A characteristic of blogs is the immersion in the immediate. Blogs are part of the media. The focus is short. Over time the big ideas and long perspectives become overtaken by minutiae. This is ultimately fatal to blogs. Day to day business becomes noise over the longer term. The big picture is vital and blogs aren’t proving to be useful for serials. Nobody reads the back pages, they may as well not exist.
I want to take a break from the daily and outline some of the larger themes I aim to examine here on Economic Undertow. I am going to start with a what I think are some central issues and add more over the next few days or so. There are a web of interconnected themes that need to be considered. There is enough material for a book, but adding a few themes to start with and then connecting them over time with related themes is easier to tackle for both of us. I will probably rehash a lot of things. I haven’t gotten the ‘complete picture’ and probably won’t … ever.
I have given myself permission to repeat myself, as has Blogger. It’s a waste of energy, but … what of it? If I can save some energy elsewhere for myself or others, the expenditure is worthwhile.
One reason I decided to start a ‘writing’ rather than an art or image website (which I used to have) was to learn how to write. The only way to do or learn anything – including writing – is to start and do.
And fail and fail and fail. It’s part of the process. I fail, therefor I am.
The end is to organize my own thinking. Finance and economics are difficult subjects to understand clearly, to explain, to rationalize. I can’t even claim imperfect understanding and some things I know I get completely backwards. I don’t care: the ideas are like gems to fondle and toy with and turn upside down. They are interesting.
I started this blog earlier this year. Being homeless, I cannot do large projects. This is my creative outlet. I’ve learned a lot in the past 8 months. I have a good instinct for economic trends and conditions. I actually did predict the current crisis several years ago. I just couldn’t lay out my thought processes clearly. There was much I didn’t understand. Time and effort has given some insights and raised more questions. I have a long way to go but I feel like I’ve made a decent start.
The money disciplines are an unlikely combination of pure subjectivity and the technical. I don’t have a college background. I took some calculus and linear algebra in high school and promptly forgot them. Most current macro approaches are largely data- driven and require an understanding of statistics. I don’t understand statistics and don’t care to understand. “Lies, damned lies and statistics,” said Will Rogers. I agree. I will avoid statistics where ever possible. I will also avoid pseudo- science and phony formulas. I like the idea of simple, illuminating formulas that add to understanding. Irving Fisher and John Maynard Keynes wrote simple but effective formulas and made observations that are congruent with observed behavior. This parallels the science process. I wish to become better at understanding dynamics this way.
I look at economics and finance first and last as art form fancies and expressions of human nature. Many of the seminal figures in economics and market dynamics were amateurs who had literary rather than accounting appreciations of human behavior. These individuals would be considered philosophers. One reason economics interests me is because the bean counting approach to understanding economic life has failed utterly. Accountants have made over the discipline into something disconnected from the narrative flow of events. I think there is a better, more intuitive way of looking at how we manage our affairs which allows for better results.
I’m not even concerned witj predictive results which will take care of themselves. I would like to discover accurate observations of economic activity in the present and immediate past! A lot of renown, current economists fail at this.
Unlike ‘Pure’ art, there is no ‘gossip factor’ or sex appeal to economics. Famous people do not concern themselves about economics or finance unless it pays for them to do so. Writing about economics is not a pathway to any kind of material success, unless one chooses to become a central banker. I don’t. Telling the truth’ in the here and now is an unrewarding career pathway. Blunt honesty doesn’t square with mapping strategies that allows one investor to profit at the expense of another.
Mundus vult decipi, ergo decipiatur. “The world wants to be deceived, let it be deceived.”
Economics and finance analysis are in crisis. Practitioners of both professions have lost most of their credibility. The Main Street economy that most people live and work in is off the rails. Establishment explanations are incongruent with observable reality. Nobody seems to be able to come to grips with what the real problem is much less how to deal with it. In past emergencies it has been simple to uncover causes and respond effectively. Right now, the one word that describes economic response to the unwinding crisis is ‘Denial’.
Any economic hypothesis I present must be empirical. I have to be able to observe the causes and effects transpire outside.
