claim things are "fundamentally sound" while your experience directly challenges that. You and/or your spouse hasn't been able to go to work by Thursday or Friday - you ran out of gas or your work has closed due to the fact that the banks are shut down or still in chaos.

You run out of milk. Or canned food. Or need a band-aid.

Take a walk around your neighborhood. How many people do you know? How many would you even recognize? Who do you feel comfortable going to for help or just to talk, or play cards, or borrow a candle if the lights go out?

There's been much talk about the need to develop "resilient communities" - but from what foundation? In the early months of a crisis, few are tossed out of their homes. Cable TV is still acting as a powerful narcotic for addicted viewers. iPods still work fine, though buying new music is problematic with the bank chaos. Unless you lose your job, it may take a few weeks or months to realize that a fundamental shift has happened.

Then what? It will be January or so. Icy cold in most places. You start to remember all those tips for "survival" - like grow a garden or have a stash of precious metals.

Would you know a real gold coin from base metal if you handled one? A silver dime as opposed to a debased coin? What happens to you if food grows scarce in the middle of winter due to transportation problems and store bankruptcies?

Maybe you will be okay - but remember that walk around the neighborhood? How many of them will be okay? What does that mean to you and your family?

The Mirage of Solutions

We can count on plenty of talk about "solutions" to the coming Great Collapse. The problem is, we have built a huge tower on a foundation of sand. It will crumble.

This does NOT mean the end of the world. It does mean you have to be ready to think in radically new patterns, be willing to take risks when your brain tells you "this is not normal" - because "normal" is dead and gone in a world of an insolvent Federal government, collapsing local taxes, few family farms, industrial farms that require massive petroleum-based inputs, a banking system built on bad debts with no way to repay them, and in the face of Peak Oil.

Ignore the many calls you will hear for a "Manhattan Project" to solve this or that. It won't happen. The Big Iron, Big Idea world is dead.

Get ready to get real local, real fast.

Tuesday, July 1, 2008

Believe the Talking Heads. Believe Them...

Expect more of this as the financial elites scramble to put as much lipstick on this pig of a market as they can. Amazing. Even if you don't follow the markets much, please view this. This kind of spin and distortion will infect every aspect of the mainstream information streams that feed the U.S. - politics, budget debates, taxation issues, oil supplies, etc.

You are on your own, my friends. The talking heads and financial leaders are not on your side. Get that through your skull. The great Credibility Crash of 2008 is underway...

Hat tip to Gary North.