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Fatten Up Your Pets: A Survival Guide to Digital Apocalypse

The Daily Reckoning - 23 August 2014 - 6:16am

Here in France, the weather has turned bad. It is rainy and cold, with the temperature below 60 degrees. Our thoughts turn gloomy… we give the cat some extra food.

“It seems to be happening all over the whole world,” said a friend. “The climate is changing. Here in this part of France, it used to be reliably sunny and warm in the summertime. Now, you never know what you’ll get.”

Some people believe the “global warming” hypothesis. Others are convinced the globe is cooling.

“Yes, that is what is really going on,” says another friend. “The Earth’s climate has little to do with carbon emissions. They are just a drop in the ocean, from a climate point of view.

“What really matters is the sun. I’m greatly simplifying, but when the sun’s radiant heat is strong, the world warms. When it is weak, it cools. We’ve been in a warm period. Now, we’re entering a weak period.

“It’s not global warming you have to worry about. It’s global cooling. And it will be a catastrophe much greater than the financial catastrophe caused by Janet Yellen and the Fed.”

Today, south of the Loire River, in the summer of 2014, it looks as though he may be right. So, we turn away from the looming manmade disaster caused by the feds… to the looming natural disaster caused by the sun. And to disasters generally.

As longtime readers know, we are connoisseurs of disaster. Just as some people have a palate for wine, we have a keen nose for disaster.

Yes, we are the Robert Parker of catastrophe. We have sampled hundreds of varieties. We roll them around in our brain and pick out the subtle differences. We remember the little nuances. We can smell one coming a mile away.

Will “global warming” cause a major disaster? Maybe. But what interests us most is the following thought:

“There are an infinite number of known unknowns and unknown unknowns — any one of which could cause a disaster.”

In many ways, we are more vulnerable to a disaster than at any time in human history.

What might cause a major disaster? Weather… war… disease… famine — the horsemen of the Apocalypse are still with us.

But now we have iPhones instead of the horse and plow…

Imagine a few years of colder-than-usual summers in the Northern Hemisphere and droughts in Australia and South America — the only substantial food producers south of the equator.

This could easily reduce the world’s food output by 10%. Stocks would quickly be drawn down to the point where there was nothing left.

What would people eat?

And here we turn our attention to the obvious: There are many more people around than there used to be.

The last major disaster happened in France in 1940. The Nazis invaded and overwhelmed the French Army. Complete chaos followed. Everyone who could took to the roads and headed south to escape the invading army.

It was a political and military disaster. It was a social upheaval. But it did not cause millions of civilian deaths. Because 70% of the French still lived on farms, they had a safety net that worked.

There were no extensive government welfare programs. People were still used to looking out for themselves. They stocked wheat and potatoes. They knew how to grow a garden. And even if they lived in a city, they usually had close relatives on a farm not far away.

For thousands of years, they had grown accustomed to protecting themselves from famine. Cows, sheep, horses — all could be turned into dinner. In extremis, so could pets, rats and pigeons.

The French still recalled the siege of Paris in 1870, when restaurants served up rat, cat and dog… as well as animals from the zoo. Cotelettes de chien aux petits pois (dog ribs with peas) was a favorite.

But today in France, as in the U.S., most people live in vast urbanized conglomerates. They have only a few days of food in stock. To get more, they depend on a sprawling, complex and delicate system of “just in time” shelf stocking.

This depends on a number of things — any one of which could render the entire system inoperable.

First, there must be enough food produced to feed the world’s population…

There are seven billion people alive today — twice as many as there were in 1940. And the world’s output of food is just enough to feed them. In the simplest accounting, should food output decline by 10%, as many as 70 million people could starve.

Nor is the food where people need it. It is not on small farms spread throughout the countryside. It is on large farms — often a continent away from the people who will eat it.

Fuel is vital. And as Gary North showed in the run up to the Y2K non-disaster, the transport system is regulated and controlled by computers, which are vulnerable to their own disasters.

Experts say a large electromagnetic pulse could fry the switches, shutting down electricity and electronic communications for as long as six months.

Fourteen years ago, North calculated that such a shutdown could leave millions dead.

But this could be a much bigger disaster today. A breakdown in the Internet… or in the computer systems that operate credit cards and ATMs… would leave 320 million unmedicated Americans wandering around in cold, dark malls… unable to communicate or do business with one another… with no way to get money or to spend it.

Remember, our money system today is no longer based on either coins or paper money. It is a system of credit that depends on electronic transactions to keep track of who owes what to whom.

If the electronic system goes down… so does the economy. Then our safety-net institutions will fail, too.

In the U.S. today there are roughly 100 million people who depend on handouts from the government, including those on Social Security. Those handouts are delivered electronically. Many of these people typically have no savings, no supplies of food or medicine, no gardens, no fuel.

In a matter of hours, they would be desperate.

