A Christmas Like Grandma's...

Americans have the opportunity this Holiday Season to decide if the glass is half empty or half full. For the past several decades we have become use to this time of year as a time when we open up our pocketbooks and remove our credit cards, race around towns with throngs of other strangers, all scooping up item after item. The motivation stemming from that deeply ingrained guilt of times when you had nothing to give to those who might decide to give you something.

What would it be like this Gift Giving Season, if we were to give each other some time together, sharing stories, playing games, reviewing the challenges and success of the year. Deeper gifts for each other at this slowing time of year. Even many of the trees have released their protective leaves.

The current economic slowdown, which I deeply believe will be more the norm moving ahead, actually gives us time to be with each other, instead of buying stuff and taking all the time and energy to create or move around that stuff in the first place. This kind of behavioral shift, while continuing to cripple the economic engine of our consumer society, has the potential to remind us another slower and possibly more fulfilling way to live.  It was only 60-70 years ago, when our grandparents were young children, where the quality of life was quite high but much less consumptive then we have become accustomed to .

I am of the "glass-is-half-full" camp, so I see the possibilities of a happier and healthier future as we relearn how to enjoy ourselves without the need for endless mountains of stuff and free-flowing credit.

What Exactly is Recovering?

The growing symphony of economic experts crying out that the recession is over, seems to be missing something very important. When seen through purely economic blinders a company with an improved balance sheet starts to look pretty good in this times. But I wonder what kind of improvement we are really seeing when that robust balance sheet comes as a result of slashed jobs, reduced inventories, and the shedding of unprofitable parts of their business?

Can we really consider a company to be doing well when it has decimated its workforce, scaled back its holdings, closed stores and plants, and slashed the wages and benefits of its remaining employees? There is something deeply wrong when we consider these measures to be the signs of improved health and recovery.

I see the excitement surrounding improved earnings and the current run-up in the stock market as a futile attempt to squeeze out the remaining profits before the economy resumes its downward slide.

My 2¢...

Some Thoughts from the International Energy Agency

Excerpted from a recently published report. This is our wake up call folks!

In 2008 the IEA for the first time projected a 50% drop in production from existing conventional oil fields by 2020.* This alarming figure was partly the result of the IEA’s first field-by-field analysis of a large number of oil fields. This fall in production coupled with projected increased demandfor oil is likely to result in a large gap between supply and
demand. Policy makers should note the underlying problem is that there will be a gap, the size of which will constantly vary depending on economic conditions. It is hard to overstate the significance of these warning signals, first raised in 2007, given the Agency’s previous misplaced confidence and assurances that oil supply could meet the world’s expanding demand.

Global Witness has focused its analysis on the work of the IEA, because, as it boasts, “Governments and industry from all across the globe have come to rely on… [its WEO
series and wider IEA commentary] to provide a consistent basis on which they can formulate policies and design business plans.” Established during the 1973-74 oil crisis to “co-ordinate measures in times of oil supply emergencies…,” it has become the leading global authority on energy issues, covering all major energy producing and consuming countries.

What is the scale of the problem? In November 2008, the IEA projected a 7m bpd gap by 2015, which equates to 7.7% of projected world demand by that year.‡ This gap
was estimated from the combined impacts of declining production from existing fields, long-term projections for increased global demand, and insufficient new production coming on stream to cope with this situation. The global recession has temporarily altered projections for global demand, but has not changed the underlying fundamental problems with increasing production. As the IEA put it, “… the gap now evident between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010. Around 7 mb/d [m bpd] of additional capacity (over and above that from all current projects) [Global Witness emphasis] needs to be brought on stream by 2015.” To appreciate the implication of a gap of this size from a national or regional perspective, see  A 50% projected drop in conventional oil production in just 11 years is truly astonishing. It represents a drop from
2008’s output of 74m bpd to just 37m bpd by 2020. The IEA project this steep rate of decline to begin almost immediately. To put this in context, the Agency also projects total world oil demand to reach 104m bpd by 2030.109 What is even more remarkable is that such a vast and imminent loss of conventional oil production has not caused wider comment. It should be making governments seriously question why the Agency, established in reaction to the 1973 oil crisis, appears until very recently to have missed the start of the next one.

