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  Friday, March 4, 2005  07:15  a PST

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The Hidden Story of the Week: Bankruptcy Reform

You might think, if you just dropped in on planet Earth from somewhere else in the galaxy, that there were really three big stories on Thursday: Martha's freedom, Michael's trial, and the wild chimpanzees of Kern County.  But, of course, you'd be wrong. That's just pabulum for the masses of non-thinkers.

The real story today is about grease - and specifically the banking industry's attempts to make declaring bankruptcy event harder for average Americans while preserving the loopholes for the fat cats.  STORY.

Watching the discussions and vote on C-SPAN 2 Thursday, while nursing my gout attack, I learned that most bankruptcies are caused by medical problems and that banks have enough grease and horsepower to roll over the democrats who suggested limiting maximum interest charges to 30%.  The attempt to leave senior citizens with a homestead exemption of $150,000 (so an elderly person would still have a place to live following a major medical crisis) was also thrown out.

So, the next time someone tells you what a great party the Republicans are, go over and read the record at places like THIS and notice that the GOP voted against all the common sense and decent suggestions.  Instead, they voted like the lackeys of corporatist banksters and put the screws to the average folks again.

Gold Manipulation Real - Study

This is an interesting goodie for those of us who have been buying gold as funds allow:

"DALLAS--(BUSINESS WIRE)--March 3, 2005--A study published by a research foundation in Dubai has endorsed the Gold Anti-Trust Action Committee's findings that Western central and commercial banks have rigged the gold market but have much less gold than they claim to have and so are vulnerable to rising demand for gold. The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold.

The study, "The Role of Gold in the Unified Gulf Cooperation Council Currency," was written by Eckart Woertz, vice president of CFC Securities in Dubai, for the Gulf Research Center. It quotes the work of GATA's consultants, including Frank Veneroso, and predicts that the gold price suppression scheme of the Western banks will fail just as their similar scheme of the 1960s, the so-called London Gold Pool, failed when the drain on Western gold reserves became too great. Once the scheme fails, the study says, "it will be highly difficult and expensive to accumulate a gold reserve. This is especially true for central banks that have low gold reserves like those in the Gulf Cooperation Council countries."   MORE

Job Report Hype

Another example of finding the wrong things to celebrate by the rearview economists of Wall Street was the jobs report for February out today.  Here's part of the official news release:

Nonfarm payroll employment increased by 262,000 in February and the unem-
ployment rate edged up to 5.4 percent, the Bureau of Labor Statistics of the
U.S. Department of Labor reported today.  Job growth occurred in both goods-
producing and service-providing industries.
  
Unemployment (Household Survey Data)
  
   In February, both the number of unemployed persons, 8.0 million, and the un-
employment rate, 5.4 percent, returned to their December levels after dipping
in January.  The jobless rate had been either 5.4 or 5.5 percent during each
of the last 6 months of 2004.  In February, the unemployment rates for the
major worker groups--adult men (4.9 percent), adult women (4.7 percent), teen-
agers (17.5 percent), whites (4.6 percent), blacks (10.9 percent), and His-
panics or Latinos (6.4 percent)--showed little change.  The unemployment rate
for Asians was 4.5 percent in February, not seasonally adjusted.  (See tables
A-1, A-2, and A-3.)
  
   The number of long-term unemployed--those unemployed for 27 weeks and over--
remained at 1.6 million in February.  This group accounted for 1 in 5 unem-
ployed persons.  (See table A-9.)

Total Employment and the Labor Force (Household Survey Data)
  
   In February, total employment was about unchanged at 140.1 million, sea-
sonally adjusted.  The employment-population ratio--the proportion of the
population age 16 and over with jobs--was little changed over the month at
62.3 percent.  The rate has fluctuated between 62.1 and 62.5 percent for
the past 2 years.  In February, the civilian labor force was essentially un-
hanged at 148.1 million, and the participation rate held at 65.8 percent.
(See table A-1.)
  
   Over the year, the number of persons who held more than one job increased
by 432,000 to 7.7 million, not seasonally adjusted.  These multiple jobholders
represented 5.5 percent of total employment in February, up from 5.3 percent
a year earlier.  (See table A-13.)
  
Persons Not in the Labor Force (Household Survey Data)
  
   There were 1.7 million persons who were marginally attached to the labor
force in February, little changed over the year.  (Data are not seasonally ad-
justed.)  These individuals wanted and were available to work and had looked
for a job sometime in the prior 12 months.  They were not counted as unem-
ployed, however, because they did not actively search for work in the 4 weeks
preceding the survey.   MORE

The bad news, which is being ignored by the market include:

• The All Worker unemployment rate increased from 5.2 to 5.4% compared with January.

• Hours worked in manufacturing jobs declined.

• Weekly earnings were unchanged (you'll notice that they didn't keep up with inflation)

Texas Versus Wireless

Apparently, Elaine and I have been gone from Texas long enough for the Republic's occupation government to start backsliding.  Specifically, in Houston, we find evidence of a "down on wireless" movement:  DETAILS.  Yep, can't have wireless access everywhere - just think how easy that would make communicating!  This is just foreplay for the major attack we expect to see on the 'net which will no doubt be blamed for the world's next economic tempest.

Iran Reinforcing

There are reports today that Iran is putting in tunnels to keep some of its nuclear materials safe.   LINK.  The rumor that Iran will be attacked in June continues to swarm around the net.

Inside Report

This week's Inside Report focuses on an interesting concept I've come up with:

U_lt  = O_{i +} J_{j  +} L_i  For an explanation (it's really pretty simple) get subscription information HERE.

