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Mark Anthony, is an IT professional and who had a scientific research background before joining the information revolution. Visit his blog: Stockology (http://stockology.blogspot.com/)
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  • Sovereign Debts and Natural Limit of Growth 7 comments
    Sep 19, 2011 6:47 PM | about stocks: SWC, PAL, PCXCQ, SSRI, CDEQ

    Politicians and Economists are fond of talking about jobs and growth. Yet few earthlings realize that the kind of growth that economists talk about all the time is unsustainable in the physical world. Our world, even the whole universe, is limited. A limited system does not allow indefinitely sustained growth. As the modern day Malthus, Professor Al Bartlett put it: "The greatest shortcoming of the human race is our inability to understand the exponential function." As evidence of that, we keep hearing talks of "sustainable growth" without realizing the simple fact that the word sustainable and growth does not go together. Growth is necessarily not sustainable; anything sustainable must not grow.

    What does limit of growth have to do with debts? Debts make sense only when growth is expected. It makes sense to deposit money in a bank when you can collect a percentage of interest over time, therefore grow the amount of money you have. It makes sense to lend money to some one only if you know he will have a higher income in the future, or otherwise be better off financially, and be able to pay you back more than you lend in the first place. When growth is not expected, when you expect to be paid back less in real term, lending money makes no sense.

    In 1950s, Dr. M. King Hubbert studied the mathematics model of production of limited natural resources on earth. Logic tells us that any limited natural resource would one day be exhausted. Common wisdom tells people that when the last drop of petroleum is produced on earth we will be in big trouble. But Dr. King pointed out that we would be in big trouble long before the last drop of oil is produced. The trouble occurs at a point when half of the producible oil is produced, at which point annual production of oil reaches the highest point, at which point the availability of oil seems to be most abundant. It's called Peak Oil. Prior to Peak Oil, the economy and the demand of oil grows with the supply of oil; post Peak Oil, the demand keeps growing but yet the production of oil must necessarily decline, year by year, until it is all exhausted. The conflict between un-stoppable decline of oil production and insatiable growing demand of oil creates an un-precedent crisis that must result in demand destruction. The demand is crushed one way or another, to meet lower and ever declining level of production. It's called Peak Oil Crisis.

    Oil is not the only thing peaking. China, who consumes more than half of the world's annual coal production, has seen its Peak Coal production, or very close. China's coal production and consumption grows at 10%+ annual growth pace in recent years. The production volume reached 1.775 billion metric tons in first half of 2011, which annualizes to 3.55 billion tons a year, more than half of the world's total. According to BP's annual global energy survey, China has only 90 billion tons of proven coal reserve. In all likelihood China has already dug more than half of its available coal reserves, thus has passed Peak Coal production. The problem is that globally there is no more than 800 million tons of coal traded each year. Where can China find the extra coal it needs to meet its demand that is growing at 10% a year?

    Economy is fundamentally driven by energy. If there is no growth in energy supply, there can be no real growth of the economy. There may be some statistics number showing growth, in terms of dollars and RMB yuans. They merely indicate that the value of the dollar and yuan is going down as there is no physical growth: America will not burn more oil, sell more cars, produce more food or build more houses, with less energy supply. Same it is with China. China cannot expect to burn less coal and oil but some how manage to manufacture more industry products and produce more grains or build more highways and bridges. The physics does not allow such real growth. The only thing that can grow unlimited is the amount of money in circulation, as money printing costs nothing.

    The earth has reached its carrying capacity of human race. I hope there is a paradigm shift in energy supply, which I linger my high hope on the commercial realization of Cold Fusion, which could well happen and is an excellent reason why palladium should be in any one's investment portfolio, as palladium is critically needed in any Cold Fusion application. Another reason to invest in palladium is a looming global shortage.

    But unless Cold Fusion unlocks virtually inexhaustible energy supply for human race, a paradigm shift in the investment world is unavoidable: The Warren Buffet investment philosophy that is based on growth of economy activity should now be abandoned! Instead investment should now be focused on betting certain physical commodities becoming ever more precious, as less and less of the same stuff could be produced, at higher cost.

    Growth is still possible in rare occasions: A start up software company could be selling a couple thousand copies of its software this year and it grow to a couple million 5 years later due to its popularity, or things like that. But the world as a whole, is not going to see any real term economic growth, simply because we have reached the physical limit. Hoarding physical commodities and reaping ever growing value of the commodities as they become more valuable should be the new norm of investment. Needless to say, investors should reject the idea that investing in any fiat currency based assets: bonds, debts, or just cash, could return any growth of value at all: They will give you a growing of number but a depreciating value as the currency itself keep depreciating, until eventual collapse.

