Posts
I like to provide a wide range of viewpoints here at TOTC, and while I believe that organic methods are very important, there is something to be said for the sheer power of conventional agriculture. As farmland continues to dwindle, more and more people have to be fed from fewer and fewer acres. Proponents of organic agriculture claim that similar yields can be attain through organic methods - sometimes even higher. I find this very hard to believe.
I'll make no bones about it, the website I am featuring is a lobbyist group for the fertilizer industry. However, this is a side of the story that we don't often hear, and as I've said before, the average consumer has no idea how or where their food is produced, and seems to have little interest in finding out. This leaves a quite malleable populous, able to believe such gems as "Potash is chinese", "fertilizer can be pretty toxic because it is made from pesticides, it kills lots of stuff" and "mad-cow disease and E. coli is all happening from fertilizer". Things are never black and white, but the current prevailing thought is: fertilizer = bad. This site makes some serious points on why we should reconsider.
There is some obvious spin going on, but I found a lot of good information as well. Take a look:
Wednesday, October 29, 2008
Nutrients for Life
Tuesday, October 28, 2008
20 city composite of housing prices and how each city compares
Interesting to see the changes (both extremes) for a lot of the cities. Detroit is a bit of an anomaly; they never really took off, but eventually hit the shitter.
The image is not from the article, just thought it was an interesting juxtaposition.
http://www.nytimes.com/interactive/2008/10/28/business/20080624_HOUSING_GRAPHIC.html
Monday, October 27, 2008
50 Years of Market Swings
Here's an interesting slide show of the S&P500 over the last half-century. One thing I noticed was the seemingly exponential growth starting in the '80s. One would have to wonder if this growth is real, or if it is at least partially an artifact of economic policies and demographics. Certainly such wealth can't be entirely a mirage, but if growth kept on a similar pace as the first 30 depicted years, we have a lot more "correcting" to do. As any prospectus worth its salt will tell you, "past performance is not an indicator of future success". It is comforting, however, to see that most declines are over in a few years and the market quickly rallies to new heights.
Sunday, October 26, 2008
Oil Producers Like High Prices
Perhaps the understatement of our young century, but it certainly is a great reason for us all to find alternatives to oil. It seems OPEC and other oil-rich nations have grown rather fond of high crude prices. As human nature goes, we normally spend every last dime we make...and these nations are no different. Now as oil prices decline, there are concerns that their 2009 budgets may be busted, and they are scrambling for ways to provide price support. Iraq, for instance, has said it needs $111 per barrel oil to balance next year's budget. Maybe we should tell them that I need $1.50 gas to balance my budget.
One thing I don't quite understand, if they lower production to keep the price up...won't the end result still be less money in their coffers? I can't really fault them for screwing us all over, but as I said, we need to find another way.
Saturday, October 25, 2008
Respect Your Elders
LAGOS (Reuters) - A father took his 20-year old son to an Islamic court in northern Nigeria for idleness, asking that he be sent to prison for refusing to engage in productive activities, state news agency NAN said on Friday.
Thursday, October 23, 2008
New OPEC for Natural Gas?
In this article, the prospect of a new Natural Gas cartel - dubbed by some as G-OPEC or OGEC - comprised of Russia, Iran and Qatar - is examined.
Russia, Iran and Qatar held talks in Tehran yesterday about forming a cartel for natural gas that would resemble the OPEC cartel for oil. But the structure of the natural gas business makes it unlikely that a gas OPEC would get off the ground anytime soon.Western nations have been trying to diversify Natural Gas sources to alleviate such a concern, which has also been exacerbated by Russia's recent foray into Georgia.
Wednesday, October 22, 2008
Friday, October 17, 2008
Biofuel's Effect on Grain Prices
"When you have something come in like Lehman Brothers going bankrupt, then it influences your market. Those kind of things are impossible to build into your business plan," said Krug. And unless prices go up, hard to make a profit. In Nebraska, corn sold at around $3.50 a bushel Thursday. Soybeans were at about $8. Both prices are about half of what they were just a few months ago.
Maybe ethanol isn't the only thing that can affect corn prices...
http://www.kolnkgin.com/home/headlines/31135749.html
Thursday, October 16, 2008
Pump It Up
In response to the inevitability of our first black president, I will be using a several part installment to look at the behind-the-scenes of life on the campaign trail for our Prez and VP-to-be. First off, embracing black culture and his general over-whiteness, Joe Biden finds it only natural to rock out to...
http://www.youtube.com/watch?v=lZ1G0-ddAiA
Financial Reckoning Day
Financial Reckoning Day: Surviving the Soft Depression of the 21st Century. William Bonner and Addison Wiggin. Recommended.