And of course, then there is the fiat money system. As we recently saw in Zimbabwe, when money loses its value the economy falls apart.

Workers do not bus for nothing. Producers do not produce. Truckers do not truck. The shelves at Walmart, so recently groaning under the weight of products from all over the world, suddenly are stripped bare.

That is when we’ll be glad we have so many fat pets!

Bill Bonner
for The Daily Reckoning

Ed. Note: If you have a disaster plan set up for you and your family, then you’re more prepared than the vast majority of Americans. But there’s one disaster you probably don’t know about. And it could bring the country to its knees anyday now. Readers of the FREE Laissez Faire Today e-letter got exclusive access to a way to protect themselves. It’s one of the many opportunities reserved for subscribers. Click here to sign up for FREE so you don’t miss out on future opportunities like this.

This article originally appeared here.

This article was also prominently featured here at lfb.org.

Categories: Economics

Beware the Return of Debtor’s Prison

The Daily Reckoning - 23 August 2014 - 4:32am

How does a stop for jaywalking turn into a homicide and how does that turn into an American town essentially coming under military control with snipers, tear gas, and a no-fly zone? We don’t yet know exactly what happened between the two individuals on the day in question but events like this don’t happen without a deeper context. Part of the context is the return of debtor’s prisons that I wrote about in 2012.

Debtor’s prisons are supposed to be illegal in the United States but today poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees….Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended can be further fined and imprisoned. Unpaid criminal justice debt also results in damaged credit reports and reduced housing and employment prospects. Furthermore, failure to pay fees can mean a violation of probation and parole terms which makes an individual ineligible for Federal programs such as food stamps, Temporary Assistance to Needy Family funds and Social Security Income for the elderly and disabled.

A new report from Arch City Defenders, a non-profit legal defense organization, shows that the Ferguson municipal courts are a stunning example of these problems:

Ferguson is a city located in northern St. Louis County with 21,203 residents living in 8,192 households. The majority (67%) of residents are African-American…22% of residents live below the poverty level.

…Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city, a total of $2,635,400. In 2013, the Ferguson Municipal Court disposed of 24,532 warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household.

You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.”

If you have money, for example, you can easily get a speeding ticket converted to a non-moving violation. But if you don’t have money it’s often the start of a downward spiral that is hard to pull out of:

For a simple speeding ticket, an attorney is paid $50-$100, the municipality is paid $150-$200 in fines and court costs, and the defendant avoids points on his or her license as well as a possible increase in insurance costs. For simple cases, neither the attorney nor the defendant must appear in court.

However, if you do not have the ability to hire an attorney or pay fines, you do not get the benefit of the amendment, you are assessed points, your license risks suspension and you still owe the municipality money you cannot afford….If you cannot pay the amount in full, you must appear in court on that night to explain why. If you miss court, a warrant will likely be issued for your arrest.

People who are arrested on a warrant for failure to appear in court to pay the fines frequently sit in jail for an extended period. None of the municipalities has court on a daily basis and some courts meet only once per month. If you are arrested on a warrant in one of these jurisdictions and are unable to pay the bond, you may spend as much as three weeks in jail waiting to see a judge.

Of course, if you are arrested and jailed you will probably lose your job and perhaps also your apartment–all because of a speeding ticket.

As a final outrage, consider this story which ties together Ferguson, the courts, and the arrest of parents, often minority parents, for leaving their kids to play in parks (just as my parents did).

According to local judge Frank Vatterott, 37% of the courts responding to his survey unconstitutionally closed the courts to non-defendants. Defendants are then faced with the choice of leaving their kids on the parking lot or going into court. As Antonio Morgan described after being denied entry to the court with his children, the decision to leave his kids with a friend resulted in a charge of child endangerment.

Regards,

Alexander Tabarrok
for The Daily Reckoning

Ed. Note: These kinds of injustices happen every day, all over the United States. No one is immune. But there are steps you can take to ensure that no agent of the state encroaches on your personal freedoms. Sign up for the FREE Laissez Faire Today e-letter and you’ll gain access to an entire research library filled with great insights on everything from how to opt-out of Obamacare to how to survive the fall of Social Security. Click here now to sign up for FREE.

This article was originally featured in Marginal Revolution.

Categories: Economics

The Market Ticker - But That Magical Blue Costume!

The Market Ticker - 23 August 2014 - 3:57am

Yes, police officers are special.  The most-important factor is that they go home every day safely, not whether they do their job in a professional manner.  Even if this means that they shoot innocent victims of crime because they're too fucking trigger happy, that's just tough shit.  You or I would face a manslaughter charge for that act -- they get a nice long paid vacation and then are reinstated without harm or foul (to them.)

Oh, and they don't actually have to work either.  Just say they did.  After all, that magical blue costume is all that's required.

KHOU launched an investigation into Jerry’s claims and uncovered an alleged “ticket-rigging scheme,” where cops listed on tickets who were not actually present at the time of the offense were cashing in on overtime when they appeared in court later.