Our e-book "How to live on $10,000 a year" is offered at our BOOKSTORE.

Thursday

Back to Watching Oil

A reader asked yesterday how it could be that oil prices were going up, when there were increases in the price of distillates and some slowdown in the demand on the basis of less transportation and refining.  "It seems like if there was refining problem," he wrote, "the prices of oil itself would come down."  Not exactly.  The reason?  When there are outages, the normal mix of product gets screwed up and because less of one thing is made, total demand goes up.  Which in turn drives price.  I mention this because we seem to be back to watching oil today prior to the market open:  STORY.

More Rearview Economics

Because most market "experts" don't have the common sense God gave chickens, there's a bit hype in the pre-open today about how February retailing numbers will hold center stage.  All of which is fine, STORY except that when you see the market looking at last month's numbers, it blow the Holy heck out of the theories that the market discounts events 6, 12 and even 18-months out.  No, the market is a paranoid, hair-trigger place where a bunch of Deadwood characters are only looking as far as the next Greater Fool to buy up that turkey of a stock with a good "story" behind it.

Pole Reversal

Say what you will about the Indian press, they make the National Inquirer look like a bastion of self restraint and understatement.  And example in the story today about how a coming pole reversal could end life in 2012. LINK  We find the fascination with 2012 directly attributable to an interpretation of the Mayan Calendar long count.  But, it's not the only one.  There are versions of it that have the end of the long count as early as 2006 - 2008.  Plus, with the increase in earthquake activity, there's no reason why civilization as we know it couldn't end at 4 PM this afternoon!

Another reason why the much ballyhooed pole reversal might not wait: Another batch of dolphins has beached in Florida causing some people (like me) to wonder if this doesn't presage another massive earthquake between now and the 15th of this month with highest odds around the 8-9th when hyper dimensional maths suggest angular momentums will be highest and most stressful; STORY.

CIA: More Yalie-speak

We couldn't help but notice the comments of CIA Director Porter Goss on his workload, or his wonder at his relationship with John Negroponte.  DETAILS  What really jumped out was they are both Yalies and leaving us wondering whether either (or both)  is a Skull and Bones agent. About Negroponte but  Goss apparently was not. For a country without royalty, we seem to do a phenomenal job of putting Yale grads into high office.

War Warm-up

More stone-throwing in the war of words over whether Iran should be allowed by the world police agency (read: The U.S.) to build nukes.  STORY.  I can't figure out why we aren't taking them away from Pakistan, but who am I to ask such impertinence.  We should see the anti-Iran rhetoric ratchet up through June or July before a "surgical strike" again the Iranian nuclear facilities which could then bring Russia eye to eye with us.

Europe's Cool

Good picture series at this LINK if you have high bandwidth. Otherwise, the learning point is that Europe, thanks to global warming screwing up weather patterns is having an unusual cold snap and associated snow.  There were places in Germany with -21 (C) yesterday according to our source.

Single Women of Russia

Sounds like the headline for a Playboy photo spread, doesn't it.  Well, it seems that young women in Russia are not marrying off very quickly, causing consternation from demographers who are worried about Russia's declining population.  STORY. 

Natural Versus Pills

I've been sucking down black cherry juice extract like there was no tomorrow, and supplementing that with pantothenic acid (B-5) pills in an effort to get the gout to disappear "naturally."  Although it has honestly improved a tiny bit overnight, I will still be taking today off to let it mend to where I can put full weight on the bothersome left foot.  Plus, a colleague is FedEx'ing me some colchicine pills, which ought to do the trick. It's like the old joke: "My gout is acting up so I won't be able to play soccer today..." Not mentioning, of course, that I couldn't play any other day, either.

Wednesday

Greenspeak

http://www.federalreserve.gov/boarddocs/testimony/2005/20050302/default.htm

"Mr. Chairman, Ranking Member Spratt, and members of the Committee, I am pleased to be here today to offer my views on the federal budget and related issues. I want to emphasize that I speak for myself and not necessarily for the Federal Reserve.

The U.S. economy delivered a solid performance in 2004, and thus far this year, activity appears to be expanding at a reasonably good pace. However, the positive short-term economic outlook is playing out against a backdrop of concern about the prospects for the federal budget, especially over the longer run. Indeed, the unified budget is running deficits equal to about 3-1/2 percent of gross domestic product, and federal debt held by the public as a percent of GDP has risen noticeably since it bottomed out in 2001. To be sure, the cyclical component of the deficit should narrow as the economic expansion proceeds and incomes rise. And the current pace of the ramp-up in spending on defense and homeland security is not expected to continue indefinitely. But, as the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken.

In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process. For about a decade, the rules laid out in the Budget Enforcement Act of 1990 and in the later modifications and extensions of the act provided a framework that helped the Congress establish a better fiscal balance. However, the brief emergence of surpluses in the late 1990s eroded the will to adhere to these rules, which were aimed specifically at promoting deficit reduction rather than at the broader goal of setting out a commonly agreed-upon standard for determining whether the nation was living within its fiscal means. Many of the provisions that helped restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated ever more frequently; finally, in 2002, they were allowed to expire.

Reinstating a structure like the one provided by the Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process. Such a step would be even more meaningful if it were coupled with the adoption of a set of provisions for dealing with unanticipated budgetary outcomes over time. As you are well aware, budget outcomes in the past have deviated from projections--in some cases, significantly--and they will continue to do so. Accordingly, a well-designed set of mechanisms that facilitate midcourse corrections would ease the task of bringing the budget back into line when it goes off track. In particular, you might want to require that existing programs be assessed regularly to verify that they continue to meet their stated purposes and cost projections. Measures that automatically take effect when costs for a particular spending program or tax provision exceed a specified threshold may prove useful as well. The original design of the Budget Enforcement Act could also be enhanced by addressing how the strictures might evolve if and when reasonable fiscal balance came into view.

