Monday, December 28, 2009

Warning

This may be a bunch of nothing, but do please keep an eye on Israel in the coming weeks. A string of news items has me concerned that Israel thinks a ramp-up in tensions with Iran is coming, and that they are back to seriously considering an attack on Iran in the near future.

Maybe I am just being a bit paranoid, but here are a few news items that piqued my interest:

Hopefully nothing, but I don't think Big Shot Israelis like Ehud Barak make a peep in public without it being carefully planned. The specific phrase "conventional strike" got my attention. If Israel drops atomic bombs on Iran as part of a pre-emptive war, well, all bets are off in the region.

And calling home all ambassadors? Maybe it was just for some conference - but you couldn't have done it via video feed? Really makes me wonder what sorts of sealed orders are being sent home with all of them. An Israeli attack on Iran would cause an international sh*tstorm, especially if we see lots of casualties. Having the diplomatic corps ready to face that storm would be a good idea.

The gas mask thing is also interesting. Last time it happened was in the run-up to the war on Hizbullah a few years back.

No real action items fall out of this. If you are prepared for possible financial and logistics chaos then a war in the Middle East shouldn't catch you totally offguard. If nukes do fly over there, I'll try and have a lot of write-ups on the effects of fallout, medical vs. regulatory safety levels for radioactive contamination, etc.

Maybe this is just part of an ongoing need by both the Iranian powers and the West to keep fear and tensions high and those defense budgets up. Who knows. Keep an eye out but don't let it get you down (well, except for those of you living in the region) - if it happens, it happens and we'll deal with it then.

The Center Does Not Hold, But Neither Does The Floor

Check out James Howard Kunstler's Forecast 2010.

Mechanics of the Breakdown

Recently, we've looked at some of the mechanics of what it will take to reconfigure the system after the crash (here and here).

I ran across a headline that illustrates some of the mechanics of the crash itself. The event itself was bad enough (trucking company going bankrupt at Christmas), but note the downstream effects caused by a single individual decision - the decision by some corporate exec to halt payment on the company gas cards with truckers on the road. Stupid or malicious, this is the kind of bad decision made by fallible human beings swept up in a wave of negative emotional mood.

Arrow Trucking Strands Drivers During Layoff
Trucking Company Stops Gas Card Payments for Laid-Off Workers
By LAURENT BELSIE

Layoffs are a fact of life in this economy, but there are humane ways to do it. Then there's the Arrow Trucking Arrow Trucking method.

The Tulsa, Okla., trucking company stopped payment on the gas cards of its drivers, leaving some of them stranded Tuesday around the United States, miles from home. No explanation on the website. No one at the company answering phones...

Think about how fugly it will get when state governments and, eventually, the federales have to start cutting entire programs. What happens when the food stamp cards stop working at grocery store? Or the transfer payments stop coming? Then think about the ability of small groups to leverage big violence in the modern era.

That said, that part of human nature that brings people together in a crisis showed up here to, as fellow truckers banded together to assist the truckers dumped by Arrow. Small groups of private citizens, rising to the occasion rapidly to assist others in crisis, while established "safety nets" failed. That theme will dominate 2010, I imagine...

Thursday, December 24, 2009

Merry Christmas!

Merry Christmas, my friends, and may you have a safe, happy, and prosperous New Year. Keep you cheer as best you can in these monumental times.



Wednesday, December 23, 2009

More for Would-Be Reformers

The Daily Reckoning ran a series of three articles by Sioan Bethel this week that caught my attention. At some point, after we cliff dive down Primary Wave Three, the financial and political elites of the United States - or the international committee set up to oversee the interests of foreign investors who hold our soon to be questioned debt - are going to have to make hard choices on how to restructure spending and deal with the huge overhang of debt.

The Obama Memos are an intriguiging path we might follow or be forced down. For you would-be activists and reformers who hope to jump in and reform the political system, be looking for useful policy tidbits like this. When the volcano that will pull down the current system of bloated government excess erupts, the lava will be malleable for a time and you might just be able to help channel enormous changes down some constructive paths in a relatively short span of time.