You, of course, get to pay for this outrage twice -- first by being cited by an alleged two officers who claim to have witnessed your transgression (making it more likely you're found guilty, of course) but one of them not only perjured himself before the court he then gets paid overtime to show up when he was never there in the first placebilking you and everyone else in the jurisdiction for pay given as a result of work not performed.

If I rob you I go to prison.

If I commit perjury I can go to prison too.

But when the police rob you -- twice -- or commit perjury on a systemic basis they get suspended with pay (that's a nice vacation!) and ultimately, instead of going to prison, they are usually allowed to "retire" with full pay and benefits.  Which, of course, results in you being robbed at gunpoint each and every year thereafter until they expire of natural causes, complete with you being compelled to pay for every possible means of extending that date as well.

Categories: Economics

The Market Ticker - So What About ISIS Beheading People?

The Market Ticker - 23 August 2014 - 3:32am

War sucks.

It especially sucks when one of the combatant sides (or worse, both!) are bloodthirsty bastards.

ISIS is one such group.

Here's the problem from a policy point of view -- irrespective of that fact we're not the world's cop.

Now they have beheaded a US journalist -- but that man knew where he was going and he knew the risk.  He knew that covering these savages, specifically, might lead to him being targeted -- especially when The United States inserted itself into the conflict of its own volition by bombing ISIS positions.

Does this mean we should go kick the hell out of them?

Only if you want to declare war on them and kill them all until they sue for peace with the only rule for engagement being "If it moves shoot it.  If it still moves shoot it some more."

If you're not willing to back and demand that then no, we should not go there.

And yes, I know, it's tempting to seek revenge for this savagery -- and there will almost-certainly be more of it too.

Doesn't matter folks.  You either conduct a war as a war, not a police action, or you don't go.

We have to stop fucking around, to be blunt.  We've made a hash of basically every foreign place we've gone for the last 50 years because we have forgotten that war is not a nice business and never can be made into one.  You either go into war with the premise that anything that looks like your enemy gets shot and blown up until whatever remains sues for peace or you stay home.

Does beheading a journalist and threatening to do the same to a second one mean that we should cross that line?  No, and especially no when we essentially created and built up ISIS originally -- and we did.  I don't even particularly care if they get all the Iraqi oil assets.

What I care about is that if we're going to go war, we go to war and mean it -- we declare war in Congress and we prosecute it as a war with a "Blow Them All To Hell" set of rules of engagement -- no ifs, ands or buts.

Until and unless we're willing to do that as a nation we have no business getting involved -- even with these atrocities.

Categories: Economics

The Peak Oil Crisis: When? - Falls Church News Press

Peak Oil - Google - 23 August 2014 - 2:02am

The Peak Oil Crisis: When?
Falls Church News Press
The biggest difference between EIA/IEA and independent analysts is the government forecasters do not see a precipitous drop in shale oil production following the peak. Instead they see a period of flat production followed by a gentle decline stretching ...

and more »

The Market Ticker - BlackBerry 10.3.0 Is In The House...

The Market Ticker - 23 August 2014 - 12:56am

First blush: Damn, this is nice.  BIG improvements -- and the Amazon Android Appstore is included!

Playing with it on a secondary device right now...... will probably not load it on my "daily" until late tonight or tomorrow; this one (if you get it the right way) can (at least theoretically) be loaded non-destructively -- I'm going to attempt it.

Findings, changes and fixes:

  • BlackBerry Assistant.  This is basically Wolfram Alpha, and it's amazing.  The voice recognition capability is insanely accurate and it just plain works.  It's what Apple wishes Siri was, basically. It's at its best, of course, when you're in your car (for example) and want more than just the ability to dial someone over your Bluetooth carkit.

  • Lift-to-wake and turn-to-shutup.  I like it.  I don't use the turn-to-sleep (face down sleeps the phone) because I don't lay my device face-down anyway.  But lift-to-wake is really nice, it's accurate (it doesn't wake coming out of my pocket) and has an appropriate delay before it starts monitoring too.  In short it's just one those things where you pick up the phone and -- there it is.  Very nice; this is what ergonomic integration should do, and it does.

  • Performance is very notably improved.  Especially Android apps with a couple of exceptions, one of them being MyFitnessPal (which has gotten terribly bloated over the last year or so.)  But the difference in other apps, such as the Trader one (ThinkOrSwim), is enormous.  Native performance is similarly improved.

  • Hub improvements -- big ones.  When you look at something for a few seconds after you return from that item the "delete" button is there.  Small change, big difference in ergonomics.  "Triage" (file/delete or whatever other two you want) can be turned on and off with one touch any time, which is real nice for bulk "look/clear/file" sort of operations.  Oh, and there's an "undelete" if you're too quick with the fingers.  Yes, I've done that before, so this is very welcome.

