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The Four Industrial Revolutions

The Archdruid Report - 10 April 2014 - 11:34am
Last week’s post on the vacuous catchphrases that so often substitute for thought in today’s America referenced only a few examples of the species under discussion.  It might someday be educational, or at least entertaining, to write a sequel to H.L. Mencken’s The American Credo, bringing his choice collection of thoughtstoppers up to date with the latest fashionable examples; still, that enticing prospect will have to wait for some later opportunity.In the meantime, those who liked my suggestion of Peak Oil Denial Bingo will doubtless want to know that cards can now be downloaded for free.
What I’d like to do this week is talk about another popular credo, one that plays a very large role in blinding people nowadays to the shape of the future looming up ahead of us all just now. In an interesting display of synchronicity, it came up in a conversation I had while last week’s essay was still being written. A friend and I were talking about the myth of progress, the facile and popular conviction that all human history follows an ever-ascending arc from the caves to the stars; my friend noted how disappointed he’d been with a book about the future that backed away from tomorrow’s challenges into the shelter of a comforting thoughtstopper:  “Technology will always be with us.”
Let’s take a moment to follow the advice I gave in last week’s post and think about what, if anything, that actually means. Taken in the most literal sense, it’s true but trivial. Toolmaking is one of our species’ core evolutionary strategies, and so it’s a safe bet that human beings will have some variety of technology or other as long as our species survives. That requirement could just as easily be satisfied, though, by a flint hand axe as by a laptop computer—and a flint hand axe is presumably not what people who use that particular thoughtstopper have in mind.
Perhaps we might rephrase the credo, then, as “modern technology will always be with us.” That’s also true in a trivial sense, and false in another, equally trivial sense. In the first sense, every generation has its own modern technology; the latest up-to-date flint hand axes were, if you’ll pardon the pun, cutting-edge technology in the time of the Neanderthals.  In the second sense, much of every generation’s modern technology goes away promptly with that generation; whichever way the future goes, much of what counts as modern technology today will soon be no more modern and cutting-edge than eight-track tape players or Victorian magic-lantern projectors. That’s as true if we get a future of continued progress as it is if we get a future of regression and decline.
Perhaps our author means something like “some technology at least as complex as what we have now, and fulfilling most of the same functions, will always be with us.” This is less trivial but it’s quite simply false, as historical parallels show clearly enough. Much of the technology of the Roman era, from wheel-thrown pottery to central heating, was lost in most of the western Empire and had to be brought in from elsewhere centuries later.  In the dark ages that followed the fall of Mycenean Greece, even so simple a trick as the art of writing was lost, while the history of Chinese technology before the modern era is a cycle in which many discoveries made during the heyday of each great dynasty were lost in the dark age that followed its decline and fall, and had to be rediscovered when stability and prosperity returned. For people living in each of these dark ages, technology comparable to what had been in use before the dark age started was emphatically not always with them.
For that matter, who is the “us” that we’re discussing here? Many people right now have no access to the technologies that middle-class Americans take for granted. For all the good that modern technology does them, today’s rural subsistence farmers, laborers in sweatshop factories, and the like might as well be living in some earlier era. I suspect our author is not thinking about such people, though, and the credo thus might be phrased as “some technology at least as complex as what middle-class people in the industrial world have now, providing the same services they have come to expect, will always be available to people of that same class.” Depending on how you define social classes, that’s either true but trivial—if “being middle class” equals “having access to the technology todays middle classes have,” no middle class people will ever be deprived of such a technology because, by definition, there will be no middle class people once the technology stops being available—or nontrivial but clearly false—plenty of people who think of themselves as middle class Americans right now are losing access to a great deal of technology as economic contraction deprives them of their jobs and incomes and launches them on new careers of downward mobility and radical impoverishment.
Well before the analysis got this far, of course, anyone who’s likely to mutter the credo “Technology will always be with us” will have jumped up and yelled, “Oh for heaven’s sake, you know perfectly well what I mean when I use that word! You know, technology!”—or words to that effect. Now of course I do know exactly what the word means in that context: it’s a vague abstraction with no real conceptual meaning at all, but an ample supply of raw emotional force.  Like other thoughtstoppers of the same kind, it serves as a verbal bludgeon to prevent people from talking or even thinking about the brittle, fractious, ambivalent realities that shape our lives these days. Still, let’s go a little further with the process of analysis, because it leads somewhere that’s far from trivial.
Keep asking a believer in the credo we’re discussing the sort of annoying questions I’ve suggested above, and sooner or later you’re likely to get a redefinition that goes something like this: “The coming of the industrial revolution was a major watershed in human history, and no future society of any importance will ever again be deprived of the possibilities opened up by that revolution.” Whether or not that turns out to be true is a question nobody today can answer, but it’s a claim worth considering, because history shows that enduring shifts of this kind do happen from time to time. The agricultural revolution of c. 9000 BCE and the urban revolution of c. 3500 BCE were both decisive changes in human history.  Even though there were plenty of nonagricultural societies after the first, and plenty of nonurban societies after the second, the possibilities opened up by each revolution were always options thereafter, when and where ecological and social circumstances permitted.
Some 5500 years passed between the agricultural revolution and the urban revolution, and since it’s been right around 5500 years since the urban revolution began, a case could probably be made that we were due for another. Still, let’s take a closer look at the putative third revolution. What exactly was the industrial revolution? What changed, and what future awaits those changes?
That’s a far more subtle question than it might seem at first glance, because the cascade of changes that fit under the very broad label “the industrial revolution” weren’t all of a piece. I’d like to suggest, in fact, that there was not one industrial revolution, but four of them—or, more precisely, three and a half. Lewis Mumford’s important 1934 study Technics and Civilization identified three of those revolutions, though the labels he used for them—the eotechnic, paleotechnic, and neotechnic phases—shoved them into a linear scheme of progress that distorts many of their key features. Instead, I propose to borrow the same habit people use when they talk about the Copernican and Darwinian revolutions, and name the revolutions after individuals who played crucial roles in making them happen.
First of all, then—corresponding to Mumford’s eotechnic phase—is the Baconian revolution, which got under way around 1600. It takes its name from Francis Bacon, who was the first significant European thinker to propose that what he called natural philosophy and we call science ought to be reoriented away from the abstract contemplation of the cosmos, and toward making practical improvements in the technologies of the time. Such improvements were already under way, carried out by a new class of “mechanicks” who had begun to learn by experience that building a faster ship, a sturdier plow, a better spinning wheel, or the like could be a quick route to prosperity, and encouraged by governments eager to cash in new inventions for the more valued coinage of national wealth and military victory.
The Baconian revolution, like those that followed it, brought with it a specific suite of technologies. Square-rigged ships capable of  long deepwater voyages revolutionized international trade and naval warfare; canals and canal boats had a similar impact on domestic transport systems. New information and communication media—newspapers, magazines, and public libraries—were crucial elements of the Baconian technological suite, which also encompassed major improvements in agriculture and in metal and glass manufacture, and significant developments in the use of wind and water power, as well as the first factories using division of labor to allow mass production.
The second revolution—corresponding to Mumford’s paleotechnic phase—was the Wattean revolution, which got started around 1780. This takes its name, of course, from James Watt, whose redesign of the steam engine turned it from a convenience for the mining industry to the throbbing heart of a wholly new technological regime, replacing renewable energy sources with concentrated fossil fuel energy and putting that latter to work in every economically viable setting. The steamship was the new vehicle of international trade, the railroad the corresponding domestic transport system; electricity came in with steam, and so did the telegraph, the major new communications technology of the era, while mass production of steel via the Bessemer process had a massive impact across the economic sphere.
