Sunday, May 29, 2022

No Guarantee Slowing Economy Will Slow Inflation

If you listen to economists and those watching the wave of inflation that is sweeping over us you will hear many of these people predicting it will soon abate. A huge part of their argument being the best cure for high prices is high prices. This is because high prices bring about demand destruction. Taking this to the next level some are looking towards an economic slowdown, a recession, or worse.

Still, with so much money stashed away and so few real tangible assets there is no guarantee inflation will slow or that we will see deflation. For years, central banks across the world claimed the lack of inflation was the key that allowed them to adopt and deploy their QE policy. It was central to their ability to stimulate. The moment inflation began to take root much of their flexibility was lost. Already a great deal of inflation has been baked into our future.

We should not be deceived or led to believe that lower oil and commodity prices will in themselves bring about deflation. Often falling prices in both commodities and goods reflect a lack of demand or temporary supply imbalance that will correct itself. When that happens prices tend to rapidly adjust to reflect the "new reality of the day." In this case, it is very likely that higher prices are here to stay and even move higher. While inflation is painful, it could be argued that stagflation is even worse.

Inflation Is Not Limited To Manufactured Goods

Inflation is not limited to manufactured consumer goods. Currently, prices are surging in the service sector as well as fees, tolls, and taxes. People tend to forget just how much government spending is done at the local and state level. For these entities simply printing more money is not an option for eliminating revenue shortfalls. This translates into a slew of revenue-driven schemes originating on the local level that come back around to drive up the cost of living. 

The huge number of people that work for the government or in quasi-government positions that will never agree to a wage cut create a floor under incomes. Throw in supply chain disruptions that are causing productivity to drop and a troubled energy sector and you have a recipe for soaring prices. Of course, a great deal will depend on where the wealth that escapes the meltdown expected in the stock market flows. I expect that amount will be substantial.

A number of people are predicting this money will flow into bonds causing bond yields to drop. While this could happen it is possible a lot of this money could flow into tangible goods that increase in value during times of inflation. It is important to remember inflation is not all about interest rates. A huge part of Fed policy is rooted in quantitative easing and tightening. Asset valuation growth is greatly dependent on the liquidity resulting from the unfettered flow of new money and credit. When all is said and done liquidity and money supply matter far more than interest rates.

Circling back to the idea there is no guarantee a slowing economy will slow inflation, part of the problem is fees, tolls, and taxes could surge higher. When we look at where inflation has occurred during the last decade or so we find it centered in areas where the government has expanded its influence. Inflation is not just prevalent in manufactured consumer goods. Two areas where inflation has run rampant that rapidly come to mind are healthcare and education. A less often noticed area that carries massive implications over time is the broken legal system but that is its own story.

Other sectors where the government is moving prices higher are utility bills, new construction, and the cost of providing local services such as police and fire protection. This is why the next surge in inflation or higher cost to consumers, regardless of the pace of economic growth, might well come from huge increases in fees and taxes. An example I have used in the past of surging tolls was highlighted in a Philadelphia Inquirer op-ed. In 2008, it cost just $15.25 to travel across the state from New Jersey to Ohio, over the years this has jumped to $61.20.

State And Local Governments Need Revenue

People tend to forget just how much government spending is done on the local and state level where simply printing more money is not an option for eliminating revenue shortfalls. The theory is based on the fact local and state governments have hidden and masked the size of their growth and financial promises from the public. A factor many people fail to grasp is just how much government has expanded over the years. Governments mask growth by "outsourcing" a great deal of the work their workers had been doing. Another place this sneaks under the radar is in the huge growth of "quasi-government " entities such as airport authorities and downtown improvement districts which are able to levy special taxes.

Since state and local governments lack the federal government's ability to print money and buy back their own debt they must pay higher interest based on their credit rating. As a state or local government's debt rises so does the amount of interest they must offer to sell their bonds. The damage this can cause is becoming evident in Illinois which is the poster child for dysfunctional state and local governance.

The average Joe or Jo may not see many of these increases in fees and taxes aimed at increasing revenue because they are not assessed against them personally. Still, they do directly affect businesses and landlords which are forced to eventually pass on the added cost to consumers. Often this is through higher prices. Another way to do this is by transferring responsibilities, limiting warranties, or reducing goods and services that had been previously provided. 

