Weekly Musings 4-02-11 from oftwominds.com
You are receiving this email because you are a subscriber/major contributor to www.oftwominds.com.
For those who are new to the Musings: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books.
I'm launching two new features this week: From Left Field (self-explanatory) and The Piggy Bank, which is where I speculate on larger forces affecting our money and our attempts to preserve it and/or grow it.
THE PIGGY BANK #1: stocks, gold, commodities and the dollar
I have a gut feeling that the basic trade that's been successful for the past few years is close to reversing. That is, bet against the U.S. dollar and bet on commodities, gold/silver and stocks. As I note in today's blog, stocks are historically very overvalued. If you scan the financial news, you can see plentiful evidence of a major top in the general complacency and endless stories about how two months of anemic job "growth" (much of which was bogus Birth-Death Model conjuring) means the "recovery" is 'self-sustaining."
Remarkably, none of the "journalists" reporting this "good news" ever seems to report that the Federal deficit is now five times higher than it was in 2007 and that we're borrowing and spending 11% of the GDP just to keep the Status Quo from dissolving.
In other words, the gap between reality and State and media-conjured fantasy is widening.
I myself have been buying UUP, the ETF for those who believe the dollar will rise. I even bought some June call options on the UUP, as the calls were cheap (35 cents each). That tells me very few believe the dollar will rise by much in the coming months.
The reason I see the dollar rising are complex and relate to the current account deficit and other structural factors. Basically, what I see is a lot of observers freaking out that the Federal Reserve has "printed" $2 trillion, while $6 trillion has vanished just from Americans' real estate worth.
I also see other nations as needing dollars for reserves and trade as many of the extremes of the past three years start unwinding. The Fed has tried very hard to drive the dollar down to create an export-driven boom, and they have succeeded only partially. I suspect their efforts will fail spectacularly.
Longtime reader Kip S. summarized a key weakness in the "dollar is going to zero because the Fed wants it to" argument:
"On the strength of the US Dollar: you’re absolutely correct. It will surprise to the upside. One problem that many of the “doomers” have is a too long time
horizon – it’s like Keynes famous statement, “ in the long run, we’re all dead”. By which I mean that if everything trends as it is, in time (who knows how long) there will be substantial issues with the US dollar. But the question isn’t the dollar per se, it’s what can be used in its place ... and the instability of the choices: Yen (nope, Japan will devalue it to keep their mercantile trading state going), Yuan (not even convertible and probably ibid Japan), Euro (serious institutional troubles currently – will it even survive?), Swiss Franc or Singapore Dollar (both economies WAY too small). Anybody I missed? OK, what about Gold or Oil (yea, those can’t be manipulated). Simply put, for the foreseeable future, the US Dollar is the least worst alternative."
Thank you, Kip. I have been digging deep into the theories about free trade and currencies which were gleaned by mainstream economists from the Great Depression. I think they're re-fighting Global Trade War I but it's now Global Trade War II.
PLEASE NOTE that I am only sharing my own trades with you, I am NOT recommending you buy or sell any security or asset. I am sharing this trade just as a disclosure, not as a recommendation.
THE PIGGY BANK #2: Failure of conventional economics
Ultimately, what we face in the next decade is the complete failure of conventional economics. In a nutshell, all of conventional economics developed in the era of cheap energy and industrialization. Like a creature that was born in the morning and has only seen daylight, conventional econ has never experienced night and so it has no conception of darkness.
I won't bore you with too much of what I call "the grand failure of conventional economics" to understand the present, much less the immediate future, but here are two excellent articles dismantling a key part of conventional economics, "free trade":
Conventional theories and conceptions will unravel along with conventional systems. If we want to preserve our purchasing power (i.e. whatever money/assets we have), then we will have to be alert to this little-understood reality.
Item #1: gardening and mental health
Many of you probably scratch your head when I say things like "having a garden and preparing home-cooked meals are revolutionary acts." But in terms of skills, self-reliance and mental health/happiness, these are truly revolutionary acts.
Here is an article which helps explain the power of these simple tasks/projects:
Item #2: Energy denial
I see alot of articles like this, proclaiming "we have plenty of energy in the U.S."
Nice, but let's start by multiplying 365 days a year and America's daily consumption of oil, 18 million barrels a day. That comes to 6.5 billion barrels a year. So if we managed to extract all the oil in the Bakken formation, that would fuel the Status Quo for about six months. Whoopie-do.
When people refuse to do the basic math then it's a sure sign of denial.
Item #3: Risk and Power
I've been mulling over the psychological connection between risk and power. Taking huge risks is empowering. This seems connected to the selective advantages males get when they take risks to gain a mating advantage. The male who "plays it safe" may increase the odds of their own survival but they lose the potential "win" which would secure them better mating opportunities.
This may help explain the tremendous attraction of high risk bets and plays on Wall Street, and why the vast majority of "players" on Wall Street are men.
If risk is power, then it also helps explain why male presidents are drawn to risky wars and policy bets.
Item #4: Social media and political change
I have been thinking about social media for many years, a process that led to my little book "Weblogs and New Media."
It is noteworthy, I think, that while Facebook became a tool for political organizing in Eygpt, here in the U.S. it is, as reader Kevin K. recently noted, a year-round Christmas letter featuring travel, accomplishments and perhaps a few quirks.
In other words, a personal Channel of Me, as I have termed it.
Clearly, the fewer outlets for political expression there are, the more politically "leverageable" social media like twitter and facebook become.
Here is an interesting exchange between social media gurus Clay Shirky and Malcolm Gladwell on the political leverage inherent to social media.
Each makes a few good points but both miss the cultural/media dynamic noted above.
Item #5: Industrial Era Architecture
I promised a deeper look at "third spaces" and their importance in the urban fabric, as this topic has captured my attention for many months. I think the initial trigger was reading a book-length archeological study of Pompeii.
In general, what I am seeing is an atrophying of "third spaces" in consumerist America, which may help explain the popularity of Starbucks. It was in a sense the first large-scale enterprise that offered a "third place" as part of its value proposition.
On the other end of the scale, here is a brilliant and savagely amusing dismantling of the "modernist" pretensions of the 20th century architect and urban planner Le Corbusier. (thank you, Arrol A.)
Not only is Corbu's architecture inhumane and profoundly ugly, it is completely tone-deaf to the human need for "third spaces" and the political consequences of depriving citizenry of these spaces in towns and cities.
Long-term, most of America's cities and large towns will have to be remade or they will be abandoned as impractical.
FROM LEFT FIELD:
FLF Item A:
10 strangest theme restaurants in Tokyo
Reading this, you grasp the great impoverishment of the American imagination when it comes to "third spaces."
FLF Item B: Suitcase of cash worth how much?
You know those scenes in crime movies where the crooks are delivering a suitcase of cash? Ever wonder how much money might actually fit in a suitcase? here is a fun piece on how much a pound of $100 bills will buy (and also how much a ton of cash will buy).
FLF Item C: what your blog says about you in the Briggs-Myers typology.
I have no idea if the results of this blog analyzer will match those derived from a standard Briggs-Myers personality test, but it's fun to try.
It categorized my blog as that of a "Thinker," while the full test I took a few decades ago tagged me as "intuitive-thinker." Try it on your own blog or writings, and see what it comes up with.
Thanks for reading--
charles hugh smith
