Thursday, April 30, 2009

Thinking About Action Items

I hope and expect this Suckers' Rally to continue on through the end of May. I still expect that we'll reach DJIA 8,800 at a minimum, but that is just me talking in general terms and using the DJIA as a social mood benchmark, NOT providing trading advice. If you trade based on any information provided at FutureJacked an angry dwarf may jackhammer your entire driveway while you are out shopping for survival supplies - and you may lose money.

This means we should have time to consider some immediate action items that could pay dividends later on as we slide into a chaotic summer.

Some Dominant Memes

We now have a general outline of the main ways this crisis will express itself:

  • The big banks are insolvent, kept afloat by lying about the value of their "assets"
  • The financial playerz and banksters have completely captured the Congress and Executive Branches, preventing radical reforms or imposition of severe consequences in a consistent manner (we're left with a scramble amongst the various pressure groups not to be "made an example of" while the rest of the playerz skate) and acting as a lightning rod for populist anger
  • Employment is cratering
  • The nest eggs of at least two generations have been savaged, and there is a simmering anger and fear rooted in that insecurity that will bubble along, to be released when Primary Wave 3 down (my best guess/count) commences (NOTE: initial posting said Cycle Wave 3, I meant Primary of Wave c, sorry)
  • Other memes of fear and insecurity are gaining strength, such as the hybrid flu making headlines, the ongoing implosion of Mexico (for the more aware out there) and the occasional stories out of Afghanistan and Iraq showing that all is not well in those places where the best and bravest of a generation of U.S. soldiery is executing plans made by the Beltway geniuses
  • Gardening, "survivalism" and other pathways to self-reliance that come at the expense of a hyper-efficient and brittle "just-in-time" consumerist and Big Ag system are on the rise
  • We had a "test run" of riots in Europe (that have since fizzled out)

Near Term Concerns

What to make of those themes (and I've just chosen the ones that I think will have near-term consequences) other than they make great "doomer porn" and have all lost some of their urgency to one degree or another?

Well, when the levee breaks on this Suckers' Rally and mood goes deeply angry and fearful again, I expect that much of that anger and fear will flow down the channels that have already been 'dug' in the minds of our hundreds of millions of fellow citizens. Try not to get swamped in the flash flood.

Banks: the only thing holding this system together is faith, hope and the charity of the federales. There are no viable short-term alternatives to our fractional reserve, fiat money system. In my opinion we will walk the knife's edge between systemic collapse and self-delusion for a few more months, then we'll see bank failures rip across the world. Be prepared to be frozen out at the ATM and online. Have a plan, have some physical cash and make sure you have a safety net of people you can trust - or learn to trust.

Big Finance: This entire sector is a dead man walking. Again, the conceptual barriers inherent in accepting the fact that the big money machine is dead are what stand in the way of sweeping away this now-corrupt system of Wall Street - Washington, D.C. crony capitalism. The next time AIG execs hear about people marching on their homes, it won't be irritated white collar types on buses. Think pitchforks and Molotov Cocktails. If you or a loved one are part of that world and still have a job in it - do please have a Plan B that includes a getaway car that is not obviously the car of a rich man, be able to dress down and have a grab-and-go bag for you and the family.

Unemployment: If you still have a job, good for you. Have a plan for informal self-employment of some kind, if possible. Whether it is selling the "stuff" you accumulated during the boom, providing skilled labor like plumbing or making a go of intensive urban ag - be ready to think more like an entrepreneur than an office drone.

Disease, War, Riots: Sometimes luck is all that can save you - so I don't have any great tips as regards pandemic disease. As for war and riots, make your own luck by mapping out likely places for riots. If you live near an armory or military base, just know that every time a state has a collapse in order, those places are high on the list for looting. As part of your entrepreneurial thinking, have a plan to "employ" or otherwise influence young males in your locale. Whether it is cash, booze, food or ammo, young unemployed males can either work for you or against you. The human race evolved over countless millenia with young males as the headhunters, the raiders of enemy tribes, the risk-takers. Make them part of your "tribe."