    As Mr. Warren Buffett laughed at gold as valueless for the last 13 years, gold put the world's most successful growth-based investor in the dust of shame: Gold price increased by 8 fold, from $225 to $1800 in the last 10+ years, while share price of Berkshire Hathaway managed a gain of 30% in 13 years: from $80K in 1998 to now $104K today, or 2% a year in terms of ever depreciating US dollar.

    Mr. Warren Buffett: Wake up to the new reality of the world. You need a paradigm shift to the philosophy you held true for a lifetime! 


     

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Comments (7)
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  • minorman
    , contributor
    Comments (234) | Send Message
     
    Mark,

     

    I had the Barlett qoute you used in the preface of my phd thesis! Another favorite:
    "Anyone who believes exponential growth can continue forever in a finite world is either a madman or an economist" - Kenneth E. Boulding (Economist at Boulder Univ.)

     

    I know you (unlike 99%) fully appreciate the importance of peak oil/fossil energy, but check out this video anyway:
    http://bit.ly/ntqRf6

     

    Also make sure to see video 2 about peak debt.

     

    Gold makes sense - but I must confess I also kind of like Bitcoins (I've written two pieces on it on SA:)
    http://seekingalpha.co...
    and
    http://seekingalpha.co...

     

    -
    minorman
    19 Sep 2011, 07:59 PM Reply Like
  • FrankBn
    , contributor
    Comments (30) | Send Message
     
    Very well written and refreshingly open-minded again - so thanks. We either need a quantum triple leap in science or we'll see much less than 7 billion during this live span.
    And count on oil going down quicker, with us having a government in Germany, stupid enough to shut down nuclear because of domestic policy and then buying electricity from Poland running oil power plants...
    21 Sep 2011, 01:18 AM Reply Like
  • Jason Z. Wu
    , contributor
    Comments (299) | Send Message
     
    Great article! It was so refreshing to read someone who understands SCIENCE!

     

    The only thing I would add is that I believe that the shortage of oil will dwarf the shortage of other industrial commodities such as copper. We are starting to see the movie of industrialization in reverse! For instance, people are traveling less, driving less, buying smaller cars, smaller houses etc. The American suburbia is going to in reverse gear. There will not be any meaningful recovery in housing! The list is very long!
    22 Sep 2011, 12:26 PM Reply Like
  • physicist
    , contributor
    Comments (19) | Send Message
     
    Mark,
    Did you still remember the bearish call I made in this April about PGM metals and PGM shares? How are they now? Are my advice really precious and timely? Have you been broke now? Look at what happened to SWC and PAL, do you regret you did not follow my advice?

     

    You think fundamental analysis will lead to true wealth, however, the cold reality showed you that all your analysis is actually contrarian and does not work at all. If you keep using this approach to invest I think you and your followers will really be broke in the coming years. Now, I gave you the last warning message. Sell all your shares in gold/silver, pgm metals to avoid the next big massacre. Otherwise, you will really get wiped out. I am such a nice person and do not want to see nice but naive people get wiped out by the coming storm in the markets.
    24 Sep 2011, 12:02 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » Fundamental is still where the stocks are going in long term.

     

    Sell at current low? You are insane. I am buying every bit I can. I am putting more cash into my 401K to buy more.

     

    I wasn't wiped out in 2008 when SWC was knocked down to $1.70. I am less likely to be wiped out this time. Opportunities like this is time to buy, not time to sell. Youc an sell when SWC reaches $100 a share. It may come faster than you think. Fundamentals do not work in a time scale of a few months, but works in terms of one or two years.
    28 Sep 2011, 10:12 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9966) | Send Message
     
    An absurd comparison of Buffett's performance over probably his worst 13 years with gold's best 13 years. Over Buffett's investing lifetime or over even a 20 or 30 year time period, Buffett's performance kills gold's performance. As do almost any widely held dividend paying stock.

     

    Is there some type of a paradigm shift now and in the future? Maybe, but by no means a certainty. Much research has proven that a relatively small allocation to gold and rebalancing Is all that an investor needs to protect their portfolio and outperform.
    10 Feb 2012, 11:59 PM Reply Like
  • Mark Anthony
    , contributor
    Comments (3601) | Send Message
     
    Author’s reply » It's not just one odd year for Warren Buffett. It's been 14 years. It's a long stretch of time. Warren buffet spend 14 years to bring his berkshire shares from $80,000 to $120,000 today, a mere 50% gain in dollar terms in 14 years. It is a long enough strentch of time to say for certainty that Warren Buffett's investment philosophy has broken down completely. Note that kind of return rate is roughly 2.9% a year. A regular bank cash account probably earns more than that.

     

    If you can not appreciate the fact that Warren Buffett had been a net loser in real value for 14 years, and if you can not read my article and begin to think about why, then you have not been paying attention and you have not been using your brain.

     

    Gold defeated Warren Buffet sound and fair, in the last 14 years.
    28 Feb 2012, 05:54 PM Reply Like
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