The third revolution—corresponding to Mumford’s neotechnic phase—was the Ottonian revolution, which took off around 1890. I’ve named this revolution after Nikolaus Otto, who invented the four-cycle internal combustion engine in 1876 and kickstarted the process that turned petroleum from a source of lamp fuel to the resource that brought the industrial age to its zenith. In the Ottonian era, international trade shifted to diesel-powered ships, supplemented later on by air travel; the domestic transport system was the automobile; the rise of vacuum-state electronics made radio (including television, which is simply an application of radio technology) the major new communications technology; and the industrial use of organic chemistry, turning petroleum and other fossil fuels into feedstocks for plastics, gave the Ottonian era its most distinctive materials.
The fourth, partial revolution, which hadn’t yet begun when Mumford wrote his book, was the Fermian revolution, which can be dated quite precisely to 1942 and is named after Enrico Fermi, the designer and builder of the first successful nuclear reactor.  The keynote of the Fermian era was the application of subatomic physics, not only in nuclear power but also in solid-state electronic devices such as the transistor and the photovoltaic cell. In the middle years of the 20th century, a great many people took it for granted that the Fermian revolution would follow the same trajectory as its Wattean and Ottonian predecessors: nuclear power would replace diesel power in freighters, electricity would elbow aside gasoline as the power source for domestic transport, and nucleonics would become as important as electronics as a core element in new technologies yet unimagined.
Unfortunately for those expectations, nuclear power turned out to be a technical triumph but an economic flop.  Claims that nuclear power would make electricity too cheap to meter ran face first into the hard fact that no nation anywhere has been able to have a nuclear power industry without huge and ongoing government subsidies, while nuclear-powered ships were relegated to the navies of very rich nations, which didn’t have to turn a profit and so could afford to ignore the higher construction and operating costs. Nucleonics turned out to have certain applications, but nothing like as many or as lucrative as the giddy forecasts of 1950 suggested.  Solid state electronics, on the other hand, turned out to be economically viable, at least in a world with ample fossil fuel supplies, and made the computer and the era’s distinctive communications medium, the internet, economically viable propositions.
The Wattean, Ottonian, and Fermian revolutions thus had a core theme in common. Each of them relied on a previously untapped energy resource—coal, petroleum, and uranium, respectively—and set out to build a suite of technologies to exploit that resource and the forms of energy it made available. The scientific and engineering know-how that was required to manage each power source then became the key toolkit for the technological suite that unfolded from it; from the coal furnace, the Bessemer process for making steel was a logical extension, just as the knowledge of hydrocarbon chemistry needed for petroleum refining became the basis for plastics and the chemical industry, and the same revolution in physics that made nuclear fission reactors possible also launched solid state electronics—it’s not often remembered, for example, that Albert Einstein got his Nobel prize for understanding the process that makes PV cells work, not for the theory of relativity.
Regular readers of this blog will probably already have grasped the core implication of this common theme. The core technologies of the Wattean, Ottonian, and Fermian eras all depend on access to large amounts of specific nonrenewable resources.  Fermian technology, for example, demands fissible material for its reactors and rare earth elements for its electronics, among many other things; Ottonian technology demands petroleum and natural gas, and some other resources; Wattean technology demands coal and iron ore. It’s sometimes possible to substitute one set of materials for another—say, to process coal into liquid fuel—but there’s always a major economic cost involved, even if there’s an ample and inexpensive supply of the other resource that isn’t needed for some other purpose.
In today’s world, by contrast, the resources needed for all three technological suites are being used at breakneck rates and thus are either already facing depletion or will do so in the near future. When coal has already been mined so heavily that sulfurous, low-energy brown coal—the kind that miners in the 19th century used to discard as waste—has become the standard fuel for coal-fired power plants, for example, it’s a bit late to talk about a coal-to-liquids program to replace any serious fraction of the world’s petroleum consumption: the attempt to do so would send coal prices soaring to economy-wrecking heights.  Richard Heinberg has pointed out in his useful book Peak Everything, for that matter, that a great deal of the coal still remaining in the ground will take more energy to extract than it will produce when burnt, making it an energy sink rather than an energy source.
Thus we can expect very large elements of Wattean, Ottonian, and Fermian technologies to stop being economically viable in the years ahead, as depletion drives up resource costs and the knock-on effects of the resulting economic contraction force down demand. That doesn’t mean that every aspect of those technological suites will go away, to be sure.  It’s not at all unusual, in the wake of a fallen civilization, to find “orphan technologies” that once functioned as parts of a coherent technological suite, still doing their jobs long after the rest of the suite has fallen out of use.  Just as Roman aqueducts kept bringing water to cities in the post-Roman dark ages whose inhabitants had neither the resources nor the knowledge to build anything of the kind, it’s quite likely that (say) hydroelectric facilities in certain locations will stay in use for centuries to come, powering whatever electrical equipment can maintained or built from local resources, even if the people who tend the dams and use the electricity have long since lost the capacity to build turbines, generators, or dams at all.
Yet there’s another issue involved, because the first of the four industrial revolutions I’ve discussed in this essay—the Baconian revolution—was not dependent on nonrenewable resources.  The suite of technologies that unfolded from Francis Bacon’s original project used the same energy sources that everyone in the world’s urban-agricultural societies had been using for more than three thousand years: human and animal muscle, wind, water, and heat from burning biomass. Unlike the revolutions that followed it, to put the same issue in a different but equally relevant way, the Baconian revolution worked within the limits of the energy budget the Earth receives each year from the Sun, instead of drawing down stored sunlight from the Earth’s store of fossil carbon or its much more limited store of fissible isotopes.  The Baconian era simply used that annual solar budget in a more systematic way than previous societies managed, by directing the considerable intellectual skills of the natural philosophers of the day toward practical ends.
Because of their dependence on nonrenewable resources, the three later revolutions were guaranteed all along to be transitory phases. The Baconian revolution need not be, and I think that there’s a noticeable chance that it will not be. By that I mean, to begin with, that the core intellectual leap that made the Baconian revolution possible—the  scientific method—is sufficiently widespread at this point that with a little help, it may well get through the decline and fall of our civilization and become part of the standard toolkit of future civilizations, in much the same way that classical logic survived the wreck of Rome to be taken up by successor civilizations across the breadth of the Old World.
Still, that’s not all I mean to imply here. The specific technological suite that developed in the wake of the Baconian revolution will still be viable in a post-fossil fuel world, wherever the ecological and social circumstances will permit it to exist at all. Deepwater maritime shipping, canal-borne transport across nations and subcontinents, mass production of goods using the division of labor as an organizing principle, extensive use of wind and water power, and widespread literacy and information exchange involving print media, libraries, postal services, and the like, are all options available to societies in the deindustrial world. So are certain other technologies that evolved in the post-Baconian era, but fit neatly within the Baconian model: solar thermal technologies, for example, and those forms of electronics that can be economically manufactured and powered with the limited supplies of concentrated energy a sustainable society will have on hand.
I’ve suggested in previous posts here, and in my book The Ecotechnic Future, that our current industrial society may turn out to be merely the first, most wasteful, and least durable of what might  best be called “technic societies”—that is, human societies that get a large fraction of their total energy supply from sources other than human and animal muscle, and support complex technological suites on that basis. The technologies of the Baconian era, I propose, offer a glimpse of what an emerging ecotechnic society might look like in practice—and a sense of the foundations on which the more complex ecotechnic societies of the future will build.
When the book mentioned at the beginning of this essay claimed that “technology will always be with us,” it’s a safe bet that the author wasn’t thinking of tall ships, canal boats, solar greenhouses, and a low-power global radio net, much less the further advances along the same lines that might well be possible in a post-fossil fuel world. Still, it’s crucial to get outside the delusion that the future must either be a flashier version of the present or a smoldering wasteland full of bleached bones, and start to confront the wider and frankly more interesting possibilities that await our descendants.
***************Along these same lines, I’d like to remind readers that this blog’s second post-peak oil science fiction contest has less than a month left to run. Those of you who are still working on stories need to get them finished, posted online, and linked to a comment on this blog before May 1 to be eligible for inclusion in the second After Oil anthology. Get ‘em in!
Categories: Peak oil news

