A Bullish Scenario for Copper
A Bullish Scenario for Copper
by James Boric
The Daily Reckoning
Thursday, August 17, 2006 --------------------- - The best public spectacles rest on lies…how is energy from grain better than energy that comes out of the ground?
- The problem with the American way of life is that few Americans can afford it!
- Searching the roots of humbuggery…fun with numbers Richebächer -style…and more!
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-------------------- So many humbugs; so little time! We don't know where to begin. So, we take up a small fraud…ethanol…as we work our way up to a bigger one. Ethanol is a well-known boondoggle. But a great boondoggle is agreeable to several constituencies of parasites at once. The farmers like it because it boosts grain prices. The politicians like it because it gives them a chance to hand out other people's money, while pretending to "do something" about a major national problem. And all the fuzzy environmentalists, unripe greens, and addled world improvers like it, too - mostly because they are too lazy and thick to think about it very much. Ethanol makes a wonderful public spectacle. It rests on a lie: energy from grain is somehow better than energy that comes out of the ground. It progresses easily and quickly to farce - just read the news, dear reader. And, it will end in disaster. But how? We have so far only imagined the billions of dollars lost…along with the billions of watts of energy squandered. But along comes Lester Brown, in Fortune magazine, with a further plot twist. We always took Lester Brown for an idiot, but we haven't heard from him in so long, we can't remember why. Ah yes, now we recall that he is the author of endless tracts about the environment…and the founder and president of something called the Earth Policy Institute in Washington, D.C. Yes, dear readers, not content with confining himself to merely one nation, he wants to write policy for the entire planet. A stupendous, world-historical meddler. But on ethanol, Brown turns out to have a relatively sane view. He writes that ethanol is not only a waste of money, if taken up widely, it would actually mean starvation for many of the world's poor people. "The grain required to fill a 25-gallon tank (with ethanol) would feed one person for a year," he writes. Once again, the cure is worse than the disease. If only the meddlers would take note. The problem with the American way of life, adds our friend Byron King, is that few people can afford it, not even most Americans. It requires a lot of energy. Now, you can get energy from grain by converting the energy of the sun - which makes plants grow - into liquid fuel and thence into energy to power a car or heat a house. But since the sun only has so much energy in it, you would have to use a lot of grain, and a lot of space to grow it, to produce the kind of energy that the average American consumes. Of course, the American lifestyle was not built on energy from grain at all, but rather on energy from the Earth. Oil, according to most geologists, represents the condensed energy of many, many years' worth of sunshine…raising up many, many thousands of acres of grains and leaves, which were subsequently packed down into the ground and stored for millions more years. But in the space of only a couple of lifetimes, Americans have used up these millions of years worth of natural inventory of saved-up solar energy. What's left is getting more and more expensive, because there are more and more people who want it…with more and more money to buy it. The new buyers are mostly not American. So, while an American once grew up expecting to live with cheap energy his entire life, he now finds that he must compete with an Indian or Indonesian for it. Where he had gotten used to thinking about gasoline as a kind of public utility, like electricity or postal service, now, with the price rising, he sees his way of life threatened. The poor guy is doomed…in a way. He will never be able to afford as much energy in the future as he is accustomed to using. And that will certainly mean a fall in his standard of living, but what he does not get is that it might not necessarily mean a fall in his quality of living. Europeans, for example, live on far less energy than Americans - and do so quite nicely. But the typical American has no eyes for that; for now, he only sees the price of fuel rising and demands that his elected officials "do something about it." Thus, the humbug of ethanol. But it is the lesser humbug. The greater humbug is the currency in which the price of gasoline and ethanol is quoted. But, it is one that you, dear reader, are probably sick of hearing about, so we will pass on it today and go directly to our latest bubble news: "House Sales Decline in 28 States," was the big story on Tuesday. Yesterday brought two follow-up reports from CNN Money. "Builders hit brakes…" and "Home prices in the deep freeze." Here, we pause. And broaden our inquiry. We search for the roots of humbuggery and we have found one: loose, sloppy, metaphors. Builders do not hit brakes; they hit nails. Truckers hit brakes. A better headline would have been "builders stop hitting nails on the head." Or, "builders hang up their tool belts." As for putting home prices in the deep freeze, we find the idea absurd and unimaginable. The meatpacking industry might go into the deep freeze. Or, maybe the ice-cream makers. But not home prices. Home prices might go "down stairs," "into the basement," or, "down hill." Perhaps, "Winter Chill Comes Early…Home prices find they are not properly insulated" might be a better way to put it. But prices "going into the freezer" merely sounds ridiculous. In the same vein, the metaphors