The View from my Bicycle [COLUMN]

To most of us, honesty often means cruelty. But actually honesty and compassion are the ones in sync. - A.J. Jacobs

The cut-to-the-chase way to live

Not long ago I was sitting in my car listening to casette tapes. No, not of music, of a high level meeting. After about an hour the cabin light of the vehicle flickered and I thought, Uh-oh, battery is going flat. Sure enough, when I tried to start the car it wouldn't start.

I phoned a friend to bring along his vehicle so we could connect the batteries with my jumper leads and have his car charge mine. He arrived after 9pm, a long work day for him. Here's the funny thing. When he arrived in quite a slick sportscar he didn't know how to open the engine compartment. He'd never done it before. We spent 5 minutes looking in the car, then resorted to reading a booklet to find out where it was. We did find it, the trick was that the door had to be open in order to release it. But the point of this anecdote is to demonstrate how chronically out of touch we are, and how dependent we are in our ignorance of machines that run on fossil fuels for almost everything we do. And the irony is this friend of mine and I often have debates about the impact of energy on the economy. But he doesn't even know how to open the hood of his car? Yes, we can comfortably intellectualise about this sort of thing - but reality is what it is whether you can find the handle or not.

Radical Honesty

As such some people have come up with an antidote to fooling ourselves [aka lying to ourselves]. It's called Radical Honesty:

I will say this: One of the best parts of Radical Honesty is that I'm saving a whole lot of time. It's a cut-to-the-chase way to live. At work, I've been waiting for my boss to reply to a memo for ten days. So I write him: "I'm annoyed that you didn't respond to our memo earlier. But at the same time, I'm relieved, because then if we don't nail one of the things you want, we can blame any delays on your lack of response."

Pressing send makes me nervous -- but the e-mail works. My boss responds: "I will endeavor to respond by tomorrow. Been gone from N.Y. for two weeks." It is borderline apologetic. I can push my power with my boss further than I thought.

Later, a friend of a friend wants to meet for a meal. I tell him I don't like leaving my house. "I agree to meet some people for lunch because I fear hurting their feelings if I don't. And in this terrifying age where everyone has a blog, I don't want to offend people, because then they'd write on their blogs what an asshole I am, and it would turn up in every Google search for the rest of my life."

He writes back: "Normally, I don't really like meeting editors anyway. Makes me ill to think about it, because I'm afraid of coming off like the idiot that, deep down, I suspect I am."

That's one thing I've noticed: When I am radically honest, people become radically honest themselves. I feel my resentment fade away. I like this guy. We have a good meeting.

In fact, all my relationships can take a whole lot more truth than I expected. Consider this one: For years, I've had a chronic problem where I refer to my wife, Julie, by my sister's name, Beryl. I always catch myself midway through and pretend it didn't happen. I've never confessed to Julie. Why should I? It either means that I'm sexually attracted to my sister, which is not good. Or that I think of my wife as my sister, also not good.

But today, in the kitchen, when I have my standard mental sister-wife mix-up, I decide to tell Julie about it.

"That's strange," she says.

We talk about it. I feel unburdened, closer to my wife now that we share this quirky, slightly disturbing knowledge. I realize that by keeping it secret, I had given it way too much weight. I hope she feels the same way.

I call up Blanton one last time, to get his honest opinion about how I've done.

"I'm finishing my experiment," I say.

"You going to start lying again?" he asks.

"Hell yeah."

"Oh, shit. It didn't work."

"But I'm going to lie less than I did before."

I tell him about my confession to Julie that I sometimes want to call her Beryl. "No big deal," says Blanton. "People in other cultures have sex with their sisters all the time."

I bring up the episode about telling the editor from Rachael Ray's magazine that I tried to look down her shirt, but he sounds disappointed. "Did you tell your wife?" he asks. "That's the good part."

Finally, I describe to him how I told Julie that I didn't care to hear the end of her story about fixing her computer. Blanton asks how she responded.

"She said, 'Fuck you.' "

"That's good!" Blanton says. "I like that. That's communicating."

Read more: http://www.esquire.com/features/honesty0707-5#ixzz0YGpmESKh

Every nibble now feels like a chunk of flesh ripped out

But are the financial markets communicating? Are they representing reality?

Recently there's been the default from Dubai to the tune of $80 billion. Lloyds bank crashed over 30% on the news. The NYSE invoked Rule 48 to prevent the markets from shedding too much. So what happened? Stocks were skewered [as much as Rule 48 would permit] and then as holiday fever took hold, recovered. You may think that $100 billion isn't a lot of money, but after the fat has been trimmed off banks, these billion dollar cuts cut deep, to the bone. I believe we will still see the markets run out of hot air on this news. Monday. Oil prices have already sunk $2-3 on this news.