Politics: It won't be politics as usual once this next wave begins washing over the country. Not by a long shot. Do keep an eye out for developments. Watch for the growth of Third Parties. Know that things will get ugly. Be prepared to choose sides.

GROW A GARDEN: I'm not sure how to emphasize this enough. I'm not talking about feeding you and your family solely from your efforts. If you can do that, you don't need any encouragement. Right now, get down in the dirt, start learning how to grow. Understand how weather can screw you over. Consider building a Grow Dome or Greenhouse. Get dirty. Have a failed crop or two. Learn now. The future will not be like the past. Disruptions and shortages will be a way of life. Mitigate them to the best of your ability.

And don't rely on cheap Big Box Store tools. I strongly suggest you get real tools made to last for years of hard work. The best place I know to go is Easy Digging Tools. I suggest you visit the site and pick up tools that could become some of your best friends in the coming years.

What to Avoid

You have to avoid the lockdown that occurs in the brains of many during times of massive change. You absolutely must get your brain wrapped around the potential for a total collapse of all that is familiar to you. There will be much good that comes of this. Getting there will be hard. Many will wind up as mental invalids, drooling in their beer, brains locked in a pattern of wishing that the old world of cheap credit and cheaper materialism will return. We may wind up losing much of the population to shock over much of the summer. It may take months if not years for many to recover. Don't lose those precious months.

Be prepared.

Tuesday, April 28, 2009

The Fourth American Republic

I have no idea what lies in wait for us on the other side of the The Great Collapse, but this article is a nice background piece on where we've been and where we may be going.

The Coming of the Fourth American Republic
By James V. DeLong
The United States has been called the oldest nation in the world, in the sense that it has operated the longest without a major upheaval in its basic institutional structure.

From one perspective, this characterization is fair. The nation still rests on the Constitution of 1787, and no other government can trace its current charter back so far. Since then, France has had a monarchy, two empires, and five republics. England fudges by never writing down its constitutional arrangements, but the polity of Gordon I is remote from that of George III. China’s political convolutions defy summary.

Shift the angle of vision and the continuity is less clear, because we have had two upheavals so sweeping that the institutional arrangements under which we now operate can fairly be classified as the Third American Republic. Furthermore, this Third Republic is teetering (these things seem to run in cycles of about 70 years) and is on the edge of giving way to a revised Fourth Republic with arrangements as yet murky to our present-bound perceptions...

hat tip Fabius Maximus

Monday, April 27, 2009

The Bug

You'll be hearing a lot about the swine flu, I fear. Not much time to dwell on the particulars, but I do find it interesting that the conditions for a bad flu bug - overcrowded mega-urban centers like Mexico City - have existed for decades. Only now, as the negative mood of this enormous bear market is getting into swing, are we seeing a potentially major epidemic. Curious if nothing else, and right in line with what socioniomics would theorize...


Swine Influenza (Flu)

Human cases of swine influenza A (H1N1) virus infection have been identified in the United States. Human cases of swine influenza A (H1N1) virus infection also have been identified internationally. The current U.S. case count is provided below.

Investigations are ongoing to determine the source of the infection and whether additional people have been infected with swine influenza viruses...

UPDATE: xkcd is spot on with this comic. Remember how "the Information Economy" and "connectivity" was going to make us all smarter?

Thursday, April 23, 2009

Paradigms

Some food for thought from John Michael Greer:

A Struggle of Paradigms
Perhaps the most fascinating factor shaping today’s debates about the future of industrial society, and certainly among the most frustrating, is the rapidity with which any such debate plunges into territory outside the reach of rational argument. Watch a conversation about the subject, and nearly always one of two things will happen: either the participants will find they share basic assumptions in common, and will proceed to build a conversation on that firm ground, or their assumptions will differ and they’ll spend the rest of the conversation talking past one another...

