I know you might think at times that I sit out here in the East Texas Piney Woods and do nothing but worry about the future of the world, and get into a funk as a result.  Hardly!  We live a pretty darn normal life in a pretty screwed up world.  I work as a consultant helping companies do turnarounds and helping them come up with new ways to "grow their business". 

I will, however, admit to a much different outlook on life than most.  I staunchly believe in living life for minimum losses in the face of risk and uncertainty, rather than maximized gains, which can and do have a habit of,  turning around and compounding into maximized losses.

To show you why we maintain three independent routes to the internet (phone, satellite, and point-to-point private wireless) we need only to look at what happened in the wake of the Taiwan earthquake this week. Folks in Australia, for example, got a taste of what I refer to as the "soft underbelly of globalism" - the internet. If the 'net goes down, so does commerce.

Elsewhere, it is reported that losses will be in the millions from communications outages.

Now think about this really carefully: A 7.2 is a not especially large earthquake in the great scheme of things.  The Banda Aceh quake was 9.3 (or greater, depending on who you listen to). Why do you think I brought up the mirror site for UrbanSurvival at www.independencejournal.com?  Answer: System reliability and elimination of a single-point-of-failure.  That's why we have two wireless networks at the ranch, too, so jumping off direct point-to-point and onto the satellite link is always just a click or two away.

A reader writes:

"I live in Hong Kong and as you would know the recent quake in Taiwan has brought telecoms in the region to a near standstill. We can use email (thanks gmail) to a point, though it is very very slow, however access to websites especially USA based ones is impossible at this stage and rumored to be several weeks away."

I have email distribution for Peoplenomics.com subscribers set up as a backup system - so that if the internet ever gets seriously "hit" by some disaster, I can still send out emailed newsletters, but I can't do it for the daily reports - only the weekly report - only for subscribers - and only if/when the normal html access in the USA is hindered.  Sorry. If/when I ever have to turn on that system, things will be hitting - or already have hit - the fan. We'll be out of prep mode and into whatever comes next.

This has been quite a year for most of us on planet earth, as we are reminded by this morning's headlines.  First, we have the unusual situation of snow in Israel.  Of course, weather doesn't have anything to do with the drop in immigration to Israel, down to 18-year lows.  Still, when folks think of the Middle East they think of what?  Hot deserts, sand, camels, and such. Trees and breezes by the coasts, but snow?

Of course, this being winter, snow is nothing new to folks in Colorado, where reports are that another big storm is expected to hit.  Readers have been writing to us about empty shelves and price gouging in the wake of the last storm.

But as global weather patterns have been bouncing all over hell and gone this year, other anomalies jump out at us.  Think of the Canadian North Woods and you think of what?  I mean besides Snidely Whiplash, Dudley Dooright, Nell?  Snow, of course.  But it doesn't seem to be in the forecast, at least just year.

The Midwest flooding (stick around, the time monks tell us, it'll be along shortly) yet to come and the lack of hurricanes, but the preponderance of typhoons that interrupted finance meetings - now rescheduled, well, it all goes to underscore how the world's changing.

Of course, folks in Australia and Texas don't need to be reminded. Elaine and I are in "stocking mode" as the price of meats are going up - filling up the freezer now seems to make good sense because as we have been reporting, a lot of cattle went to market early this year because of increasing feed costs and the lack of rain here in Texas and Oklahoma. There have been some other impacts, too, such as the drought along the Mississippi which has cut barge traffic on Old Man River to 55-year lows.

Further up river, folks in North Dakota are looking for a little drought relief, too, and again, cattle are the major impact.

While the drought down in Australia continues (with scientists touting the idea that it has nothing to do with global warming), we are nevertheless intensely aware that the weather is more than slightly wonky, and that sets some of our expectations for 2207.

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To be a little more specific, we have continued daily, since March 15th of this year, to track the Google news search engine returns for the word "shortage."  While there has been a major uptick recently, as we explained to our Peoplenomics subscribers last week, this could be due to either an actual major increase in journalists using the word or - and more likely - it's a change in Google's indexing  and caching strategy.  Still, something to be considered.