In the end, tolls, taxes, increased cost for permits, dropping productivity, and fines flow back into society and our economy in a complex way with intricate ramifications to America's ability to compete going forward. Inefficient and wasteful government does have a cost and it must be paid. It will as I have outlined above come in many forms. Do not be surprised if these extra costs really begin to hammer brick and mortar retailers as well as commercial real estate across America. If so, we will all be forced to pay the price of this "cost-shifting" through inflation and a lower standard of living.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Saturday, May 21, 2022

If China Attacks Taiwan, We Have Few Good Options

Stories about how America is amassing more US Navy ships near China in a show of force aimed at deterring an attack on Taiwan should be causing Americans greater concern. War breaking out in that area is not unthinkable, if coupled with what is happening in Ukraine it would greatly increase the possibility of world events spiraling out of control. Adding to the worry is the fact that if hostilities escalate, it seems none of the parties involved would be in a hurry to wave an olive branch. Such a move so early in the game would scream weakness which would be considered political suicide. 

Anyone paying attention will most likely agree tensions in the area are escalating. America has been upping the ante by moving two carrier strike groups and other resources into the area. This is in response to what seems to be a probing of America's resolve to back Taiwan's independence. This follows America's rather benign reaction to China's recent takeover of Hong Kong. Chinese fighter jets, now cross the so-called “median line” of the Taiwan Strait at will. This brazen move violates the implicit agreement made decades ago not to cross that line. 

The idea China will attack Taiwan has been battered around for years. What better time to test America's resolve than when its attention is already focused on the war in Ukraine? Currently around one million Taiwanese work and live in China and China is one of  Taiwan’s most important trading partners. It accounts for an estimated 40 percent of Taiwan’s outbound trades. Taiwan's heavy dependence on China for trade and commerce complicates an already complex relationship and is another reason China resents what it views as outside interference.

China Claims It Is Ready For War
Little in the way of provocation might be needed to set an attack in motion. In a recent phone call China’s top diplomat Yang Jiechi warned national security adviser Jake Sullivan, “The Chinese side will take firm actions to safeguard its sovereignty and security interests. We live up to our words,” he said. This was seen as sending Biden a message prior to his upcoming trip to East Asia. It started on Friday with a visit to South Korea to meet the country’s newly elected president. 

Biden then plans to travel to Japan, India, and Australia to meet with a joint security partnership called the Quadrilateral Security Dialogue. During the visit, the United States and Japan are expected to release a statement calling for both countries to join together to "deter and respond to" China's aggressive military activities in the region.

In the past, China has made it clear that any interference in the area will be considered an attack on China, in reality, bringing warships into the area or increasing military exercises should not be a deal-breaker. Only an attack or bombs hitting China's mainland should constitute widening the hostilities. Simply coming to Taiwan's aid should not reach the level of elevating the conflict, however, that does not translate into saying it won't. In short, any escalation of the current situation could lead to a full-blown war.

Most people assume that any attack on Taiwan will result in a loss of life, aircraft, and most likely ships. In such a situation it is not difficult to imagine things getting out of control. If a large ship is sunk the loss of life could easily be in the hundreds or even thousands. In the past, China has never had the capability to take Taiwan. Still, from China's point of view, I cannot see that they have much to lose by rattling their swords.

In the event shit would hit the fan and bombs are dropped on a Chinese city, the Chinese people are already conditioned to view America as the aggressor. On the other hand, few Americans have ever considered such a thing happening in America and would demand a violent and harsh response to any attack within America's borders.

Adding to Biden's problem if an invasion of Taiwan does occur is that it is in China's neighborhood which is well over seven thousand miles from America. This means America is at a distinct disadvantage when it comes to resupplying troops. This is the same reason some of us claimed Putin had a big advantage in Ukraine and urged America to keep out of the conflict. Long supply lines have been the bane of military leaders since distant wars began.

China Has Built A Slew Of Cutting-Edge Weaponry

Over the last few years China has beefed up its military. While some experts continue to think China lacks the ability to mount a massive cross-strait amphibious offensive across the roughly 100-mile-wide Taiwan Strait, such an effort is not out of the question. China has produced a new generation of amphibious ships. The Type 075 can transport troops and weapons while launching aerial and undersea drones to conduct surveillance operations. 

This is a war Beijing would want to win incisively and swiftly. The largest barriers to such a victory are Taiwan's rugged shorelines, mountainous topography, and a populace that knows how to maximize these strategic features. Still, if nothing else, an attack would once and for all test how far America is willing to go in support of Taiwan. If America's response is as mild as it was to China taking over Hong Kong, China would have removed its biggest obstacle in a war with Taiwan and that is outside interference. 