  • The phone remembers what was running across reboots.  When you restart there is a "ghost" image for each app that was open in a tile; clicking the ghost tile restarts the app.  I like it.

  • Tile locations don't change when you open and re-dock apps.  Difference than how it used to work, but I prefer this.

  • There is another row for apps and in addition folders now can page.  Both good changes.

  • Did I mention performance improvements?  Yeah.

  • Camera improvements.  The "shoot" function is now on a button (like Android); the down-volume button option remains (which is my preferred "shoot" option anyway.)  Face detection and panorama modes added and they work well, along with a few other changes.

  • BlackBerry Blend (control and interaction of the phone via your computer) is there in the build.  The required software for the desktop, however, isn't available yet.  The link works to BlackBerry's site but is a blank page.  So much for that only being a rumor -- it's in there.

  • The upgrade was seamless and non-destructive, although it did take the usual hour and a half or so.  There was only one glitch -- Android apps didn't start immediately; it took about 20 minutes before the phone sorted out the VM system internally.  I suspect it was due to the memory and CPU load of the reindex function as I've seen this before on a non-destructive update.  All data and apps were retained across the upgrade without problems (see below in the comments for the procedure; I wrote it up on CrackBerry as well and they added it to the top-level posts for the thread.)

Those are the big changes I've noted thus far.  Still no S/MIME (Heh Chen -- c'mon!)

So far no problems noted of a stability or usability sort -- but it's early on that account as I just loaded this yesterday late afternoon.  I'll update if there's a reason to do so, but my first-blush impression is that the functionality improvements are very significant with no downsides to note.

Categories: Economics

Tar sands, trade rules and the gutting of human rights for corporate profit

Energy Bulletin - 23 August 2014 - 12:09am

A new report released today from IATP takes an in-depth look at how tar sands have developed from an unconventional, inefficient energy source to the spotlight of the corporate agenda as conventional oil supplies dwindle.

Categories: Peak oil news

Giant Mats of Green Slime in Lake Erie Signal a Need for New Economic Approaches to Pollution

Energy Bulletin - 23 August 2014 - 12:07am

So, what is the link between this latest water pollution debacle, economic growth, and a true-cost economy?

Categories: Peak oil news

Energy Crunch: [redacted]

Energy Bulletin - 23 August 2014 - 12:07am

The government’s case for shale looked increasingly shaky last week as a draft Defra report on the potential impact of fracking in rural areas was released with most crucial information simply removed.

Categories: Peak oil news

An open letter to George Monbiot

Energy Bulletin - 23 August 2014 - 12:06am

Influenced by the ideas of Allan Savory and other advocates of holistic grazing, I have been introducing the basic principles of this approach into my grazing management over the last few years.

Categories: Peak oil news

People's Climate March - I March for 2050 Kids

Energy Bulletin - 23 August 2014 - 12:05am

I'm marching for the kids of 2050.

Categories: Peak oil news

Understanding Economies of Scale

Energy Bulletin - 23 August 2014 - 12:02am

And again I come back to my central (but evolving) thesis: permaculture is failing because we are only practicing one part of it effectively.

Categories: Peak oil news

Poverty Is Not Inevitable: What We Can Do Now to Turn Things Around

Energy Bulletin - 23 August 2014 - 12:01am

Inequality and poverty are suddenly hot topics, not only in the United States but also across the globe.

Categories: Peak oil news

The Market Ticker - The Fed Is Tapering Too Early?

The Market Ticker - 22 August 2014 - 11:15pm

Or is it something else entirely -- whether The Fed tapered or not it wouldn't matter, as they best they can do is pump the stock market?

Paul Schatz, president of Heritage Capital thinks so. He argues that it's important the economy fully recovers before there is a tightening, “The mistake that feds or governments make after the first recession, the minute the light in the tunnel is clear, they start raising rates. My argument is that GDP growth back to 4% or higher is not going to be seen until we get through one more mild recession.”

You're not going to get sustained GDP expansion of 4% or better at all because the debt overhang prohibits it.

That's the problem -- and yet the Fed's QE, along with deficit spending, expand that debt overhang.

While the individual year damage is (relatively) small, the cumulative impact is not.  It is also a bitch to reverse or resolve, because you have to unwind the entire mess -- and all the excess debt.

Evidence for this?

Plenty.

A quarter of American families are "just getting by" and 13% more are "finding it difficult to get by."  That's nearly 4 in 10.  A huge percentage, somewhere around half, couldn't raise a mere $400 without selling something or going into hock.  Only 30% are better off today than five years ago.

Education costs continue to ramp, and making debt more accessible and cheaper makes this cost go the wrong way.  The same thing is true for cars; the average auto loan term is now 66 months and a quarter are for terms over six years.  The average financed amount is at an all time high of nearly $28,000.