I do not mean to suggest that the nation's budget problems will be solved simply by adopting a new set of rules. The fundamental fiscal issue is the need to make difficult choices among budget priorities, and this need is becoming ever more pressing in light of the unprecedented number of individuals approaching retirement age. For example, future Congresses and Presidents will, over time, have to weigh the benefits of continued access, on current terms, to advances in medical technology against other spending priorities as well as against tax initiatives that foster increases in economic growth and the revenue base.

Because the baby boomers have not yet started to retire in force, we have been in a demographic lull. But this state of relative stability will soon end. In 2008--just three years from now--the leading edge of the baby-boom generation will reach 62, the earliest age at which Social Security retirement benefits can be drawn and the age at which about half of those eligible to claim benefits have been doing so in recent years. Just three years after that, in 2011, the oldest baby boomers will reach 65 and will thus be eligible for Medicare. Currently, 3-1/4 workers contribute to the Social Security system for each beneficiary. Under the intermediate assumptions of the program's trustees, the number of beneficiaries will have roughly doubled by 2030, and the ratio of covered workers to beneficiaries will be down to about 2. The pressures on the budget from this dramatic demographic change will be exacerbated by those stemming from the anticipated steep upward trend in spending per Medicare beneficiary.

The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate. To be sure, favorable productivity developments would help to alleviate the impending budgetary strains. But unless productivity growth far outstrips that embodied in current budget forecasts, it is unlikely to represent more than part of the answer. Higher productivity does, of course, buoy revenues. But because initial Social Security benefits are influenced heavily by economywide wages, faster productivity growth, with a lag, also raises benefits under current law. Moreover, because the long-range budget assumptions already make reasonable allowance for future productivity growth, one cannot rule out the possibility that productivity growth will fall short of projected future averages.

In fiscal year 2004, federal outlays for Social Security, Medicare, and Medicaid totaled about 8 percent of GDP. The long-run projections from the Office of Management and Budget suggest that the share will rise to 9-1/2 percent by 2015 and will be in the neighborhood of 13 percent by 2030. So long as health-care costs continue to grow faster than the economy as a whole, the additional resources needed for such programs will exert pressure on the federal budget that seems increasingly likely to make current fiscal policy unsustainable. The likelihood of escalating unified budget deficits is of especially great concern because they would drain an inexorably growing volume of real resources away from private capital formation over time and cast an ever-larger shadow over the growth of living standards.

The broad contours of the challenges ahead are clear. But considerable uncertainty remains about the precise dimensions of the problem and about the extent to which future resources will fall short of our current statutory obligations to the coming generations of retirees. We already know a good deal about the size of the adult population in, say, 2030. Almost all have already been born. Thus, forecasting the number of Social Security and Medicare beneficiaries is fairly straightforward. So too is projecting future Social Security benefits, which are tied to the wage histories of retirees. However, the uncertainty about future medical spending is daunting. We know very little about how rapidly medical technology will continue to advance and how those innovations will translate into future spending. Consequently, the range of possible outcomes for spending per Medicare beneficiary expands dramatically as we move into the next decade and beyond. Technological innovations can greatly improve the quality of medical care and can, in some instances, reduce the costs of existing treatments. But because technology expands the set of treatment possibilities, it also has the potential to add to overall spending--in some cases, by a great deal. Other sources of uncertainty--for example, the extent to which longer life expectancies among the elderly will affect medical spending--may also turn out to be important. As a result, the range of future possible outlays per recipient is extremely wide. The actuaries' projections of Medicare costs are, perforce, highly provisional.

These uncertainties--especially our inability to identify the upper bound of future demands for medical care--counsel significant prudence in policymaking. The critical reason to proceed cautiously is that new programs quickly develop constituencies willing to fiercely resist any curtailment of spending or tax benefits. As a consequence, our ability to rein in deficit-expanding initiatives, should they later prove to have been excessive or misguided, is quite limited. Thus, policymakers need to err on the side of prudence when considering new budget initiatives. Programs can always be expanded in the future should the resources for them become available, but they cannot be easily curtailed if resources later fall short of commitments.

I fear that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver. If existing promises need to be changed, those changes should be made sooner rather than later. We owe future retirees as much time as possible to adjust their plans for work, saving, and retirement spending. They need to ensure that their personal resources, along with what they expect to receive from the government, will be sufficient to meet their retirement goals.

Addressing the government's own imbalances will require scrutiny of both spending and taxes. However, tax increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but, in my judgment, they are sufficiently worrisome to warrant aiming, if at all possible, to close the fiscal gap primarily, if not wholly, from the outlay side. In the end, I suspect that, unless we attain unprecedented increases in productivity, we will have to make significant structural adjustments in the nation's major retirement and health programs.

Our current, largely pay-as-you go social insurance system worked well given the demographics of the second half of the twentieth century. But as I have argued previously, the system is ill-suited to address the unprecedented shift of population from the workforce to retirement that will start in 2008. Much attention has been focused on the forecasted exhaustion of the Social Security trust fund in 2042. But solving that problem will do little in itself to meet the imperative to boost our national saving. Raising national saving is an essential step if we are to build a capital stock that by, say, 2030 will be sufficiently large to produce goods and services adequate to meet the needs of retirees without unduly curbing the standard of living of our working-age population.

