One reason that I am unconvinced that we are in anything that can credibly be called “recovery” is that the US states have been turning in increasingly poor economic data throughout, especially in my favorite data series, ‘sales tax.’  It’s my favorite because sales tax receipts are not subject to statistical massaging or seasonal adjustments.  They are merely collected and reported.

I’ve never been able to satisfactorily resolve the gap between Federal Government reports of steadily increasing levels of consumer spending/income vs. declining sales tax receipts and stubbornly high unemployment.

Let’s begin with the federal data on spending and incomes:

Second Leg of the Housing Decline Set To Begin (or Why Economists Are Dangerous To Your Wealth)

Monday, June 28, 2010

Executive Summary

• Housing data is weak and just took a turn for the worse
• Stimulus efforts were essential to keep housing propped up
• The stimulus has ended
• QE and stock market prices are correlated
• What’s coming next
• What you should do

We bought our house in November of 2009.  This will turn out to have been a very bad financial decision.  We’ll be underwater on that purchase for a very long time; maybe forever (or until Bernanke’s great experiment takes the final turn towards massive currency destruction and inflation; whichever comes first).   

Of course, we bought it knowing that.  Our decision to buy centered on our valuing time more than money.  What I mean by this is that all of the changes that we are now fully engaged in around our house, ranging from insulating to installing solar panels to putting in a fruit orchard, all take time.  Time became more important to us than money, and so we bought.

But for every nation dealing with the after-effects of a housing bubble, what matters is that house prices start to climb again.  Of course, the housing bubble was just a symptom of the larger and far more damaging credit bubble, but housing is a useful indicator for where we are in the larger credit-bubble story.

Because of its importance to both the bubble’s bursting and its eventual repair, I track housing for signs of true recovery.

Back in May, I was struggling with whether or not to send out an Alert.  For those new to the site, an Alert is an extremely rare thing for me to send, and I do not do it lightly.  There must be compelling evidence that something extraordinary is afoot that would personally cause me to take specific actions or kick my current rate of activity into a higher gear.

Well the InnoTown innovation conference was certainly a very good experience and a real eye-opener.  On the ‘great experience’ side of the ledger, this is as close to the ‘home country’ as I’ve ever been – my grandfather and grandmother (father’s side) were Swedish and Finnish, respectively.  Norway, being one country over from each, is pretty close.

Close enough heritage-wise that the main problem for myself and my daughter Erica, who accompanied me, was that everyone began talking to us in Norwegian.  It seems that we both look more Norwegian than many Norwegians.  Luckily, virtually everyone in Norway also speaks near-flawless English, too, so there was never any confusion after the first sentence.

I also counted myself lucky to have been able to see the other presenters on the slate, including:  Lynda Gratton of the London Business School, Chris Bangle (former chief designer for BMW), Blake Mycoskie (founder of Tom’s shoes – “one for one” – founded on the principle of profit and giving being part of the same business model), Rohit Talwar (a futurist and strategist with a quite enviable client list), Roger Flynn (a young-ish though big-time executive for Virgin, BBC, and other ventures), and Peter Diamandis, who is the founder of the X-Prize, which saw the first private success at space travel and is now sponsoring other such prizes in a multitude of areas.  A few of these people were world-class presenters, so I learned a few things, most notably that it is time to spiff up my slides.

Deep Impact: Why The Deepwater Disaster Spells Serious Trouble

Wednesday, June 9, 2010

Executive Summary

• We can say with absolute certainty that future oil exploration and development costs are going to rise.
• Our date with an oil supply shock now seems probable for the 2011 to 2012 timeframe.
• A new paradigm is emerging, in which downsizing trumps growth.
• A permanent energy crunch will lead to higher prices for all things connected to energy.
• It would not be too strong to suggest that our federal commitment to energy efficiency is a farce. 
• In terms of personal planning, do not take anything for granted.
• While I am not sure how this will play out yet, I am quite comfortable stating that the age of abundance is drawing to a close.

While we are all still in some stage of shock over the BP gulf disaster – myself over the impacts on fragile marine ecosystems; others over the prospect that we might not be saved by technology after all – it’s worthwhile to begin assessing the impact that this disaster will have on future oil supplies and prices. 

My view is that the economy, a complex system, owes its rich complexity to the very same thing as all complex systems: the constant throughput of energy. 

Actually, because we have a debt-based economy that is predicated on and thoroughly reliant upon exponential growth, I can amend this to say that our economy owes its rich complexity to constantly increasing inputs of energy.  And it’s not the total amount of energy that’s important here; it’s the total amount of net energy that matters.  So I can amend the statement further to say that our economy owes its rich complexity to constantly increasing inputs of net energy.

If you understand this, you understand the heart of my analytical framework.  I attribute much of my success in predicting the economic pain that we’ve been going through to the rigorous application of this line of thinking to the question, “Are we doing anything serious or credible in the way of rapidly increasing our energy efficiency?”  Sadly, the answer to that question is a resounding, “No!”

Well, what a lousy week in the stock and European bond markets that was.  The S&P recorded its first weekly close below the 50 week moving average (wma) in a year, as viewed on the weekly chart below.

The S&P 500  is also sitting below the 200 day moving average (not shown below) and bounced off it twice from below, once in late May and again on Thursday.  It was soundly rejected both times.  It now seems probable that the rally over the past year was an ordinary bear market rally – albeit a long one fueled by the trillions of dollars in stimulus and thin-air injections – and is over and done.

So the question is, what next?

Well, I am on the road again.  Right now I am in St. Paul, Minnesota, readying myself to give a one-hour talk and one-hour Q&A session to the general public at the request of the MN state legislature energy commission.

As I scan the news, I am seeing a number of worrying trends, not the least of which are the number of high-level money managers who are essentially throwing in the towel on the financial system.  They have either lost faith that markets are worth participating in, because they are too heavily influenced (or manipulated) by governments and/or their agents, or they have lost faith in the idea that we can ever grow our way out from the mountains of debt that we not only created in the past, but continue to pile on, even today.

Once the big money folks lose the connection to value of fiat money (something I lost a while ago), then I would predict some rather sudden changes to the system.

The biggest new trend or potentially disruptive event is harder to track, but profoundly important.  One of the dominant themes holding the narrative together for many, many people is the role of technology in ameliorating, if not solving, our future problems.

The impact of the Deepwater incident lances deep into that narrative, creating a wound at a terribly delicate time.