Monday, December 21, 2009

MEND 1, Royal Dutch Shell 0

Well, a spreadsheet finally kicked out the magic number at Shell:

Shell Eyes Asset Sales in Nigeria
By SPENCER SWARTZ
LONDON—Royal Dutch Shell PLC is seeking buyers for 10 of its Nigerian onshore oil-production assets following years of militant attacks on its facilities that have squeezed the company's profit, people familiar with the matter said Sunday.

The oil fields have a market value of $4 billion to $5 billion and represent proven oil reserves of about 100 million barrels, one of the people said. The Anglo-Dutch company, for decades Nigeria's biggest foreign oil operator by production, is looking to dispose of the blocks in the first and second quarters...

Unlike the last significant collapse in mass mood (which I'm calling the 1930's), which gave us the horrors of the Great Centralized State, technology has progressed to a point where small groups and individuals will be able to leverage their anger, negativity, xenophobia and resistance into significant opposition to the established order.

Big Government is going to be eaten from below by debt and the logic of the microchip. MEND, Hizbullah and the Russian Mafiyas may well embody the Brave New World we are all stumbling towards much better than 1984.

h/t John Robb

Thursday, December 17, 2009

Another Sign of Contraction

To heck with the Petroleum Age. The overarching mood of contraction, reduction in complexity and desire for simpler times colors individual opinions. Mood makes markets - and colors the rationalizations we use to describe the times.

Case in point:

Roll up the pavement: Gravel is making a comeback
By Clarke Canfield
PORTLAND, Maine (AP) -- Ever since the invention of the automobile, paved roads have meant progress. Now some cash-strapped towns and counties are finding progress too expensive, and they are tearing up battered roads and putting down gravel...

..."It kind of looks like we're going a step back rather than a step forward," admitted Randy Stearns, who heads the road commission in Montcalm County, Mich., which this year turned more than 10 miles of pavement into gravel...

..."Do we really need to keep getting fancier? This is also about quality of life," said Richard Beal, a selectman in the town of Cranberry Isles, Maine, population 118, which got its first paved roads in 1960s but is considering ripping some of them up rather than spend the $500,000 or so he said is needed next year to fix them...

Next up - romaniticizing the slow travel of passenger trains, dirigibles and river transport.

Systems Theory and the Coming Collapse

Apologies dear readers for the lack of posts over the past week. Very busy getting a product launched and getting another project off the ground, not to mention working part time on a "backup plan" for the Mother of All Black Swans that I think is in our (near) future when social mood rolls over again.

In the meantime, please check out John Michael Greer's latest post where he talks about the ascent and the collapse of the Systems Theory "movement" from the last significant bear market "era" back in the 1970's. He makes a huge point that a lot of would-be reformers just don't seem to get - that when you push against the established order, don't be shocked when the established order pushes back.

I think that has relevance to many of us wondering just how in the heck we are going to handle the coming death of easy credit. Radical solutions might actually mitigate some of the worst hardships and at least provide shelter and food for a large swath of society - but implementing radical solutions will guarantee a backlash against it.

The Political Ecology of Collapse
...What made th[e] implosion [of the development of systems theory disciplines] all the more ironic is that a systems analysis of the systems movement itself, and its relationship to the wider society, might have provided a useful warning. Very few of the newborn institutions in the systems movement were self-funding; from prestigious think tanks to neighborhood energy-conservation schemes, most of them subsisted on government grants, and thus were in the awkward position of depending on the social structures they hoped to overturn. That those structures could respond homeostatically to oppose their efforts might, one would think, be obvious to people who were used to the strange loops and unintended consequences that pervade complex systems.

Still, Weishaupt's Fallacy placed a massive barrier in the way of such a realization. Read books by many of the would-be global managers of the 1970s and you can very nearly count on being bowled over by the scent of intellectual arrogance. The possibility that the system they hoped to manage might, in effect, have been more clever than they were probably crossed very few minds. Yet that's how things turned out; at the end of the day, the complex system that was American society had reacted, exactly as systems theory would predict, to neutralize a force that threatened to push it out of its preferred state...