For a long time, I have been advocating that you put at least a year's supply of food together for your family - along with a very long-term water supply plan.  Part of our plans at the ranch included acquiring four food-grade purpose built 55-gallon water drums.  This wasn't top-of-mind until I received an email from www.emergencyessentials.com this week informing me that:

"On January 1, 2007 the shipping costs on our water barrels is scheduled to dramatically increase. The shipping companies that we use are changing their shipping policies and billing structure as of 2007. As a result, after December 31st, 2006, we anticipate we will be unable to provide the same pricing that you are familiar with. We are working with our shipping companies to find the best method to keep the price of our water barrels down in the future."

So we moved up our plans a bit and bought four of them before shipping went up.  One of our readers dropped us an email yesterday to tell us that he tried to pick up some barrels, too (being on the same email list and all) but they were already out and wouldn't have any more until January.  I have no way of checking yet, but if you don't have any serious water storage, I'd suggest calling Scotty at 1-800-999-1863  (which is the number for Emergency Essentials/ www.beprepared.com )  and seeing what they have left in smaller sizes, like the 30-gallon barrels..

For planning purposes, we look at a gallon a day from our sailing days as being a nice planning number, so 220 gallons should last us a while. 

All of this is not to say "neener, neener" because there is an alternative for you.  Many pop bottling plants have left over food-grade polycarbonate barrels which can be had for cheaper than the new barrels.  Cliff at www.halfpasthuman.com  reported his cost under $25 each.  Apparently, the story is that there is a limit on how many times such barrels can be used for moving pop syrup around.  So, when they come out of service, scrubbed out with soap, rinsed to perfection, and then shock treated with some diluted bleach, they work just fine for storing water.

Once our barrels arrive, that's only the start of the water storage plan here.  The next thing on the agenda will be to buy a couple of large blue tarps which we can hoist up over the sheet metal roof of the shop, and then install plastic gutters to catch the resulting water.  It may not seem like a lot of water, but the shop roof is big enough to catch a significant amount.

Here's the math:  1/2 of the shop roof it 20 feet wide and 40 feet long, which gives us 800 square feet of catchment area. So at 144 square inches of surface per foot, we will have 115,200 square inches of collector.  And multiply that by even our drought year 30 inches of rain and you have a total of 3,456,000 cubic inches of water.

Once you know that a gallon of water is 231 cubic inches, you can figure that we'll be "water rich" with 14,961 gallons in a "drought year", in a normal year, we would be set with 22,306 gallons.  Plenty for whatever. Even if some rain isn't collected (drizzle and such) we will still be self sufficient to a much greater extent than most.  And that's before we walk down to our creek.

If you're too lazy to actually plan ahead for trouble, as most folks seem to be, you can jury rig yourself a good catchment system with some poles, rope, blue tarps, and big plastic garbage bags set into a garbage can.  Sounds gross, especially if your trash cans are "trashy", but in a life-threatening event, it's useful - Urban Survival" knowledge, that counts.

Let's see, where were we?  Oh yes.

Tripping Over 11.5% Inflation

There was an interesting email from my friend Roger Reynolds who publishes the great (and free) email advisory "Shame on Your Federal Reserve"

"1)Fundamentals: In his book about commodities, JIM ROGERS, repeats supply/demand time after time. So, what is the supply/demand for dollars with the current oil costs and import/export deficit??? THE DOLLAR MUST SOMEWHERE GIVE GROUND---DOESN'T IT??? What about the supply/demand for gold/silver/copper/uranium/lead/zinc/moly---has demand not been greater than supply??? When China is supposed to produce millions more cars next year--how can demand fall very far??? ALSO, GOLD HISTORICALLY DOES WELL WHEN THE INFLATION RATE IS ABOVE THE SHORT TERM INTEREST RATE. WE ALL KNOW THE "REAL" INFLATION RATE IS 8 TO 10 PERCENT, DON'T WE??? "

If you have recovered from eggnog overdoses, you'll remember that I pointed out yesterday that gold has gone up this year more than the Dow and silver lots more.. And, if we count back from the March 15 area mentioned for about a year in predictive linguistics runs from www.halfpasthuman.com, the 55-days average from market peak to crash, then we could very easily be in the vicinity of all-time highs right now.

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It's with this in mind that we can scan the headlines and ask  "Is inflation a really good thing, really bad thing, or about neutral?"  Damn fine question.  Warm up the coffee, this is a little complicated.

