Bulls vs Bears

From 13K the markets can only go in one direction

Brace yourselves. It has been a wild ride. During our generation, we’ve seen some records haven’t we? But our extravagances, and those of our parents, the Boomers, had to catch up with us sometime, and paying the piper this time round is going to be long and hard. We have surfed a wave of chaos for so long, no one today has a concept of what ‘normal’ is. What is normal economics, normal climate, what is a normal lifestyle?

What we do know is our economics, our climate and our lives are seriously out of whack, and nature now feels compelled to restore balance.

It’s starting, and it will at most begin to dismantle that force we have taken so for franted: globalization. We thought it was a permanent condition, but it is merely a temporary blip in our collective evolution. The world is about to expand once again.

Here, in South Africa gas stations have done a roaring trade till late into the night tonight. After recently experiencing our highest ever price hike, we’ve had another (not a record this time), to be implemented at midnight tonight. What makes this abnormal is that war – as far as we know – isn’t imminent in Iran. Nor has any significant Newsbyte affected the price of oil. Nor has the local exchange rate worsened – in fact it has strengthened – against the dollar. And it’s not seasonal shifts either. It’s not the US driving season, nor can we blame frigid weather somewhere in the world for shoring up demand. It’s just been the average shift of the demand and the supply curve.

If we’re talking $68 a barrel in early May, when nothing is really happening to drive demand, where on Earth will we be in June/July? Probably, at war with Iran, though only Noam Chomsky expresses this opinion. Why Iran? Well Iran is sitting on major energy resources, resources that are becoming increasingly urgent.

Meanwhile, the Dow crashed through 13 000 points, hitting an intraday high of 13 036.99 within minutes of opening on Wednesday morning. I visited this weekend with a friend and his colleagues who are bankers. They are the cream of the crop, the upper crust, their lives made even more lavish by a bouncing global economy. Because yes, even in South Africa, we’re seeing record after record.

The last thing anyone is thinking is that a) this spree is about to end and certainly not that b) we’re on course for a nadir.

A good way to explain this line of thinking is to point out that we are now at a point of maximum output. It’s fair to suggest that the world is sailing along as fast, as efficiently as it can. We are consuming energy at a terrific rate, and we’ve never consumed more. Almost as fast as we’re pumping it out of the ground, we’re burning it in our 650 million vehicles. Reaching maximum coincides with the top of a bell shaped curve first posited by Hubbert. And as we pump more, and get less, we begin to face one incontrovertible truth: the end of growth. Economic decline. Unemployment.
If our efficiencies can translate so quickly to production, then, when depletion erodes production as is the case, our efficiencies work just as sharply, just as directly in the opposite direction. We may be hurtling toward a Second Great Depression before the end of this decade.

If only this were our only gloomy scenario to have to deal with, because, if it is the journey that lies before us, it is a Biggie. But Climate Change is also something that has crept up on us while we were sleeping with our world’s engines running. On a recent local news bulletin the following words were used in one sentence: high food prices, climate change, energy costs. The forces at work will continue to reinforce one another. Climate change will make additional demands on our ability to grow food and maintain energy consumption. This at a time when demand needs to be curtailed, or scaled down.

On the same day that 32 students were massacred on a US campus, the Dow Jones rocketed upwards (over one hundred points). Meanwhile, Michael Nystrom, deploring market insanity and overall disconnectedness, recently wrote that the Bush Administration is considering ‘reclassifying hamburger flipping as “manufacturing.” The times’ Nystrom writes, ‘ indeed are changing’.
He also points out that GM, once the world’s top auto producer, has now been dethroned by Toyota. Meanwhile Ford, the automaker who produced the first vehicle, is struggling to remain in the market at all. General Motors once employed America’s youth, now it’s up to MacDonald’s and Wal-Mart, and for half the equivalent wage rate (in adjusted dollars). As a result, graduates spend large fractions of their youth trying to pay off massive student loans, and struggling to get anywhere long after college.

It is this world, this economy that doesn’t make sense, that is about to crash. It starts with energy costs, then housing markets, with their hallucinated wealth (based on double mortgages) in the US, crashing (Nystrom writes that houses in Detroit now sell for less than a new car). A crashing US economy necessarily means a global crash.

So the question is, whose your money on, the Bull or the Bear? In the end, the collective illusion we are contriving so hard to support cannot be supported. The Peak and the Bear wait for us and naturally, it’s not a situation we’d like to embrace. We must, for soon it will embrace us, like it or not. We should not make the mistake we made with Climate Change, spending our time doubting how serious it was, rather than taking action to mitigate what we were doing. Wasn’t it obvious to all of us on those quiet hilltops, or aloft on a 747, that a dark veil had long since blanketed the Earth?

Let us anticipate the inevitable, and connect and come together to find the best ways and means to continue through the next phase. It will undoubtedly be a difficult journey ahead, and we will need our inner resources most of all. But let’s face it, and a find our way forward.