Thursday, December 10, 2009

More on the Mechanics of the Coming Breakdown

For those of you who would like to save what you can of the present economic system and for those of you who are making your plans to enter politics as a reformer, here is an example of the mechanics of what we will be facing as deflation does its agonizing work on asset prices:

"Toxic Titles"
Calculated Risk
...Many community organizations and homeowners have been frustrated by the difficulties of working with mortgage lenders and servicers, and these problems are even more exaggerated in weaker market cities. In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property. Anecdotal evidence suggests that these "toxic titles" have placed significant numbers of properties in a difficult state of legal limbo...

CR goes on to point out that "I've seen toxic titles before in downturns with properties listed for $1 and still no takers..."

This is the kind of grubby processing issue that is of huge importance when society gets its collective sh*t together and wakes up to the hard work of either fixing the current system or replacing it with something different. Property rights are key to a stable society and anything that muddies the title to property creates nothing but chaos, confusion and encourages deterioration of the property, squatting and eventually arson and abandonment.

This has been brilliantly illustrated by De Soto in "The Mytery of Capital" and to see the U.S. actually regressing away from clear titles is another marker on the road to economic chaos.

For you would-be reformers, puzzle on this one. When the time is right, when mood shifts to acceptance of hard truths, be ready with a plan - be it a workout plan with the banks to clear the titles in exchange for tax credits or other give-aways or outright seizure of disputed property and forced clearing of titles or some other mechanism. These are the kinds of things you will have to think about when you throw the bums out and get into a position where you can help steer policy. Be aware of where you are in the Wave Count. Don't try to do too much, but be ready with concrete plans when the time is right.

Wednesday, December 9, 2009

Anger, Polarization and Climate

The ongoing polarization we see is amazing and all too predictable. Socionomic modeling calls for it, but it is fascinating to watch it play out in the real world.

My favorite so far has been President Obama, who has been characterized as a far-left communist as he continues policies barely distinguishable from Bush 43. The anger and hostility fed onto him is amazing in its intensity and its variety. I have always regarded him as a lightweight and out of his depth as President, but man oh man, he is in for nothing but one long political beating in the coming years.

My second favorite, though rapidly climbing to the #1 spot, is the "Climategate" scandal. We will look back on this time and recall fondly when polarization and anger was limited to debate and topics like "climate change" instead of ethnic cleansing, IEDs on U.S. soil and radical politics. But those topics will keep until 2010 or 2011 hopefully.

What is so personally interesting about Climategate is watching how many thinkers that I have a lot of respect for handle the issue, specifically James Howard Kunstler and Dmitry Orlov. These are both men that have helped me get my head around some complex issues that face our country as we continue to sleepwalk over the abyss. Watching these normally iconoclastic thinkers ignore or spin away from dealing with a topic that has very simple technical roots is amazing. These are people who have no problem dealing with the hard numbers of petroleum depletion or social breakdown, but for some reason willfully ignore what appears to me as a simple issue.

Why discuss this? Well, I hope it can illustrate how we all have blind spots, especially when some of our sacred cows get kicked around and even more especially when the cows are held sacred by guys who relish the opportunity to savage moronic behavior when they see it. It is a cautionary lesson that we all need to be aware of where our biases lay. Biases in what information we choose to process can literally be the difference between poverty and comfort, life and death, in a hard times future.

My Take

Just to make my opinions and biases clear - I am of the opinion that certainly the globe has experienced warming for at least a century and a half. CO2 has been shown in the lab to act as a "greenhouse gas". That said, I am still not convinced CO2 is the main driver of any human-influenced warming. The heat balances just don't add up. I'm a simple man and I like to do the math myself. Frankly, I would have always assumed that methane would be the focus of any climate change concerns, but hey, that's just me.

My other problem - I hold degrees in History and Engineering. History gives you a great appreciation for variabilities in climate and their effects on human societies. Engineering gives you an appreciation for hard facts that actually show up in the real world, a demanding attitude towards models that work and a strong desire for clear raw data that you can analyze yourself to determine what went wrong when the models and statistical smoothings fail you in the real world.

To me transparency of raw data, of source codes and of all assumptions that go into your equations is an astoundingly basic requirement for science and all parties in the climate change debates - skeptics and alarmists alike - should play by the same rules with ALL their assumptions and data available for review.