Even worse the average new car payment is now nearly $500 a month, or $6,000 a year.  How do you do that on an average working person's salary?

None of this is helped by "ultra low interest rates" or bond-buying.  In fact, it forces pricing and loans in the wrong direction.

So on the one hand we have a policy that has failed to raise GDP (because it can't), there is international (Japan anyone?) evidence that it doesn't work in this regard, and it causes harm in that it expands debt accreation by consumers across the economy.  That, by the way, is why the long-term negative impact on GDP comes; that which you buy today you not only don't need tomorrow in addition you must pay the interest, so it impacts your spending twice!

Yet you still have people insisting that we double down on a blown policy.

These people need to be shouted off the stage.

All of them.

Categories: Economics

Beekeeping Takes Flight at Sea-Tac Airport

Energy Bulletin - 22 August 2014 - 9:35pm

Raising bees around Seattle’s Sea-Tac airport.

Categories: Peak oil news

Why You Shouldn’t Rely On Long-Term Market Trends

The Daily Reckoning - 22 August 2014 - 10:07am

“If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild.” – Benoit Mandelbrot (1924-2010)

I’m going to show you a different way of looking at the world of finance.

Most people assume that things like stock prices and interest rates tend to bounce around some kind of long-term average. Outliers, most think, will tend to draw back to some middle ground of past experience.

For example, the 10-year Treasury pays 2.5% today. People look back and see what rates have been for the last 20 or 30 years. They were much higher. So the assumption is that rates in the future will pull toward something closer to that experience.

This is a common way of looking at the world. It’s a Gaussian perspective, named after the famous mathematician Carl Friedrich Gauss. It is perhaps most known by the simple bell curve:

But a 19th-century French mathematician named Augustin-Louis Cauchy had a different idea. It is best told by using the story of the blindfolded archer. Cauchy’s idea better represents the reality of financial markets. It also shows you the folly of using models that rely on long-run averages of the past.

Before I get to that, I want to point out the bell curve assumes a stable average (or x). It also defines the odds. Outliers are rare events under the bell curve. The odds of events happening at the end of the tails approach zero.

The problem is the markets are far, far wilder than the model suggests. Wacky, extreme events occur far more than the bell curve says they should.

Now, for the blindfolded archer…

The story comes from Benoit Mandelbrot, in his book The (Mis)behavior of Markets. Imagine a blindfolded archer. He stands before an infinitely long wall with a target on it. Now assume he takes many, many shots at the target.

Most of these shots will miss. Some won’t even hit the wall. Some will miss by hundreds of yards. Now tally up his shots and distances from the target. What will the average look like?

Here is Mandelbrot:

“Our archer is not in the land of the bell curve… His scores for blindfolded archery never settle down to a nice, predictable average and a consistent variation around that average. In the language of probability, his errors do not converge to a mean.”

With a seeing archer, you’d expect his shots to bunch up around the target. Wild shots would be rare. And you’d expect they wouldn’t be all that far off. But Cauchy’s view of the world has the wild shots occurring frequently. And the misses can be wide.

“The difference between the extremes of Gauss and of Cauchy could not be greater,” Mandelbrot writes.

Mandelbrot maintains — and I think proves — that markets are closer to Cauchy than Gauss. There are many small movements, the sort of day-to-day nickel-and-dime trading. But there are very large movements mixed in. Wild shots off by hundreds of yards. And the impact of these is huge.

A couple of examples from Mandelbrot:

  • In the 1980s, 40% of the positive gains on the S&P 500 came from just 10 trading days
  • From 1986-2003, half of the decline of the U.S. dollar against the yen came on just 10 trading days out of 4,695 days.

Thus, relying on an average is a tricky business in finance. There really isn’t a meaningful average when the extremes can have such a huge impact.

Consider again the yield on the 10-year Treasury at 2.5%. Most people would say that’s low because they are comparing it with what they know from the last 20 or 30 years. But if you go back further, it may not seem so low. In the 1930s, the average for the decade was 2.98%. (This according to A History of Interest Rates, Fourth Ed.). In the 1940s, it was 2.54%. In the 1950s, 2.99%. That’s 30 years where the U.S. Treasury rate started with a 2. This just shows you what’s possible. And that our own situation could last far longer than it has and not even be an historical outlier.

Also, I like this table, published in Van Hoisington’s second-quarter letter:

U.S. 10-year Treasuries are the highest on the list. Suddenly, 2.5% doesn’t seem so low. I’m not saying interest rates won’t go higher. I’m just trying to get you to change your perspective a bit, to look at the world a little differently.

Markets don’t have to adhere to what went on before. Past averages — whether of price-earnings ratios or interest rates or commodity prices — have little real value. (The famed Shiller price-earnings ratio, which is based on average earnings for the last 10 years? Forget it.)

Charts of prices and data are just recorded history. They do not define how the market — that blindfolded archer — will take his next shot.