Central Banks See What They Want in Ignoring Deflation - Bloomberg

Peak Oil - Google - 10 April 2014 - 11:22am

Sydney Morning Herald

Central Banks See What They Want in Ignoring Deflation
Bloomberg
... sales a little bit.” Central bankers so far have argued that the shortfall in inflation is temporary. “Some of the recent softness reflects factors that seem likely to prove transitory, including falling prices for crude oil and declines in non-oil ...
Asian shares rise on Fed, unfazed by China exportsBusiness Standard
BofA's Harris: Central Banks Ignore Deflation RisksMoneynews
Asian shares rise on Fed minutes, unfazed by China exportsThe Star Online

all 434 news articles »

Global solar dominance in sight as science trumps fossil fuels - Telegraph.co.uk

Peak Oil - Google - 10 April 2014 - 10:59am

Telegraph.co.uk

Global solar dominance in sight as science trumps fossil fuels
Telegraph.co.uk
Michael Liebreich, from Bloomberg New Energy Finance, says we can already discern the moment of "peak fossil fuels" around 2030, the tipping point when the world starts using less coal, oil and gas in absolute terms, but because they cannot compete ...

and more »

Projections: Southwest ND to grow to 82K by 2039: New oil technologies ... - Dickinson Press

Peak Oil - Google - 10 April 2014 - 10:41am

Projections: Southwest ND to grow to 82K by 2039: New oil technologies ...
Dickinson Press
Especially because of new fracking technologies, drilling efficiencies and multi-well pads, oil production is growing more and expected to last longer than most thought a year ago, said Gardner, from the Center for Rural Entrepreneurship. Permanent ...
Southwest ND population to grow to 82K by 2039Prairie Business

all 2 news articles »

Two (Essential) “Heartbleed” Solutions

The Daily Reckoning - 10 April 2014 - 10:25am

Last fall, we learned via Edward Snowden that the NSA has cracked most of the Internet encryption protocols we take for granted.

As we put it in our virtual pages seven months ago today: “That little padlock symbol in the corner of your Web browser that you see when you check your Yahoo mail? Or when you log into your bank’s website to balance your checkbook? Doesn’t really mean anything. The NSA can get in there.”

As it turns out, the NSA wasn’t alone…

IT departments around the world are furiously patching their systems today, hoping to stamp out a bug called “Heartbleed.”

Researchers at Google and the cybersecurity firm Codenomicon uncovered it on Monday. Heartbleed takes advantage of a two-year-old flaw within OpenSSL — a set of encryption tools used on two-thirds of the world’s Web servers.