I will preface this book review with a disclaimer. The authors have an extensive website (www.dailyreckoning.com) where you can read many articles with much of the same information as in the book. The authors could also be described as 'goldbugs', and many of the articles have a certain late-night-infomercial feel to them. That being said, I found the book to be very interesting and would like to share my thoughts and impressions with you. I highlight the book not for any investment advice - which is surprisingly almost non-existent - but as a history of the Crash of 2008, and other booms and busts throughout the ages.
In my view, Financial Reckoning Day is a history book. Written in 2003, it is a call of warning that our financial system is unsustainable. The authors set out to tell us why.
The first chapter accounts the boom years between Fukuyamas' "The End of History" and the dot-com collapse of 2001. The second chapter draws parallels between military exploits and financial cycles; both Napoleon and Hitler's ill-advised offensive maneuvers are shown related to bull and bear markets. Chapter Three is devoted to John Law, widely recognized as the father of fiat currency in the early 1700s. The fourth chapter gives us a case study 10 years prior to our own boom and bust - the Japanese. And the next chapter is purely devoted to the author's most culpable player - Alan Greenspan. Greenspan received years of accolades as the master of the world's financial markets, and now must share in the blame.
I found the remaining chapters to be the most interesting, as I feel they capture the true reasons for our current crisis. From these chapters I gleaned three main underlying factors: the wide ranging blame can be distilled into Failed Policies, Demographics and Human Nature.
Human Nature
Which of mankind's greatest achievements and failures cannot be attributed to factors of human nature? The fallibility of man allows us to do both unimaginable good but can lead us to unspeakable despair.
Greed is highlighted in nearly every financial article these days. While it is mostly used to describe evil CEOs and corporations, we must not forget the individual. Was not greed a factor in the unqualified homebuyer's decision to purchase a home he could not afford? How about the "flippers" and other investors that wanted to make a quick buck in the real estate market? If not only greed, perhaps it is vanity that has led the average American to spend every dollar they earn - and more.
Vanity is a nagging voice imploring us to "keep up with the Joneses". Certainly if they can afford new cars and European vacations, we can too. Heck, don't we deserve it? Vanity has also invaded our psyche - we are the smartest, most technologically advanced beings to ever walk the earth. We have solved so many of the world's problems...why should we think the economy cannot be tamed.
Another dangerous human characteristic is a crowd or mob mentality, also known as "groupthink". It can reduce a normally level-headed person to do amazingly illogical acts. As these groups begin to think the same thoughts, "irrational exuberance" can take hold. Investors throughout history have fallen prey to this phenomenon. The difference today? Global communication allows for the entire earth to have access to the same information. Every man can now be a part of every boom..and bust.
Demographics
Perhaps one of the most frightening factors is the cold hard fact of demographics. As noted in this post, finance can be distilled down to one concept - old people lending money to young people. When there is an imbalance in demographics, there tends to be an imbalance in financial markets. As you may know, there was a global spike in births after the conclusion of World War II. The "boomers" get a whole chapter just to themselves. Four interesting statistics:1. Average age of American baby boomers on January 1, 2001: 46
Besides the large effect that the aging population will have on Social Security and health care benefits, they will continue to exert an inherent downward pressure on both the housing and stock market. As people age, they stop working and earning - and begin selling. When there are more sellers than buyers, prices fall. The alternative is to continue working until later in life...which is an undesirable thought to most of us. However, as life expectancy has increased, does it not stand to reason that we would have to work longer as well?
2. Average amount in retirement account: $50,000
3. Number of years at 6% growth to reach comfortable retirement income: 63 years
4. Amount in U.S. Social Security Trust Fund: $0
Failed Policies
The frightening aspect of our situation is that 2 of the 3 factors I have listed have little to no solution. And while governments around the globe scramble for new policies, there is certainly the distinct possibility to actually do more harm than good.
The authors place most of the blame on Greenspan's policies; and fiat currency in general. As for fiat versus a commodity-based system, I do not have the background to have an informed opinion. From my limited research, there are positives and negatives to both systems - as with most things in life. While there are booms and busts in fiat currency systems, there have been similar 'panics' in gold, silver, and other commodity-based economies. The world seems to have adopted central bank guided fiat currencies, and I don't really see a shift away from that.