The post focuses mainly on ecology, but, as with most of his writing, has a larger context as well. I would suggest that we are in line for a series of radical paradigm shifts, including that of the dominant view of the industrial revolution, in physics, cosmology - and in the myths that those paradigms inform, the stories we tell ourselves and pass along to our children. Two generations from now, I believe that this Great Collapse will have altered science, politics, religion and business in ways we can't imagine right now.

We get to help shape that new worldview - for better or worse.

Monday, April 20, 2009

For There is Nothing Good or Bad but Thinking Makes it so...

The blog posts have been downers, mostly, lately. I don't mean it to be that way. We are living on the cusp of times of great change. The torpor and stasis of the delusional bubble years is being shaken off. Yes, it will be scary to most, but it doesn't have to be, not for you.

Courtesy xkcd

Let me not pray to be sheltered from dangers but to be fearless in facing them.

Let me not beg for the stilling of my pain, but for the heart to conquer it.

Let me not look for allies in life's battlefield but to my own strength.

Let me not crave in anxious fear to be saved but hope for the patience to win my freedom.

- Tagore

Two Quotes for the Times

Spengler has two quotes that worth pondering and understanding.

The first has a socionomic flavor to it, in the context of the sudden fame of Susan Boyle:

...Churlish resentment of high culture comes from the slacker's desire for reward with neither merit nor effort: the sort of artistic skill that requires years of discipline and sacrifice is a reproach to the indolence of the popular audience of the West. Better voices than Boyle's can be found in a thousand choirs and amateur theatricals, but the crowd has embraced this late-hatching Scottish songbird as a symbol of its own aspirations...

And the second is the hard truth that becomes obscured during every fevered bubble of optimism:

...China's thrift, industry and diligence are qualities born of long experience with hard times. The terrible suffering of the 19th and 20th centuries left every Chinese parent with the conviction that the world shows no mercy to mediocrity...

Indeed.

Sunday, April 19, 2009

A Bleak Destination

"Twelve heads in a bag left on the side of the road, found in a country God no longer knows..."

John Robb thinks Twelve Heads in a Bag by the Krayolas works as a theme song for the globalguerrillas / 4GW entities / networked tribes. I have a very, very bad feeling that he may be correct.

The disintegration of the Mexican State (euphemistically called the Mexican Drug War) is Big Example Number Two of what the nation-state system is facing as we enter The Great Collapse, driven by this mass change in social mood that is sweeping the globe. Big Example Number One - Iraq - was just the initial proving ground for tactics and weaponry, a stress test of the ability of tiny groups to wreak out-sized havoc. To the U.S., Big Example Number One could, frankly, if worse came to worse, be abandoned and we could pull back with two oceans between us and the resulting chaos.

Mexico, however, ain't going anywhere. As she continues to slip further and further into the shadowy world of half-nation-state half narco-feudalism, watch for the violence, corruption and blowback to flood north. If you think we would ever have better luck in Mexico than in Iraq, I strongly urge you to read about Pershing's campaign against Villa.

And, just as an aside, note that the style of music - the corrido (roughly a combo of what we in the U.S. might regard as folk music plus the Blues) and other music playing up the role of the narcotraficante are making in-roads as social mood turns negative. Art is driven by the same impulses as commerce, politics and religion. Those of you with an talent for art in any form need to take note of the times...

Friday, April 17, 2009

Another Free Week Offer


The folks at Elliott Wave International are offering another Free Week - this time for their extensive "Global Market Perspective." If you are a big-picture type, I strongly suggest you take them up on the offer to check it out.

CAVEAT: The usual. I do get a credit if someone new signs up for the free Club EWI, which gives you access to this, and the other Free Weeks that get offered over the course of the year. I regard the information from EWI to be very actionable and helpful in guiding me through this crap storm we are just entering - that's why I post links to them. If it bothers you that I might get a credit, please directly type in the EWI address (don't click over on the link or the ad) and you will be able to sign up from their main page without my tracking info on the sign-up. I won't get the credit and you will still have access to what I regard as some of the most important financial information and forecasting being written today.