“Websites increasingly use encryption to mask data such as usernames, passwords and credit card numbers,” explains The Wall Street Journal. “That prevents a hacker lurking at a coffee shop from grabbing personal information out of the air as it travels to a wireless router… When a website is using these forms of encryption, a padlock appears with the Web address in a browser.”

If the Web server is infested with the Heartbleed bug, it can wind up storing important data — i.e., your passwords — unprotected. Hackers can grab it… and then impersonate the website of your bank, Web email provider, etc., the next time you try to log on.

Yeah, it’s bad.

But misery loves company: OpenSSL is so widespread, both the Pentagon and Homeland Security rely on it. Heh…

What can you do about it? Three things…

First, don’t panic. Just because a site is/was vulnerable is no guarantee your data were stolen.

Second, don’t go changing all your passwords until you’re sure 1) there’s been a problem and 2) it’s been fixed. “Security experts suggest waiting for confirmation of a fix,” according to CNET, “because further activity on a vulnerable site could exacerbate the problem.”

Curious about a site? You can plug in the URL here and get an instant report. If you’re curious about us, it confirms Agora Financial is good to go. (Our crack IT team was on the case early and had things fixed even before the news went viral yesterday afternoon…)

Cheers,

Dave Gonigam
for The Daily Reckoning

Bonus Solution: Get cracking on cybersecurity investing. “The data corruption problem is global and getting worse by the month,” says the DR’s Byron King. “Our government and other foreign governments will be spending like crazy on security measures.”

Codenomicon, the firm that helped Google discover Heartbleed, is privately held, so that’s a nonstarter. But several other firms working the same space are public… and with the market pulling back, they’re attractively priced.

You can learn more about it by singing up for the email version of the Daily Reckoning. By simply reading articles like this on our site you miss the additional content we reserve for subscribed readers. It takes just a second to do… and then you’ll never miss a beat. Click here to subscribe now.

Categories: Economics

Restaurant Gems: Henry's Taiwan in Tempe - azcentral

Peak Oil - Google - 10 April 2014 - 8:37am

Restaurant Gems: Henry's Taiwan in Tempe
azcentral
Among the more unusual homeland dishes are the oyster omelet, a gelatinous mix of eggs, oysters, vegetables and tapioca starch; Taiwanese sausage, sweet and fatty; and three-cup chicken, which gets its name from one cup each of soy, rice wine and sugar ...

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One Market to Avoid Like the Plague in April

The Daily Reckoning - 10 April 2014 - 8:10am

Sometimes avoiding a negative catalyst can be just as important as finding a positive catalyst. After all, every dollar that you can avoid losing is one more dollar that you get to spend.

Chinese Internet stocks may be facing a high risk of a negative catalyst during the month of April, and they should, therefore, be avoided until May.

Virtually all U.S.-listed Chinese Internet stocks tend to be American Depository Receipts or ADRs, which have to file a Form 20-F instead of a Form 10-K for their year-end reports. For companies with a Dec. 31 year-end, the deadline to file these forms is typically April 30.

Sometimes avoiding a negative catalyst can be just as important as finding a positive catalyst.

These stocks have been amazing highfliers over the past year. Shares of Vipshop (VIPS) are up by more than 400%. Once-tiny Dangdang (DANG) is up 300%. Internet game play YY (YY) is up 400%. Meanwhile, search giants Baidu (BIDU) and Qihoo (QIHU) are up 90% and 290%, respectively.

Yet over the past three years, we have seen accounting scandals with this group of stocks in which problems at one company can drag down the whole sector. One memorable example was Longtop Financial in 2011. Longtop was an IPO, not a reverse merger, and was brought public by Goldman Sachs, not by some rinky-dink operator. When Longtop imploded due to a massive fraud, the entire space of Chinese ADRs took a dive, even though the majority of them displayed no evidence of fraud.

What I want to tell you today is that the time of peak risk for these stocks is April of every year. Interim financial statements (quarterly numbers) typically receive minimal review from the auditor during the year. It is only at year-end that the numbers are reviewed, and we hear about the results only when the 20-F is filed by April 30.

The risk we are trying to avoid is that one Chinese ADR has a problem and fails to file its 20-F, which would drag down the entire space.

To be clear, even if you own a company that has no problems whatsoever, the fact that these stocks often trade as a group means that you can still risk suffering meaningful losses just due to the “contagion effect.”

The spark for the contagion does not have to be a missed 20-F filing or an auditor resignation. This year presents significant “disclosure risk” in the 20-F’s. New requirements from the SEC will force these U.S.-listed Chinese companies to add scary new language to the 20-F filings. These will warn U.S. investors about structural risks. New and scary disclosure is the theme of this earnings season.

In December, market bellwether Baidu was forced to add a new disclosure to explain the implications of its VIE structure to U.S. investors. Other companies are likely to follow suit — either proactively or as required by the SEC.

VIE stands for “variable interest entity,” and it means that investors who own such a stock don’t actually have an ownership claim on the underlying assets of the company. Instead, what they typically own is a share in a Cayman Islands company. The Cayman company’s sole meaningful asset is a mere contract by which it hopes it can get the right to the underlying revenue or net income from the company in China.

Two points need to be made. First, note that this VIE arrangement says nothing about the actual assets — you just don’t own them at all. Second, it is important to realize that many legal experts consider the contract to be entirely unenforceable.

So why does such a disadvantaged structure exist in the first place? It is because the Chinese government considers the Internet to be a sensitive national industry and prohibits direct ownership by foreigners. But because U.S. investors were so hungry to buy these stocks, investment bankers cooked up a structure to circumvent the prohibition of ownership. Sounds a bit dicey, right?

Is this all news to you? You are not alone. When I speak to even some of the largest institutions, they still don’t fully understand the VIE.

Chinese Internet stocks may be facing a high risk of a negative catalyst during the month of April…

Investors have chosen to simply ignore the risks due to the fact that the Chinese Internet stocks are rising so dramatically and they don’t want to miss out.