Much of the blame is then laid at the feet of Alan Greenspan. After the tech stock boom of the late 1990s, interest rates were slashed and kept low. This allowed for massive amounts of cheap money to flood into the real estate market. With easy and inexpensive money available to nearly anyone with a pen, home prices soared to unrealistic levels.
Other policies that fueled the fire were mandates to make home loans available to subprime borrowers. This was accomplished by a plethora of innovative new mortgages and the implicit backing of Fannie Mae and Freddie Mac by the federal government through the U.S. department of Housing and Urban Development. Fannie and Freddie were subsidized to take on more and more subprime debt, and the American public was more than willing to oblige.
Lack of government oversight is also blamed in the Crash of '08. There were, no doubt, cases of predatory lending. The process of purchasing a home is a daunting one and can easily be manipulated by the unscrupulous. Perhaps the most unregulated entity...the exotic derivatives market that has been likened to the world's largest casino. Credit Default Swaps, packaged as a way to hedge against risk, seem now more like insurance fraud. There will most likely be sweeping reform in this and other areas of the financial sector in the coming months.
As one can see, there is plenty of blame to share. I, too, have benefited and become somewhat entangled in the credit boom and subsequent bust. Now with the stock market plunging and other areas of the economy showing signs of deep recession, we can only hope we all can find a way to recover in an expedient fashion. As for "Surviving the Soft Depression" as the book claims, I found no hard advice. Basically, the authors suggest you sell stocks and buy gold, but it would seem too late for that. Anyone have a time machine?
Tuesday, October 14, 2008
Green Jobs Examined
Here is an interesting take on the "green jobs" sector that is referenced so much about in the presidential campaigns. It is from Energy Outlook...which I recommend quite highly.All Those Green Jobs
A full-page ad appearing in today's New York Times, Wall Street Journal, and Washington Post reminded me of a topic I've meant to cover for some time. Frequently during this election campaign, including the primaries, we have heard candidates extol the employment benefits of a switch to renewable energy. In Tuesday night's debate, Senator Obama suggested a figure of "5 million new jobs" from clean energy, and Senator McCain also mentioned "millions of jobs" in this context. It sounds alluring. A rapidly-growing energy sector providing good jobs here in the US is just what the economy could use at the moment. But while recognizing the potential benefits, we should also examine these claims critically. What would 5 million green energy jobs imply about future US energy costs and competitiveness?
The ad in today's papers is entitled, "The Unshaken Pillar", and it describes the US energy sector as a solid foundation for the whole economy at a time of great uncertainty, emphasizing the need for improved energy efficiency and conservation, along with expanded production of both oil & gas and alternatives. Signed by the CEOs of Chevron, AEP, FedEx, and Dow Chemical, it cites employment as an example of the domestic energy industry's benefits. This suggests a basis for putting those hypothetical 5 million green jobs into perspective. As of last year, the US oil and gas industry employed 1,772,000 workers in all categories, spanning exploration & production, refining, transportation and distribution. Nor are they all engineers and highly-paid drilling specialists. Nearly half this figure was associated with employment in service stations. Collectively, these 1.8 million people produced, processed and delivered fuels carrying 33 quadrillion BTUs of energy, or "quads", to US consumers and businesses. That's a third of total US energy consumption and 46% of US energy production. On average, it equates to 18.6 billion BTUs per worker, or 3,100 barrels of oil equivalent each, annually.
In order to come up with a comparable productivity metric for renewable energy, we need to make some assumptions about how much this sector will produce when it reaches its anticipated employment of 5 million Americans. It must be a lot more than the 1% or so of electricity and 7% of gasoline currently supplied by wind, solar power and ethanol. If we combine the 36 billion gallons per year of biofuel targeted for 2022 under the federally-mandated Renewable Fuel Standard with the 20% of net electricity generation from wind by 2030 posited by a recent DOE study, as a proxy for all new renewable electricity, the total equates to roughly 14 quads per year. And that's giving the kilowatt-hours from renewable electricity the benefit of a gas-fired turbine heat rate, rather than the normal engineering conversion, which is 2/3 lower. The resulting productivity figure works out to 2.8 billion BTUs per green energy worker, or 470 barrels of oil equivalent per year.
On that basis, we should expect that the average energy productivity of this huge new renewable energy sector would only be about 15% of the productivity of the current oil and gas industry. To understand the implications of that for the economy and for US international competitiveness, we must translate these figures into dollars. If the average "green-collar" job envisioned by those emphasizing the employment benefits of renewable energy pays the current average US wage of $47,000 per year, then the result is an effective energy cost of $100 per barrel, before considering capital expenses--and renewable energy is still at least as capital-intensive as conventional energy. Using the above figures, the comparable calculated labor expense for oil & gas is around $15 per barrel.