used for describing the working of the economy are tendentious: "Economic growth speeds up," "Fed opens the throttle," "Industry powers up," "manufacturing picks up steam." How about "Interest rate cuts needed to fuel growth." Or, "Fed puts on the brakes." There are those brakes again! The images reveal a monumental illusion: people think the economy is some vast machine that you can control as if it were a freight train. You want to go faster? Just open up the throttle! You want to slow down? Put on the brakes! It's so simple. Once the metaphor takes hold of the popular mind, it leads to natural extensions and unnatural conclusions. After all, if the economy were a machine, it could be easily controlled. Just pull the right levers and turn the right knobs. And if that were so, then if the economy slows down, it must be the fault of the man at the controls. Got a problem with the way your business is doing? It's the fault of the government. Losing your job? Inflation bother you? Well, talk to Ben Bernanke; he's the chief engineer on this track. That's why his photo is on the cover of magazines and newspapers. He's the guy who's supposed to be running this train. Of course, it is all humbug; the economy is no more a machine that your editor is a hamster. Ben Bernanke does not control it as an engineer would control a train. Instead, like all world improvers, he clumsily meddles with it. He botches and bungles an organic, infinitely complex system…only improving things when he is undoing the damage left behind by previous meddlers. [Ed. Note: It's no secret that the housing market is in trouble and the effects of this bubble deflating will reach far and wide - even if you don't have a home on the market. Find out how you can protect yourself from what has been dubbed "The Denver Flu": The Bust is Here From the Blogosphere…a discussion following Kurt Richebächer's comments from yesterday: -------------- Addison Wiggin notes: "Dr. Richebächer sees it the other way around. He believes the United States is acting more like Nazi Germany than any other society since. He likened the alliance between the U.S. and Israel to that of Germany and Italy." Some of our editors disagree. To add your thoughts, read: The U.S. as Nazi Germany? -------------- Back to France for more thoughts… Addison Wiggin, reporting again from the good doctor's stronghold on the Cote d'Azur: *** Dr. Richebächer has a curious relationship with his "femme de ménage," the finely accoutered woman who takes care of him and his house. While she strove to serve us a fresh poulet roti she'd only just finished making, for example, she dropped a delicate sliver on the table. "Hey!" the good doctor grunted at her. "S'il vous plait, Kurt!" she shot back, without a pause. Later she accused him of always giving the minimum she needs to buy things like butter and toothpaste. All the while, cruise ships, sailboats and the scantily clad played in the surf and sun across La Croisette, five stories below. Such is lunch at Le Miramar, where Dr. Richebächer lives. Suddenly, Kurt checks his watch. "Ja, the CPI numbers are coming out!" He grabs his cane and moves from the table to a comfy chair nearby and clicks on a widescreen TV. Bloomberg. In German. The numbers have been published: 2.7% core…4.1% overall. Traders love the report; the futures market has already begun to rally. Kurt, on the other hand, is flabbergasted. He starts talking to me and to the television in German. The market reaction is a symptom of what he calls: Late Degenerate Capitalism, (he later explained in English). That's when a capitalist economy is taken over by the financial markets. Economists no longer regard economic data as a measure of the health and wealth of the nation, but for what impact they might have on the markets. In this case, CPI (consumer price index) was higher than expected, meaning the Fed would have more leeway to pause in rate hikes and further ease "restrictions" on lending. That's good for "the markets," so they rally. But let's have a little fun with the numbers Richebächer-style: The Federal Reserve "target" for acceptable inflation is 2%. So, even the "core" CPI number - after you disregard the things people actually buy like food and energy - is high. If you compare that core number to personal incomes you end up with almost no possible genesis for growth in the U.S. economy. Or worse. According to the latest numbers available form the Bureau of Economic Analysis, personal income grew 0.4% in June…0.0% in May…0.1% in April…0.0% in March…and 0.1% for February. As for January, a negative 0.3%. In aggregate through the first half of 2006 there was only two-tenths of a percent increase in personal incomes. With core CPI at 2.7%, consumers are already vastly under water because of inflation alone. Now, just for fun, let's add in their spending. For the first six months of 2006, "personal consumption expenditures" rose…0.3% in January…0.4% in February…0.1% in March…0.2% in April…0.2% again in May…and once again in June…for an aggregate total of a 1.4% increase in consumer spending. Oy… In gross terms, if you take the rise in personal incomes (0.3%), subtract consumer spending (0.3% - 1.4% = -1.1%) and then subtract out inflation (-1.1% - 2.7% = -3.8%) you get a trend that is unsustainable at best. With inflation and spending, Americans, on aggregate, are growing poorer at nearly 4% a year. We won't mention food and energy, because, well, if they aren't important enough for the Bureau of Labor Statistics, why should we care about them? For more on this trend, which has been based on a false premise, click here: http://www.isecureonline.com/Reports/RCH/ERCHG805 --- Advertisement ---
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