But I expect much additional disclosure in the 20-F filings in a few weeks, and it may scare investors out of many of these stocks. Many investors who didn’t know about these structural limitations may decide that it is time to take some money off the table and reap the gains.

Hopefully, if you owned any Chinese Internet stocks, you sold them before April. For those who wish to own them longer term…they can always be bought back again in early May — after any potential skeletons have already been released from the closet.

Tomorrow we’ll take a specific look at one of these companies– I have some profitable thoughts I’d like to share with you.

Regards,

Rick Pearson
for The Daily Reckoning

P.S. As a general rule, don’t simply buy companies that look cheap — sniff out timely catalysts. They offer the best opportunities for gains in today’s markets. As I write to you over the coming months, I’ll show you how to maximize your returns over time using these catalysts. While every trade won’t be a home run, the strategy should substantially outperform. The best way for you to stay in the loop is by signing up to receive the Daily Reckoning by email. There’s more content in the email that you’re not getting right now – and I’d hate for you to miss out on any new catalyst opportunities. So click here now and sign up. It only takes a second… and you’ll be glad you did.

Categories: Economics

An Inexpensive Fix to “Prevent Armageddon” - Center for Research on Globalization

Peak Oil - Google - 10 April 2014 - 8:09am

An Inexpensive Fix to “Prevent Armageddon”
Center for Research on Globalization
The same tools that are espoused by the Transition movement for developing local self-reliance and resilience to help cope with the twin effects of climate change and peak oil could also serve communities well in the event of an EMP attack or extreme GMD.

and more »

An Inexpensive Fix to “Prevent Armageddon” - Center for Research on Globalization

Peak Oil - Google - 10 April 2014 - 8:09am

An Inexpensive Fix to “Prevent Armageddon”
Center for Research on Globalization
The same tools that are espoused by the Transition movement for developing local self-reliance and resilience to help cope with the twin effects of climate change and peak oil could also serve communities well in the event of an EMP attack or extreme GMD.

Energy firms to Fed: Hands off banks' commodity trading - Chicago Tribune

Peak Oil - Google - 10 April 2014 - 8:03am

Energy firms to Fed: Hands off banks' commodity trading
Chicago Tribune
The arguments illustrate the complexity of regulating an activity that critics say was never meant to exist, but which proponents say fills a crucial market need: banks' trading of physical commodities like crude oil and electricity, often with ...

and more »

Oil and gas salaries average $130000 US after 6% raise in 2013 - Calgary Herald

Peak Oil - Google - 10 April 2014 - 7:55am

Calgary Herald

Oil and gas salaries average $130000 US after 6% raise in 2013
Calgary Herald
The survey also found that Canadian oil and gas companies reduced the number of foreign workers they employ to 48 per cent in 2013 from the peak of 58 per cent in 2011. The study also found that two-thirds of Canadian employers are positive to very ...

DAILY OIL PRICE: April 9, 2014 - Odessa American

Peak Oil - Google - 10 April 2014 - 7:40am

DAILY OIL PRICE: April 9, 2014
Odessa American
Horoscopes · Horoscopes. Featuring sun signs, the Chinese Zodiac, a love meter, star charts, daily astro picks, daily peak time, and much more. More >>. Online poll. Brooks Landgraf was recently elected to the District 81 state representative seat ...

Oil settles higher, spurred by Russia-Ukraine drama, FOMC minutes - CNBC.com

Peak Oil - Google - 10 April 2014 - 6:48am

CNBC.com

Oil settles higher, spurred by Russia-Ukraine drama, FOMC minutes
CNBC.com
Crude staged a rally on Wednesday as rising tension between Russia and Ukraine overshadowed the bearish impact of a substantial rise in crude oil stockpiles in the United States. While the Ukraine crisis may not directly impact global oil supplies and ...
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Crude Hits Fresh Multi-Week Highs, Oil Inventories WatchedAction Forex
Arka News Agency
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There’s Only One Way Out of a Financial Hole

The Daily Reckoning - 10 April 2014 - 6:03am

It’s the 14th year of the Agora Financial Investment Symposium in which we try to take all the trends that we see playing out in the investment horizon and put them all together in one conference.

The challenge of putting together a conference like this every year is picking a theme that resonates with the many things that change year over year but tying them into a continuous story or investment thesis that makes sense.

This particular theme this year, “The Tale of Two Americas,” has its roots in the documentary film that we aired here in 2008, I.O.U.S.A. We spent time trying to look at the ideas and the personalities involved in making decisions leading up to the financial crisis in 2006, 2007, 2008, talking to the investment luminaries that were about at the time, Greenspan and Buffet and Paul O’Neill, Paul Volcker, many of the people that were purportedly guiding the economy leading up to the financial crisis of 2008.

And, to a man, they believed that the United States economy, as the world’s leading economy, was dynamic enough to grow our way out of any type of financial or fiscal hole that we were digging ourselves into during the Bush years, mainly because the way the statistics were being reported and the way that the media was telling the story was that everything was fine for 40 years.

After the Clinton administration got done with their work, they balanced the budget, and then we were going to see rising budget surpluses for 40 years. But then Bush came in and ruined everything. And then we had to fight the War on Terror, and spending got out of control, and we didn’t have enough taxes to cover the bill. We could already see that there was discord in Congress and that the rising debt was going to be a problem far before 2008.

And it seemed imperative to find out what people that had a voice, people who, when they spoke, they moved markets, to find out what they were thinking. We made that film. We debuted in at Sundance in 2008. We brought it here. And then we premiered it to a wider audience in August.

But that question of whether the US economy was dynamic enough to grow our way out of a widening fiscal hole resonated with me. I kept wondering who is going to grow our way out of this? Which actors in the economy are going to do that job? Obviously, it’s entrepreneurs. It’s not going to come from some government program that takes money from one place, gives it to another and calls that progress.

Categories: Economics

The Market Ticker - EXTREMELY Serious OpenSSL Bug

The Market Ticker - 10 April 2014 - 5:56am

Head's Up folks!