Such an attack would also signal to the world China is ready to cement its place as a world military power. it could also be argued this is not a conflict where China has much to lose. Other issues feed into the notion of this conflict. For example, the Chinese Communist Party (CCP) will hold its 20th National Party Congress later this year and as it nears things that occur will be rooted in politics rather than economics. Also, it would put the global supply chain under even more stress and since housing is no longer a source of economic growth for China, it might even turn the communist regime towards expanding its military as a way to spark growth.

Americans would be naive not to consider that even in China suffers a great number of soldiers being killed, their propaganda machine will hide the truth. America on the other hand with its attitude that every American soldier's life is precious will wither in pain. The thing we must never forget is that Chinese culture is very patient and even if we thwart its efforts to take Taiwan back into its fold, it will try again. In short, if China attacks Taiwan, America has few good options.

Footnote; For more background on China and this subject see the articles below.

 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Thursday, May 19, 2022

The "Flash-Crash On Steroids" Scenario

Equities Could Fall And Not Come Back!
An interesting way to exercise the brain is to imagine what some of us might consider the unimaginable. That is what I ask you to do now. Many investors continue to believe that even if the stock market drops they will be smart enough to get out after taking only a minor hit. Others simply think no way exists for these markets to fall sighting a lack of investment alternatives and what they see as the Fed put having their back. 
After the financial crisis in 2008 when the market took nasty and violent swings many investors came away with the feeling they learned a few things that will enable them to leap to safety before it is too late. That brings us to today
Almost everyone agrees that after years of moving ever upward this bull market is long in the tooth. Today with  the economy rapidly slowing and debt across the world having exploded it seems any opportunity to panic the bears should not go unexploited. It is against this backdrop that one allows optimist fellas to think, this time is different. 

The thing many investors are not taking into consideration is that if the market falls like a flash crash on steroids they could be trapped. We have been assured that can't happen because circuit breakers have been put in place to arrest panic-style moves, however, imagine a market that falls, trade is halted, and the market simply does not reopen for days or even weeks. As remote as this might seem remember Japan's stock market has failed to reach the high it made decades ago. Today the Nikkei 225 trades around 25,750 even with the BoJ buying huge amounts of ETFs. See the 1980 to 2015 chart below.

Japan's Nikkei 225 has yet to reach the high it made decades ago

Also, please take a moment to consider the possibility and the far-reaching ramifications of stocks falling from grace. Not only would active stock market investors get hammered but pensions, 401 plans, and a slew of other investment programs would be affected. While you are imagining this scenario realize that America's stock market is the gold standard and consider how less stable global markets would react in countries like China and Brazil.


For a long time, I have been trying to develop a scenario for a market "super crash" and a reasonable map that would arrive at such a situation. To say I'm negative about this economy is a gross understatement. I saw the last housing bubble coming and predicted the crash. I continue to contend that we have never recovered from the Great Recession or corrected the many problems that haunt our financial systems such as derivatives and collateralized debt obligations. By printing money, imploding interest rates, and exploding the Federal Government's deficit we have only delayed the "big one."

These two quotes on macroeconomic stabilization and crisis speak volumes. First, from Macresilience;

    "As Minsky has documented, the history of macroeconomic interventions post-WW2 has been the history of prevention of even the smallest snapbacks that are inherent to the process of creative destruction. The result is our current financial system which is as taut as it can be, in a state of fragility where any snap-back will be catastrophic."

And next from Nassim Taleb (author of The Black Swan);

    "Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite."

These quotes suggest an analogy with ideas about forest management when natural fires are suppressed. If random fires do not periodically clear away forest underbrush, we see a build-up of flammable material sufficient to power a massive conflagration. I certainly think an equivalent truth applies to financial markets. The longer it has been since a painful collapse, the greater the willingness to pile on leverage and complexity, such that the next crisis becomes unmanageable. The "Too Big To Fail" and other policies implemented since 2008 have distorted markets across the globe and laid the groundwork for "The Big One", or what we will someday look back on as the mother of all sell-offs.

Over the years not only have we witnessed many cases of government overreach and many rule changes to protect the system at the expense of the people. What happened in Cyprus years ago should serve as a warning to anyone who thinks money in the bank is safe. A bad haircut, in this case, means you have been robbed. That may be the case if the government reaches in over a long weekend and steals money from your bank account. This is a horrible precedent to set, and the worst part may be how many people accept it saying it is OK as long as it is only on the larger accounts and only impacts the savings of someone else! It is very important to remember these low-interest rates come at a price, a dark side exists to current economic policy. In the long run, the benefits they bring may be outweighed by the distortions they cause.