From EWI:


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About the Publisher, Elliott Wave International: Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

AgShock: Suicide and Brittleness

A horrible story out of India:

1,500 farmers commit mass suicide in India
Over 1,500 farmers in an Indian state committed suicide after being driven to debt by crop failure, it was reported today.

The agricultural state of Chattisgarh was hit by falling water levels.

"The water level has gone down below 250 feet here. It used to be at 40 feet a few years ago," Shatrughan Sahu, a villager in one of the districts, told Down To Earth magazine "Most of the farmers here are indebted and only God can save the ones who do not have a borewell."

Mr Sahu lives in a district that recorded 206 farmer suicides last year. Police records for the district add that many deaths occur due to debt and economic distress...

Note the confluence of debt, strain on water resources and the increasing mood of despair. Granted the suicides may be a bit more of an expression of the cultural attitudes towards taking your own life, but the trend is ugly and the mass nature of the tragedy speaks loudly of a socionomic driver to it.

Then we get a startling story out of South Africa:

Monsanto GM-corn harvest fails massively in South Africa
by Adriana Stuijt
South African farmers suffered millions of dollars in lost income when 82,000 hectares of genetically-manipulated corn (maize) failed to produce hardly any seeds. The plants look lush and healthy from the outside. Monsanto has offered compensation.

Monsanto blames the failure of the three varieties of corn planted on these farms, in three South African provinces,on alleged "underfertilisation processes in the laboratory". Some 280 of the 1,000 farmers who planted the three varieties of Monsanto corn this year, have reported extensive seedless corn problems...

Monsanto tells us that this was probably rooted in an error in the seed production method and is not a "failure" of GM crops per se.

Social Mood Bias in Building Up Brittle Systems

Knowing just enough ag stuff to be dangerous, I am willing to buy Monsanto's explanation, but that completely misses the big picture, in my opinion: we've built a worldwide food supply chain that is highly efficient, highly productive and extremely brittle. When mood is positive, building up such a system seems like a great idea.

The fundamental assumptions (the "initial conditions" to you engineers out there) will be biased towards the positive when mood is positive:

  • There will always be sufficient water for mechanized row cropping
  • The transportation system will be efficient and resilient and that means fewer and fewer farmers can send more and more food around the world
  • Moving towards fewer and fewer crop strains is okay because the risk of devastating disease or infestation seems remote
  • Petrochemicals will always be cheap for killing the weeds and the natural gas used to make fertilizers will always be cheap and abundant

Well, that has left us with a highly evolved system that requires all the input parameters to operate very well and very consistently. Because at the moment world trade is still robust and transport networks are still reliable, this is fine. Major crop failures, such as this one in South Africa, may be locally devastating to the bank accounts of farmers, but starvation won't occur because we can still ship the food everywhere it needs to go. Famine still remains mostly a political issue, not an issue of ability to transport and deliver basic foodstuffs.

What happens when the initial conditions prove incorrect? Like the Indian farmers found out - when the water isn't there, their crops fail (no matter how hyperproductive the seed strain may be) and they are driven to bankruptcy or suicide.

The GM crops referenced in the South Africa story are another great example. One screw-up in a laboratory and tens of thousands of hectares of maize utterly fail to develop. The brittle nature of this system means that if everything isn't just right, the downsides can be catastrophic.

In a world governed by negative mood, resiliency will be much more prized than efficiency, in my opinion. The inefficiencies of high tariffs and "buy from your country" can be much better rationalized in a time of negative mass mood than in the expansive, optimistic days of the late great expansion we saw in the 20th Century.

When brittle fails, it fails big. Sure, planting legacy seeds might produce lower yields. Planting with labor-intensive methods might be more inefficient on a mass scale. Moving towards smaller operations focused on local markets might be detrimental to the big picture of getting food across the planet.