Regards,

Chris Mayer
for The Daily Reckoning

P.S. I recently put together a special presentation for people looking to retire in the next few years. And in today’s Daily Reckoning email edition I gave reader FREE access to it. But that’s only one small benefit of being a subscriber to the FREE Daily Reckoning… Inside every issue, you’ll be treated to no less than 3 specific chances to discover a handful of real, actionable investment opportunities. Bottom line: If you’re not reading the Daily Reckoning email, you’re not getting the full story. Sign up for FREE, right here, to get the most of The Daily Reckoning.

Categories: Economics

The “Snowflakes” that Will Cause the Next Financial Crisis

The Daily Reckoning - 22 August 2014 - 7:45am

“Worse than 2008.”

Those were the three words that echoed in our head after a face-to-face meeting last week with Jim Rickards, author of The Death of Money.

Indeed, he anticipates the debt and leverage built up in Washington and on Wall Street will blow up sooner or later… with catastrophic consequences.

But what might be the triggering events, we wondered? Your editor and a few more of us around the office had a follow-up phone call last week…

Mr. Rickards offered up three potential catalysts — a “geopolitical” shock of some sort (Iraq? Ukraine? No shortage of possibilities)… a credit meltdown in China… and something we’ve been calling “Zero Hour.”

Zero Hour is the name we gave 18 months ago to a scenario in which a major commodities exchange like the Comex defaults on a gold contract — settling in cash, instead of metal. At that moment, the price of real gold in your hand runs away from the “paper” price on the Comex.

Rickards pushed us to tease out all the implications of such an event: After all, at that moment, trust might vaporize not only from the commodity markets, but from the entire financial system. Panic, empty store shelves, riots, the whole nine yards might ensue.

“But these are only three possibilities out of maybe 30 I could name,” he said.

How comforting.

We didn’t have time to draw him out on the other 27. But scanning the headlines, it doesn’t require much imagination…

How about a cyberwar accidentally launched by the NSA?

The fugitive whistleblower Edward Snowden sat down recently in Russia for a Wired magazine interview with James Bamford, author of three books about the NSA. Snowden described a cybersecurity program called MonsterMind that would hunt down and neutralize computer attacks before they happen. MonsterMind could also launch retaliatory attacks. And all of it could happen automatically, without human intervention or oversight.

Of course, hackers often disguise the location where their attacks are coming from. Unintended consequences, anyone?

“These attacks can be spoofed,” Snowden said. “You could have someone sitting in China, for example, making it appear that one of these attacks is originating in Russia. And then we end up shooting back at a Russian hospital. What happens next?”

Or how about a new twist on the mortgage-finance meltdown that fueled the Panic of 2008?

This morning’s New York Times describes “a niche market for newly minted bonds that are backed by the most troubled mortgages of them all: those on homes on the verge of foreclosure.”

So far this year, investors have snapped up $7 billion of nonperforming mortgages… on top of $11.6 billion last year. With the Federal Reserve pushing interest rates as low as possible, this garbage actually starts to look attractive: Typically, the bonds yield 4% and pay out in as little as two years, assuming the foreclosures proceed without a hitch.

“The investors making money off these obscure bonds,” the Gray Lady tells us, “include American mutual funds. And one of the biggest sellers of severely delinquent mortgages to investors is a United States government housing agency.”

Maybe the trigger would be a municipal pension fund taking high-risk bets.

The San Diego County Employees Retirement Association is underfunded — like many local and state pensions. The managers hope to make up that shortfall with those complex financial instruments known as “derivatives”… and to borrow money with which to place those bets.

Never mind that derivatives drove Orange County to bankruptcy 20 years ago. Heh…

“San Diego County’s embrace of leverage comes as many pensions across the U.S. wrestle with how much risk to take as they look to fulfill mounting obligations to retirees,” says the Wall Street Journal. “Many remain leery of leverage, which helped magnify losses for pensions and many other investors in the [2008] financial crisis. But others see it as an effective way to boost returns and better balance their holdings.”

Indeed, the possible catalysts for crisis are nearly endless: The metaphor Rickards keeps coming back to is an avalanche.

“The climbers and skiers at risk can never know when an avalanche will start or which snowflake will cause it,” he wrote in The Death of Money. “But they do know that certain conditions are more dangerous than others and that precautions are possible… One cannot predict avalanches, but one can try to stay safe.”

He took pains to point out that while he sees an avalanche coming, he’s not holed up in a mountain cave stocked with canned goods and ammo. “I travel, I give speeches, I still live my life.” Good to know…

We’re about to launch a project with Mr. Rickards — tracking financial avalanche conditions, even analyzing individual snowflakes for their triggering potential. The best way to stay in the loop is by signing up for the 5 Minute Forecast, right here.