For instance, when a nuclear power plant is proposed, everyone has access to the data used to make up the Safety Analysis Report. The Nuclear Regulatory Commission posts all correspondence and meeting notes on the web for everyone to view. Every equation, every correlation coefficient, every assumption, every material property is made available to both supporters and anti-nukes. Just because I don't like the arguments put forth by anti-nukes doesn't mean I get to choke off data to them. They get it all. That is good public policy and it is good science.

In short, the earth has been in a warming trend for at least seven generations. The models used by climatologists are poor predictors of reality. The models don't handle oceanic cycles well and have very little to say about cloud formation and the resulting albedo changes. The models that were liberated from CRU are of astonishingly poor quality and have hard-coded adjusting factors that skew data towards a warming trend (Hard-coded! Actually f*cking hard-coded in adjustments. With no citing of where the upward adjustments come from! Good God, I would have been fired day one from my old programming job if I had put out crap like that.). None of the above is really in debate. Such models and raw data need to be immediately put out into the public domain for a full review.

In the end, it is my opinion that the warming trend will still be shown, but the CO2 adjustments might not be as radical as first thought and the human influence might not be as profound as the camp of Dr. Mann, et al, might have first assumed. I am becoming more skeptical every day of the claims that a 6 deg C or 8 deg C rise is inevitable over the coming century. The data just don't seem to support it. Maybe, if we free the data and improve our models, it might actually show significant human forcings to temperatures. But we won't know until the data are all released and it has had a thorough vetting out in the open - not in some self-appointed series of Star Chambers across the world.

Kunstler's Take

In Climate, Oil, War, and Money JHK kicks it off thusly:

"Against a greater welter and flow of incoherence jerking the nation this way and that way en route to collapse comes "ClimateGate," the latest excuse for screaming knuckleheads to defend what has already been lost. It is also yet another distraction from the emergency agenda that the United States faces - namely the urgent re-scaling, re-localizing, and de-globalizing of our daily activities..."

Nothing unusual in the language for JHK (there are few who can match him when he gets rolling), but notice that for someone who is passionate about facing facts and the truth, the only thing he can say for those parsing through the ClimateGate emails and, more importantly, source codes, is to call them "knuckleheads."

"...What seems to be at stake for the knuckleheads is their identity, their idea of what it means to be an American, which boils down to being an organism so specially blessed and entitled that it is excused from paying attention to reality. There were no doubt plenty of counterparts among the Mayans when the weather changed and their crops failed, and certainly the Romans had their share of identity psychotics who doubted reality even when Alaric the Visigoth was hoisting off their household treasure..."

Amazing. For once, people ARE paying attention to facts, to source code, to raw data - begging for facts. And they are being denied access by the elites. Here is a swath of Americans who really do want the truth and they are being branded knuckleheads by a man who should know better. They are challenging the powers that be, they are challenging those who restrict data (oh if we could only see as much passion in those who want to have the Saudis come clean on production and reserve numbers for Ghawar...) and they are being given insults and obfuscation in return.

Orlov's Take

The posts I wanted to link to have been killed. Mr. Orlov is passionate about climate change and regards the models used as accurate enough to make long-term plans based on them. Those bringing new data are given insults and funny pictures.

Alas. For someone who I owe a great deal to in terms of my scenario planning (from his wonderful series of articles on how people dealt with the implosion of the USSR and his book-length treatment, Reinventing Crisis) I am amazed that new data is not allowed to enter into his frame of reference.

Another big warning to me to watch out for similar blind spots in my model of how the world works...

Action Item

We all have blind spots. Drill that into your skull. Try to find them in yourself. Thoroughly review your assumptions about politics, religion, the "social contract," taxes and any other strongly held belief. Look for automatic, sleep-walking reflexes in your "thinking" on hot emotional topics and root out the sleep-walking part. That doesn't mean change your opinions on subjects, but it does mean be open and flexible. We are heading into times that will try not just our souls, but the very fabric of our society. Be ready and willing to upgrade your opinions based on reality - not wishes, hopes or unverified jabbering from some self-appointed guru or political hack.

Monday, December 7, 2009

Terrorism and Mood

How the heck did I miss this article when it came out?

The socionomic model continues to find correlation in the real world and would assert that public opinion matters even more deeply than these two researchers have posited.