By not taking steps to correct many of the ills lurking in our financial system we have made things worse. Absent are actual structural changes necessary for our economy to become sustainable. Instead, we have put band-aid upon band-aid, upon band-aid while what was necessary was the amputation of a diseased limb. After all the threats that this market has avoided, and sidestepped, some investors have come to think of it as invincible. This market has overcome a struggling euro, the financial cliff, the end of Greece as we knew it, a trade war, and a global pandemic.
Back in August of 2016, in a similar article, I warned about being complacent in dangerous times. My studies in "microeconomics," and observations in the current real estate market, both as an owner and hands-on landlord allow me to predict, that we ain't seen nothing yet! While Knowing such a flash crash is highly unlikely it is important we consider it could happen. Remember, none of the oil traders foresaw the oil contango  that occurred in 2020 and shook the oil industry to its core.

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Tuesday, May 17, 2022

Bearish Traders Generate Wild Swings In Stock Markets

With market sentiment banging against all-time lows we should not be surprised to see some rather wild swings taking place. Part of this is due to poor volume and part of it can be explained by computer trading exploiting the fear of those shorting the market. Bears tend to swing for the fences, by this I mean they are not interested in making a few dollars on a trade, but they short a stock with the intention of holding onto it until it burst into flames, and crashes to the ground. Such traders often go into a trade hoping or thinking the top has been put in or little upside remains. Going short in a market exposes a trader to huge losses those entering such trades tend to do so using tight stops. This means those shorting markets tend to paint a target on their back. 

 Easier To Hit Than A Sitting Duck!

Adding to the woes these bears face is the unholy alliance made up of the Federal Reserve, the government, and the too big to fail. These institutions have created an environment that excels in washing timid and weak bears out of their positions. Insider information, computer trading, and the sophisticated use of computing patterns all target their stops. Bears using tight stops on trades make them easier to hit than a sitting duck, and much of the market's rise has been from these stops being targeted and hit. 

To say the market is rigged is an understatement. After over 30 years of trading commodities, I will flat out state without any reservations that lies and manipulation run rampant. Over the years we have witnessed the type of market reversals only the big banks supported by the Fed can generate. These are orchestrated with a concerted effort to buy S&P 500 index futures at crucial support points. This has proved more than enough to turn the markets from red to green in the blink of an eye and reinforced the "buy the dip" mantra.

Still the bottom-line is that the higher the market goes and the more true price discovery is ignored, the more vulnerable it becomes to a final major collapse and sudden downward move from which it will not rapidly recover. I contend we could be in a "realizing market," which means people are beginning to realize the market has only one way to go and that is lower but this does not mean money cannot be made when imbalances occur.

Leveraged Much?
At this point, I contend we are finally in the early stages of a reset and the course it takes will have a profound impact on the wealth of most people. This reset has the potential to shatter the policy of wealth effect that has driven the financial sector and much of the economy forward since 2008. 

Until this time, the current pullback in markets has been rather orderly. Still, the volatility we have seen has left many investors whipsawed out of their money and the worst is probably yet to come. I see this as an indication we may be closer to the end of this euphoric bull market than many investors think. Those buying into the market when it dips should remember that markets climb a wall of worry but when they crash, it can come fast and furiously. 

It would be wise to remember that the terms overbought and oversold are often "overused." While many systems have been designed to track demand, much of what is considered demand can often surface or vanish in the blink of an eye. Whether it comes from panicked bears running for cover or bulls taking profits, any big player can start a big move in one direction or another. Add to this the fact that with many investors using leverage and taking on more risk than they think, margin calls can generate huge pain and force them to liquidate positions they would rather continue to hold.

Markets can take huge swings that defy logic. An excellent example of this type of event is the great oil contango of 2020. The word, contango, is so poorly recognized my computer spell check did not recognize it. In short, at one point investors were being paid to take oil. This situation occurred as supply overran demand because the raging Corona pandemic was inflicting massive economic repercussions on restaurants, hotels, retailers, automobile producers, and airlines as it brought businesses to a halt.