Regards,

Dave Gonigam
for The Daily Reckoning

P.S. “A lot of people confuse money and wealth” explained Mr. Rickards in the Daily Reckoning’s studio, last month. “They may say, ‘I have a lot of money, so I must be wealthy’… but that might not be necessarily true in the long run”. Click play below to watch Jim explain why. He also shares one lesson for safeguarding your wealth as exemplified by Warren Buffet and China:

Categories: Economics

The Massive Energy Deposit that No One Can Get to… Yet

The Daily Reckoning - 22 August 2014 - 6:20am

Doubtless, you’ve followed news about the ongoing battle in Gaza, between Israeli forces and Hamas. Earlier this summer, Hamas shot rockets at Israel; in turn, Israelis bombed the tar out of targets in Gaza, and then sent in troops. You’ve also probably seen reports of Hamas “invasion tunnels” dug — by hand! — across the Gaza border, into Israel. It’s a long-term, deep-seated, vicious conflict.

Rockets, tunnels and incurable hostility between Israelis and Palestinians; that’s what the fight is all about, right? Yes, but… today I’ll address something else behind the Gaza situation. The source of the issue lies under the surface, but it’s not buried caches of rockets, or more of those invasion tunnels…

In fact, there’s immense hydrocarbon potential in and around Israel, including Gaza. Both onshore and offshore, drilling has confirmed vast, proven reserves of natural gas. There’s potential oil, too, based on early-stage drilling, geochemistry and geophysics. These gas and oil deposits are part of the Levant Basin, which is geologically related to other oil basins that spread across the Middle East.

Here’s a map of the Levant Basin, courtesy of the U.S. Energy Department, showing trends, based on known oil and gas fields.

As you can see, hydrocarbon deposits extend from onshore, in the north within Syria, towards the southwest. After crossing the eastern Mediterranean Sea, hydrocarbon trends reappear north of Egypt and extend far into that ancient land. As the map indicates, there are several energy discoveries offshore Israel; with many more likely to come.

Hydrocarbon deposits include one of the largest gas discoveries in the world, in the past 25 years — and it’s the largest gas discovery in the Med, ever. It’s called Leviathan, located about 80 miles offshore Israel in 4,900 feet of water. The discovery well was drilled by Noble Energy in 2010. Currently, Noble and Israel eagerly await arrival of a brand new drilling and production vessel, being constructed in Korea. It’s purpose-built to develop the Leviathan field.

Closer to the shoreline of Israel, and also offshore Gaza, geologists have identified other promising gas and (potentially) oil deposits. In fact, Palestinian politicians have worked with Western and Russian oil companies, to come to terms and deals to develop energy offshore Gaza. That’s all on hold now, during the current fighting.

What does the future hold for energy offshore Gaza, and generally offshore Israel? More and more development, if trends continue. The gas and oil resource is certainly there, with astonishing discoveries to back up claims. We’re looking at large resources, near markets, developable with current levels of technology, for the most part.

But what about the politics? I won’t go so far as to say that the Israel-Palestine conflict is “all about oil;” that’s a simplistic view, and Israel-Palestine is much more than that, to be sure. Still, it’s fair to say that recently discovered, massive offshore energy resources add stupendous monetary — and strategic — value to territorial claims by both sides.

Meanwhile, offshore energy complicates Israeli-Palestinian diplomacy, now and into the future. There’s that much more over which to argue and fight. Plus, for all the energy value awaiting the drill bit, exploration and development operations in the region are high-risk to potential players.

Nothing comes easy, not even world-class hydrocarbon deposits in one of the busiest parts of the world. You can be sure, though, that I’m following this offshore energy play. When I see the right kind of investment opportunity over there, I’ll let you know.

Best wishes,

Byron King
for The Daily Reckoning

Ed. Note: In the meantime, there are plenty of great energy investments right here in the US. In fact, in every issue of Daily Resource Hunter, readers have several chances to receive some of the best investment advice from a variety off world-class investment gurus - complete with real, actionable stock picks. If you’d like to learn more about this – and other great ways to make a ton of money – sign up for the FREE Daily Resource Hunter, right here.

Categories: Economics

Your Chance to Profit from Amazon’s “Crazy” Prediction

The Daily Reckoning - 22 August 2014 - 5:09am

Late last year, Amazon.com announced the use of “drones” to deliver packages.

Drones are remote-controlled aircraft. They’re mainly used for military purposes.

At the time, it smelled like a publicity stunt…

Flying saucers delivering little brown boxes of books and shampoo?

Really, Mr. Bezos?

But as it turns out, it’s legitimate.

Does it make sense to invest in something as “niche” as drones?

In fact, the more we dig into drones, the more we see that Amazon might be onto something big.

Other commercial applications include fighting fires, delivering medical supplies, providing security… the list goes on and on.

According to a recent report, by 2025, the economic impact of all these applications in the U.S. alone could reach more than $80 billion.

Could there be investment opportunities here for forward-thinking investors?

