James Howard Kunstler

I just heard Kunstler speak for his book tour for The Long Emergency. He is a very intense guy with a funny and sarcastic wit. He has an energy that tends to fly pretty wildly. I have not read his books, so I am just giving my impressions. The Long Emergency is on my reading list, however. He gave an amusing characterization of the USA of the near future, when rapid inflations floods our economy. He said the America will be like NASCAR Nation meets the Weimar Republic. But then he said we should not be too worried about what the federal goverment might do, because they will hardly be able to answer the phone.

I find this odd. I would not underestimate the capacity for a bankrupt nations to become authoritarian. Look at North Korea, although they always were authoritarian. But famine and energy shortages didn't change that. And the Weimar Republic, which led to Nazism. We may find the Republican party installing John Bolton as president some day. He would be our own Saddam.

"America is Over" - Michael Ventura

Michael Ventura makes an interesting point about the US transitioning down from militaristic superpower status. After explaining that the US will need to rebuild its transportation and energy infrastructure at a time when it has nearly gone broke, he writes:

There's only one section of our economy that has that kind of money: the military budget. The U.S. now spends more on its military than all other nations combined. A sane transit to a post-automobile America will require a massive shift from military to infrastructure spending. That shift would be supported by our bankers in China and Europe (that is, they would continue to finance our debt) because it's in their interests that we regain economic viability. What's not in their interests is that we remain a military superpower.

This is in a column for the Austin Chronicle: $4 a Gallon. This article is the best single, concise explanation of America's position in the world today.

history's biggest economic bust: China

I read every single day about China becoming the great economic and probably military power of the the 21st Century. This will no doubt happen, I do not dispute it. But I do not think they will have a smooth ride to superpower status. No country can sustain large scale, rapid economic growth without periodic recessions and/or depressions. America had plenty during its acendency. It is a fundamental aspect of the business cycle. Right now China is enjoying history's most massive economic boom. It follows that they will endure history's largest recession. China is intricately tied to US debt and economic growth. Peak oil is probably going to force a disruption in world trade, either this year of in 2006, then China's growth will come to a halt.

I believe China will regain momentum, but it will be as the center of a world-dominant Asia, and it will take a long time to build such an economy.

will there be US currency controls?

Jim Rogers, the commodities investment guru, predicts that at some point in the near future, the US goverment will impose currency controls. No doubt this would occur after a US dollar collapse. He doesn't say this in his books, but he mentioned it in an interview with Fortune magazine, January '05. With currency controls, investments in foreign securities, bonds, commodities and currencies may be resticted or banned. The point will be that the United States will try to keep US dollars from fleeing to safer shores. Like Italy had in the 70s.

If this happens, Americans' best inflation defense will be a stash of gold in the basement. We can only hope they don't make gold ownership illegal. In any case, goodbye to the high tech banking system. If the big international banks collapse, they will have brought it on themselves, with their preposterous derivatives and hedge funds.

I've put some of my kids' custodial funds into 1 ounce gold coins. I chose Canadian maple leafs, because they are pure gold, not an alloy. I expect that the USA will impose currency contols. Export of dollars and gold will be banned. Gold will be legally bought and sold only by the US government.

o canada!

For several years now I have had some foreign stocks that are easy to buy on the NYSE, in the form of ADRs. I would rather buy Canadian stocks or bonds directly, on the Toronto Stock Exchange, but they don't make this easy. Few US brokerages will trade in Toronto. And to get an account with a Canadian brokerage you need to be a Canadian resident. The three Canadian companies I ended up choosing are Petro-Canada, Imperial Oil, and Potash Corp (a fertilizer company).

Why Canadian stocks? United States debt levels and the US housing bubble makes me think that US equities are not a good thing to own right now. Assuming that the US dollar will continue to erode, and is at risk of a large, sudden devaluation, I tried to figure out which currencies are most likely to hold value. Four of the world's major, floating currencies are said to be closely linked with their nation's natural resource assets: New Zealand dollar, Australian dollar, South African rand, and the Canadian dollar. In an era of commodity inflation, in which we are now in the middle of, these currencies should appreciate. These currencies might be able to withstand the global flood of inflation. But New Zealand just seems to small and isolated. And Australia seems to have severe environmental problems. South Africa doesn't have much oil. I might buy some of their gold krugerrands, though. and it would be hard to keep up with the news in South Africa.
But Canada - that is a different story. They have huge natural resouce reserves, and good access to the 2 biggest markets for their resources: The USA and China. They have a resonably stable government (I am glad I have not heard about Quebecois secession lately). The have a well run banking system, a free press, and they are close by. I can hear the "News From Canada" on NPR.

So, if you buy a Canadian oil company, the stock can go up two ways:
a) if the price of oil goes up
b) if the Canadian dollar appreciates against the US dollar

I think both these things are likely. They are also very much linked: US dollars are petro-dollars. They are linked to the price of oil, because oil is always traded in US dollars.

BTW, Henry Groppe is an oil analyst who is very bullish on Canadian oil. Read this: Oil Forecasting Legend Paints Dire Energy Picture
At the bottom of this page he says:

...Groppe’s favourite group is the Canadian oil patch. “We would classify Canada as perhaps possessing the most attractive combination of circumstances for energy investment of any place in the world. It is only a quarter as intensely drilled and exploited as the United States” and “I suspect that in the next several years the oil sands reserves will be raised to be higher than Saudi Arabia’s.” In that same vein, Groppe predicts “within 10 years we have Canada as being the largest non-OPEC producer in the world outside of Russia.”

The man puts his money where his mouth is, and says that “90% of all of my equity investment assets are in energy, and 65% of that is Canadian.” He also says, “We think there is still a good long run ahead with the kinds of prices that we see”, which should be a positive, and somewhat comforting for investors in the area, considering Groppe’s enviable and unmatched oil forecasting record, both in longevity and accuracy.

commodities trading

I have liquidated my Goldman Sachs postion. I switched to crude oil and gold contracts for my commodity portfolio. The trouble with the Goldman Sachs Index is:

a) You can't buy long term contracts. They are available for only a few months forward. That is, in June, the farthest out contract you can buy is for August. If you believe there will be long term inflation in virtually all commodities, it does not make sense to place such a short term position.

b) The only decent liquidity is in the front month.

The upshot of this is that you have to roll over your position every month, which is stressful and can be hazarous to your balance. The oil and gold contracts are better for a small investor, who doesn't want to be day trading. They are very liquid. You can buy them years out if you prefer. And the contract size is smaller than the Goldman Sachs, so you are not putting as much of your capital in one contract.

But I liked the idea of the Goldman Sachs Index, it seemed to represent a reasonable cross section of the global economy.