With all those caveats, when a resilient system experiences failure, the problems are more easily addressed and are not catastrophic to the system as a whole.

I think we'll be seeing more of this theme in the areas of electricity generation and distribution, in the moving of petroleum all across the world and continuing in the world of agricultural production.

Wednesday, April 15, 2009

Ward Nerd Must Read

At major phase changes ("tipping points" as Gladwell calls them), the old rules that governed a system cease to work and new rules take over.

Keep that in mind when you read the War Nerd's latest and keep saying to yourself "he is exagerrating" or "it can't be true, there's a super-secret something that will defend against this threat..."

The War Nerd: This Is How the Carriers Will Die
By Gary Brecher
...The lesson here is the same one all of you suckers should have learned from watching the financial news this year: the people at the top are just as dumb as you are, just meaner and greedier. And that goes for the ones running the US surface fleet as much as it does for the GM or Chrysler honchos. Hell, they even look the same. Take that Wagoner ass who just got the boot from GM and put him in a tailored uniform and he could walk on as an admiral in any officer’s club from Guam to Diego Garcia. You have to stop thinking somebody up there is looking out for you.

Remember that one sentence, get it branded onto your arm: “Ships currently have no defense against a ballistic missile attack.” What does that tell you about the distinguished gentlemen with all the ribbons on their chest who’ve been standing up on carrier bridges looking like they know what they’re doing for the past 50 years...

...The difference between the Israeli navy and ours is simple: the Israelis learned their lesson and switched to smaller, lighter missile craft. No more ocean-going muscle cars to act like giant magnetized targets. The newer Israeli boats are small enough that when you lose one, like they did in the 2006 war to land-based Hezbollah surface to surface missiles, you don’t suffer 100 casualties.

That’s one way the US Navy could have gone after the Eilat went down: a fleet of smaller, lighter ships, basically ships you could afford to lose. There are some real interesting computer modeled naval war games that seem to be telling us that’s the way to invest your naval budget: lots of small ships carrying big missiles...

This isn't a War Blog, but it is a blog about the huge changes rolling over the earth as we speak, so I don't vouch for every technical detail. That said, the mindset he refers to does not seem alien to the times we live in. Perhaps he's exagerrating a bit, but one thing to add from my computer days, back when I was much heavier (on an amateur basis) into simulation software - the Navy was running computer simulations and war games back in the 1980's showing that mass ballistic missile attacks on surface ships had very, very high kill rates. Those war games made enough noise at the time to even make it into Tom Clancy's "The Hunt for Red October." The Navy ran those sims after the Falklands War - a war that might have been won (or at least made much, much more messy) by Argentina had they owned about 20 more aircraft-launched Exocet missiles.

The Navy kept building carriers.

Something to ponder as you listen to "experts" give you reassurance. Here's hoping that the experts in the U.S. Navy are of a better caliber than the ones on Wall Street. I personally think they are and here's hoping we never have to find out...

Monday, April 13, 2009

Resilience, or Lack Thereof

This story hearkens back to when we covered a lot of the infrastructure attacks that were happening in pre-Awakening Iraq. I still think Iraq is the "Spanish Civil War" of the coming Collapse era which will see 4GW style groups rising in influence and power (just read what is going on down Mexico way to see how close it has crept to the U.S.) and the kinds of knowledge and tactics developed there will be spread to groups all over the globe.

I fear we are seeing the glimmers of it in California, possibly someone(s) prepping for an "urban takedown" of some sort? No time to delve more deeply into this today, but something to consider.

Bad scenarios for the smart-grid concept
By John C. Dvorak
...This week in the San Francisco Bay Area, the fiber-optic cable network was purposely sliced at four distinct locations. Where a hacker cannot succeed, bolt cutters will do. Read more in The Wall Street Journal's Digits blog.

Once the cables were cut, Internet service was flaky for the region and completely out for 50,000 customers. On top of that, the landlines would not work and the cell-phone towers in the area went dead.