There is always a group of traders that fall into a category akin to flippers, these people often think they are smarter than you, whether they are or not is questionable. When things are good, they can be very good, when things are bad, they can be very bad. The media and financial companies pushing the economy forward are well entrenched in the art of doublespeak and finding a silver lining in every cloud and it is upon these clouds such traders ride. These self-promoting market cheerleaders love to use the terms overbought and oversold as justification for any market move.  

In truth, in a realizing market if we look closely we generally find markets are not overbought or oversold but attempting to reach true price discovery. In such instances, strong capitulation is avoided and replaced with those on the wrong side of a trade simply continuing to deny anything has changed until all their money is gone. Sadly, this can occur faster than most investors realize. With all the financial Ponzi schemes that make up and influence our markets, such as stock buybacks, a very long fall is possible before we reach true price discovery. 

While those in power, the politicians, central bankers, and those on Wall Street appear to have painted themselves into a corner more than once, it seems they have superpowers that allow the constant creation of new exits. Do not be surprised if they have a few more tricks up their sleeve. Until now printing more money has driven this market, an explosion in carry trades, and the growing number of stock buybacks. Please note, a lack of short positions will bode poorly for the market if it falls rapidly because in such a situation as shorts take profit and buy back their positions they act as a floor under the market giving it support. In this distorted market, we may find the floor is very weak or only an illusion. 


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Friday, May 13, 2022

If Success Has Many Fathers, Inflation is An Orphan

The proverb "success has many fathers" means there is no shortage of people willing to claim they contributed to a successful enterprise. If success has many fathers, inflation is an orphan. When it comes to inflation not only does nobody take credit for it, but instead they rush to blame others for its very existence. An example of this is how President Biden and his anti-fossil fuel administration has come out swinging and blamed Russia for higher gas prices in America. 

Inflation is generally viewed as a general increase in the prices of goods and services in an economy because of or coupled with a fall in the purchasing value of money. This is where the peanut gallery and purest generally go berserk and argue fiat currency is not money. The most common reason given for rising prices is that demand is stronger than supply. Still, a lot more factors feed into creating inflation than supply and demand making price stability more than a delicate balancing act. 

The "inflation puzzle" is highly complex and includes a slew of related confounding variables. The role productivity and savings play in inflation are often overlooked. Most people, even many economists make the mistake of throwing spending into one big pile with little consideration to the fact not all spending is equal. Please note the following;

  1. The spending of government often is far different than that of the individual. Unproductive government spending tends to be inflationary.
  2. Inflation can stem from a growing lack of faith in a currency, or all currencies, rather than just a lack of available goods. Governments that waste and spend do not generate long-term confidence in their currency.
  3. As inflation takes root the goods available for sale often contract as sellers retreat from the market awaiting higher prices, this can be followed by workers then demanding higher wages which creates a self-feeding loop.
  4. Also, the velocity of money plays into inflation. When money moves faster it tends to increase demand. What many people fail to consider is why money moves rapidly through the economy or the reason it gets parked in one place. 
  5. The ever-changing economic rules by which we play, include taxation and incentives for saving or not saving. Any "incentive" that steers money into intangible assets may feed the wealth effect but often dampens demand for the things we need that are included in the consumer price index. In short, it can lessen inflation but increase investments that may be risky.

What people spend their money on and where impacts inflation. So does whether they pay cash or charge the purchase and have to pay interest on the goods. When people buy American goods and invest in their community the money moves from business to business creating jobs. When people buy goods made in Asia from a company like Amazon, their money takes the fast track out of the country and weakens our country. 

Productivity is another huge part of the inflation puzzle. An example of an institution that has not been able to adjust and stay relevant in our changing world is the United States Postal service. It is an example of poor spending on the part of our government and could not exist if it were not for continued financial infusions. Years ago the USPS delivered important materials and correspondence, today it delivers the junk mail that fills our landfills. The main reason the USPS exists today is to employ people. It employs not only carriers but those that build and maintain its vehicles as well as those that create and send the junk mail we hate to get.

Now Over 30 Trillion And growing
While it is easy to point to supply chain disruptions as the reason for much of our inflation, it could be argued inflation has been brewing for a long time. The chart to the right shows bat shit crazy spending has soared. It is only logical to think the consequences would catch up with us at some point. This is why, as we look into the future many of us have arrived at the conclusion inflation has not peaked and more inflation remains a certainty. 

It seems our government is out of control and simply cannot stop spending. With the Secretary of the Treasury having been the former head of the Fed, and the current Fed chairman both hellbent on spending to boost the economy, our government has embarked on an unsustainable spending spree. This has enabled the global financial system to do the same with few ramifications.