Unfortunately, the current Social Security system has not proven a reliable vehicle for such saving. Indeed, although the trust funds have been running annual surpluses since the mid-1980s, one can credibly argue that they have served primarily to facilitate larger deficits in the rest of the budget and therefore have added little or nothing to national saving. In my view, a retirement system with a significant personal accounts component would provide a more credible means of ensuring that the program actually adds to overall saving and, in turn, boosts the nation's capital stock. The reason is that money allocated to the personal accounts would no longer be available to fund other government activities and--barring an offsetting reduction in private saving outside the new accounts--would, in effect, be reserved for future consumption needs. The challenge of Medicare is far more problematic than that associated with Social Security. A major reason is the large variance of possible outcomes mentioned earlier coupled with the inadequacy of the current medical information base. Some important efforts are under way to use the capabilities of information technology to improve the health-care system. If supported and promoted, these efforts could provide key insights into clinical best practices and substantially reduce administrative costs. And, with time, we should also gain valuable knowledge about the best approaches to restraining the growth of overall health-care spending.

Crafting a budget strategy that meets the nation's longer-run needs will become ever more difficult the more we delay. The one certainty is that the resolution of the nation's unprecedented demographic challenge will require hard choices and that the future performance of the economy will depend on those choices. No changes will be easy, as they all will involve setting priorities and, in the main, lowering claims on resources. It falls to the Congress to determine how best to address the competing claims on our limited resources. In doing so, you will need to consider not only the distributional effects of policy changes but also the broader economic effects on labor supply, retirement behavior, and private saving. In the end, the consequences for the U.S. economy of doing nothing could be severe. But the benefits of taking sound, timely action could extend many decades into the future."

The New Paradigm Emerging

We are really beginning to see the emergence of a new paradigm in the world - a new set of trend directions and a general outline of the future which will likely rule at least the next 10-years of human existence.  What's interesting is that the New Paradigm (or framework which determines how we think of things) is not a single "thing," but rather a collection of two or three major trends which will work together to force a massive rethinking of "how the world works" for most people.  I think it's visible in "outline form" now, but it will be several more years before it really comes into view as an actionable set of moves for most people and families.

We might begin describing the New Paradigm as an acronym - something that will be easy to remember and address by its initials.  The drivers of the paradigm (SWEED) are:

• Supranationalism as molded by corporatist elites

• Weather changes due to global climate change

• Earth changes due to a number of factors which we'll explain in a moment

• Energy depletion, which is definitely coming toward us

• Diseases which will be transported via intercontinental travel

My thought this morning is that if you envision a world where these five forces are all pushing at once, in uncooperative ways, you will have a very good start on building a logically consistent worldview for the next five to 10-years.  Along the way, you will be able to assess where we are and at what point systemic discontinuities occur that are of sufficient magnitude to demand a personal reaction from you in order to sustain your life and the lives of your loved ones.

Weimar Meets New Deal

Let's start with the notion of nationalist - supranationalism alliance.  DEFINITION. We're already a good part of the way down that road, because like it or not, the Western paradigm of democracy has become super-nationalist in that we are now exporting it to countries like Afghanistan (drug money) and Iraq (oil money).  Our view of "democracy" is what we're selling, and we're running into opposition from groups, such as the various majahideen DEFINITION that envision themselves as strugglers against the Western way of doing things. This part of the paradigm shift has been going on for about 10-years, perhaps longer, with the first (and unsuccessful attempt) on the World Trade Center, the USS Cole attack, and so forth as the opening rounds.

Thus, the first letter of the acronym explains a lot of today's news.  For example, as we mentioned yesterday, it would explain why it is so important to the supranationalists that someone like Paul Wolfowitz be installed as head of the World Bank, why Bill Clinton is being paraded about to succeed Kofi Annan as Secretary-General of the U.N.  Today, it puts into a new context the knighting of Bill Gates by the Queen of England, joining such other luminaries as Alan Greenspan, the head of the Banker's Reserve, and also a subject of the Crown, if we read the full implications of knighthood correctly.

In terms of economic dynamics, what we have might be viewed as a marriage of the Weimar Republic (post WW I Germany with its inflationary economic woes) and the free spending "government can solve it" attitude of the Roosevelt New Deal.  You can see the spending when you look at the George Bush budget plans, and you can see the inflation occurring around the world.  The Royal Bank of Australia this morning raised rates to 5.5%  DETAILS which signifies to us that the pressure will continue on the Federal (Banker's really) Reserve to continuing raising domestic rates in the US in order to have an acceptable yield on U.S. debt instruments so that someone will buy them at auction and thus keep the U.S. from going broke as the Weimar did.

Deflating the Housing Bubble

One of the big stories out this morning, and one which will likely push the market higher at today's open, will be the news that housing prices appreciated markedly last year.  up more than 11 percent nationally according to the REPORT.  That might be considered good news, except for the fact that the definition of what's an acceptable level of mortgage debt has been changing quickly both due to predatory lending - screwing the little folks with high interest rates and penalties for early payoff of a mortgage, which effectively prevents them from refinancing when rates become more favorable.  Secondarily, but really top-of-mind in the backroom of the Fed, is the fact that swelling the housing market has the salutary effect of enabling the Fed to lend more money into existence, which in turn allows homeowners to refinance easily to fund things like SUV purchases, and this inter continues the illusion of prosperity.  no one dares mention this emperor has no clothes. It's a good game for now.

