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In Search of a White Swan

Friday, April 8, 2011, 8:57 AM

The term "black swan," as coined by Nassim Taleb, refers to an unusual event that nobody was expecting because such an event had never happened before. Until a black swan has been seen, they simply don't exist; their probability is zero.

We are now in the midst of exactly what we might predict would happen when a world accustomed to sufficient net energy to drive its processes runs short of that surplus. This is our ultimate black swan.

Trained and raised in a world of ethereal numbers and ideas, today's economists simply lack the proper framework to understand that all of the 'rules' they learned about monetary theory, interest rates, debt accumulation and all the rest, were not actually rules, they were temporary conditions permitted by abundant net free energy.

Brent crude oil at $124/bbl is telling us something. While the unrest in the MENA region is certainly driving some of the price gain, it is important to note that the price of Brent crude has been climbing more or less steadily since July of 2010, when it was at ~$80/bbl.

Saudi Arabia has said many times that it has lots of spare capacity and can easily fill the gap left by Libya's temporary (or perhaps prolonged) departure. There are two problems with this view.

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Finding Shelter From The Storm

Monday, April 4, 2011, 9:05 AM

Finding Shelter From The Storm

Monday, April 4, 2011

Executive Summary

  • GDP growth requires energy, and the Fukushima disaster has just set back nuclear's expected contribution by years (decades, likely)
  • Trading strategies for an end to QE, by asset class (stocks, bonds, currencies, commodities, precious metals, real estate)
  • Fukushima's likely impact on the energy market
  • Why the priority now for investors should be on wealth preservation
  • The odds QE will resume later in the year

Part I: A Global Tsunami, Courtesy of the Fed

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Finding Shelter From the Storm

A Global Energy Shortage

The aftershocks from Fukushima will extend across the globe and well into the future, as energy plans that had formerly relied on nuclear will slow to a crawl. We will possibly even see a reversal in that energy source for a while as older plants are scrapped faster than new, safer designs can be brought on line.

Growth in net energy from oil is no longer possible. The cheap oil is gone, flow rates of conventional oil struggle to recover to 2005 levels, and the new stuff is hideously more expensive in terms of dollars and energy to extract.

Alternative fuels are not-yet-ready-for-primetime and have enormous scale issues to overcome. Coal will fill in some of the gap, but we had big plans for nuclear to plug much of the rest.

No longer.



Monday, April 4, 2011, 6:08 AM

On Friday, March 11, 2011, at 2:46 p.m. Tokyo time, an earthquake measuring 9.0 on the Richter scale struck, sending shockwaves through the earth's crust and devastating walls of water into helpless coastal towns less than ten minutes later.

Within hours, it was immediately apparent that a nuclear complex had been mortally stricken, the result of a combination of extremely rare natural circumstances and insufficient design parameters that together first crippled and then ruined the plants. » Read more


Inflation and Radiation - Update

Thursday, March 31, 2011, 1:25 PM

For those concerned about the reports of contaminated milk and radioactive rain, the levels are far, far below anything that should be on your personal worry list at this time. Perhaps that could change, but something would have to materially deteriorate at the Fukushima plant complex before I would devote much time to that here in the Americas.

And even if there were some sort of steam explosion over there, we'd have roughly eight days before that would reach the west coast. I am leery of the last-minute changes to the EPA radnet site and do not trust the site as my first source for radiation readings. The one I check every day is run by amateurs with no particular axe to grind or concerns about scaring the populace, and so I trust it a bit more.  You can find it here:

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Nothing To Trust (UPDATED - Wed, 12:00 p.m.)

Monday, March 28, 2011, 5:01 PM

Here's an update for Wednesday, March 30.  

guardia wrote:

My gut feeling is that the media here in Japan is so dramatically downplaying the severity of the situation that all Japanese have already forgotten all about it... I'm guessing it's the same abroad


The news blackout continues into today.

  1. The NYTimes only has one article on the front page about the reactors and it's about how confidence is slipping in TEPCO.  No hard data of any sort, just a filler piece on the communication difficulties.
  2. The WSJ has an article on the front about the 3,355x radiation found in the seawater, but absolutely nothing about the isotopes involved and what these would imply.  I am 99% certain that they would indicate a resumption of fission.  My best guess is that reactor #3, which we all saw blow up with our own eyes (at least the secondary containment vessel), is the main culprit here, but it doesn't really matter.  FISSION is happening.  F.I.S.S.I.O.N.  Fission.  That's the main story, not how many times background is in the ocean.
  3. There's not a single article - not one - about Japan's reactor situation on the entire front page of Bloomberg's on-line edition this morning.  Not one.
  4. There is nothing in any of the Japanese press right now that I would constitute as hard data about the true condition of the reactors. No temperature or isotope data to be seen.


