scholastica8

A Modest Proposal For The U.S. Auto Industry: Stop Building Cars

All the outsourcing sounds good & can be good for the bottom line. However, we've forgotten that many industries, particularly electronics & automotive, are issues of national security. What happens if we go to war with China over dwindling natural resources, like oil? Or, what happens if China become unstable. Already, this downturn has forced the Chinese Gov't to place troops in some areas heavy in closed factories. They have large numbers of migrant factory workers, many of whom are male & under 25.

Historically, whenever the male-female ratio in a generation tips towards 60% males... there is unrest. Thanks to the 1 child law & the aborting of female babies, that is what China is looking at.

So, China blows up & all of our manufacturing is there... Or India & Pakistan go to war... & we've oursourced all of our software & call centers to India. What then?

Such industries do not automatically restart. For every product outsourced, we lose skills that we might one day need. It leaves us to reinvent the wheel.

Americans, of all classes, need to learn that there are things that must be paid for.... either in higher production costs that carry on down the line... or in higher taxes. But in return, we have jobs... & a self-sustainable, self-defense.

The Shallowest Generation

I think that when coming down on the Boomers, one major thing is forgotten, which is a part of the big historical picture. Our parents were the products of WW1, the Depression, & WW2. Yes, they were the greatest generation, but to paraphrase... much was given to those of whom much was expected. A generation that had learned frugality & thrift benefited from a post-war era in which the US was the only manufacturing economy left standing. The rest of the world was decimated & needed everything. The US itself needed everything. Our advantage was that our manufacturing was then modern & thriving. For that era, our work force was well educated & healthy. Manufacturing labor was in demand & companies paid high wages (much higher than manufacturing ever paid) Plus, the US had all the resources within its own boundaries to take advantage of the situation. Our fathers, returning from war, benefitted from the GI Bill... housing loans & education... plus companies that wanted to keep workers & so offered good pension & medical benefits. Much of that generation still has not understood that the ground shifted under their children's feet.

As a consequence, the Boomers were born & experienced childhood in the "perfect world." That world began to end in the late 1960s, just as the Greatest Generation was retiring... to Social Security payments that bought something & to a medical world that accepted Medicare patients... to defined company benefits.

But, our resources were in decline. Therefore, costs began to increase due to the need to import energy & raw materials. To keep prices down, our manufacturing moved overseas to benefit from cheap labor. Walmart took over... lower prices for people whose wages did not keep up. Free trade took over... with the idea that we would buy cheap products from China & in turn, they would buy our more expensive products with the money we paid them. That didn't work. They didn't buy. Instead, we borrowed.

The idea had been that our manufacturing should be replaced by other types of jobs, but the real benefit of manufacturing jobs is that it allowed people to work at jobs that require a high school or community college or trade school diploma & physical labor. They offered some stability & predictiblity. Many people do not want & cannot handle cubicle jobs. They don't want to constantly pursue more & more education that is outdated as soon as it is learned. They want a paycheck, a work life, & a family & home life.

But that is beside the point. Once our economy lost the manufacturing engine to power the economy & other things did not pan out to replace it, we became a "consumer" society. Consumerism replaced everything else as the economic engine.... Buy! Buy! Buy! Don't stop buying!... Do the patriotic thing... Shop! Consumerism replaced citizenship as the most important thing an American could be.

When we went to war, we were not told to cut back, to ration & sacrifice. To do so would hurt the economy. We were told to shop. It was the shopping that kept the economic engine running.

But it was foolishness. We literally were consuming the planet. The unfortunate part is that this is the ultimate goal of capitalism. Without comsumerism, there is no capitalism. Capitalism & even the very idea of "money" depends upon the sale of product.

Now the Chinese & the Indians will take our place as consumers.... & the world will continue to be consumed.

A new system must arise which does not requre a buyer & a seller. The consumer must be replace by the good citizen.

Crazy P/E Ratios

Just bear in mind that Warren Buffett just bought CEG... one of those companies with the highest YTD% drops... & the 2nd highest in the list of P/Es.

Granted, he has enough cash to weather anything... but his goal is to make more cash.

As for the world's involvment protecting us from droping into single digits... a broader market, a supposed greater spreading of risk, has made for a much more volitile situation. It seems to have enhanced the fear rather than containing it.

What Effect Will Hyperinflation Have?

Something else about hyperinflation. The best way to survive it is to get your assets out & yourself out of the country. If that can't be done, even people with loads of hard assets don't come out the other side.