The managed inflation scenario is the one which has made the market very unpredictable of late, and I doubt that the last word has been spoken by either side.  There's not doubt a good case to be made that Ford and GM are having their collective assess kicked by imports.  Sales are DOWN of domestics but we notice that SUV fever has started to catch on in India, where a 1960's economic boom is well underway STORY although admittedly at the expense of jobs in America that were outsourced overseas.

As the housing bubble's expansion slows, we can anticipate a further slowing in auto sales as people return to normalcy.  The land mine for the economy is whether prices can be held during the declining rate of increase.  If they can not, then the danger is that as prices come down, people will delay major purchases even more, expecting additional decreases.  This well describes the "circular reference" that results in a deflationary depression.  It can't be ruled out yet. On the other hand, expecting U.S. dollars to drop in value, foreign suppliers are already holding up US companies for huge increases in prices of raw materials.  STEEL STORY

Whither Weather?

The variances of weather from historical ranges is actually a building trend, causing heartland newspapers like the Wausau Daily Herald to note that the weather is "all over the place" LINK.  Whether it's the record rains in Los Angeles, the record dry spell in the Pacific Northwest, the sudden freeze in Europe today, or those 200 km winds in Northern Scandinavia a month or two back, the weather is clearly making major shifts due to circulatory changes brought on by global warming.

Earth Changes Accelerate

Unfortunately, it appears our unscientific view, that earthquakes are making a major increase at the moment, and there's a good possibility that the changes will grow at such a level as to cause major economic disruptions globally.  Take the past day, for example:

We had a shallow 4.6 quake in Arizona THIS MORNING.

There was a 7.1 in the Banda Sea which was strongly felt in Darwin Australia REPORT

And worrisome to us: there is continued activity south of California and north of California and even a couple in California itself, which causes us to be extremely cautious about keeping the gas tank full and a good supply of food and water at hand.  LIST

What's causing the quakes?  I expect the pole reversal of the sun a few years ago. In 2001 the sun's poles reversed in what I figure will induce the core/mantle of the earth to do something in kind.  DETAILS I think this might be one of the most ignored stories of the century, but we'll see in the fullness of time.

Energy Depletion

Despite what the rabid right says on talk shows, there is no continuing "forever" supply of oil.  Even the experts in the field are becoming outspoken in their concern.  For example, Matthew Simmons, a long-time expert and friend of the White House is about to publish a book (in May) called "Twilight in the Desert" which deals specifically with the highly speculative nature of forecasting energy reserves.

I received an email from the die-off newsgroup which contained the follow comments attributed to Simmons:

Thanks for your excellent set of questions. I will try and shed some light on what I now think I know about Middle East Oil. When you quote me saying that Saudi Arabia has 260 billion barrels of proven reserves, totaling 25% of global production, which lasts 90 years if you take their straight line production today and assume it stays level until "the cupboard is bare"...these are their official numbers and the general mantra folks use to then ignore the prospect that we might now be approaching peak oil.

Until two years ago, I assumed these numbers were probably true as I had heard them so many times from so many experts. A single six day trip to Saudi Arabia set off various questions I had as to whether these "facts" were really facts or simply opinions or educated guesses. This led me into the most intense research I have ever done and the effort resulted in my pending book, "Twilight In the Desert". John Wiley & Sons are publishing it and publication date is May 27th.

The book will set out hundreds of pages of data on an astonishing story. The myth that Middle East Oil is so abundant at such a low price that there is not even a need for more Middle East exploration was only a thesis. There were educated technicians at Chevron and the other Aramco owners as early as 1972 who were beginning to get concerned that if the handful of key oil fields in Saudi Arabia were produced at a 9 to 10 million b/d rate, these fields would go into irreversible decline by the early to mid 1990's. By early 1979, as the old Aramco owners were packing their bags and Aramco was being taken over by Saudi's, the sense that these fields could produce even 12 million b/d without starting into a sharp decline in the early part of the 2000 decade was getting widespread among the real technical experts.

Sadly, this knowledge was kept under wraps and the entire world began to assume that oil was so abundant that we had about 15 to 20 million b/d shut in supply as the price of oil collapsed in the mid 1980's. We then spent two more decades in the comfortable illusion of cheap oil forever.

It was never true. I hope the lengthy two years of work that went into my pending book will finally be a tipping point to begin educating energy planners that Peak Oil is here.

What all this means is also important for people to understand as it does not mean social chaos if everyone understands what the issues are. I spent a great deal of time in my final chapter called Aftermath trying to spell out a series of things people need to begin thinking about to avoid the panic your questions implied.

All this sounds like an advertisement for the book but I am hopeful it gets wide readership as its message is of the utmost importance.

Feel free to use any or all of these comments to any others interested in the topic.

The John Wiley web site summarizes the book, in part, this way:

"The most critical question facing the world energy market is whether Saudi Arabia can substantially increase its oil production to meet rising world demand in the years ahead.  Sparked by personal observations of Saudi oil wells which led him to suspect that some Saudi fields were in decline, Matt Simmons has created a compelling case that Saudi Arabia production will soon reach an apex, after which its production will decline and the world will be confronted with an immense and potentially catastrophic oil shortage.  The factual basis of the book is over 200 technical papers published over the last 20 years which individually detail problems with particular wells or particular fields, but which collectively demonstrate that the entire Saudi oil system is “old and fraying.”  Based on his analysis, Mr. Simmons asserts that sudden and sharp oil production declines could happen at any time.  Even under the most optimistic scenario, Saudi Arabia may be able to maintain current rates of production for several years, but will not be able to increase production enough to meet the expected increase in world demand.  Eventually, the reckoning day will come and the world economy will be confronted with a major shock that will stunt economic growth, increase inflation, and potentially destabilize the Middle East.'

