Friday, July 11, 2008

It's So Hard Being So Right So Much of the Time (plus some quick advice on protecting and increasing purchasing power as our fiat currency dies)

A segment on ABC News tells us that the airlines are so desperate that they are scrapping in-flight movies in an effort to shed some pounds and save some fuel. The savings for doing this add up to millions of dollars so I guess it's worth it. They are also begging their customers to support legislation to reign in those wicked "speculators" who are "adding as much as $30 to $60 to each barrel of oil." The segment mentioned that experts predict at least one major carrier will go under soon. No shit. I believe they're all going under soon. The actions of the airline industry as a whole are like the thrashings of a man with his head held forcefully in a tub of water, frantic and futile.

Meanwhile not many people are talking about investing in rail. The collective aim is still to keep doing things as they've been done. That means democratized (read: relatively cheap) airline travel along with the 30-mile-or-more one-way commute in a motorized chariot. Talk about rail and living close to work in a traditional (pre-industrial town) smacks of insanity or treason. But keep watching the news. The masses will be catching on quickly. They already are. That's part of the joy I get in monitoring the Great Unwinding of Industrial Civilization and crowing about it on this blog. U.S. Americans are using less oil, driving smaller cars, driving less, consolidating car trips. It's not enough. Oil's "demand permanently outracing supply" thing is going to rip apart the megalopolis and shove North American lives into painful new configurations. People are not going to believe what's going to happen to them and the built environment assembled this past hundred years.

Speaking of crowing: I'd like to point out that, per the prediction I've made at least once in these pages, oil retreated almost $10 (although in truth I allowed for as much as $20) and then shot right back up to new records. I'd also like to take this time to reflect on something else I've said in private many times over the past five years. Stocks, bonds, the dollar and houses were bound to go down. Commodities and commodity money were bound to go up. That doesn't seem like a prediction to you readers because I never typed it here because frankly I wanted to keep that kind of thing to myself. A few years ago everyone thought I was crazy to sell my suburban co-op, get rid of my car, rent in the city, rely on mass transit and walking and start saving in a certain shiny metal instead of dollars. Crazy. Yeah, crazy like a fox. These same people are now upside down on their mortgages (some by an awful lot), increasingly unable to afford getting around their suburban wilderness and the stocks and dollars in their 401k's aren't looking like they'll buy so much as a loaf of bread by the time retirement looms much less pay for the jet setting they planned to do in their golden years.

There's a wonderful prediction by the inestimable Bill Bonner of Daily Reckoning fame (which you should be reading); There have been two times in the 20th Century when one could have bought all the stocks on the Dow Jones Industrial Average for one ounce of gold. Mr. Bonner believes, rightly in my humble opinion, that we are headed for such a time again. The boys over at Agora are calling for the cross to come somewhere around Dow 3000. I think that sounds about right. Gold is currently about $1000 for an ounce. So we are talking about a tripling of the dollar price (while the dollar buys less and less stuff in general as it slides down to its intrinsic value-- more on that later...). The real action, however, will be in silver and here I spill the beans. I mean, really, what harm could it do at this point? Silver has tripled in price in recent years, but it's still way below its historic ratio to gold. Over the past few hundred years it's taken about 15 to 20 ounces of silver to purchase one ounce of gold. A few years ago when both metals were near historic lows (thanks, Mr. Volcker!) the ratio was something like 80 ounces of silver to one of gold: What a bargain! Right now it takes 50. As this whole thing comes to a boil the ratio will shoot up and past the historic 15 to 20 mark, maybe getting as low as 10 to 1. If this happens as gold passes the Dow, we're talking well over $200 for an ounce of silver and maybe as high as $300. Keep in mind that these will be devalued dollars. Still silver has the potential to multiply ten times in dollar price while gold will probably multiply another three times. Silver simply has much more potential, though it is the more volatile of the two. Gold is the perfect way to protect purchasing power, but right now silver is a very good bet for increasing purchasing power as everyone around you gets poorer for saving in dollars.

One could ply the commodities markets and leave a paper trail for the government to follow when the lumpenproletariat are insisting on lynching and burning food and fuel "speculators." Or one could quietly accrue silver and gold and not tell a soul about it.

Note: none of the above constitutes investment advice. I'm a blogger not an investment adviser.

Wednesday, July 2, 2008

Trouble Brewin'

Ford's June sales are down 27.9% from the same time last year. "Ford sales sank to a new 52-week low, while rival General Motors Corp. shares are trading near their lowest level in more than a half century" according to our friends at the Associate Press Tom Krisher and Dee-Ann Durbin. Everyone in both the auto and airline industries must be flabbergasted. Who could have imagined everything would come apart so quickly? Well, actually we Peakniks imagined it, but no one listens to us much. People can't afford new cars and they certainly can't afford to keep those cars running. Who can save anything when the cost of the necessary driving takes up every available dollar and then some?

I was listening to NPR yesterday morning and heard a story about how the rural poor are being hit the hardest by the multiplying of gas prices. These are people who live way the hell out in the middle of nowhere but commute to factory jobs and such very far away. They aren't really rural, but are as Jim Kunstler puts it "living urban lifestyles in rural settings." These people are not going to make it. It was heart-breaking to hear one woman break down a bit when she discussed the impending loss of her home. Sometimes there are no easy answers or quick fixes or any fix at all. Sometimes there is only suffering to be had for the bad choices already made. (And sometimes the bad choices for which we suffer aren't even our own! )

The contrarian expectation to which I'm so prone is for energy prices to reverse their direction at least for a little while. After all, just when everyone is convinced of one thing it's time to make bets that everyone will be proven to be wrong. In this scenario, however, I suspect that things will turn out much, much worse than the majority of folks expect. They'll be surprised anyway, just not in the manner they were expecting. Prices up, wages down, jobs lost, etc, nothing new here, but we ain't seen nuthin' yet. I suspect the (emerging and permanent) energy crisis will bring the soon-to-be-formerly middle class of this country to absolute ruin before energy prices ease off. A few numbers to illustrate the point: by the time pump prices stabilize at $10, they will have already hit $15 or $20 long enough to drive most suburban households (which are still most households) to bankruptcy and foreclosure.

There is going to be work aplenty, however, for these newly ruined masses. We in this country will have a lot of rebuilding to do. A lot of what we've built in the past 60 years will have to be abandoned. Our challenge will be to build walkable towns and cities that will conform to the new world of decreased available energy. The same stuff that New Urbanists and Peak Oil Prophets have been begging the citizens of the U.S. to do by choice will have to be done out of hard, tearful necessity. There will be a hundred million families in this country who will watch everything they've come to view as normal simply cease to work: where they've been able to live, the physical manifestation of their communities in service to driving and car storage and multi-mile commutes, the way they've conducted business, the manner in which they've gotten their food. All of this is going to be forced to change. I gave up campaigning for these changes as a matter of mass volition years ago. I find it much more satisfying to watch as we all catch it in the neck and scarcity makes the changes for us while making paupers of us all.