With the establishment canceling itself out with self- serving and largely irrelevant noise, the need exists for new perspectives. Why not mine? I’m not for sale. I am not compromised. I don’t have an ‘Alma Mater’ or business connections that require adherence to a party line. I have little property and small needs. I remarked to a friend of mine a few days ago that I was likely the world’s only homeless financial analyst. She said that was a good perspective, so there it is!
I am sitting here at my computer in my brother’s house in New Orleans, recalling another friend’s complaints of health issues caused by some substance in her environment. This perhaps relates to a local condition found in southern Louisiana. It’s also an issue for the international energy business:
Accidental release of toxic chemicals, polluted water by local plants cited in report
By Mark Schleifstein, The Times-Picayune
December 07, 2009, 3:13AM
Frequent accidents at 10 of the state’s biggest refineries resulted in the release of millions of pounds of toxic chemicals into the air and millions of gallons of polluted water into state water courses between 2005 and 2008, according to a report to be released this morning by the Louisiana Bucket Brigade.
Almost a third of the 2,116 accidents at the 10 plants in four years occurred as the result of hurricanes or other bad weather events, according to the report.
The millions of pounds of toxic releases and are an unsurprising consequence of facilities that are corroding from deferred maintenance. The deferrals are a downstream consequence of microscopic refinery margins. This is a recurring issue brought up by Matt Simmons in his frequent public appearances:
No way, says Simmons. In the library of Simmons & Co., the Houston investment bank he founded 40 years ago, he insists we’ve already passed Peak Oil–but the world won’t realize it until economic recovery stimulates oil thirst anew. When that comes, gird for shortages and $500 a barrel. “There’s no logical reason for the price to be this low. If it doesn’t reverse itself soon, it will destroy the industry,” he says. If Simmons ruled the world, he’d order an oil price floor of at least $150 a barrel to stimulate exploration and to combat rust, which he says is the biggest threat to the oil supply. He figures it could cost $100 trillion to replace aged pipelines, rigs and platforms. That’s quite a sum–70 years of oil industry revenues, at present rates.
Fatal corrosion in the petroleum supply chain indicates returns on oil productivity are insufficient to maintain oil infrastructure. One outcome is health problems in New Orleans and another is increasingly constrained oil supply capacity due to breakdowns. The conclusion Simmons fails to reach is that any price high enough to support proper maintenance is probably too high to support ordinary consumption. As oil prices climb, the economy reacts badly. Demand for oil is destroyed.
All of this is something I can see from my window, or from the side of the road. It is shoe leather economics, divorced from theory and modeling, statstics and pseudo- science. A trip to Arabi past the Exxon- Mobil Chalmette refinery reveals a multi- billion dollar plant coated with corrosion. Exxon cannot afford to pay maintenance, otherwise it would be maintained. This observation condenses into a large theme; that the commodity or speculative value of oil is now greater in real terms than returns gained by consumption of the oil. This has profound implications for the entire economy Market/speculative forces now push back against consumption. This situation did not exist until oil prices began a long- term trend rise ten years ago.
A big theme is the many ‘Peak Oils’ that have taken place prior to the conventional peak of physical oil- and liquids production. The important price or availability peak took place in 1998. This was ‘Peak Cheap Oil’
Another theme is that the response to this by finance has been a closing of speculative positions and an exit from markets by well- connected ‘smart money’ insiders. This leads to the conclusion that the smart money is voting with their feet about the future of finance.
Another theme is that the underlying trend in finance is the expansion of credit by finance alongside the contraction of currency made available by central banks.
Another is our machine age narrative – what drives our culture – is a Power Fetish narrative; a cheap theatrical of cartoon dominance veneered over fashionable and vampirish annihilation. The narrative engulfs itself as its sole means of illumination. It advertises a sense of derived power, or rather … its sense of power is a kind of derivative or claim on our cumulative productivity. Consider our machine- being and the narrative that has grown up around it as an exotic life- form. Its natural selection characteristics are now revealed as a failure on its own terms. The machine is headed for extinction. The issue is whether our ‘toy’ will remove us in the process of uprooting itself.
Solutions and theorems are for another time, as the margins of this blog post are too small to contain them …