We couldn't agree more.  One of our best sources in the oil patch advises:

Have a look at this story – shortages and higher prices could easily devolve into “gasoline stills” here in the future, but for now it’s another place.

http://itar-tass.com/eng/level2.html?NewsID=1792538&PageNum=0

Flu in the Air

The last macro threat to touch on today is the threat of an international pandemic of some strain of a new killer virus.  I have read  "Control of Communication Disease in Man" and find the book is exceptional in its breadth and approach to understanding not only propagation of disease, but it also underscores how simple prophylaxis can be so effective.  If you want to be informed about how diseases operate, this is the single best sourcebook I've found,  short of going back to school to become an epidemiologist.

My Point?  Well, we have never done an environmental impact statement on the health risks associated with globalism.  An outbreak of small pox or other killer disease could now be spread around the world in a matter of 12-hours or less.  It's why when I see stories like the one this morning about Britain preparing for a possible FLU PANDEMIC.

It doesn't take a rocket scientist to figure out that the risk of international spread of contagious diseases - and a whole route for terrorists - is simply getting on an airplane and traveling between continents.  Although it was slow motion, this is precisely how AIDS arrived in North America.

At some point, people may be forced, by a new and more deadly disease, not to mention soaring energy prices on the backside of the Hubbert depletion curve, to rethink the value and the need to fly internationally without quarantine periods.

----

I apologize if this morning's report is a bit on the long side (heck, it's almost like an Inside Report article) but my foot with gout is acting up, so rather than lay in bed for a couple of hours, I thought I would get up and do something.  I hope this helps you keep today's news events in a useful arrangement: just remember the acronym SWEED. It's not about taking sides on anything, except maybe being prepared for a super quake in Southern California.  It's about framing events in a manner that you can anticipate in advance so that you won't have to run with the herd if they aren't going in a logical direction.

Tuesday

Catastrophes Cost $50 Billion

Steve Quayle sent along this link - sort of a backgrounder for our conversation on his radio show this afternoon at 4 PM (I will hopefully be awake for it...)  LINK. 

The Question of Reserves

I don't often ask you to skip through all the day's other news and concentrate on a single bit of information, but today we have to recommend you click over to Simmons and Company's site and read the presentation "Proving Reserves are Proven: an Art Form or a Science?" DETAILS.  Simmons makes the point that on March 11th, the UN and others will discuss world "energy transparency laws."  He makes the point that about 94% of "new oil" has come from computer simulations and not backed up by test wells (6%).  With this as background and with supplies tightening:

􀂄 The world needs to be extremely alarmed.

􀂄 Can you imagine the integrity of reported GAAP accounting numbers absent an annual report and auditors certificate?

􀂄 No field-by-field data was fine when world had massive cushions. – Young giant oilfields. – 90 to 100 days oil stocks. – Massive shut-in capacity.

􀂄 All this luxury evaporated.

The oil companies are in an interesting - and tough - spot.  Our sources in the oil industry tell us not to be outright alarmed at this point, noting that the industry has been in this position before.  On the other hand, the utilization of some key resources is up against the stops.  For example, in the Gulf of Mexico we hear it goes something like this....:

It doesn't mean run out and worry about Peak Oil (which may be here, but that's another issue).  What it does mean is that it's definitely time to start cranking energy-efficiency back into your thinking while it's still affordable: Insulation, organic farming, higher mileage transportation and the like.  As Simmons notes, a lot of the extended period of cheap oil was based on "paper discoveries" some portion of which will likely not work out and when that happens, you will want to be well down the road on personal energy consumption reductions.  We might suggest that weighting stocks toward those with good energy awareness might also be a wise thing.

Wolfowitz Bank Post?

One of the leading neocons responsible for gun slinger diplomacy is up for a post at the World Bank.  STORY. 

Our view is that Paul Wolfowitz ought not be allowed to leave until he cleans up the mess in Iraq to the point where American troops are back in the U.S. Now watch closely, as right-wing radio hypes him for the position, ignoring the fact that we've got a 24-karat mess to sort out.  If you liked Iraq, just think what he will be able to do with the full sanction and cash of the globalist banksters behind him.  Wolfowitz if you hadn't figured it out is a kind of weapon of mass destruction in our view and if he leaves before being held to account for Iraq, it will should tell you volumes about the viability of the present course in the Middle East.  You think that would give Wolfowitz a chance to bail out the US debt with World bank funding somehow?

Lammert Bows

Our resident fractilist is smiling today - not on the specifics of the news items, but about the general direction of things here at the hyper saturated tail end of the bull run...

George, from the 1 January 2005 fractal predictions.

"It is reasonable to expect a sudden unprecedented devaluation in equities corresponding to the exhaustion or sudden deceleration in the pool of new potential debtors."

U.S. New Home Sales Fell 9.2% in January to 1.106 Million Rate

Feb. 28 (Bloomberg) -- U.S. new home sales unexpectedly declined in January...MORE

He also went on to describe the decline in personal incomes for January LINK and along with that, spending was flat.  You have how many vehicles versus how many drivers in your family? Beware the ides of March?

Oscar Madness

It's a sign of the times, I guess.  This morning the local radio station (KFI) was still talking about the Oscars. I love a good Hollywood glitzer now and then, but when will it stop?  Answer: Never.  A socially aware reader observed that "There are more reporters covering the Michael Jackson story (More than 1,000 press passes issued) than all media from all countries covering Iraq."  Yup, that about sums up international denial for you...

Stop that Concerto, You're under Arrest!