Why should markets be effected? Because tens of billions of dollars is no longer a drop in the financial ocean any more. With credit markets wiped out, every nibble now feels like a chunk of flesh ripped out of what remains of the world's financial spine, its central nervous system. As far as I know RBS had huge exposure to Dubai. Great news is RBS is owned by the UK taxpayer. Problem solved!

Look, each time you get $20 billion owing here and there it starts to cut to the bone, because a lot, almost all the fat has been wiped off the system.

I do understand markets. And I was broadly correct - the markets dropped then 'recovered' on the news that things weren't so bad. Abu Dabi is supposed to come to the party and bail out Dubai. That's what's rescuing the market right now. Well, the idea of it being possible.

My prediction

Don't know if you remember but I once referenced an article by Mark Mobius who was crooning over the developments in Dubai. Mobius said then that the developing world and emerging markets would 'save' the world economy. I said that building skyscrapers in the desert, Las Vegas style, is the most wasteful investment imaginable. By the way the biggest defaults in the USA are in Nevada - in the deserts states, places like Las Vegas and Phoenix. Ever ask why? Because it's really expensive. Because now those energy costs really matter.
Anyway - the US wasn't down much because everyone was on holiday, you know, like a long weekend. Thanksgiving is one of the biggest holiday weekends in the USA.

I'm going to say the same thing to you as I said to you when subprime emerged. It's going to have a serious impact. It will have an impact on commercial real estate everywhere else. Dubai may not seem like a big deal but it will be. Maybe they've understated their debts. Maybe they'll only be out of pocket for $40 or $50 billion. Imagine if the oil price falls further and their Arab brothers say, Sorry, we can't help you, then oil prices fall further, then they are even more out of pocket. Because that region needed high oil prices to finance some of those expansions. Either way shit happens. If oil prices increase inflation around the world increases and consumers foreclose go bankrupt etc. If it drops, supply decreases even more, and you have these 'emerging' projects going down.

Hidden Resentments

Why is all of this happening? Because there are hidden resentments in the world economy that we'd rather not deal with. Radical Honesty again:

In his book, Radical Honesty, Blanton advises us to start sentences with the words "I resent you for" or "I appreciate you for." So I write him back.

"I resent you for being so different in these e-mails than you were when we met. You were friendly and engaging and encouraging when we met. Now you seem to have turned judgmental and tough. I resent you for giving me the advice to break that old man's heart by telling him that his poems suck."

Blanton responds quickly. First, he doesn't like that I expressed my resentment by e-mail. I should have come to see him. "What you don't seem to get yet, A.J., is that the reason for expressing resentment directly and in person is so that you can experience in your body the sensations that occur when you express the resentment, while at the same time being in the presence of the person you resent, and so you can stay with them until the sensations arise and recede and then get back to neutral -- which is what forgiveness is."

Second, he tells me that telling the old man the truth would be compassionate, showing the "authentic caring underneath your usual intellectual bullshit and overvaluing of your critical judgment. Your lie is not useful to him. In fact, it is simply avoiding your responsibility as one human being to another. That's okay. It happens all the time. It is not a mortal sin. But don't bullshit yourself about it being kind."

He ends with this: "I don't want to spend a lot of time explaining things to you for your cute little project of playing with telling the truth if you don't have the balls to try it."

Read more: http://www.esquire.com/features/honesty0707-4#ixzz0YGtuYgQg

The solution is urban arrangements that are the exact opposite to skyscrapers in a desert

The problem is that there have been no new investments that make sense. China is doing a few good things with electric cars etc, but they're also building more coal powered plants. The net effect isn't positive. The answer, is fewer cars, more walkable communities, urban arrangements that are the exact opposite to skyscrapers in a desert. Rail and farming. No one is doing that on a scale that matters. No bailout money went into that. Nothing has changed fundamentally.

Falling energy prices spells bad news for Iran, which needs oil to be above $90 to break even on its investments. Iran is hurting.

Energy - being less abundant and more expensive - is and always will be the root cause why we can't move forward the way we're used to moving forward. Less energy = less money. For everyone.

But here's a tip. If you find that nothing is moving forward, you still can. Physically. Move your body, exercise. It is the least you can do. It is the most you can do. We need each and every healthy and sane human being right now.