If your hard assets are gold, jewels, whatever, you sell bit by bit at whatever price you can get in order to feed the family, keep the lights on, etc. There may not be that many buyers because only the truly wealthy will have cash to spend on anything but necessities. So, more likely you barter whatever you have that someone else might need, for something that you need.... but it will have to be local because shipping fees will be skyhigh.

If you have hard assets in the form of oil stocks, gold ETFs, Swiss Francs ETFs whatever, you end up having to sell those off to make ends meet. Most affluent people, unless you are super wealthy, in which case you escape the country, can hold out for about 3 years. This is usually the point at which a government issues new currency.

What Effect Will Hyperinflation Have?

Hydrogen Bob.... The problem with the idea of switching to more products made here, more home-grown oil production, etc. is that if we do hit hyperinflation, the costs of raw materials will skyrocket. The price of a barrel of hyperinflated oil, may not keep pace with the cost of producing that oil. Most of our Chevys have parts produced outside the US. Will there be the money, at hyperinflated prices, to retool factories, to purchase the raw materials, etc.

Another difficulty is that if we do hit hyperinflation with super expensive gasoline, will workers be able to get to work? Cities, like citizens, won't be able to afford to run mass transit.

We are in scary times.

The New Normalcy

Anybody remember the "Ownership society"?

Sarah Palin: Wall Street's Candidate

About that natural gas pipeline:

1. The Lower 48 has ample supplies of natural gas & we have prices hedged on Canadian gas for years to come. We have even more gas coming online in the Lower 48. So, we don't really need Alaskan gas. Therefore, the "earmarked" money for the Alaskan project would have been better spent expanding our gas infrastructure down here & modernizing & increasing the capacity of our electrical grid.

2. The Alaskan natural gas pipeline is a feasible project only if natural gas prices are very high. This is why it remained on the drawing board for 30 yrs.

3. It is one of the largest construction projects in history, but the contract was awarded not to a US company, but to a Canadian company.

'Index Speculators' Responsible For Commodity Prices?

I think the big question that all are missing is this:

We all tend to be comparing past commodity bubbles (oil, silver, etc) to the present situation. But, is the present the same as the past? We are looking at it from a very insular POV. From the end of WW2 to about 1970, the US was the only game in town. Between 1970-2000, we saw the rise of rival economies, but small potatoes on the whole... they had neither super populations, nor super wealth based on a commodity the world needs.

Is this really deja vu all over again, or have the super-population countries now begun to have a major sucking sound & are the growing appetites of oil-producing countries limiting the amounts of oil they wish to part with?

Someone above said that with US use declining, those supertankers would be sitting offshore waiting to unload. Is that still true? Or do they now have a girl in every port? Have we reached the point where whatever we don't use, someone else will?

Then, we come to the question of how long can the world economy bear the inflation that this will cause? The single thing that the global economy depends upon is cheap & easy transport of goods.

Some will say, that we will simply pull back to local production of foods & goods. Somewhat maybe. However, one of the reasons we went to a global economy was in order to provide resources or goods made from resources to areas that did not have those resources.

At some point, the scale must tip, but then what?

Is Crude Oil a 'Bubble' Ready to Burst?

<<<< If one wants to understand the oil "bubble" simply read the article on page A8 of yesterday's (5/29/08) Wall Street Journal titled: "Oil Exporters Are Unable to Keep Up with Demand" and check out the production data given. I was actually shocked the WSJ printed such an article, but they (unlike CNBC and most other US media) are beginning the change the normal US "peak oil denial" stance. >>>>

My greatest worry is how much can we trust our usual sources?

Who now owns WSJ, Barron's, Dow Jones? What else might he have his fingers in & how can he benefit his "other" assets? Has this person been known to play nice?

In Light of Peak Oil, Financial Diversification Is a Bad Idea

My brain says you're right.

But, as a Californian, my gut says that it's Enron revisited... & the world is being gamed... at least by 50%. My portfolio has not been very diversified in a long time. I've tended to energy, mining, food, infrastructure. Those are things that I can get my mind around.

However, I'm beginning to have those butterflies in my stomach that I tend to regret when my brain says put them on ignore. Those butterflies are warning that we'll see another energy crash like in the early 1990s.

It benefits all of these oil producing countries from Iran to Venezula to Nigeria to Saudi Arabia to slow the tap & skew their figures to the worst case scenario. But, it's a tight rope that they walk. They'll open the taps, oil will flow, & we'll revert to same ol' same ol'... but at a somewhat higher price.

The real question is how many times will we go thru this scenario with peak oil?