Circling back to the idea inflation is an orphan, this means when inflation hits the average consumer they yell out in pain. When that happens it seems none of the players that helped create the situation want to take credit for their actions. Inflation tends to hammer away at most people eroding their wealth. It acts as a stealth transferer of wealth moving it from the masses and into the hands of the few positioned to benefit  

We should not forget what we were told by central bankers until recently. In late 2018 Jean-Claude Trichet, who served as President of the European Central Bank from 2003 to 2011, opined about his outlook for the global economy and monetary policy by repeating the line declaring 2% inflation the desirable goal of intelligent central bankers.  

Yes, the central bankers were fast to tell us we needed some inflation and everything is "data-dependent." This translates into the idea central banks have the ability to, and will squash inflation if it begins to run too hot. Well, they better start squashing. The only other option is that we as a society get a great deal more productive or inflation is here to stay. With so many people choosing not to work or unable to find jobs that add substance to the economic pie, that is unlikely.  


 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Tuesday, May 10, 2022

The Six Most Common Financial Myths People Believe

It is time to revisit six of the most common financial myths we have come to believe. Accepting any of these as a reflection of reality could lead us down the path to ruin. Unfortunately, belief in them is so widespread most people no longer even question them and are putting their economic future in peril. A myth is often defined as any invented story, idea, concept, or false collective belief that is used to justify a social institution. With this in mind, it is understandable those in the government and financial systems would crank out such yarns to keep us docile.

The six favorite financial myths are easier to believe when financial fears are low and times  are good. Over the last few years, a slug of freshly printed liquidity being pumped into the global financial system and stock markets has caused many asset bubbles to expand sending the wealth effect into overdrive. An increase in liquidity results in people feeling comfortable to take on more risk and this tends to cause people to "leverage up." During such a time true price discovery has a way of being greatly diminished.

Changes made to the rules and financial engineering have made many comparisons to the past obsolete. Sometimes, it is a question of people just being too lazy to question what they see, at other times, it is because they simply can't face the truth. It should be noted that the entertainment industry has flourished as society seeks any diversion to pull our attention away from the sharp edges of reality and into the soft comfort of escape. In some ways, it could be said that our culture has become obsessed with avoiding what is real. Regardless of the reason why people fail to view the myths below as lies the point is they will result in the financial ruin of those counting on them in time of need.

Over the years,
extraordinary efforts have been made to keep the economy afloat. The most noticeable is the massive amount of new money and credit released into the financial system by central banks. This has been interpreted by many people as confirmation the current trend of never-ending growth will continue. Rather than considering it is time for a reality check it is both easier and more comforting to adopt an "all is well" attitude and ignore the signs of danger lurking around the corner. 

The crux of this article is about some of society's favorite myths. These feed directly into the economy and our feelings about our financial security. While it could be argued the myths below have more to do with how we feel about life than about money, it cannot be denied that most people make many of their financial decisions based on the assumption the below statements are true. As a society, we rapidly choose to embrace and often choose not to question them because of the discomfort it would undoubtedly create. The six below permeate society and should be enough to remind you and even shed a bit of light upon the fact we as  individuals are vulnerable at any time if reality raises its' ugly head.

Believing Myths Is A Head In Sand Approach

#1 Government is for the people and by the people - Seriously? After the dog and pony show we experienced during the last presidential primary all illusions of that should have been erased. After often being forced to choose between the least of two evils it is difficult to praise our political system. After all the talk about "we the people," the fact is the average "person" is far removed from the power to decide important issues.

#2 Financial planning means you only have to start saving a little money each year to guarantee an easy retirement.  - The fact is life is a casino where our future is tenuous at best. Much of our circumstances and lives revolve around money and the number of options it gives us when we possess it. I intentionally used the term "casino" to conjure up the image of financial fortune. Which you can lose in a blink of an eye if things go against you. This myth extends deeply into the promises made by the government and others such as pension plans and financial institutions. Many of these promises will not be honored.

#3 You have rights and that we are not slaves - I defer to a few lines from a blog by Gerry Spence who has spent his lifetime representing and protecting victims of the legal system from what he calls The New Slave Master: big corporations and big government. In his blog, Spence wrote; The Moneyed Master has closed its doors against the people and sits on its money like an old hen on rotten eggs. The people will not prevail. With its endless propaganda, the Moneyed Master has caused its slaves to believe they are free.