Glimpses of an Emerging Economy

The recent economic changed has made it extremely obvious that an economy based 70% on consumption will need a serious rethinking. As our economy continues to contract, as I think it will for the next year or so, I expect to see a new framework for employment based on a lower level of consumption. I firmly believe that the "new normal" will look substantially different than the "previous normal."

The City of Berkeley Zero Waste Commission has provided a possible job creation framework by stating the following:

Reduce – Just use less. We are so use to thinking more is better that we have forgotten that using less is sometimes better.

Reuse - Stop throwing things away. So many items can be used again and again if not by you then by someone else.

Repair – Reclaim the lost art of fixing things. Many items just require a bit of effort to make them usable once again.

Rebuild – Complex items are well worth the effort and can end up better, stronger or more powerful that the earlier generation.

Refurbish – Sometimes it only takes a little sprucing up to be ready for use.

Refinish – Adding a new cover, color, or stain can make all the difference.

Resell – If it has value others may very well buy it from you. Ebay and others are growing rapidly!

Recycle - Send it back to be used again. Support your local recycling center.

Compost – Send it back to the earth – literally!

If this is not possible then the item should be restricted, redesigned or removed from production.

By putting our creativity and economic power behind these eight activities, we can take substantial action towards developing work that is not only meaningful but can truly add to a sustainable economy.

Up, Up and Away

4 Forces Driving Oil Prices Higher

by Sean Brodrick

Oil prices pushed near the top of their recent range this week, and the usual suspects trotted out on the TV to tell us why this rally couldn't last. And on the face of it, their argument seems to make sense. It boils down to ...

1. Crude has been trapped in the same range since June.
2. U.S. oil demand is lackluster at best.
3. There is plenty of oil in storage.

That sounds pretty solid to me. So why, then, are oil prices trending higher? Look at this chart ...
 

Source: Stockcharts.com

Indeed, I'll give you four solid reasons why crude oil is going higher — and I could give you a lot more. I think forces are in play that could send crude oil prices surging up to $92 or even $105. And that's a move worth playing!

I'll give you some trading ideas, as well. First, here is a triple-shot of bullish forces in oil.

Force #1: Global Demand Is Rising

To be sure, America is using less oil. The Energy Information Administration expects America's oil demand to fall by 330,000 barrels per day (bpd) in the fourth quarter from a year earlier. And oil refiners including Valero and Sunoco have shut plants to cope with a glut of fuel.

However, all gluts end. The EIA recently revised upward its estimate for U.S. oil consumption in 2010, expecting demand to increase by 320,000 bpd over 2009.

And demand is recovering faster elsewhere in the world. In fact, the International Energy Agency expects global oil demand to rise to 86.1 million bpd in 2010 from 84.6 million bpd in 2009.

And in its October Monthly Oil Market Report, OPEC jacked up its estimate of global oil demand for next year. "The risks to the forecast are seen on the upside," OPEC said in a statement. "Should the U.S. continue to show healthier oil demand levels, then world oil demand could increase by another 200,000 barrels per day before year's end."

OPEC expects the emerging markets will run rings around developed countries when it comes to oil demand growth. And international experts agree that there's one country in particular that will likely use a LOT more oil ...

Force #2: China Is Shifting Into Higher Gear

China's oil consumption doubled in the last decade, rising to 8 million barrels a day last year from 4.2 million barrels in 1998, according to BP Plc's Statistical Review. And that trend continues.

Chinese oil demand was revised upward to 8.17 million bpd for 2009 from a previous estimate of 8.08 million bpd, according to the International Energy Agency. Crude oil imports in January-August period went up 7.4% from earlier. And demand is accelerating. China's oil imports rose 18% in August.

Looking at next year, China's crude consumption is expected to increase 1.4 million barrels per day to 86.1 million, according to the IEA.

Even these raised estimates may not be high enough. China's car sales are booming — up 78% in September from a year earlier. Overall vehicle sales totaled 1.33 million units, while passenger car sales climbed 84% to 1.02 million units, the China Association of Automobile Manufacturers reported.

So far this year, China has seen 9.66 million cars sold — far ahead of the U.S., which has seen auto sales of 7.85 million. What's more, most cars sold in China are first-time owners. In the U.S., most car sales are replacement vehicles.

So, those revved-up China auto sales mean much higher gasoline consumption and oil consumption.

Force #3: The Cheap Oil Is Going ... Going ...