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Inflation is a bad thing - a very bad thing - if you are on a fixed income.  Two classes of people are being screwed by inflation which is running so far above "official government rates" as to be laughable.  The retired military and the retired social security pensioners.  Also, people on pensions which are tied to "official" cost of living numbers. 

Inflation is a good thing if you are a borrower, though.  You borrow expensive money and pay back with watered down money - deflated money.

In a balanced investment strategy, you try to maintain the actual purchasing power you had at the time you made an investment, plus a little actual gain.  Do that, consistently, and you're a genius.

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Government uses phony inflation numbers driven by specific measures of the money stocks (M1 and M2) but the broadest measure of the money supply, M3 was discontinued by the Federal Reserve back in March because it would scare the hell out of people.

The problem, monetarily, seems to me to boil down to this:  Inflation (which you might estimate as being the relationship of the number of dollars in circulation compared with the value of available goods and services) is commonly thought of as having something to do with Gross Domestic Product versus cash money in circulation.

GDP

M1     = inflation.

The wholly fraudulent notion is that inflation relates to just cash.  Of course, it doesn't.  It relates to all effective money in circulation - and how fast it turns over  and that fist number is M3 and the second is velocity.

Ignoring velocity of money to keep this simple, while M1 shows a very tame rate of increase lately, M3 is going through the roof, although you're not supposed to notice because the Fed knew this was coming and has hidden the numbers from public sight, lest we would all figure out the crookedness of the game. 

Still, in the past few days, Bart over at NowandFutures.com has updated his (and John William's) work on M3B, a 99.9% or better estimation of what M3 would be if the Fed decided to be honest, and it show real M3.

Care to take a guess at what M3 inflation is running annualized right now?  I'll make this easy for you:

11.5%

"Hmmm...that seems to be close to what my grocery bill has gone up, along with the power bills...how come government isn't telling us this?"  Plausible deniability, pal. 

Here's how the Big Con works.  Say that you knew that money creation was slipping out of your control and that you could only influence how the economy developed by setting a few key interest rates.  And suppose further than money is effectively created by non-government players who offer credit and creative financing to keep their games growing.  "Are you talking about the housing industry, especially the sub primate guys and the big derivatives players who create loans out of air?"  Duh.  Yeah, the coffee is working.

OK, the second part of the Con is that most people have been slowly, but steadily renouncing the use of cash in favor of digidollars.  Credit cards, etc.

Now, run up to the china board and write this down somewhere:

GDP/M1 = and approximation of government reported inflation.  BUT

 

GDP/M3 (which is really digidollars) = an approximation of actual inflation.

See how this works?  Government has deniability, as they would argue that they use M1, which would be fine if the real estate boyz and derivatives players weren't making money all day hand over fist through the process of loan creation.  A splendid damn miracle. And government - having hidden M3 where it can't see daylight can argue "Ain't no measure of digidollar inflation...that's all speculative."  Not in Texas, though.  I see the proof at Brookshire's, Kroger's, Wal-Mart, Tractor Supply, just as you'll find it at Wynn-Dixie and Safeway.

So, now that you know that inflation (M3/digidollar basis) is going up 11.5%, how does the Dow look for the year?  Let's pencil it out.

We start the year at call it 10,717 and we bump that up by 11.5% this week to just maintain purchasing power parity (PPP). That means the Dow's equivalent in digidollars at the beginning of the year could be argued to be in the vicinity of 11,949. Given the market's close yesterday and outlook for another run up today, let's say the Dow is really up for the year on a purchasing power basis about 3.9%.

On a PPP/digidollars basis, I'd argue that gold, starting from $516.60 would correct to $573.43 versus its $626.80 level at press time this morning. That's a 9.3% gain on a PPP/digidollar basis as of this morning.

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Somehow I got off track. Let me get back on it by telling you (as I have told Peoplenomics subscribers for several years) that while the last Depression was arguably touched off by competitive tariffs, today's Second Great Depression is being set up one level upstream from direct tariffs by competitive currency devaluations.

Now, let's haul out some headlines to underscore how (thanks to the media not differentiating between PPP/digidollar inflation and M1 cash inflation) we could almost get the sense that the US is doing better than the rest of the world in efforts to contain inflation.

We look first at Japan.  The headline there today is that the inflation rate increased in November and jobless numbers hit an 8-year low.  Sounds sort of familiar, huh?

South Korea's inflation rate has increased in December.