OpenSSL versions 1.0.1 through 1.0.1f contain a flaw in its implementation of the TLS/DTLS heartbeat functionality (RFC6520). This flaw allows an attacker to retrieve private memory of an application that uses the vulnerable OpenSSL libssl library in chunks of 64k at a time. Note that an attacker can repeatedly leverage the vulnerability to retrieve as many 64k chunks of memory as are necessary to retrieve the intended secrets.

This is extremely serious folks.

If your systems are vulnerable to this and Internet-facing you must assume that the private keys involved in your SSL-enabled applications have been compromised and are no longer secret.  This means that your site can be trivially spoofed and will appear to be legitimate to a client connecting to it even though it is not.

This is very, very bad.  You cannot simply upgrade OpenSSL and be done.  You must also either revoke and have re-issued or revoke and re-issue yourself all keys that were formerly issued and potentially exposed.  In addition the public CAs may be impacted as well since they have internet-facing services, which means that their keys may not be secure either.

Until you have confirmation from the CAs you use that their keys were either never on a machine with a vulnerable implementation or have been revoked and then re-generated and re-issued (which requires revocation and re-issue of their keys, and that means they need to re-issue your key as well since once they revoke their key yours won't validate any more!) you must assume that the public CAs are also compromised.

I have patched my servers here and will be revoking and re-issuing all my internal-use keys including my private CA.  For those of you with Internet-facing servers that use SSL you have a problem if your systems are vulnerable or if the entity that issued your SSL certificate was/is vulnerable as you must assume your CA has been compromised until and unless you have confirmation that they never were.

DO NOT TAKE THIS VULNERABILITY LIGHTLY -- IT HAS BEEN IN THE OPENSSL CODE FOR ROUGHLY A YEAR IN COMMON USE AND LONGER IN DEVELOPMENT VERSIONS AND THE PRESENCE OF EXPLOITS "IN THE WILD", ALONG WITH THEIR USE, MUST BE PRESUMED.  THERE IS NO RETROSPECTIVE LOG ANALYSIS THAT CAN BE DONE TO DETECT EXPLOITATION AS NO ABNORMAL TRACE IS LEFT BY THE EXPLOIT ALTHOUGH ATTEMPTS TO EXPLOIT THE BUG, IF YOU ARE LOOKING FOR THEM ON A FORWARD BASIS, CAN BE DETECTED IF YOUR SECURITY SUITE IS TAUGHT TO LOOK FOR THE SPECIFIC SEQUENCE OF REQUESTS INVOLVED IN ATTEMPTING EXPLOITATION.

Categories: Economics

Prices at the pump jump again, driving motorists mad - KWCH

Peak Oil - Google - 10 April 2014 - 5:42am

Prices at the pump jump again, driving motorists mad
KWCH
... May 1st and prices should begin to drop back down before the summer driving season. Industry experts say we have a better domestic supply of oil this year than last. They're hoping that means the gas price peak should be soon, if we haven't hit it ...

and more »

How to Make 900% Returns in Less than 12 Months

The Daily Reckoning - 10 April 2014 - 4:57am

We recently received this question from a reader:

“Matt & Wayne, I like your weekly articles a lot. They’re really informative.  Unfortunately, I can’t invest in the opportunities you write about because I’m not an “accredited investor.” I know the laws around this are changing soon, but is there anything I can do right now to make money from your ideas?”

Perhaps you’ve been wondering the same thing.

After all, until the final section of the JOBS Act passes – the part that allows all investors to invest in private start-ups – most of the deals we discuss are only available to accredited investors.

However, there are ways that non-accredited investors can profit – right now – from our private-market insights.

Some of the largest hedge funds in the world are doing it already…

Some of the largest hedge funds… use information about private companies to make a killing in the public market.

Here’s how:

In brief, they use information about private companies to make a killing in the public market.

It’s a strategy we call “Private Alpha” – and it’s not just for hedge funds anymore…

“Alpha” is a term that hedge fund managers use.

It describes their investment performance relative to the broader market.

A fund that beats the S&P 500 by 5%, for example, has an alpha of “5.0.”

Hedge fund managers obsess over this metric. It’s the central number they highlight with shareholders, or potential new investors, to justify their lavish fees.

It makes sense, then, that hedge funds use any number of proprietary methods and under-the-radar information sources to gain alpha.

I recently had breakfast with a fund manager in NYC. I can’t mention the name of his fund for confidentiality reasons, but he personally manages more than $2 billion.

He told me about a successful strategy he’s been using for the last few years – this is the same strategy we’re now calling “Private Alpha.”

Essentially, his fund studies hundreds of early-stage startups. They look for companies that are growing rapidly, or addressing fast-growing markets.

When they find evidence of a “break-out” trend, they use that information to inform a trade in the public markets.

As I sat listening to him, sipping my coffee, I didn’t think much of it. Then he sprang the punch line on me:

He’d used this strategy to generate a 900%+ return on a single trade…

In less than 12 months.

I was stunned… and intrigued.

Digging deeper, I found several fund managers using the same strategy. Each had a unique way of applying private company insights to create public market returns.

I discovered that there were three common methods for executing the Private Alpha strategy.

Today, we’ll look at the first one…

Before Groupon was public – and long before its fall from grace – it was the darling of the tech world.

Given its momentous growth trajectory (it was the fastest growing company…ever, according to the Wall Street Journal), top-tier venture capitalists were fighting tooth and nail for the right to invest.

But the hedge fund guys didn’t bother joining the fight.

Instead, one particularly savvy fund manager used evidence of Groupon’s early success – while it was still private – to find profits in the stock market.

More specifically, he found a small-cap company called TravelZoo (NASDAQ: TZOO).

TravelZoo had been around for a decade. They made money by advertising special travel deals.

Groupon, on the other hand, promoted discounted “local” deals (e.g. 30% off dinner at the local Italian restaurant) and took a cut of the transaction.

Toward the end of 2010, impressed with Groupon’s success, TravelZoo decided to copy their model. They moved into selling local deals.

The savvy fund manager believed that, just as a “rising tide lifts all ships,” once TravelZoo figured out how to sell local, they’d be rewarded with a surge in revenues – and a surge in stock price.

Boy, was he right.

When it first launched its local deals program, TravelZoo was trading at $15.

9 months later it was trading at $94 – a 526% gain.