Peak production is already receding in the rear view mirror for dozens of nations. World reserves are being depleted by about 4% a year, according to the Association for the Study of Peak Oil. That leaves the world margin of error far too small, and vulnerable to disruptions such as rebel attacks on pipelines or saber-rattling disputes in the Middle East.

As reserves of cheap oil run lower, competition for remaining assets becomes more frenzied. The global financial crisis barely slowed China down in its quest to outbid western oil companies for global assets. For example, ExxonMobil recently made a $4 billion offer for Ghana's Jubilee oil field. But then China National Oil Company opened its own talks with Ghana to make a rival bid for a stake in Jubilee.

The Jubilee field is estimated to hold 1.8 billion barrels of oil. According to the Energy Information Administration, the world's 15 largest oil producers delivered about 64 billion barrels per day in 2008.

Exxon's $4 billion bid would buy it a 23.5% stake in the Jubilee. According to some experts, oil would have to sell at $100 a barrel to make this stake profitable for Exxon.

Deflationists — people who argue that the big trend in prices going forward will be down, not up — would argue paying that kind of price for oil is just pig-bitin' crazy! So how crazy is it that China is willing to trump that bid? How high of an oil price is China planning on?

And Ghana is just the beginning. Chinese oil companies have announced plans to spend at least $16 billion to gain access to African energy assets.

Meanwhile, the big American oil companies, outbid by foreign competitors with deep pockets, are facing a future of steadily dwindling production. Let's keep the focus on ExxonMobil. It has been producing a little over 2.4 million barrels of oil a day for the last year and a half, its lowest rate of production over the last decade.

Source: Econbrowser.com

In 2001, ExxonMobil's annual report predicted 3% annual production growth — the red line on the chart. Instead, it fell short of its production growth target. In 2006, it predicted it could hit 3% annual growth by 2011. That's the blue line on the chart. The dark line below the others is Exxon's actual production growth. Good luck hitting those targets, boys.

I'm not saying Exxon is a bad company. Many oil companies are running up against the limits of growth. This is something that is affecting the entire Western oil industry, and will probably eventually spark a resource war in the Arctic, as the U.S., Canada, Russia and other countries fight over oil and gas resources literally at the end of the Earth.

But that's a longer-term problem. Let's look at something that could send oil higher in a real hurry ...

Force #4: The Falling U.S. Dollar

This is the part that is difficult for me to write. Because when I write about the dollar, my spine tenses up, my fingers curl into fists, and I get a nearly uncontrollable urge to scream. And if that scream was articulate at all, it would go something like: "We're ... so ... screwed!"

Some facts ...

• The budget deficit hit $1.4 trillion in 2009. It looks to go higher in 2010, and we could see budget deficits of well over a trillion dollars for years to come.
  
• The U.S. Federal Debt is a ticking time bomb. It is now at $11.9 trillion, or $38,000 per person. That means if you have a family of four, your portion is $152,000 of pure debt.
  
• The debt continues to increase. In fact, the U.S. government is moving closer to its $1.21 trillion debt ceiling. Congress will likely vote to raise the debt, taking us into uncharted territory. Congress has raised the U.S. debt ceiling by varying amounts 76 times since 1960. There is only one way to get rid of unsustainable levels of U.S. debt — inflation. And the prevailing U.S. policy is clear — we are going to inflate our way out of this (that is, devalue the dollar).
  
• And here's exhibit A — a chart of the dollar ...
  

Source: Stockcharts.com

While as American citizens and consumers we may hate this, it would at least be endurable if it is manageable. The problem is it may not be manageable.

Why? Well, when we create all this debt, we have to sell it to someone. The answer for years has been to sell it to foreigners, especially foreign central banks. But now they're wising up. Bloomberg recently reported that central banks are switching out of dollars and into euros and yen. The U.S. dollar makes up only 37% of new central bank foreign reserves, down from an average 63% since 1999.

If this trend away from the dollar increases, the slippery slide of the dollar could become a plunge — and give the dollar a haircut of between one-third and one-half very quickly.

Now if you were a big-pocketed investor, and you wanted to get some insurance against such a potential plunge, where would you put your money? You might use your rapidly depreciating greenbacks to buy hard assets — gold, silver, copper, tin — CRUDE OIL!