Does anyone find this sort of interdependency a little disconcerting? It is as if someone was testing the grid for either redundancy or failure points...

Friday, April 10, 2009

Eating Our Seedcorn

PensionPulse reports on a story that should send cold shivers down the spine of every single person who is relying on, or counting on, a pension. A pension payout crash would be a huge blow to faith in the System, not to mention a very real hardship, if not calamity, for millions who worked hard and thought they'd been promised a secure cash flow in retirement. Those people vote and in large numbers, by the way...

Pensions Facing a Cash Flow Collapse?
...As for cash flow problems facing many pensions, they are the product of a giant experiment that was destined to fail. Instead of securing retirement income for millions of hard working people, over the last decade, pension fund managers slashed their allocations to government bonds and increased their allocations first to stocks and then to alternative investments like private equity, real estate and hedge funds.

In order to deal with this pension crisis, policymakers are faced with some tough choices ahead. These include cutting benefits, increasing contributions, raising the retirement age or increasing taxes to make up for the shortfall...

h/t naked capitalism

A blessed Easter to all of you. Keep your eyes open and your powder dry.

Thursday, April 9, 2009

When Belief in the System Fades

Charles Hugh Smith revisits a topic we've hashed over here at FutureJacked on several occasions - the phase change in attitudes that allow entire systems of thought and belief to collapse in a heap. Socionomics, in my opinion, provides the stresses that bombard belief systems. The individual choices of how to react to the massive waves of optimism and pessimism color the destiny of those systems. When a belief system becomes so divorced from reality that it turns into a cancer instead of a tool to advance society and protect the productive, then that cancerous growth has only one destiny - exponential growth leading to a putrid die-off (of the system, not necessarily of those who used to operate under it - the shrugging off of a belief system can actually result in a better quality of life in some cases). Enjoy. Much to ponder here. The problem is that there are so few metrics to guide us or to tell us if such a loss of sustaining belief in a system is occurring. Until it is too late, of course...

Survival+ 10: When Belief in the System Fades
April 9, 2009
by Charles Hugh Smith

At some point--perhaps a "tipping point" or just an erosion--the middle class bails out of the increasingly burdensome task of propping up the state and the Plutocracy. I call this phenomenon "When Belief in the System Fades."

There are elites in every human culture (and in the social apes as well). But unlike a troop of chimps ruled by an alpha male, today's elites cannot operate the vast complex structure of the U.S. economy, government and society themselves. They need hundreds of thousands of well-educated, hard-working people to believe in the system of meritocracy, justice, opportunity, etc., people who will choose to invest their entire productive lives in sustaining the structure which the elites influence/control.

The corollary to this structural need for highly motivated, dedicated people to work the gears is that if their belief in the machine fades, then the machine grinds to a halt...

Wednesday, April 8, 2009

One Giant Dubai

Apologies for the lack of posts over the last several days. Things are busy outside the FutureJacked Bunker at the moment.

Last night while taking a few minutes to catch up on the stories Matt Savinar posted over at LATOC, I read an opinion piece on what is happening in Dubai as the credit bubble continues its implosion. Then it got me to thinking - I know, I know, always a dangerous thing:

The dark side of Dubai
by Johann Hari
...If you take the Big Bus Tour of Dubai – the passport to a pre-processed experience of every major city on earth – you are fed the propaganda-vision of how this happened. "Dubai's motto is 'Open doors, open minds'," the tour guide tells you in clipped tones, before depositing you at the souks to buy camel tea-cosies. "Here you are free. To purchase fabrics," he adds. As you pass each new monumental building, he tells you: "The World Trade Centre was built by His Highness..."

But this is a lie. The sheikh did not build this city. It was built by slaves. They are building it now.

III. Hidden in plain view

There are three different Dubais, all swirling around each other. There are the expats, like Karen; there are the Emiratis, headed by Sheikh Mohammed; and then there is the foreign underclass who built the city, and are trapped here. They are hidden in plain view. You see them everywhere, in dirt-caked blue uniforms, being shouted at by their superiors, like a chain gang – but you are trained not to look. It is like a mantra: the Sheikh built the city. The Sheikh built the city. Workers? What workers?