SOROS: Geithner plan won't solve crisis; in fact it will perpetuate Zombie Banking

SHOOT: Soros of course is spot on here. If an engine is broken you need to get a new engine (or risk losing all your new investments on your already broken engine). Of course not everyone agrees that the engine of international investment banks is broken (which is abundantly clear looking at the comments made here). I guess we will find out whether what we want to believe is true, or whether another reality exists that may be quite painful to accept.

Essentially, Soros believes we should be following the so-called Swedish solution but fears we are heading down the same policy path as Japan. "We're effectively keeping zombie banks alive," he says.

To those who rail about the dangers of nationalizing banks, Soros says: "You have to recapitalize the banks for them to function. As it is, we are nationalizing the debt of the banks, but not the banks themselves."

ALERT: Oil Shortages are Imminent [and why a 'recovery' will be really bad news]

I have warned in the last few days and weeks that oil prices are about to surge again, and in the last week we have seen prices breach $50.
Oil prices will rise to last years record $150 and surpass this record. It may go beyond $200 or even $250 before we see another collapse, in a cycle of convulsions. It is for this reasons (severe supply constrictions) that I say talk of recovery is foolish and shortsighted. A recovery is impossible. We are headed beyond a Great Recession. We'll see a Great Depression that will make the 1930's look like a picnic.

The economic catastrophe is bad exactly because people have failed to see the simple subtleties in the market. We're talking about a resource that underlies all activity, a resource = energy. That resource is now declining, from a Peak Moment, which means whatever your theories, whatever your economics, contraction is going to be your Guiding Philosophy.

Unfortunately it is so late in the day and few people have taken the trouble to understand let alone absorb the real implications of this. Many don't want to think about it or accept it. That's a pity because to some extent we still have a choice right now to change the future. Those choices are diminishing with each second. Investing in automakers, and banks is rather sad given what we know. We ought to be investing in railways, in making food networks sustainable.

All hope is not lost however. Projects such as South Africa's JOULE (Electric Vehicle pioneered by Optimal Energy) are underway though not even in production. This is VERY late in the day but better late than never. The JOULE will not solve our problem, in fact nothing will, but we can ameliorate our prospects somewhat.

It may seem counter intuitive that oil prices will rise when the industry:

1) acknowledges large excesses in supply
2) demand has been severely constrained

However, it is a more subtle point that in the same way that the credit crisis has impacted on demand, so has it impacted on supply (and vitally, investment in supply).

It is interesting to see that the Media have been quicker to pick up on this subtlety this time around.
Oil supply crunch is likely to return
Low oil price puts supply growth at risk



One of the reasons for the drain on supply is China, where millions of people are experiencing having a car for the first time, and thus the last thing on their minds is conservation or fuel supply limits.



Gerhard Swart, one of the engineers behind South Africa's Joule project (I met him on Thursday in Stellenbosch and will post an interview at some stage on this site) confirms that the oil price relief we've seen is temporary. A crunch is imminent.



Matt Simmons confirms this, saying we are 3 - 9 months away from serious shortages. These shortages will not be easy to 'fix' as a lot of production has been permanently curtailed, and other production still requires large amounts of free capital to come online again.

"When you have an old oilfield whose flow is being maintained by extremely high levels of investment and you reduce production, you rarely if ever get back to where it was."

Because of this and natural declines in output, oil use may not need to rise much before production fails to meet demand.

"Unless oil demand falls by 10 or 15 percent per annum, which it is not going to do, then we don't need to wait for oil demand to come back before we have a supply crunch," he said.

"Within a few months, we are going to realize our visible inventories are really tight -- squeaky tight -- and what would really be inconvenient is to see a recovery in the economy."

One of the issues most people fail to see when looking through the window called 'RIGHT NOW ECONOMICS' is that oil prices and supply are based to a large extent on present flows. They ignore the reality that oil discovery (which is an indicator of future supply) has been decreasing for the past several decades. Even oil companies like Chevron and BP acknowledge this. Without new discovery, you start guzzling the stuff that was discovered 30 years ago. And very quickly.




Electric vehicles provide a solution in terms of energy efficiency. That said, EV's are a temporary solution. The future needs to be about more walkable communities. And living more locally. In the future, 20 years from now, very very few people will possess cars. Thus the future is not going to be about motoring or suburbia. It is more likely to be based around growing food, around agriculture. Remember, as oil depletion worsens, the ability to conduct large scale industrialised agriculture diminishes. And the world's food systems - growing, production, transport - is all heavily based on a cheap and abundant energy scenario.

One of the first casualties will be the meat market. You can start today by consuming less meat. It's healthier for you and the climate.