And beyond the usual suspects ... the banks, the big individual investors, the small-time speculators ... there is approximately $3 trillion in sovereign wealth funds — government controlled investment funds — and a lot of those governments are becoming more wary of dollars. Do you think they might be buying commodities, including oil? Heck, yeah!

So go back and look at that chart of oil I had at the top of the page. Considering all I've told you, what would you say the odds are of oil going to $92 a barrel or even $105?

I'd say the odds are better than average.

Yours for trading profits,

Sean

Totally Uncharted Territory

The news these days is sometime hard to hear. The trend is ever downward for so many. The mantra seems to be "we have never seen this before," and it is true for anyone less than 80 years old. What I find so interesting is the continual expectation that these challenges will eventually smooth out and we will get back to some semblance of order.

My intuition tells me something much different.

A recent column by Pulitzer Prize winning columnist Thomas Friedman said the following.

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

We can’t do this anymore.

“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe Romm, a physicist and climate expert who writes the indispensable blog ClimateProgress.org. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.

What we are experience these days is nothing short of a re-structuring of what we have called normal for the past 60 to 80 years. We are now faced with an unprecedented combination of challenges including climate change, the end of inexpensive energy, and the unraveling of the economic fabric is crating a global situation we had NEVER experienced in our lifetimes, a culture changing perfect storm so to speak.

I firmly believe we will not "get back to normal" but that instead, we are in the early stages of moving to a new normal. As a species, we have had to make significant changes before so I am confident we have the ability to transition our culture to the next stage.

Deep, deep in our social and possibly genetic coding we know what to do. And we also know it takes great focus and perseverance. I do not assume it will be a smooth ride for everyone, transitions never are. But we have the opportunity to come through this with an American culture that is far more sustainable, reliant on the use of more local sources and having a high or higher overall quality of life.

We may very well consume far less stuff, but by refocusing ourselves towards those things that make live deeply rich and satisfying, we can replace what some may feel as "lost." These include a significant increase of interaction with people and the advantages of resilient and more self-reliant communities.

What Have We Learned So Far?

Over the past two years we have been blogging about the variety of way that we are both leading ourselves astray as well as a variety of creative solution that might offer assistance as we navigate the economic and environmental rapids ahead.

So what have we learned in this time?

Less Can Be Better
Mainstream American culture has promoted the very-present advantages of "more." Super-size me please! But in a finite world we are being reminded that not only may more not be better but it can also be much worse. Our household has taken a long hard look at what we really need and deeply enjoy and have been able to reduce our overall consumption significantly. This includes things like eating out less and cooking creatively at home more often.

Pay Attention
Once we made using less a stated goal, we began paying more attention to things and that spurred on even more practices that just used less. Shorter showers, family baths, turning lights off, replacing burnt-out lights with energy-efficient bulbs, riding bikes and walking when it made sense, renting movies instead of going out, growing some of our own food are all steps we can do that when added together can make a significant difference. Especially when done by groups of people.

Increase Community
As residents in one of the countries 120 cohousing neighborhoods we already have a closer connection to our immediate neighbors. But in addition we made space in our home for two additional high school students who moved to our town to attend school. This increased community not only has a financial benefit but more important has added a rich and very positive dimension to our family. I suspect we will see a very noticeable rise in shared housing arrangements as the economy continues to contract over the next several years.

Do More Ourselves
Despite the impact on local jobs, people are doing more for themselves where a few years ago they would hire out. The do-it-yourself "industry" has been growing consistently over the past decade and there is little chance it will slow down. Financial reality is forcing people to do more for them selves and those they care for. Having a family member with a steady hand cut hair, mending your clothing instead sending it out, as I said before cooking at home instead of going out as often, growing food, herbs and raising small livestock like chickens, are all visible signs that we are doing more for ourselves. When you combine these lessons and be creative the impacts are even more powerful.

Be Creative
The conventional wisdom is to work work work so you can pay for all that you need and want. Today by re framing that a bit and saying what is it I need really and how can I get it, we can come up with a plethora of creative ideas. We have been exchanging with a local farmer. We help him get the word out about his urban farming program and he gives us fresh veggies all during the growing season. Or trading article writing with a local martial arts dojo in exchange for our kids getting training in personal defense. The high art of barter and trade is in full bloom and it can satisfy a growing number of our regular needs.

So suffice to say that despite the challenges surrounding us, there is much to be learned and re-learned as we carve out a path on this ever exciting journey together.