Every evening, the hundreds of thousands of young men who build Dubai are bussed from their sites to a vast concrete wasteland an hour out of town, where they are quarantined away. Until a few years ago they were shuttled back and forth on cattle trucks, but the expats complained this was unsightly, so now they are shunted on small metal buses that function like greenhouses in the desert heat. They sweat like sponges being slowly wrung out.

Sonapur is a rubble-strewn patchwork of miles and miles of identical concrete buildings. Some 300,000 men live piled up here, in a place whose name in Hindi means "City of Gold". In the first camp I stop at – riven with the smell of sewage and sweat – the men huddle around, eager to tell someone, anyone, what is happening to them...

The story of the exploitation of migrant workers in Dubai is not exactly a new one and I'm sure that you can find three bright, intelligent, hard-working men and women for every one of the empty-headed fools mentioned in Mr. Hari's piece. I suggest reading the article in its entirety and, if you happen to know folks who have lived and worked in Dubai, talk with them.

I'd heard stories from friends who worked in Dubai of the sewage on the beaches and the insane building boom and the horrid treatment of workers. Some will chalk it up to the pain inherent in exteremely high growth rates, others will chalk it up to mindless medieval oppression. Today I don't really want to dwell on the specifics of the Dubai story - others who live there can do that job. I want to briefly hold up Dubai as an example of what kinds of delusions are possible when an entire society has on blinders, convinces themselves to ignore the obvious and then tries desperately to pretend there won't be consequences.

Blinders

I've mentioned here before that in my view the "magical thinking" (the tag used by the socionomics model to describe the flight from reason that occurs as mood shifts from positive to negative) that sweeps through a society really begins in the latter part of the fifth wave advance of positive mood. The positive mood has been entrenched for so long and the benefits of buying into that mood are so obvious that most people view it as a fact of nature, akin to gravity or Planck's Constant.

The opinion piece on Dubai got me to wondering about what blinders am I wearing? Sure, I like to think I'm a bit more aware than the average consumer out there, but am I just fooling myself? Or, more accurately, maybe I am aware of one or two more sources of systemic risk than most of my neighbors, but in the big scheme of things am I missing some huge factors that may come back to bite me on the butt?

Like the Dubai citizens who ignore the Morlocks who build the skyscrapers and tend to the families of the ugly rich, what could I be ignoring?

Here are just a few "givens" that could implode on those of us in the West:

  • The "value" of money. After this Suckers' Rally ends in tears, the impulse to "do something" - arelady at a fever pitch in Washington, D.C., will become deafening. If they are stupid enough to run these future-killing deficits now, what will hold them back from sending everyone a check for $50,000?
  • The ability to get to "your" money. The ability to easily access your money and move it around via ATMs, automated billpay, web access to your accounts, etc. has become a given. What happens if we get slapped with a Bank Holiday? Or a couple of big bank crashes that bring down the ATM system for a few weeks?
  • Ag Shock. What happens if we have a bad harvest? What happens when you can't just go down to the store and find it filled from floor to ceiling with cheap food? Impossible? Maybe. Maybe not.
  • Oil Shock. This is old news for many, but as far as society is concerned the magic oil fairy farts out the stuff into gas stations all over the country. What happens if war with Iran or a collapse in the dollar or the continuing death of the Canterell field causes us to lose access to cheap and easy fuel?

Then What?

Let's say we do identify some gaping holes in whatever model we use to look out over the universe. Then what?

If you lived in Dubai, what would this realization of the horrid conditions that some migrant workers live in do for you? Or of the knowledge that the easy money that helped build the city was drying up like water in the desert?