Vietnam's inflation for the year is 6.6%

Serbia's Central Bank says inflation is below 7% now.

Inflation in Russia is running at 8.2% year to date.

On the other hand, China is looking at a 3% inflation rate for 2007 - pretty damn tame compared with US actual rates.

What's key here (and for subscribers why we watch the Global Index of multiple markets so closely) is that there is a huge competitive global inflation underway and when you read about inflation in the oil-rich Gulf Countries (where rents in some have gone up 80% since 2005) you can see clearly why OPEC doesn't have a problem raising its price. They are feeling the impacts of inflation which is robbing them of oil revenue purchasing power.  They're screwed, in fact in PPP, if they don't raise oil prices!

As long as the competitive devaluations continue, a sort of economic equivalent to the music continues in musical chairs, everything is dandy.  But, as soon as predictability ends, the world's going to be in a heap-o-trouble and you'll want a portfolio structured to insulate you from real declines in purchasing power, which is what investing is all about.  Wealth preservation.

When the market goes up and gold goes up in tandem, think "Global competitive currency devaluations."

Gerald Ford passed away last night.  Age 93.  Although unelected, and some might say he lost his chance at a run on his own in 1976 over the Nixon pardon, he was, nevertheless, in my book one of the greatest modern Presidents.  Where is that caliber of Republican today?

Democrats are planning a number of hearings as soon as things get back to work in DC after the winter break.  Democrats are going to market the term "Bush's War" instead of Iraq War. Thus, a linguistic phrase our linguistic pals picked up in March 2005, and which I've used now and then since April 2005 based on the shift, has now temporally arrived at Mainstream Media.

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Speaking of linguistics, we're watching the "Condi dissed" meme evolve, most recently in China.

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George Bush is back here in his adopted home state of Texas, rethinking what to do about the war. Rock and a hard spot.  Oil rich Sunni Saudi's threatening oil if we pull out, and unwilling to talk to Iran and Syria.

I think the ACLU got it seriously wrong this time, but first the facts.  The Union has filed suit against Farmer's Branch Texas which is mandating that landlords check citizenship of people they rent to in the city.  The ACLU says no, they can't do that.

Now the opinion part: I think the ACLU has gotten this one DFW (No, not Dallas-Ft. Worth - dead something wrong).  America's Constitutional protections applies to whom?  a) Everyone on the planet or b) Persons born in, or legal citizens of the USA?  

The ACLU has, by filing this suit chosen option "a".  Seems to me they got this one wrong.  US Laws and the US Constitution protect only US citizens.  Not those who are in America illegally, enemy combatants, or any other illegal trespassers with sworn allegiances elsewhere.  Don't get me started.  Hide that soap box. But, I think Farmer's Branch has this one right. 

American employers can't hire someone without an I-9 on file, so why not landlords? As I say, I think the ACLU got this one seriously wrong. Write this down somewhere:

"If you are a citizen of Mexico, South Africa, Argentina, China, (add who you want to the list) the US Constitution isn't going to cover you!"  Has the Union flipped out?

Persons in America illegally shouldn't hide behind our Constitution. If they want in, no problem...let them follow due process and not sneak in loaded down with drugs for some coyote (border smuggler).

If I sneak into Mexico, can I demand free health care, teaching in English in Mexican schools?  Where is the equality here? Mexico won't apply US laws to its illegals...should we apply US laws to theirs?

About 8:10 or so, I should have the new Mogambo Guru letter posted here.

Tuesday December 26, 2006

Taiwan Rocks

It has been said that history rhymes.  Two years ago, a massive 9.3 (or higher) quake killed an estimated 230,000 people in Indonesia, India, Thailand and Sri Lanka.

This morning we have a report of a 7.1 magnitude temblor on Taiwan.  Too early for damage reports, but think about semiconductor prices and watch possible impacts there and on techs today.

I should mention that the HalfPastHuman time monks were right in their talk of a good-sized quake within 35-days of the temporal marker set by the recent Pacific Northwest "hurricane."  Tsunami alert issued.

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Speaking of the time monks, I've had a conversation with them about whether there should be some kind of public warning about a big event in the central US in 2007 which will likely result in 700,000 people being displaced before summer.  They have the view "Why?  It would just upset people and most wouldn't be able to do anything about it."  Brings into focus the problem of having even a sketchy view of what linguistics are saying about our future.