I love it when government gets efficient, at the strangest times times: Bust the concerto story. We'll have no "cheap shot" writing about the concert ending on a sour note, etc.  After all, using workers without permits is a crime in Germany.  Think anyone's going to bust illegals this blatantly in "go along to get along" land?  Doubt it.

Merger Ouch

Cost in jobs of the Qwest-MCI deal?  Try 15,000 jobs.  Details.

Tax bite

 IRS gets a big tax cheat - supposedly getting a fellow for hiding nearly half a billion dollars:  DETAILS.  I wonder why this kind of story comes out about the time we're all working on our taxes, huh?

Monday

Carnage in Iraq

If you thought the President's announcement of the "end of major hostilities" meant anything almost a year ago, you were wrong.  Today, grisly evidence that the recent elections in Iraq will also not mean much -of anything - as more than 100 people have been killed by a suicide bomber: STORY. Other reports place the death toll at 115 and climbing. DETAILS.  No doubt, this latest event will be trivialized by right wing media which is more intent on pimping  the latest oil production figures from Iraq as "evidence" of success.  While we don't take sides on the war, the susceptibility of the spoon-fed press to repeated misdirection has never been more obvious to us.  That said, we're enjoying $2.43 a gallon while we can, however.

Here's the dynamic to watch as the world seems to be on the unrecognized backside of the Hubert Curve that defines peak Oil:  Watch who is willing to pay a little more for oil. My fascination is not with the war, or the prices of gasoline in America, but rather the whole worldwide dynamic of "which humans will do without?"  In Indonesia, there's no question about it - Indonesians will riot and scream not to pay more.  LINK.  Meantime, we would not be surprised at more trucker slowdowns in the U.S. this summer if prices advance too quickly for consumer tastes in the U.S.

The deaths in the "resource wars" aside, we're entertained by Steve Fossett's interest in high mileage performance - as he attempts to set a round-the-world-nonstop record for jet aircraft today:  LINK. 

World's Most Cautious Bull

As the week opens, I'll be paying particular attention to the tone of the markets early in the week.  As I explained to Inside Report subscribers, there is indeed some cause for optimism around the Dow, which looks to be breaking out to the upside.  But, there are also two lingering concerns.  One is about the fate of the tech stocks.  On the one hand, the techs have been lagging, such that buying a few tech index call options at the money and a few months out would be an interesting gamble.  (Example -remember an option is 100 times the display amount) But, we've got better things to do with our money than gamble.  So in our own account, we're in gold and cash and biding away our time.  We'll try to remember in June to look back on this period of cautious bullishness to see how it plays out.

As we put bytes to phosphors on Sunday night, the price of gold was up more than $2 an ounce, which drove home an interesting comment from my favorite market-playing uncle. "There's a lot of inflation coming in the next couple of years," he advised me.  When people build a 7-figure account from scratch by being an expert "bottom fisher" I tend to pay a lot of attention.  When told that I was forecasting 13% inflation this year, he didn't argue. The early Monday word is rates will edge up this week DETAILS meaning we're not alone looking at inflation.

As the longer term view shows, there continues to be an exodus by the public from the market.  Below is my chart showing how the public has been dropping out of stocks since July 2002 when from a long term perspective the public influx by small traders came to an end:

(The apparent return of horizontal action on the right side of the chart is from repeating this week's levels two more weeks to you can see the data - the data don't flatten there...)

You can develop the same chart for yourself.  Just take the widely available total NYSE volume in shares and grab the NYSE program trading stats for the weeks of interest over at www.nyse.com. To my jaundiced eye it looks like the public is wandering toward the exits again.  One of Ure's axioms is that it's hard to make money in a market run by pro's.  I also avoid the high roller tables in casinos.

The Longer View

I received this letter from a reader today, which begs for careful reading:

Hi George I have been following your work since 1998. Is it possible that you may have your timing all wrong. Perhaps you may want to read Francois-Xavier Chevallier's "Greenspan's Taming of the Wave". In it he felt that Japan in 1990 took the brunt of the 1929 similar crash. Greenspan following Irving Fishcher's belief that depressions can be avoided through skilful monetary policy resuscitated US Banks, etc. According to him, we are now on the upwave. You may want to get hold of the book.

Well, I couldn't let it go by without a response:

Thanks for the note, ******. I am amazed that you've read my site for such a long period of time. Any inputs you might have on how the site "looks and feels" would sure be appreciated.

I will put the book on my list - thanks. My initial expectation before reading the book is that Japan will not prove sufficient in and of itself, as the main purposes for a period depression have not been met.

These are (to review):

---Destruction of some major portion of the underlying excess capacity.

---The elimination of a major portion of long-term debt.

The experience of Japan from 1989 on, while not pleasant, has not eliminated a bit pile of excess capacity. It may have changed the character of the excess capacity by incenting globalists to spread their risks geographically, and this in turn may have delayed the arrival of the Greater Depression which I hold is somewhere in the not-too-distant future..

Similarly, while Japan went through some unwinding of long-term debt arising from its domestic real estate transactions, the global impact was not sufficient, in my view, to cause a substantial revaluation of excessive debt.  I'd offer as evidence current housing prices in the U.K. in particular, and to some lesser extent, in the U.S.

I look forward to reading the book, but believe me, I'm still a skeptic awaiting the collapse of the debt structure and the rise of a new paradigm, the true hallmarks from what I've been able to read, of a satisfactory economic depression.