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Reactor Breach Finally Admitted (sort of)

Friday, March 25, 2011, 12:08 PM

Japanese officials, who continue to stonewall even the IAEA, have finally admitted something that we all knew the instant we saw Reactor #3 blow a column of debris a thousand feet straight into the air: the core is damaged. It was unthinkable that the maze of pipes and wires required to be fully intact in order to both have pumps running and coolant not leaking could have survived that insult.

First the news and then the analysis. » Read more


The Journey From Here to There Has Begun

Wednesday, March 23, 2011, 3:43 PM

Well, things at the reactors seem to have been far worse than we were told.  Again, regrettably, I am operating on incomplete information that is out of date, and quite probably not only incomplete but also, if past trends are predictive, understated.  Sooner or later I am going to get something very wrong in this story, which I worry about a lot, but so far I have been well ahead of the curve.

The conclusion of the data and educated guesses below is that if you live in Tokyo or closer, and can take a vacation to Nagoya, or somewhere further, please do so. If not, please be ready to shelter in place for a while by having food and water stored in your domicile.

The troubling news (admission?) has to do with a neutron beam detected last week over a three day period: » Read more


Special Report: Japanese Reactor Situation is Likely Far Worse Than Admitted

Monday, March 21, 2011, 2:11 PM

I know that I have been almost exclusively focused on the Fukushima situation even as the Middle East is erupting and the West has declared war on another small, oil-rich country. I wish I had time to analyze both situations with equal attention. Since I don't, I'm focusing more on the situation in Japan, which I see is still the more dire of the two.

Analysis of another 'shaky-cam' video released yesterday reveals what appears to be a startling hot-spot in the rubble of Reactor #1, which we will examine below.

The Fukushima nuclear situation is the most drastic nuclear event of our lifetimes, and could easily surpass Chernobyl in terms of its impacts on the world economy, to say nothing of the people living near and downwind of the reactors.

I am simply aghast that the reactor situation almost entirely disappeared from the front pages of the US news media over the March 20-21 weekend, to be replaced by (comforting?) images of military and technical superiority against Libya.

While I am quite concerned about the timing, strategy, and intent that lies behind this sudden support for the Libyan rebels (Wag The Dog, anyone?), it is clear to me that what happens in Japan next has a greater chance of impacting most of the rest of the world, to say nothing of Japan itself.

Here's an example of the latest news, such as it is, about the reactor situation in Japan:

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The Good News & Bad News About The Reactors

Tuesday, March 15, 2011, 11:56 AM

Note: I am simply going to continuously add material to this article on Japan and the impact on the world economy so that we don't 'lose' a very rich discussion that resulted from the alert by splitting it into a different thread.

Friday, March 18, 2:12 P.M. 

First, the fact that it's been 24 hours without any significant reported deterioration of the heat or radiation emitting from the Fukushima complex hints that the situation has possibly hit bottom and/or stabilized.  No news is good news.  One view would be that the spent fuel has had plenty of time to do whatever it was going to do, and so far there are no signs that it's gone critical or burst back into flames. Perhaps it's done all it's going to do.

Also, NHK is reporting that electricity has been restored and that the water pumps serving Reactor #3 have been restarted. That's an enormous relief if it's true. Let's keep our fingers double crossed that it is.  

That's the good news.

Now for the bad news.

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Market Turbulence & When to Buy Silver

Thursday, March 10, 2011, 2:47 PM

We always knew that this portion of the Great Destruction was never going to be easy. The main effect of any great bear market is to destroy the wealth of as many people as possible.

Simply moving everything to cash is not an option, because cash itself may lose its value more rapidly than it can be converted back into primary and secondary sources of wealth. Owning stocks and bonds is not a viable strategy, especially in a world where their prices are influenced/manipulated by the daily actions of the Fed and certain so-called 'trading firms' have turned in four-year win streaks without a single daily loss.

Parking everything in precious metals is probably the safest of the strategies, but that, too, is fraught with peril, as we still cannot be certain if inflation or deflation is going to win the day.

I deeply regret that this is the world in which we currently live, but here we are, and our job is to do the best we can.

I have two philosophies about investing.

The first is that I personally hate losses more than I fear missing out on gains. Some people are built exactly the opposite, and that fact helps to make markets the fun, dynamic places we know and love.

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