You remember what happened recently with the prediction about the "pan Pacific" quake warning - it turned out what had been picked up was the rumor of a pending quake in Hawaii.  This highlights another dilemma of the technology: It's hard to differentiate between an emotional wave happening in advance of a real event or an emotional event which may not be based on facts.  Hell of a dilemma.

Oil - the Complicated Headline

Cost of Iraq

Kwanzaa Turns 40

This is the first day of Kwanzaa.  By my reckoning, Friday will be an interesting day to watch in the markets as it will be the day of "Ujamaa" or cooperative economics.  What an odd concept in the corporate world...

 

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Monday December 25, 2006

Good Night, Mr. Brown

I think I've told you a number of times how the Universe plays with me - throwing out little bits of information in advance of events.  Last night, for example, Elaine and I were having a quiet Christmas Eve, just the two of us and we were watching a movie which included a a riff or two of a James Brown song.

 

I idly remarked "I wonder how he's doing?"  Elaine said "Gee, I think if he had passed away, we would have heard something about it..."  The conversation drifted on, along with the movie

 and we didn't think anything more about it..

 

About five hours later, about 2 AM (Central) I woke up and turned on the radio just to see who the guest was on AM Coast to Coast.  I was just in time to hear Art Bell announce "Breaking news, James Brown has died."

 

I laid there thinking about whether I should tell Elaine...and then went ahead and wakened her.  "Elaine, you're not going to believe this, but the radio just had on that James Brown died.  What are the odds we would be wondering out load about how he was doing just a couple of hours ago?" 

 

"That sends shivers up my spine," she said sleepily, and then, waking further "Let's not do that anymore, OK?" 

 

Yeah, fine with me,. but what are the odds?

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We hadn't seen James Brown since 2000 when his tour stopped at the Seattle Center Coliseum.  But it wasn't my first exposure to the #1 brother of soul.

 

While I was in high school, I worked at Seattle's R&B station as a transmitter engineer and met a lot of R&B greats.  The thing I remember about James Brown was how many of his songs popularized then "new" words and phrases in the language.  "Ain't it funky now" was one example, but it seems almost every new song took the language somewhere new.  "I'm Bad" really meant, I'm good.  And "Poppa's got a brand new bag" could be taken a couple of ways, depending on how hip you were.

 

James Brown aged like a good wine, going from his younger days singing about "Hot Pants" and "Sex Machine" to community icon with "I'm Black and I'm Proud".  Later, he offered advice to young people in a slow ballad, warning them about the dangers of "King Heroin", based on what he had seen first hand in life and in the fast-moving music circles:

"I'm financed in China, ran in Japan

I'm respected in Turkey and I'm legal in Siam

I take my addicts and make 'em steal, borrow, beg

Then they search for a vein in their arm or their leg

So, be you Italian, Jewish, Black or Mex

I can make the most virile of men forget their sex

So now, no, my man, you must (you know) do your best

To keep up your habit until your arrest

Now the police have taken you from under my wing

Do you think they dare defy me, I who am king?
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Behold, you're hooked!

Your foot is in the stirrup

And make -- haste!

Mount the steed!

And ride him well

For the white horse of heroin

Will ride you to Hell!"

Like I say, by the time we saw him in 2000, Brown's voice had tired a bit, but he was still the supreme showman and the Brown brass sidemen were always in a class of their own.

 

Brown took music to new dimensions and I can't tell you how many times I would wake up back in my liveaboard sailing days at some quiet anchorage up in the Northwest and have that first cup of coffee on deck at sunrise with 200 watts of "I feel good!" pounding from the speakers. Something about the power of the music, the majestic views, and the world waking up...well, it didn't get any better.

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James Brown, dead of pneumonia.  Age 73.  "There was a time"

 

Meantime, Back at Christmas

The Pope led mass in Rome.

 

Fighting continues to escalate in Somalia.

 

Iran is defiant in the face of UN sanctions.

 

Terrible flooding continues in Indonesia.

 

Go open your presents and try not to watch too much news today.

 

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News from Elliott Wave International

The Web UrbanSurvival Only

On to Our Chart!

Instead of our customary chart, this week you get a free peak at one of our other charts from www.peoplenomics.com - this is our "Global Markets Equally Weighted" chart:

 

 

Write when you get rich,

 

George Ure, The People's Economist