#4 Your life will progress and move along pretty much as you have planned - When you think back over the years of your life if you are like most people things have not unfolded as you had planned. You may not be in the occupation you trained for or with your true love. Throughout our life watershed events occur that we have little control over, this holds true when it comes to your finances as well. Having an investment or pension plan go south can completely alter your life.

#5 Those in charge or above you care about you and will make an effort to protect you - Sadly, more than one person has been sliced and diced by the people and institutions he or she trusted most. History shows when push comes to shove it is not uncommon for a person to look out for the person they treasure the most and that is often him or herself. Politicians and those in power have a long history of throwing the populace under the bus rather than taking responsibility for the problems they create. 

#6 It could be argued the biggest myth of all is the idea that inflation is reflected in the Consumer Price Index. Those making financial decisions have masked their failings. This is done by heavily skewing the CPI to give the impression there is little inflation. This dovetails with a theory I continue to expound on, that inflation would be much higher if people were not willing to invest in intangible assets such as stocks and Bitcoin. This removes a lot of demand for tangible items people use in their everyday life. 

The fact is inflation is soaring and acts as a wealth transfer mechanism that hurts far more people than it helps. My apologies if this post has been a downer or seems overly negative, however, it is what it is and it was written for a reason. Best stated by a comment I read on another site; These myths add up to where "This is not a can of worms but a warehouse stacked with pallets of cans of worms."  

Believing the above myths will impact your life, that is why it is important to recognize them for what they are, lies. This is not to say that by making good and reasonable choices we cannot eliminate some of the risks we encounter when we get out of bed each morning. Developing the habit of being skeptical while pressing on to reach solid and reasonable goals is the best medicine to combat a deck that is often stacked against us. Be careful out there!

Footnote; Mentioned above is the fact economists and analysts seem oblivious to the point that so many people willing to invest in intangible assets have helped to minimize inflation. This is a very important part of the inflation puzzle. This is a very important part of the inflation puzzle. The link below is to an article that delves deeper into why this is true.

 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

Tuesday, May 3, 2022

Higher Energy Prices Are A Reality We Must Face (Part 2)

Years ago several countries that were major exporters of oil, such as Venezuela, Columbia, and Mexico devised plans to take the money flowing in from oil and invest it in a way they could live off the income stream flowing from it in the future. Sadly, because of poor governance, most of it was simply pissed away. In a perfect world, things would be different. Ironically, in a blind leading the blind way, this has allowed the big central banks across the world to step into the breach and claim that by twisting the financial landscape they will be able to play a much larger role in steering environmental and energy policy.

Part of the human condition seems to be the desire to seek consensus so we can promote our agendas while at the same time many of us tend to nitpick at the views of others if they are not absolutely and totally in sync. This becomes a huge barrier to moving forward on such a major life-altering plan as to the best way to approach long-term energy strategy. This spills over into attitudes over global warming, climate change, social fairness, and whether mankind will eventually run out of needed resources or simply expand into the universe. 

The Price Of Oil Has Taken Some Wild Swings

Over the years the price of oil has taken some wild moves both up and down. These have generally been due to supply or demand changes. Today the world should get ready to face the possibility, that when it comes to oil, much of the low-hanging fruit has been picked and we should consider the possibility these countries have been lying for years about just how much oil they really have left. Clearly, the recent price shocks in the energy sector have made the current inflationary surge and slowdown in the growth of the global economy more acute, unfortunately, other problems exist.  

The highly productive “sweet spots” where oil flows from the ground sometimes mentioned on the news make up only a small percentage of potential drilling areas. Outside those core areas, production rates and recoveries are substantially lower. Impressive gains in well productivity have come as a result of technology that allows one tight oil well to access three times the reservoir volume of one drilled in 2012 and a shale gas well can now access 2.2 times the reservoir volume of a well drilled in 2012.  Still, technology cannot overcome “poorer quality geology” and this challenge will become evident as drilling moves into lower quality areas. 

Engineering limits appear to have been reached for increased lateral lengths and the increased yields from hydraulic fracturing or "fracking." While technology has increased well productivity and temporarily improved the economy it has also rapidly reduced available drilling locations must faster. Now as the rate of technological improvements slows the EIA is failing to consider that better technology will no longer offset the deteriorating geology as new drilling moves outside of sweet spots. In short, declining yields will inevitably overcome increased drilling rates and production will fall.

