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Tag Archives: Gregor Macdonald

  • Insider
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    How to Break Out of Stagnation

    Start "printing" future energy now
    by Gregor Macdonald

    Tuesday, July 9, 2013, 5:04 PM

    18

    Executive Summary

    • The world's ongoing net energy recession will continue to drag GDP downwards unless a technology mircale occurs (unlikely)
    • Reversing our net energy decline will be key to breaking out of this stagnation
    • Solar capacity build-out is an important growing trend, as it offers "free" streams of future energy after its up-front costs
    • Solar GW capacity is now growing at a classic exponential rate. The countries that invest the most here will have a long-term advantage over those that don't
    • Stimulative programs that invest in renewable energy infrastructure are looking increasingly attractive to our current fiscal ones that are clearly failing to return us to previous levels of growth

    If you have not yet read Part I: The Dead Weight of Sluggish Global Growth available free to all readers, please click here to read it first.

    With OECD countries in an ongoing energy recession, and given that just about all major economies, both in the OECD and Non-OECD, depend on exports, the risk is that global trade and global GDP also start to slow down. In 2013, we see that is exactly what's starting to happen, as noted by the Economist:

    According to The Economist's calculations, world GDP grew by just 2.1% during the first quarter of 2013 compared with a year earlier. Just 12 months ago, output was growing at a reasonable clip of 3.1%. The European Union, the world's second-largest economy, which welcomes its 28th member on July 1st, is back in recession. Meanwhile there are concerns about stumbling blocks as China seeks to rebalance toward a more consumption-oriented economy and more moderate growth rates. Long the mainstay of the world's fortunes, China alone has been responsible for nearly half of all world economic growth since the end of 2009 when the world began growing again.

    While commodities from copper to oil have retained the majority of their price gains achieved over the past ten years, the fact remains that year-over-year inflation has settled in at a low, tepid level. Meanwhile, global wage deflation, a secular trend over the past decade, continues. Overall, this means that labor still has very little pricing power. Indeed, with structural unemployment now embedded in much of the OECD, the question remains: How will Western economies put enough people back to work to erase the idle labor pool?

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  • Insider
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    Why This Recovery Is Coming to an End

    Where the markets are most likely headed from here
    by Gregor Macdonald

    Monday, May 6, 2013, 3:34 PM

    4

    Executive Summary

    • Fertility rates are experiencing a "natural decrease" at record levels across the U.S.
    • Poverty rates are rising across the country, despite the "recovering" economy
    • What exactly is "powering" U.S. economic growth? Perhaps much less than realized.
    • Why we are likely in the calm before the storm when corporate profits peak right before an economic downturn
    • The 3 most likely scenarios for the stock market from here

    If you have not yet read Part I: Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?, available free to all readers, please click here to read it first.

    One of the challenges the U.S. stock market will increasingly face in the years ahead is continued growth in the Dependency Ratio. The U.S. Census Bureau alerted us to this trend back in 2010. For keen observers of demographics, this couldn’t have been a surprise). The rate at which the Dependency Ratio is growing, and is set to grow further, is accelerating:

    The U.S. Census Bureau reported today that the dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages, is projected to climb rapidly from 22 in 2010 to 35 in 2030. This time period coincides with the time when baby boomers are moving into the 65 and older age category…The expected steep rise in the dependency ratio over the next two decades reflects the projected proportion of people 65 and older climbing from 13 percent to 19 percent of the total population over the period, with the percentage in the 20 to 64 age range falling from 60 percent to 55 percent…“This rapid growth of the older population may present challenges in the next two decades,” said Victoria Velkoff, assistant chief for estimates and projections for the Census Bureau's Population Division. “It's also noteworthy that those 85 and older — who often require additional caregiving and support — would increase from about 14 percent of the older population today to 21 percent in 2050.”

    This is precisely one of the key, ongoing headwinds that faced Japan's stock market for 20 years. When Japan's economy moved steadily into its low-growth phase, unable to generate sufficient jobs, fertility rates and household formation declined rapidly. As I explained in The Arrival of Japan's Sunset, these will not be cured by the current devaluation of the yen, despite naïve cheerleading. And neither will they be solved here in the U.S.