Gerhard Swart describes the electricity problem in South Africa as a 'peak electricity problem', not a total electricity problem. Peak Oil predicates Peak Food, Peak Cars, Peak Finance, Peak Education, Peak Commerce, Peak Employment, Peak Freedoms, Peak Choice, Peak Transport, Peak Gadgets, Peak Health, Peak Population, Peak Entertainment and Peak Safety and Security. The slippery slope we face from here on out will deliver diminishing returns on all of these at the same time.


The above article states that 'investors seem to have shrugged off government data and had been bidding up prices on the expectation of a future shortage of crude oil.' These investors are 100% correct. Put your money in oil stocks now, but get your money out before the next 'crash'. There are likely to be a few as what is left of the finance system convulses until it is dead wreckage incapable of doing or being anything other than an epitaph to a bygone system called 'Capitalism' (how greed killed off all of humanity's interests...).

Financier sees oil shock from credit crunch

Ratcheting Mechanism: How Speculators Are Financing Bad Debt in the USA

NVDL: If I understand the contents of the letter below correctly, it means that speculators in the US are using oil futures markets (virtually the only long term growth market that remains) to finance bad debts. Unfortunately, oil markets are cyclical, and while long term they are climbing, they tend to dip slightly in August/September/October (after the US holiday driving season ends) and then dip again in February/March/April (as the US winter becomes spring). The speculators thus (also because of tuition payments made in July/August) will not be able to continue to win their bets during these months, meaning banks will go bankrupt and markets will face drastic drops during these periods.

It is possible that we will see world stock markets eviscerated by as soon as next month (August 2008).

From Kunstler.com:

James;
You may recall that a few weeks ago I wrote regarding my theory that a substantial chunk of the increase in the price of oil was due to speculation to offset bad debt portfolios by the larger east coast investment houses. What puzzled me was how this worked: because once the futures are bid up and the margins made, then the price of crude at the head assumes the previous month’s futures price! The short answer is that a kind of ratcheting mechanism is at work: once the price is bid up, it stays there until it is bid up again the following month.

It’s reported that the level of oil futures market activity by these investment houses is significant, with at least 10 percent of the futures market controlled in any one month. With each market manipulation, their margin per barrel is probably around $5.00. So if you take 10 percent of 85,000,000 barrels a day times 30 days in an average month times $5.00 you get a total of $1,275,000,000 in margin. With each month of these shenanigans, these banks can offset upwards of 12,000 subprime mortgages. Not a lot given that there may be upwards of 2,000,000 of these ticking time bombs, and considerably more if the banks fail to walk the razor’s edge they’ve defined for themselves. At this rate, it will take over ten years to offset the bad debt portfolios and only if few of those who have investment accounts make withdrawals. At the rate of +$5.00 a month, the price for a barrel of oil in 2018 would probably be over $900. It will never get there!

So each month, the investment houses pay out cash to those with account holders who demand it, offset bad paper and then go back to work the futures market with what’s left and what they borrow for 30 days from the Fed. As long as they work quickly, they can keep ahead of the game, at least until the price of oil destroys the underlying economic base. It’s reported that with Americans now paying around 11 percent of their income on energy, we are getting pretty darn close to the end of these shenanigans: in the 1973-74 time frame, the tipping point was reached when Americans had to pay more than 12 percent of their income for energy. When oil gets to $150/barrel in two to three months we’ll be past that point.

Another thing to note: a fair amount of funds in the investment accounts are withdrawn annually in the July-August time frame so that middle class parents can pay college tuition. This is one of the reasons why the market always drops in value in the late summer.

If you consider the combined effects of both the limits to oil futures manipulation and the annual July-August tuition dip and you have some of the makings of a perfect storm.
I think that we very well could be witness the effects of gravity on some very big shoes within the next two months.

It is a pity that potatoes do not have planting instructions written on them like Burpee seed packets do.
Regards,
GEORGE W. ABERT, AIA
ROSEMARY BEACH, FL
gwaaia@yahoo.com

TIME Poll Shocker

Seems like the financial Boyz and Wall Street Wizards are still in KOO KOO Land. They only admit the bad news when it's a foregone conclusion, which is how the situation got so bad (talking up all the positives ad bankruptsome).

While recession takes hold of the US, my prediction is that it will roll out everywhere else, not because the world is catching cold from the US, but because the world is discovering that it doesn't have a nougat centre filled with limitless supplies of oil.

Our own finance minister said it best: we have to tighten our belts...but not sure if there's much left to tighten. That's code for recession. This will be a recession that gets worse over time.