To get a sense of what the future holds for U.S. tight oil and shale gas it is suggested we look at where the shale revolution began. The Barnett Shale is where ‘fracking’ was developed by [George] Mitchell in the 1990s. First, they drilled the sweet spots and then spread out to the less promising areas. Already production has declined 60 percent since the play peaked in 2011. The fact is energy companies always exploit the most productive areas of a reservoir first. Failure to recognize this practice mistakes exploitation of the most productive areas for technological progress. Hughes thinks we are rapidly towards the same scenario we saw unfold at Barnett Shale much sooner than the EIA  or policymakers are willing to admit.

As for nuclear power, here in America, we have a slew of old plants still online. Most have already had their license to operate extended past what was initially considered their useful life. With few people wanting a nuclear plant constructed near them and these expensive monsters taking many years to build, it is unlikely nuclear power will come to our rescue anytime soon. If nuclear energy had proven in its totality to be the answer many people envisioned decades ago, we would not be in this situation.

Another puzzling policy is that society is promoting Electric Vehicles as our salvation knowing that most of the time they are charged using electricity generated by fossil fuels. Even if charged in off-peak hours, that does not change. Anyone with even the slightest mechanical knowledge will tell you that solar panels, windmills, and such take a lot of energy to build and often are maintenance intense. Both these complicated systems have a short lifespan and require a great deal of energy to be expended in just keeping them up and running. This includes all the BTUs being burned in producing parts that need to be constantly replaced. This was one of my arguments years ago when I expressed concern the optimism surrounding ethanol was being over-hyped.

Still, whether ethanol is good for the environment has not stopped Biden from proposing increasing the amount of ethanol added to gasoline. With corn prices at record highs and people talking about food shortages some people think this is incredibly stupid. When you do not create enough "net gain" in energy from the total energy produced minus energy expended to produce it, you have a problem. If we cannot claim a major victory in resolving our energy problem, the energy we produce in the future will very likely be very expensive.

Carry no illusions the days of cheap energy are behind us, the low-hanging fruit has been picked and eaten. Sadly, if we look back we see much of this energy was simply wasted. America has adopted the same attitude towards its buildings. In our fast-changing world, we have made everything disposable.  America's remove and replace mentality tends not to maximize gains or resources and creates a huge amount of waste. Often there is no way to reclaim much of this and even recycling is inefficient. This has extended down to the point where most consumer goods are now unrepairable. Fast growth that lacks quality runs rampant in modern society. 

The pathetic reality is that those making energy policy often ignore waste because it is good for the GDP. Simply put, this is about money, cutting back on waste would lower the GDP and hurt the profit of many companies. It is time voters demand politicians put cutting waste as a priority before their desire to serve big business and the lobbyists that shower Washington with money. With this in mind, it could be argued we don't need a "new green deal" as much as a little common sense. The dreaded "C" word, conserve, is seldom used by politicians because cutting waste will crush the GDP. 

Simply conserving our resources and cutting down on waste has been thrown under the bus and to speak of it is taboo. When people conserve it cuts GDP. Energy use soaring during extremely hot or cold months adds to overall consumption and the GDP. Over the last several years I have entered many large empty buildings and offices in the evenings or during weekends. Often the thermostats on these empty buildings are not set-back and these buildings are at seventy degrees while extreme temperatures exist outside. Instead of mentioning such things, the ideas being forth from those promoting "go green" are proposing solutions to our woes that appear to be pie-in-the-sky visions that make little sense.

A couple of final thoughts, while few people look at it this way, it could be argued that even the Biden Administration's open border policies are adding to America's energy problems. Last year it is estimated the illegal immigrant population in the United States increased by one million in President Joe Biden’s first year in office, according to a new report. Each of these people use energy and have a carbon footprint. Simply put, more people equal more energy used. To top this off we hear of our government putting these people on planes to fly them north, if you want to move them around busing them would be far more environmentally friendly.

If this is all being directed from behind the curtain by those with an agenda we are all screwed. If this is all being done by design, we have a problem. It means this goes past stupidity and incompetence, it falls into an area that is much darker. If we are looking at a planned energy squeeze the general population or call us the unsanctioned masses are in for a world where we will be powerless. An example of what we might face is a cashless society where all cars are driverless, a society where you could buy nothing unless it was approved, you could go nowhere unless it was approved, and you would find yourself in the dark unless you behave. 


The link to (Part 1) of this article is;

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)