From Science, 18 September 2009:

Attitudes and Action: Public Opinion and the Occurrence of International Terrorism
Alan B. Krueger and Jitka Malekov√°
Understanding the relationship between public attitudes and the occurrence of terrorism is important because although terrorist acts are rare, public opinion can provide an early warning signal and be an alternative indicator of terrorist threats. In addition, estimating the relationship between public opinion and acts of terrorism can help us understand the circumstances that lead to terrorism...

Unfortunately, 2010 will probably provide far too many examples of this thesis for my taste...

Without Recourse Against the State

What really has me worried about the next leg down in the Great Collapse is the speed in which so many things can go catastrophically wrong.

The next excuses that the coming resurgence in negative mood will use almost certainly will include some of the following:

State and Local Revenue Crises

Will it be New York? California? New Jersey?

Think about the calamity in spending that will occur if/when states and localities suspend payments and cut staff. Next time you are out and about, take notice of just how many state and city employees there are in your area. Then think about all the small businesses and contractors that won't get paid if the states retrench. Then think about the services that will get cut or scaled back (snow plowing comes to mind as we move into winter).

Now think about the follow-on effects - the lawsuits, the secondary crises in things like property transactions, getting your vehicle(s) licensed in a timely manner, calls for major tax increases, etc. The lawsuits seem to be especially fertile ground. Here is a nice quote out of New Jersey from Paul Mulshine at The Star Ledger (h/t Karl Denninger):

"There exists the real possibility that a future Legislature will not make an appropriation for the payment of principal or interest on one or more of the contract bonds. In such a scenario, the bondholders would be without recourse against the state or its assets."

No recourse. Uh oh.

Now, the above quote is from a budget crisis that occurred back in 2001. This time around, we will get to find out which debtholders do have recourse and which don't. And does it matter if you are a holder of New Jersey state debt and they can't pay you back so you wind up part-owner in a state park or a local water system? And think of the crap rolling downhilll from there.

Infrastructure Hiccups

Just in Time Inventory systems, LEAN manufacturing and other logistics ideologies that require cheap and rapid transportation are incredibly vulnerable in times of anger, violence and negativity.

Petroleum supply disruptions will occur should war break out in the Middle East (especially now that Chavez runs Venezuela) and cause cascading failures in trucking and eventually rail transport. This is a known vulnerability and things could be patched together as long as the disruption wasn't for an extended period of time. That said - most big box store shelves would be bare inside of a week. Here's hoping some sort of plan is in place to determine who gets fuel when.

A bigger long-term concern to me is that of low-level violence against absurdly vulnerable infrastructure targets. Attacks on infrastructure (key bridges, the electricity grid, etc.) can create those one or two day delays that, when you get enough of them in various places, can cause a highly efficient system to destroy itself. Inefficient as inventory might seem in the current tax regime, we will learn the value of having "stuff" on hand in the coming years.

War

My festering worry is that Israel will attack Iran and that Iran retaliates by striking out at the petroleum distribution facilities in Saudi Arabia, as well as mining the Persian Gulf. I swing back and forth on this issue - some days I regard it as a very low probability and that it is being used as a fear meme by those who try to shape public mood to their ends. Other days I think the Israelis really consider the Iranians an existential threat and that they'll hit them with all they have - including nukes.

War in the Persian Gulf - especially one that goes badly for perceived U.S. interests could cause enough destruction and disruption to create months, if not years, of petroleum shortages. Without gasoline and diesel, you have no transportation and no farming. No farming, no food. No food - angry rioters with guns.

Have a good week.

Friday, December 4, 2009

Coupons

Light week for blogging - not much on my radar other than the unfolding CRU Hack Story (stories on the climate modeling codes themselves are starting to come out now, which is where I think the real attention needs to be focused), the bubbling along of the Iran nuclear "story" and the ongoing levitation in the markets. Gold got a good thrashing to day. We'll see if the Crowd is ready to herd back towards anger, decline and pessimism, or if we can make it to Christmas without a huge market trendline break.

Speaking of trends, here is a Google Trends image on the search term "coupon" - noticeable upsurge from early 2008. Consumers are still hurting.