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Politics : Rat's Nest - Chronicles of Collapse -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (9839)	1/14/2010 11:18:46 AM
From: Wharf Rat	Respond to of 24213

How to deal with the coming economic crisis By Sheyna Steiner • Bankrate.com Investment expert and author Stephen Leeb believes we're entering the beginning of the end when it comes to the commodities that hold our modern world together. Resources such as oil, copper and iron are being rapidly depleted -- and with the needs of developing countries, demands are only increasing. The economic fallout from the end of technology as we know it today will be enormous, he says. Many of the resources used in manufacturing today are interconnected. Oil powers much of the world: It fuels our cars and is used in the mining of other materials -- for instance iron ore and copper, each of which is a finite resource that is vital to manufacturing. The depletion of natural resources will have a profound effect on the way things are made. Bankrate talked to Leeb about his perspective of the world and how investors could protect themselves. You make some pretty dire predictions about natural resource shortages. Why is that, and when will they begin? I think they're starting already. Oil is over $80 a barrel and you have 10 percent unemployment in the country -- you're already seeing it. With U.S. demand for energy down, energy prices -- except for natural gas, which is a domestic commodity -- have gone very high. And the same thing is true with copper and other commodities. It's quite exceptional to see commodities rise to the extent to which they've risen. In the context of a pretty sharp recession in the developed world, I think you're already seeing this. The tragedy of it is that we're going to see it more and more because what we haven't figured out, what has not occurred to so many people, is that the green movement or avoiding resource scarcity -- whatever motivates you -- whatever gets you to green, is necessary. Whether you're an environmentalist or someone who's looking at peak energy or peak other things, green is an answer but green itself is very resource intensive. That is a quandary that we haven't faced up to in any way, shape or form. We just don't get it. There are a lot of major dots that have to be connected and we haven't started that. We are really far behind. And really far behind the Chinese, for that matter -- way, way, way behind in switching to green technology. In 2010 they're already the leading producer of hydroelectric and solar power and by 2011 will be the leading producer of wind power. They are literally outspending us on their smart grid by 200 to one. They have allocated $670 billion to their smart grid expenditures, their electric grid. We're spending about $3.5 billion. This is not good. You did mention in the book that it's easier for the Chinese to get things done quickly in some cases. They're not as encumbered as we are. We have a wonderful society here. We are free. And one reason we can stay a wonderful society and one reason we have been able to remain free is that during times of war, we've been able to grant the president emergency powers and come together as a nation. But right now, we're not anywhere near it. Everything is being passed along party votes. No one is even talking about resource scarcity and resource shortages. Someone has to wake us up, and if they do, I hope we'll be able to recover. I'm certainly not rooting for any of this to be happening. I hope I'm wrong, but Rat's just trying to be a messenger. You talk about "absolute peaks" in regard to natural resources. Can you explain this? Peak anything is when you are unable to produce more of it. I wanted to get across that it is very unlikely that you're going to reach peak energy or peak oil or anything like it without reaching peak lots of everything else. That is because you need oil to produce iron ore; you need oil to produce copper; you need copper to produce oil. You need all these commodities to make more water. So when one critical commodity reaches peak, that might be peak for a lot of commodities and you might get to the point that the world can't produce any more commodities. And everything stops. You stop growing at that point or you find technological solutions. We're not really at that point, we're trying to fund -- to some extent -- energy technologies, but we're not placing priorities on that at the moment. This to me is the equivalent of a war. The Chinese are winning and we don't even know that we're in a race. Basically war may be too strong a word, but I don't think it is. We are in the race for our lives and we don't know it. And they are running full steam ahead. You're also predicting that inflation will reach 30 percent to 40 percent. Why will that happen and what will be the result? In 2008 when we got into high oil prices the Fed decided to -- I can't say they got stingier -- but they kept interest rates high. They kept the economy in check because they were worried about high commodity prices. Well it was easy then because there was no unemployment problem then. But now here come high commodity prices again and you can't really expect the Fed to try and restrain the economy in the face of high commodity prices. Unemployment is already 10 percent. What are they going to aim for -- 20 percent? If anything, they have to get looser. High commodity prices like high oil when you pay more to fill up your tank, that's like a tax. I think the Fed will have to get looser not tighter with high commodity prices and that is the making of an inflationary cycle. What should people do to prepare themselves? What investments should they hold? Canned goods, head for the hills? I consider precious metals as an asset group. That doesn't mean you put 100 percent in precious metals, but I would certainly consider gold, silver and platinum as strong candidates for my portfolio. That is the least I would do. Or perhaps investing in resource-rich countries. bankrate.com

