[R-G] [BillTottenWeblog] Black Swans Everywhere

[Bill Totten]

Clusterfuck Nation

by Jim Kunstler

Comment on current events by the author of
The Long Emergency (Atlantic Monthly Press, 2005)

www.kunstler.com (March 22 2008)


After a one-day reprieve from total meltdown in the financial markets,
news media cheerleaders for the most reckless gang of bankers in world
history declared the crisis over on Good Friday (with the markets safely
closed). Whew, that's a relief. Problem solved. And just in time for
baseball season, too, so none of the Banker Boyz have to sell their sky
box leases.

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke {1}

What is meant by "meltdown", by the way, since the word is used so
promiscuously by myself and others. I'd define it as the shock of
recognition that many big institutions are worse than flat broke and are
therefore powerless to conduct normal operations. By "worse than flat
broke" I mean they are so deep in hock that all the accountants who ever
lived, in the life of this universe and several others like it, using
the fastest parallel processing computers ever built, could not keep up
with their compounding accelerating losses (now approaching the speed of
light).

The current vacation from reality on Wall Street may last a few more
days, or even a couple weeks, but it seems as though a whole flock of
black swan events is circling the sky over Financial-land and is about
to blot out the sun. By black swan, I refer to the concept popularized
by Nassim Nicholas Taleb {2} in his recent book of that name, namely
unexpected events of  great power that tend to change the course of history.

For the moment, with the crisis "contained", and the Boyz getting ready
to air out their Hampton villas for the coming season, we are once again
primed to be blindsided by potent random events that nobody saw coming.
The trouble is, there are enough potent potential fiascos already
visible on the horizon.

The mortgage fiasco is still just gathering steam as it moves from the
non-payment stage to the default and repossession level on the grand
scale. Even the political wish to bail out feckless mortgage holders
will stumble on the mammoth clerical task of administrating the process,
especially since we've barely begun to sort out who actually holds the
mortgages after they've been minced into a fine mirepoix of securities
off-loaded onto countless dupe "investors" ranging from municipal funds
in obscure corners of foreign nations to countless public employee
retirement plans.

No matter how the authorities try to "nationalize" the sucking chest
wound of bad mortgages, the body of finance will flat-line - and the
American public will get stuck with the bill from the intensive care
unit. Those who, for some weird reason, continue to pay their way and
meet their obligations, will be none too pleased to pay for misdeeds of
the deadbeats and their banker-lenders. This portends a taxpayer
rebellion, which may translate into a voter rebellion.

It's too bad the current presidential candidates have been unable to
address the unfolding economic nightmare. Their collective silence on
the matter suggests that they don't have a clue what to say about it. As
the nightmare plays out and black swans flock in to blot out the sun,
and the hedge funds come a'tumbling down, and more big banks blunder
into black holes, and businesses big and small across the land shutter
up their operations, and the unemployment rolls swell, and families are
thrown out of their houses even when bailouts are supposed to be saving
them (but the bureaucracy can't get the paperwork done in time) - well
now, they are going to be one pissed off bunch of people. What will they
do at the conventions? Our outside the conventions?

In the deeper background of all this is the all-important oil story that
nobody in politics or the media wants to pay attention to. Notice that
in the fervid unloading of assets this past week, as investors dumped
their positions in the commodities markets, the price of oil remained
stubbornly above $100-a-barrel when it was all over on Thursday
afternoon. Well, maybe they'll ratchet down a little further this week,
but the trend line will prove to continue remorselessly upward in the
months ahead.

Peak oil is for real. The supply can't keep up with global demand, even
if it dips in the USA. And more portentous sub-plots develop in the
story every month. Export rates are falling at a steeper rate than
depletion rates. The exporting nations are not only buying more cars and
running more air-conditioners, they also need to use more energy to lift
the oil they've got out of the ground.

Another sub-plot is the fact that the equipment used world-wide to drill
for oil and recover oil and move oil around the planet - all that
equipment is now so old and rusty that it can barely do the job, and it
is going to start failing altogether unless investments are made to
replace it, which nobody is making.

By the way, Americans blame the familiar private oil companies for all
the trouble with oil in their lives - Exxon-Mobil, Shell, et al - but
they don't seem to know that oil nationalism is in the driver's seat
now. The old private "majors" are only producing five percent of the
world's oil. The rest is coming from the national companies - Aramco,
Petrobras, Pemex, et blah blah - and the very operations of the oil
markets are entering a phase of radical instability as they move away
from auctioning their stuff on the futures markets and start making
long-term favored customer contracts instead.

The bottom line is that high prices for oil is hardly the only thing
America has to worry about. Pretty soon the US will have to worry about
getting the oil at any price - meaning, we're in for shortages and
supply disruptions sooner rather than later.

Also unbeknownst to most of America, the financial markets reflect all
this instability around the basic resource of oil because industrial
economies like ours are set up in such a way that they can't run without
cheap and reliable supplies of the stuff. So the least little twitter in
the reality-based world of peak oil means that everything to do with
money and capital investment will naturally go batshit, since our
expectations for increased wealth - that is, "growth" - are predicated
on the activities driven by oil.

It will be interesting to see what new machinations are unveiled this
week. Whatever else this catastrophe is, it's a good show from the cheap
seats.

Links:

{1}
http://www.bloomberg.com/apps/news?pid=20601087&sid=aGnGoiVO0304&refer=home

{2} http://www.fooledbyrandomness.com/

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2008/03/black-swans-eve.html


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