    But in contrast to Japan, the United States is only just embarking on its slow growth phase. Its demographically challenged culture and economy will reinforce each other as we move ahead in time. And, it's not just the retiring class of workers that will massively increase the Dependency Ratio in the U.S. in years ahead…

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  • Blog
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    Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?

    Growing amounts of data show a failure to thrive
    by Gregor Macdonald

    Monday, May 6, 2013, 3:31 PM

    0

    The U.S. stock market rally has recently passed its fourth anniversary after the terrifying lows of March 9, 2009.

    During that time, massive and unconventional reflationary policy from the Federal Reserve has managed to lift the S&P 500 by nearly 70%. But perhaps even more improbably, it has finally (?) built a floor under U.S. residential real estate prices.

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  • Insider
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    The 10 Next Predictable Steps to Japan’s Unfolding Disaster

    As Japan goes, so will the rest of the world soon after
    by Gregor Macdonald

    Monday, February 18, 2013, 10:05 PM

    28

    Executive Summary

    • Japan is intentionally devaluing its currency through money printing. The recent boost in the Nikkei is simply the result of this flood of new money.
    • Japan industry is now experiencing cost increases on two fronts: inflation of the money supply, and rising prices on the global market for commodities.
    • Rising bond rates are all but guaranteed.
    • Gold vs. the yen is surging and will pick up momentum from here
    • The ten predictable events that will happen next, as the unavoidable Japan disaster unfolds

    If you have not yet read Part I: The Arrival of Japan's Sunset available free to all readers, please click here to read it first.

    In Part II we explain why Japan has unequivocally entered the terminal phase of its 20-year reflationary experiment.

    Further “abundance” harvesting from this point forward will be difficult if not impossible.

    Is the devaluation of the yen really the successful technology that will fool nature? We think not. The outcome will have spectacular implications for many global assets, ranging from real estate, to stock markets, to oil and gold.

    Observers of Japan from this point forward should be sober about the threshold the country has now crossed. Japan has effectively said to the world: Go ahead, make my day. Sell our currency, give us inflation, and get out of our bonds.

    Japan has indeed taken to heart the Krugman dictum, and committed to irresponsibility.

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  • Blog

    The Arrival of Japan’s Sunset

    The repercussions will be tremendous
    by Gregor Macdonald

    Monday, February 18, 2013, 10:05 PM

    1

    For a successful technology, reality must take precedence over public relations, for nature cannot be fooled. ~ Richard Feynman

    Waiting for Japan's economy to make a strong recovery has been an ongoing game since 1990. Shall we play that game one more time?

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  • Blog
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    The Siren Song of the Robot

    It may not be the boon we're counting on
    by Gregor Macdonald

    Tuesday, January 29, 2013, 5:03 PM

    69

    The quest for cheap energy and cheap labor is a conquering human urge, one that has played out with notable ferocity starting with the Industrial Revolution. The introduction of coal into British manufacturing and the more recent outsourcing of Western manufacturing to Asia have marked key thresholds in this ongoing progression.

    But despite the harvesting of additional productivity gains from the more recent revolution in information technology, the suite of macro data suggests that the rate of advancement in physical production has slowed, notably, in the past thirty years.

    Seen in this light, the greatest gains to global industrial production were probably enjoyed from the late 18th century (when coal extraction and use began in earnest) into the mid-20th century (when oil reached broad distribution). In contrast, computers, the Internet, and the leveraging of developing world labor might eventually be seen as the finishing touches on this great industrial wave.

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  • Insider

    Why the Robot Age May Create a Massive Deflationary Bust

    And could create epic inequality
    by Gregor Macdonald

    Tuesday, January 29, 2013, 5:02 PM

    15

    Executive Summary

    • The transition back to an electricity-centric economy is regressive
    • Declining net energy and peak expansion are co-incident
    • Change that substitutes labor without providing a higher use for it is deflationary and results in inequality
    • Our challenge is to find sustainable work for society

    If you have not yet read The Siren Song of the Robot, available free to all readers, please click here to read it first.

    Capitalism demands fast gains in productivity. Capitalism seeks revolutionary change. But it’s not clear whether a revolution in machine intelligence leads to a deflationary boom, per Schumpeter, or a deflationary bust.