There are many good reasons for the US to pursue renewable and other alternative energy technologies aggressively, including addressing climate change, improving our energy security, and reducing the influence of petro-authoritarian states. Adding good jobs would belong on this list, too, as long as we keep our eye on productivity. In order to remain competitive, we shouldn't desire the largest energy sector possible, but rather the smallest one that does the job of providing the clean energy needed by the rest of the economy, where the vast majority of the goods and services we consume are created. With that in mind, let's all hope that the 5 million green jobs we keep hearing about are merely another example of election-year pie-in-the-sky, and not a realistic estimate.
Thursday, October 9, 2008
Crash of 2008: Unexpected Consequences
With declining defense spending gone and Baby Boomer retirements beginning in 2011, America confronts unmitigated and unleashed entitlement spending. According to the Congressional Budget Office, the three largest entitlement programs - Social Security, Medicare and Medicaid - alone will increase from 8.4 percent of GDP in 2007 to 25 percent in 2082. Even this enormous increase to a quarter of U.S. economic output is built on the conservative assumption that "rates of spending growth in the Medicare and Medicaid programs would probably moderate to some degree" to below their past performance. Medvedev proposed that European countries work with Russia to form a new trans-Atlantic organization in which the United States was no longer the dominant power. His statements came as Russia takes a more aggressive stance against the West, especially following this summer's war in Georgia.
As world financial markets continue their historic swoon, one can only wonder when and where we will find the bottom. One could also wonder what additional - perhaps unexpected - effects that a marginalized U.S. economy could produce. I am highlighting three articles that examine some sobering possibilities.
America's Nervous BreakdownEven though the U.S. government rushed to restore trust, hundreds of billions of dollars in paper assets simply vanished. Friends and enemies abroad were unsure whether the irregular American heartbeat was a major coronary or a mere cardiac murmur. How strong — really — was the world’s greatest economy? Was this panic the tab for years of borrowing abroad for out-of-control consumer spending? Had America finally gone too far enriching dictators by buying energy that it either could not or would not produce itself? Had the chickens of lavishing rewards on Wall Street and Washington speculators rather than Main Street producers finally come home to roost?
Hidden Behind Defense
Allies trust that the United States is the ultimate guarantor of free communication and commerce — and they want immediate reassurance that their old America will still be there. In contrast, opportunistic predators — such as rogue oil-rich regimes — suddenly sniff new openings.
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The natural order of the world is chaos, not calm. Like it or not, for over a half-century the United States alone restrained nuclear bullies, kept the sea lanes free from outlaws, and corralled rogue nations. America alone could provide that deterrence because we produced a fourth of the world’s goods and services, and became the richest country in the history of civilization.
But the bill for years of massive borrowing for oil, for imported consumer goods, and for speculation has now has finally come due on Wall Street — and for the rest of us as well.
Should that heart of American financial power in New York falter — or even appear to falter — then eventually the sinews of the American military will likewise slacken. And then things could get ugly — real fast.At the end of this 60-year period, defense and entitlement spending had roughly traded places. This allowed the largest spending exercise in U.S. history to be absorbed without dramatic impact on the federal budget. That budget elasticity has now ended.
Russia Pushes Pact to Rival NATOIn a challenge to 60 years of U.S. leadership in Europe, Russia's president said Wednesday that America's financial crisis had diminished its power and called for a new security pact to rival NATO.
See related posts.