To: Wharf Rat who wrote (9839)	1/14/2010 11:20:20 AM
From: Wharf Rat	Read Replies (1) \| Respond to of 24213

Comment: The Start of Demand Destruction for Oil? Preparing now for the Changing Energy World of the Future Are we seeing the first phase of demand destruction for oil? I was talking with a colleague this week about peak oil accelerating the desire of organizations to craft lean supply chains. Research suggests that rising oil prices impact supply chain dynamics in manners that are best understood through total landed cost analysis and network optimization studies. Some studies, including those published by SCDigest, suggest that oil at $150 a barrel is the tipping point where transportation costs can overwhelm the low labor costs in far away countries; the result is a total landed cost calculation that favors production and distribution facilities close to the customer. The price of oil hit $147 a barrel in the summer of 2008 with many organizations feeling enormous pressures on their cost structures; some could have been at that tipping point where they have an inherently uncompetitive supply chain. Let’s repeat that – “they have an inherently uncompetitive supply chain.” And now, oil is cheap at about $80 a barrel. Does this mean the storm has passed and an extended supply chain leveraging low labor costs and lots of transportation is the best approach? Are lean supply chains the wrong priority and is peak oil nothing but a scary story to tell around a campfire? My belief is that the drop in the price of oil is exactly what has been predicted by proponents (including me) of peak oil. Our predictions included how the price of oil would surge as supply and demand become unbalanced. Then, given inadequate preparation, the response to this price surge would be demand destruction. The following chart shows the worldwide demand and supply for oil for 15 quarters through Q309, as reported by the US Energy Information Administration. In this chart, we see a dramatic drop in demand beginning in Q108. This drop put demand less than supply and created conditions for the plunge in the price of oil. I believe the chart shows us the first phase of demand destruction. People are driving less and we have a large decline in economic activity with a US recession officially starting in December of 2007. Unfortunately, demand destruction has only reduced demand to a point where we now have adequate supply. A number of peak oil experts presented their findings at an Association for the Study of Peak Oil and Gas (ASPO) conference in Denver last October. The assessment from many of these experts is that worldwide oil production will soon or may have already peaked. We may never again exceed the level of 85.8 million barrels per day reached in Q108. Optimistically, we may still reach a level higher than 85.8 million barrels per day, but the prospects of reaching levels forecast by some at 90 to 95 million barrels a day seem hopelessly out of touch. The demonstrated declines from established oil fields and the small amount of new discoveries suggests that supply will not simply rebound to the old levels and beyond when demand picks back up. If true, we will see small variations in total supply before the onset of a relentless decline. This implies we still need massive investments in alternatives and conservation, or we will see additional phases of demand destruction. In addition, supply chain management professionals need to be looking over the horizon and preparing their organizations for the future. At SCDigest, we are serious about helping you prepare your organization through education and leadership development activities required to craft a lean supply chain. Our model for a lean supply chain has been explored in prior issues and we will continue to provide you information on what you can do to compete and win in an energy constrained future. I salute those of you that are preparing for what lies ahead. This recession and the first phase of demand destruction are coming to an end. However, the end of demand destruction will bring an era of relentless energy challenges that will reward those with lean supply chains. What are your thoughts? Has the storm passed and we can get back to extended supply chains leveraging transportation? Will peak oil lead to another phase of demand destruction and what will that look like? Are you working to craft a lean supply chain and what actions are you taking now? Let us know your thoughts at the Feedback button below. scdigest.com