    Writers such as Paul Krugman have perhaps moved too quickly, too easily, to conclude that a massive increase in production from such technology leads sustainably to large growth in GDP without severe consequences. Indeed, in a recent essay responding to Robert Gordon's paper on the end of growth, Krugman takes the view that (positive) returns from technology are just beginning to unfold.

    I conclude that Krugman is actually concerned about and open to the possibility that an enormous wave of disruption to manufacturing from robots could produce higher GDP initially and also problems thereafter. What happens to wages in the broader economy?

    One does not have to be a Luddite about technology to fear yet another huge new round of wage deflation. The West has already been treated to an era of “cheap, quickly manufactured goods that enhance people’s lives” during the past two decades. And it’s not clear that a flood of goods has necessarily improved well-being.

    While I certainly wouldn’t make the curmudgeon's case that electronic devices have reduced well-being, it’s not clear that the I.T. revolution has accomplished much in the way of delivering to consumers cheaper and better quality energy, food, or health care.

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  • Podcast

    Gregor Macdonald: What the End of Cheap Oil Means

    We better get smart about using our remaining fossil BTUs
    by Adam Taggart

    Saturday, January 19, 2013, 10:09 PM

    62

    On the heels of Chris' recent report clarifying the global net energy predicament, he and PeakProsperity.com contributing editor Gregor Macdonald sit down to talk in depth about the broken relationship between energy costs and economic growth.

    For much of the twentieth century, the developed world saw a steady march upwards in wages and living standards, due primarily to huge quantities of cheap, high-yielding liquid hydrocarbon. As we find ourselves bumping along the plateau of Peak Oil's apex, suddenly we find "growth" is a lot harder to come by.

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  • Insider
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    Dissecting the Energy “Boom” Story

    Don't believe the hype
    by Gregor Macdonald

    Thursday, December 20, 2012, 12:05 AM

    4

    Executive Summary

    • Peak Oil is a multifactorial concept 
    • Why the IEA forecasts aren't credible
    • Why the data shows Peak Oil is alive & well
    • Where oil prices will head in 2013

    If you have not yet read A Tale of Two Forecasts, available free to all readers, please click here to read it first.

    The U.S. is currently experiencing its second oil production recovery since 1971, when its supply peaked over 9.5 mbpd.

    The first recovery took place over a nine-year period from 1976-1985. That renaissance took U.S. production back up from a low of 8.0 mbpd to nearly 9.0 mbpd. And then, over the next twenty years, U.S. production would fall steadily to its recent nadir of 5 mbpd in 2008. Over the past four years (owing to onshore production in North Dakota and Texas), the U.S. has built back an impressive 1.5 mbpd and is currently producing over 6.5 mbpd of crude oil.

    Before we get to the IEA Paris forecast for the future U.S. production, let's take a look at our own Energy Information Administration (EIA) Washington forecast. The IEA Paris forecast is more difficult to understand, as it conflates oil and natural gas liquids. By contrast, the EIA Washington forecast is more specifically focused on oil production, which is easier to compare to U.S. production history. (Remember: Natural gas liquids (NGLs) are not oil. More importantly, they do not contain the same energy as oil. A barrel of oil contains 6 GJ (gigajoules) of energy, but a barrel of NGL contains just 4 GJ.)

    Here is the forecast to 2040, from the EIA's (Washington) recent Annual Energy Outlook:

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  • Blog
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    A Tale of Two Forecasts

    Where has our objectivity gone?
    by Gregor Macdonald

    Thursday, December 20, 2012, 12:04 AM

    4

    It was the best of times; it was the worst of times for the American public over the past month, as it was treated to two high-profile, but deeply conflicting, economic forecasts.

    Despite declaring in 2008 that the age of cheap oil was over, the International Energy Agency (IEA) surprisingly announced last week that the United States would become the largest oil producer in the world by 2020. Hooray! This superlative declaration titillated U.S. media organizations, who understand quite well that Americans love to secure a #1 ranking in just about any category (save for prison incarceration, divorce rates, and obesity). As I explained to the Keiser Report, however, the IEA has done little more than produce an attention grabbing headline here. Simply ranking the 'top oil producer' in 2020 may mean much less than the public currently understands.

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