Yes — and today we’re going to show you one…

I’ve written before in these pages about something called AngelList Syndicates…

Basically, they’re like mini venture funds:

Prominent investors take the lead in finding new deals. When they find one they like, they invest their own money — and let investors like us tag along.

Recently, a successful venture capitalist named David Weekly set up a Syndicate.

His sole investment focus?

Startups focusing on drones.

Whenever he finds a promising drone deal and puts $10,000 of his own money into it, you can invest alongside him. You can invest as little as $1,000 into each deal.

David doesn’t charge us anything upfront. He gets compensated only if his deals are successful: He takes 15% of any profits. (AngelList takes an additional 5% for handling the administrative stuff.)

But AngelList offers dozens of Syndicates. Many of them focus on broad investment themes such as mobile, financial services or e-commerce.

Does it make sense to invest in something as “niche” as drones?

Let’s take a look.

David’s not alone when it comes to thinking about drones… and neither is Amazon:

Domino’s is playing around with drones to deliver pizza…

A couple of engineers from recommendation site Yelp responded with the Burrito Bomber. Check out this video…

And a textbook company in Australia is rolling out its drone delivery service named Zookal later this year.

But Missy Cummings, a drone expert from MIT, thinks the industry is just getting started — and it’s going far beyond the burrito:

“Medical supplies, wildlife monitoring, cargo, firefighting — it’s a pretty long list of things that drones can do,” she said. “It’s reinvigorating a dying aerospace industry.”

Meanwhile, the basic components that could make drones mainstream — from batteries that can recharge in the air to “real-time outdoor collision planning” technologies — haven’t even been developed yet.

That means it’s not just the consumer-facing companies that might profit from a blossoming of this sector… the behind-the-scenes infrastructure companies could profit, too.

This all adds up to a big potential opportunity.

But isn’t it risky for a guy like David to place all of his bets on a single sector?

The simple answer? It depends…

Some professional investors like to narrow their universe of potential investments.

They invest only in health care, for example, or in e-commerce companies.

It’s called thematic investing, and it can be a winning strategy.

This makes sense.

Once an investor becomes an expert in a certain area, filtering out the good deals from the bad becomes easier. And if they become the “go to” investor in a certain industry, good deals will find them.

(According to a 2012 study from the Kauffman Foundation, 80% of venture funds that ignore a thematic approach underperform “public-market equivalents” such as the Dow Jones U.S. Small Cap Index or the Russell 2000.)

OK, so what’s the downside of this Syndicate?

Here are a few of the biggest risks:

1. David Weekly

In many ways, David seems like a good bet.

He’s a Stanford graduate who previously ran a different thematic fund.

It addressed the growing market for tech companies based in Mexico.

That fund is still harvesting its investments and turning them into cash, but the value of his investments has already increased by three times. (Three times is often the bogey for a “successful” fund.)

And his Syndicate already has some strong backers, including Naval Ravikant, one of the founders of AngelList.

Our biggest concern with Mr. Weekly?

He’s not working on the drone fund full time.

This doesn’t have to be a deal-killer, but we prefer our fund managers to be looking out for us 24-7.

Anytime you’re dealing with a regulated industry, there are risks that they’ll meddle with your business.

2. The Downside to Thematic Investing

Drones are exciting. They could be the next big thing…

Then again, people have been saying the same thing about the clean technology sector for years — and no one’s made much money from it yet!

It’s possible that drones are still too early…

Or it’s possible they’ll never “take off” at all.

3. FAA Says “Down With Drones!”

Anytime you’re dealing with a regulated industry, there are risks that they’ll meddle with your business.

Although a recent court ruling found the FAA doesn’t have the authority to regulate drones, we expect they’ll find a way to get involved.

The investment risks of this fund seem manageable:

With a $1,000 minimum investment into each deal and expected volume of five deals per year, you’d be putting an estimated $5,000 a year into drone startups.

Would that leave you with plenty of capital for other early-stage investments?

If so, you’d be in good shape. Always remember to diversify!

[Please note: We have no official relationship with and zero financial interest in either AngelList or David Weekly.]

Happy investing!

Best regards,

Matthew Milner
Founder, Crowdability.com
For The Daily Reckoning

Ed. Note: Robotics, UAVs, disruptive energy sources… these are regular themes in the Tomorrow in Review e-letter — a FREE daily service devoted to finding the world’s best tech stories before anyone else. Public stocks, private equity, tech startups and tech titans — we are committed to providing you with the timeliest, most actionable investment opportunities set to hit the market. Sign up now, for FREE, before or risk missing out on all of the profits that could come from the world’s next great technological innovation.

Categories: Economics

Could BC Become a 100% Renewable Energy Region?: Trucking, Ships and Planes

Energy Bulletin - 22 August 2014 - 4:30am

How can we switch BC’s freight transportation from diesel and gasoline to 100% renewable energy?

Categories: Peak oil news
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