The “Rising Tide” method has been used for many other successful trades.

Here’s another example…

Airbnb is a hospitality startup. It lets regular folks rent out rooms – or their entire home – to travelers. If you’ve been reading our material, you’ll know the company has been on a tear as of late. Recent estimates peg its valuation at $10 billion.

Airbnb is still private, but there’s a public company doing something similar – HomeAway (NASDAQ: AWAY).

Two years ago, AWAY was trading at $19 per share.

This February, mirroring the growth of Airbnb, the stock peaked at $47.74 – more than doubling in 24 months.

Again, a rising tide lifts all ships…

To take advantage of this strategy, first you need to find evidence of a break-out trend that’s fueling material growth in the private markets.

The articles my colleague Matt Milner and I feature in Tomorrow in Review can help you with that – just keep an eye on our articles, especially the ones about megatrends.

Then you need to leverage that info to invest in companies riding that same wave – but in the public markets.

In the very near future, we’re going to show you how to do that, too.

Next week I’ll review a second way to take advantage of the Private Alpha strategy.

This one allows you to generate not one, but several trading ideas based on private-market insights.

Happy investing!

Best Regards,

Wayne Mulligan
for The Daily Reckoning

Ed. Note: Wayne’s advice offers a great way to leverage information that the market overlooks to make triple-digit returns. And in today’s issue of Tomorrow in Review, readers were given a chance to discover one of the most incredible ways to do just that – including one form that could help them save as much as $18,000 on their taxes this year. It’s just one small benefit of being a subscriber to the FREE Tomorrow in Review email edition. Sign up for FREE, right here, and never miss another great opportunity like this.

Categories: Economics

The Absurdity of Fifth Third

The Baseline Scenario - 10 April 2014 - 4:53am

By James Kwak

No, I’m not talking about the fact that a major bank is named Fifth Third Bank. (As a friend said, why would you trust your money to a bank that seems not to understand fractions?) I’m talking about Fifth Third Bancorp. v. Dudenhoeffer, which was heard by the Supreme Court last week.

The plaintiffs in Fifth Third were former employees who were participants in the company’s defined contribution retirement plan. One of the plan’s investment options was company stock, and the employees put some of their money in company stock. (Most important lesson here: don’t invest a significant portion of your retirement assets in your company’s stock. Remember Enron? Anyway, back to our story.) As you probably guessed, Fifth Third’s stock price fell by 74% from 2007 to 2009—this is a bank, you know—so the plaintiffs lost money in their retirement accounts.

The claim (I’m looking at the 6th Circuit opinion)  is that the people running the retirement plan knew or should have known that Fifth Third stock was overvalued in 2007, and they breached their fiduciary duty to plan participants by continuing to offer company stock as an investment option and by failing to sell the company stock that was owned by the plan. The suit was dismissed in the district court for failure to state a claim, so on review the courts are supposed to accept all the plaintiffs’ allegations as correct.


The serious legal issue in this case has to do with the duty of retirement plan fiduciaries to manage the plan’s assets prudently and for the exclusive benefit of plan participants and beneficiaries (ERISA § 404(a)(1)) and how that applies to an individual account plan that is invested in employer stock, to which the usual diversification requirement does not apply (ERISA § 404(a)(2)). More specifically, it has to do with a “presumption of prudence” that some courts apply in this situation—that is, a presumption that it is prudent for an employer stock ownership plan (ESOP) to continuing investing in company stock.

When you are down in the legal minutiae, this is not a crazy idea; after all, the participant chose the company stock option. But at a higher level, this borders on absurd. If you work at a company, you are already heavily invested in that company. Besides having skills that are particularly useful to that company, there’s the little problem that if the company does badly, you could lose your job. Doubling down by putting your retirement assets in the company is just increasing your risk. (This applies less to retirees, unless you’re drawing other retirement benefits from the company, but then the usual rules about investment diversification still apply.) How could the word “prudent” have anything to do with this practice?

At a higher level, you also have to wonder whether simply having a company stock option counts as prudent management of a retirement plan. ERISA exempts the company stock option itself from the diversification rules, but it doesn’t exempt you from the general duty to manage the plan prudently and for the benefit of participants. Given that diversification is the first rule of investing, it seems to me that the existence of an ESOP within a retirement plan is imprudent to begin with. There is a debate (which I’ve written about here) about whether having a stupid investment menu is exempt from the usual fiduciary duties under ERISA § 404(c), but it certainly shouldn’t be.

In short, if retirement plan fiduciaries actually behaved like fiduciaries, we wouldn’t have ESOPs within retirement plans to begin with. That’s what’s absurd about Fifth Third.

Categories: Economics

An Economic Theory that Leads to Smart Investing

The Daily Reckoning - 10 April 2014 - 3:53am

The single most asked question I get at investment conferences is, “Do you have a list of money managers who invest guided by the Austrian School of economics?” The question is a good one. After all, the Austrian School stands alone in predicting the fall of the Soviet Union and the housing and financial crash.

Anyone with a retirement account has been whipsawed by the stock market over the past few decades. Fidelity’s Peter Lynch told everyone to buy stocks and hold. Everything would work out great. Diligent savers would even end up millionaires, courtesy of an ever-expanding stock market. The efficient-market hypothesis (EMH) provided intellectual support for the idea. The market reflects all information, so there’s no way to beat it, said the economists.

Now everyone knows better. Or at least they should.

The average person’s 401(k) was turned into a 201(k) in 2000, and was destroyed again in 2008 if they were brave enough to stay or get back in the market. Many people swore off stocks after the last crash only to watch the S&P 500 triple. Now the Fed’s zero interest policy has pulled them back just in time for the next market train wreck.

Those educated in the Austrian School understand how the central bank creates the business cycle’s booms and busts. And they know there is a better way than just buying, holding, and hoping. But how does one apply it using Friedrich Hayek’s and Ludwig von Mises’ theories to make money in the market?

In a very readable 107 pages, Roger McKinney shows you how to turn theory into profit and financial survival in his book Financial Bull Riding.