Sure, you could pay your maids a decent wage, treat them well and give them time off. You could reduce your exposure to debt and hope to avoid debtor's prison. But that is just tinkering around the margins. You'd still look out over the skyline and see the darkened obelisks of empty office towers. You'd still hear the stories of the hundreds of cars abandoned at the airport as people flee the sheikhdom. You'd still know that the current rate of water consumption at Dubai is totally unsustainable. You'd know that the city-state's current way of doing business still relies on cheap and abundant credit - credit that is drying up all around the world.

You'd be tied to the wheel with everyone else. Sure you could do a few things to prepare both mentally and financially, but the very sea in which you swim is boiling off under the heat of intense and growing negative mood.

Is that really all that different than what we are facing here in the Land of the Indebted?

Thursday, April 2, 2009

More Crony Capitalism

When the populist backlash kicks into truly high gear, I imagine they'll grill Bill Gross of PimpCo in prime time:

Geithner’s Non-Recourse Gift That Keeps on Giving to Bill Gross
By Jody Shenn
April 2 (Bloomberg) -- Treasury Secretary Timothy Geithner’s plan to rid banks and markets of devalued assets may be a boon for Pacific Investment Management Co.’s Bill Gross.

The plan may reward investors with 20 percent annual returns on “really toxic” mortgages bought at 45 cents on the dollar by allowing them to borrow six times their money with “non-recourse” government-backed debt, New York-based Credit Suisse Group AG analysts Carl Lantz and Dominic Konstam wrote in a March 27 report. That loan would be worth 15 cents to an investor seeking the same return who can’t use borrowed money...

...“This is perhaps the first win/win/win policy to be put on the table,” Gross, co-chief investment officer of Newport Beach, California-based Pimco, said in an e-mailed statement last week...

...Nobel prize-winning economists Paul Krugman, a professor at Princeton University in Princeton, New Jersey, and Joseph Stiglitz, a professor at the Business School of Columbia University in New York, blasted Geithner’s plan for putting the taxpayer on the hook for losses with what they say is little likelihood of success.

“The Geithner plan works only if and when the taxpayer loses big time,” Stiglitz wrote in the New York Times this week. “With the government absorbing the losses, the market doesn’t care if the banks are ‘cheating’ them by selling their lousiest assets, because the government bears the cost.”

Krugman wrote in the Times last month that “Obama is squandering his credibility” with the plan...

...Unlike Geithner’s plan for loans, the public-private funds for securities will be limited initially to only five managers, such as Pimco and BlackRock, already overseeing $10 billion of the assets targeted. That program will buy securities from holders of toxic assets other than banks.

“There it’s probably going to work -- for five people,” said Dan Castro, chief risk officer at hedge fund Huxley Capital Management in New York. “You’re selecting a very small group of large guys and giving them all the advantages...”

I recall back in 1998 and there-abouts that the U.S. envoys shuttling over to Asia to lecture those countries on the economic crisis that blew up always complained of Crony Capitalism and how governments steered resources and big money to a select few and how that helped contribute to the imbalances that hammered Thailand, Indonesia, South Korea, et al.

Ten years later we enshrine it as policy.

Ugh.

h/t Mish

Wednesday, April 1, 2009

Waves in Action

I'm watching the G20 protests, but there is little to say other than I expect this is only the beginning. If we are truly in a nice Suckers' Rally, then I would expect them to fizzle or at least not turn too violent. When the downtrend resumes, one might expect uglier outcomes.

And speaking of downturns, the following chart of the Case-Shiller Composite from Calculated Risk caught my eye today:

I know this is a chart of percentage changes, not of a discrete index, but that sure as heck looks like a five-wave pattern developing in the price change trend. Maybe it means we have a few more months of serious percentage declines and then the declines, while still there, stop gapping down by 20-30%, but during an A-B-C retracement dink and dunk along at single digit declines or occasional gains.

Or maybe I am seeing a Wave Pattern where there is none.

Food for thought. My trading history certainly doesn't qualify me to proclaim myself an expert in Wave Pattern recognition.