Street Level Economics

From a reader in Ohio:

Was at my lawyers office, discussing the economy. A friend of his, an investment banker, said the area (Columbus, Ohio) was a depressed area, and from Zanesville, East, forget it....hard pressed...Local news is how well Columbus is growing..?? After, went to my favorite bookseller (who is doing well) and mentioned the comment. A gal piped up that she has not seen so many small stores shutting their doors as in the past month. She sells jewelry on a wholesale basis and is starting to get worried about her own survival...I am a wood carver, the tail end of the spending chain...My friends are down, in some cases ,big time. My business is up, only because of innovation. Doing what it takes to create an interest, and income. At the same time, I realize the rope will tighten...

Another reader reports that Pittsburgh is the pits...

"Not a native but living in the Pittsburgh suburbs for over ten years I've noticed the following:

The city of Pittsburgh is effectively BROKE ........ and in a form of receivership to the state. The panel entrusted with coming up with a "plan" is at odds with the Mayor, once again the "way out" of the financial mess is to increase taxes! The "Occupational" tax to work in the city has been raised over 300%....only city I have lived in with this type of tax!.

The County is not far behind the City....property assessments were scheduled to be sent out this week, the county executive delayed mailings because "the increases would be too much for the average home owner". He is attempting to cap real estate tax increases at 4%. No great hope here.....this government has never met a tax that they didn't like!

As an aside, three years ago my property assessment (value base) was increased by $67000.00, I challenged the finding paid $300.00 to a private assessment company and presented their findings at my meeting with the county, sixty days later I received a letter from the county stating that the increase had been rescinded. My neighbors did not, and ended up having their property foreclosed!

Economic life in the area is at best poor, several companies have closed, the major airline in the area (US Air) is relocating maintenance and call center functions elsewhere.

Credit card usage is rising for essentials such as food, can't remember when I saw someone pay with cash! The "Dollar Stores" are doing a very brisk business. Life is NOT easy in any area of the city for the people.

Tax and spend is out of control, the population has very little left to give in the way of tax increases, two new stadiums for the sports teams have been built after the citizens told the government NO, the hockey team wants a new arena or they will skate elsewhere......yes this city and area are on "thin ice".

At the first good opportunity I will bid the city of Pittsburgh good bye!

Global Climate Shift

While all kinds of conservative mouthpieces are spewing that "global warming is just hogwash" (or worse), we're sort of interested in the latest weather reports coming out of Greenland. The Chinese are reporting on it because they apparently are a little more hip to to the idea that a glacial slip into the Atlantic could cause all kinds of problems.  STORY.

Another Web Bot Run

I received an email from Cliff at www.halfpasthuman.com advising me that another web bot run is being planned for March.  Seems the big money players who bankrolled the last run were very impressed with the accuracy of some of the predictions.

For instance, in the first part of the current run, the following was noted on January 1, 2005:

"The idea of a large earthquake causing California to 'sink into the sea' does NOT come through, but rather the whole tone is one of being [washed/carried/born] away by [water/rain/deluge]. In this attribute set are many references to [marsh/marshland/estuary] being (subsumed/covered) by [sea/seawater/ocean/saltwater] such that [places] of (earthly) [seductions] and (addictive) [pleasures] are (no longer/not/former) [visible]. The California linked aspects show that the [land/ground/fields/earth] will (change/alter) until it (seems as though/resembles) the [stripes/marks] of a [tiger]. These changes - perhaps storms? - will come in (three)[waves/movements]. These [waves] will so physically change things as to [not be believed/denied] unless actually [seen/experienced/lived through/endured]. "

The serious users of the data found the reference to the rains and tiger shooting reported in the LA area  (see LINK ) is just too close to be a coincidence. The reports aren't for everyone, because when one looks into the future using software, the view is fuzzy at best, but the hits are often interesting.  Subscriptions are handled at http://www.halfpasthuman.com/HPHALTA405firsttimers.htm and I don't have a financial interest in the technology.  I just find it useful.  If this is your first time reading about bots, click HERE for a background piece. The price is $70 for long term participants, and $100 for newcomers.

Regardless of your perceptions of the technology, if I read the late December/early January runs correctly, we should get one more round of serious rains and flooding here in the LA area.  Want one more? Remember, this is a month-old look into the future:  Look for big electrical problems this spring in China.  The leading edge of that story is just now starting to percolate up to the public consciousness STORY. Buyt I'm looking for something on the order of a regional power outage - something like the Chinese version of our Northeast Power Outage.

Earth Watch

For today, it looks like the bulk of weather problems will be on the right coast: http://www.wunderground.com/severe.asp

One other thing that has us a bit weirded out: Was that 2.9 earthquake Sunday here in the San Fernando Valley just a fluke?  LINK  The ham gear in the car was tested on Saturday, coincidentally, and the 2-meter rig was charged up...

Braver than Me

I see that Japan has completed the world's longest tunnel: DETAILS.  With all the increase in general earth movement, the cave-ins in China's coal mines, would you want to drive into a tunnel that long?  not me!

So Much for Jawboning

It's an open fact that one of George Bush's agenda items when he visited Moscow was to try and pressure Vlad the bad not to ink the nuclear fuel deal with Iran.  Ploy didn't work  Deal is DONE.  As of Monday, Russia was busy DEFENDING the deal.

"Powerband" Slow

The idea of sending the internet around on power lines is not getting off to much of a start: DETAILS. Not to say we told you so, but remember the phrase: saturation economics...

News from Elliott Wave International

The Web UrbanSurvival Only

On to Our Charts!

Write when you get rich,

George Ure, The People's Economist

Bulldog Editions when noted are  the "early editions".  Check back later for a more complete update. Bulletins as warranted.  Normal byte times are 8:30  AM (or earlier) CDT Monday-Friday.  Weekends as the spirit moves us.