Now is the perfect time to read McKinney’s book. Stocks are trading at all-time highs. More margin debt is outstanding than ever before. Price/earnings ratios are stretched, with market darlings like Netflix and Amazon trading at P/Es of 196 and 581, respectively.

However expensive it may be, if you’ve missed this market move, every day it goes up, you feel the regret and are tempted to jump in. If already fully invested, you’re rationalizing away any concerns.

Eugene Fama may have shared the Nobel Prize for his EMH work, but McKinney disposes of the idea using a folksy story from a serially successful investor — Warren Buffett — that strict adherents to EMH would deny the existence of.

Buffett finished his story about coin-flipping orangutans with “I think you will find that a disproportionate number of successful coin flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville.”

Common sense still makes sense in the plains.

Buffett has a point. Even in the speculative world of junior resource investing, the legendary Rick Rule is an ardent adherent to the teachings of Ben Graham and David Dodd.

McKinney’s book may be about beating the markets, but the author gains his clear perspective not just through the lens of Austrian economics but from operating as a financial adviser far, far away in the flatland of Oklahoma. His perspective isn’t clouded by the canyons of Wall Street. Common sense still makes sense in the plains.

Bull Riding is Rothbardian in its scope of history used to support the book’s premise. Richard Cantillon is not a household name, but McKinney provides a brief, enlightening history of the man who made a fortune in the crash of John Law’s Mississippi Bubble in 1720 France.

And how many books on investing mention the University of Salamanca as the beginning of the marginal revolution? “Had [Adam] Smith been more familiar with the writings of the Salamanca scholars, he would not have made that mistake.” “That mistake” being the labor theory of value.

Readers shouldn’t worry about the author getting too bogged down in theory or history. He condenses these matters, as well as the Keynesian takeover. He then quickly gets into explaining the Austrian business cycle theory as the bedrock for investment timing.

Hayek’s and Mises’ insight was that monetary intervention by a central bank forces interest rates below their natural rate. This fools entrepreneurs into believing savings have increased and demand has shifted from consumer goods to higher-order (investment) goods. Of course, savings haven’t increased, and this misdirected capital becomes what Austrians call malinvestments, to be liquidated in the downturn.

Selecting good companies to invest in is important, but timing is everything. “If we can predict with some accuracy when profits will change in the business cycle,” McKinney writes, “we should have some idea of when stock prices will change.”

The author follows the money and, in turn, the profits of various business sectors, providing a road map to help investors determine entry and exits points in the market. It’s what he calls avoiding the “business cycle horns.”

Investors have different temperaments and risk tolerances. Very few are all-around cowboys. McKinney lays out three strategies for this investment rodeo depending upon what kind of cowboy you are.

You may be a calf roper, with plenty of skill and, most importantly, plenty of patience. But calf ropers don’t make as much as other cowboys. Steer wrestlers make more, but timing is more critical, while less patience is required.

The big money in any rodeo is made by bull riders, who risk life and limb for an eight-second thrill ride. The investment bull rider will try to ride all market fluctuations using margin, options, and futures. Bumps and bruises should be expected, but the rewards can be enormous for a successful ride. Especially if you use Austrian business cycle as a big-picture guide, with technical analysis to navigate the market’s daily bucking.

The best freedom is financial freedom. Rather than hand your hard-earned savings to a broker or money manager whose primary interest is to generate commissions or increase money under management, take control of your own nest egg.

Sincerely,

Doug French
for The Daily Reckoning

Ed. Note: Subscribers of Laissez Faire Today always get a 20% discount for books covered in these books reviews. That’s an offer you’ll only receive after you signed up for our daily newsletter. Click here now to sign up for FREE, and make sure you don’t miss out on any of the great discounts and exclusive offers that come with your free membership.

This article was originally featured in Laissez Faire Today.

Categories: Economics

The Market Ticker - So You Want To Fire Mozilla's CEO Eh?

The Market Ticker - 10 April 2014 - 3:35am

Recently the CEO of Mozilla (the free software folks that produce, among other things, Firefox) was "fired" because, allegedly, he donated money in 2008 to a political campaign to pass Proposition 8.

That proposition would have banned same-sex marriage; it passed but was struck down by a court.

When this came out into the public eye it was met with immediate loud calls for Eich to be forced out.  Various left-wing pundits have pontificated that this is really about promoting a "divisive" man to lead the company; witness what Think Progress said:

The important distinction lost in the conversations since Eich stepped down is that this was a protest about Mozilla more than it was about Eich. The company violated its commitment to openness and inclusion by promoting Eich to be its figurehead, and Eich himself decided that Mozilla’s work could only proceed if he stepped down.

Uh huh.

Here's the problem for the Gay Lobby folks: The very laws that they demanded and got passed to protect gay people from discrimination apply here, and that "resignation", which was quite-clearly coerced, almost-certainly violated California law.

Specifically:

§ 1101. Political activities of employees; prohibition of prevention or control by employer

No employer shall make, adopt, or enforce any rule, regulation, or policy:

(a) Forbidding or preventing employees from engaging or participating in politics or from becoming candidates for public office.

(b) Controlling or directing, or tending to control or direct the political activities or affiliations of employees.

§ 1102. Coercion or influence of political activities of employees

No employer shall coerce or influence or attempt to coerce or influence his employees through or by means of threat of discharge or loss of employment to adopt or follow or refrain from adopting or following any particular course or line of political action or political activity.

Well well.

Donating money to a political cause is, of course, fundamental to political activity.  Indeed there is little that one can state is more fundamental than the act of voting itself.

But now the so-called "tolerance groups" are doubling down on their claims.  From the same article:

Eich’s resignation represents the increasingly heightened standard for “equality.” For Mozilla’s community, 99 percent equality — the company’s inclusive policies and Eich’s commitment to upholding them — was not enough. He did not apologize for his Prop 8 donation and he refused to say whether he’d give to an anti-gay campaign again in the future.

He has no duty to apologize.  Not only that, his political activity is protected speech under California law and he is entitled to engage in it without being penalized in the workplace for doing so, just as it is equally-protected to lobby for or donate to political causes that advocate for same-sex marriage.

That sauce for the goose tastes awful good on the gander.....

Categories: Economics
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