Tuesday, October 7, 2008
America's First Biofuels Corridor
Interstate 65 is now America's first biofuels corridor. E85 Ethanol and B20 Biodiesel blends are available the entire length of the Interstate, from Gary, Indiana to Mobile, Alabama. A driver is now no more than a quarter-tank's drive from a fuel retailer carrying E85.http://www.renewableenergyworld.com/rea/news/story?id=53773
Monday, October 6, 2008
Crash of 2008: Credit Default Swaps, Part II
Around the world, banks must comply with what are known as Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. The rules are based on the quality of the bank's loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. Bank managers naturally seek to employ as much leverage as they can, especially when interest rates are low, to maximize profits. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps. Here's how it worked: Say you're a major European bank... You have a surplus of deposits, because in Europe people actually still bother to save money. You're looking for something to maximize the spread between what you must pay for deposits and what you're able to earn lending. You want it to be safe and reliable, but also pay the highest possible annual interest. You know you could buy a portfolio of high-yielding subprime mortgages. But doing so will limit the amount of leverage you can employ, which will limit returns. ... It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple A have ended up being worth less than $0.15 on the dollar. Even so, it all worked for years. Banks leveraged deposits to the hilt. Wall Street packaged and sold dumb mortgages as securities. And AIG sold credit default swaps without bothering to collateralize the risk. An enormous amount of capital was created out of thin air and tossed into global real estate markets. ... AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs. I'd wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering. The collapse of the credit default swap market also meant the investment banks – all of them – had no way to borrow money, because no one would insure their obligations. Now the only place for these institutions to get capital is the Federal Reserve. Unfortunately, very few folks believe that the recent $700B 'bailout' package will have the intended result. Markets around the globe fell decisively this Monday. One reason: perhaps there just isn't a way to replace the credit... There's no way to replace this massive credit-building machine, which makes me very skeptical of the government's bailout plan. Quite simply, we can't replace the credit that existed in the world before September 15 because it didn't deserve to be there in the first place. While the government can, and certainly will, paper over the gaping holes left by this enormous credit collapse, it can't actually replace the trust and credit that existed... because it was a fraud. 
This article sums up one of the underlying reasons for the financial troubles that the world is currently experiencing. As I noted in this post, derivatives - namely Credit Default Swaps (CDS) - have played a pivotal role in the global economy's dizzying expansion...and subsequent downfall. This article explains the scheme in more detail.
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The author then gives some investment advice, which I am unsure of the impartiality or validity. I don't feel that this should detract from the explanation of the situation, however. There seem to be many people hawking gold these days - who knows if any drastic maneuvers are a good idea. Bottom line, we may be in for some rough times in the years ahead, and it may be a good time to seek professional investment advice.
Saturday, October 4, 2008
Prebiotics vs. Probiotics
I recently noticed the terms "probiotic" and "prebiotic" on yogurt packaging and advertisements. I had heard of probiotics before, and assumed them to be the "live and active cultures" that give yogurt its supposed health benefits. I was not 100% sure of this, however, and "prebiotic" was certainly a new one to me, so I decided to look them up. Here's what I found:
Probiotics
As I originally suspected, probiotics refer to a group of microorganisms - bacteria and yeasts - that have potential health benefits. They generally must be live organisms to be truly considered probiotic. A precise definition (and health benefits) are actually in debate in the medical and health community.
These cultures are thought to help out the naturally occurring microbes in your stomach and intestinally tract. They can be implemented after a round of antibiotics to restore the natural "gut flora" of one's body. Some use probiotic products to prevent and treat certain illnesses and support general wellness. One thing to keep in mind - there are a wide number of microorganisms that are considered probiotic; and effects found from one species or strain of probiotics do not necessarily hold true for others, or even for different preparations of the same species or strain.
Yes, El Guapo, I would say there are a plethora of sources for probiotics. The two main ways to introduce them into a diet are through supplements and food. Since I view supplements with a high sense of skepticism, I would most likely recommend sticking with real food. Also, the probiotics must be alive to work, so supplements must be refrigerated like food anyhow. Probiotic foods include the aforementioned yogurt, as well as fermented and unfermented milk, miso, tempeh, kiefer, and some juices and soy drinks. Some may find these selections rather unappealing; but given the wide range of choices, there should be something for everyone's palate.
Prebiotics
And now for the question of the day - What are prebiotics? Quite simply, they are food for probiotics. Prebiotics are indigestible (to humans) substances that can stimulate the growth and vitality of the microorganisms in one's digestive tract. Prebiotics are normally classified as carbohydrates, and quite often a type of fiber.
Prebiotics can be found in grains - such as soybeans, oats, wheat, and barley. Inulin - group of naturally occurring polysaccharides - is another source, and it can be derived from jerusalem artichoke, jicima, chicory root, and yacon (yeah, I've never heard of that either). Inulin is becoming widespread as a food additive for its wide range of characteristics and applications. Not only does it have probiotic properties, it contains much less caloric energy than sugar, it ranges from bland to subtly sweet, and it can be used to replace sugar, fat, and flour.
Much like probiotics, prebiotics are not completely understood. Experts agree that adding them to one's diet is beneficial, but specific advice varies widely. Certain benefits include: intestinal regularity, increased mineral absorption, increased immune system response, and bowel pH adjustment. Be aware, however - a sudden increase in substaintial quantities of prebiotics have been shown to cause a temporary increase in gas, bloating and/or bowel movements. So take it easy - yikes.