What Pilots Understand, or Happy Motoring!

One thing understood by aircraft pilots can be summarized by the well known saying that any landing that you can walk away from is a good landing. A great landing is one after which you can use the airplane again. All landings are crashes, its just the degree of violence that makes the difference.

The US economy is crashing and all we hear in the media is weather it will be a soft or hard landing. I humbly suggest that it doesn't matter what you call it for any other than political purposes. People are getting hurt.

Its too late to prevent this crash, but perhaps we can learn a little something and try not to make the same errors going forward. Just kidding... We haven't learned this lesson even though the pattern has been repeated throughout recorded history. I suspect that's because of the same reasons many reject the issue of limited resources. There are few people alive today that were old enough to be destroyed by the last "great" depression. And its the same with respect to Peak Oil. Oil has been abundant and virtually limitless from a consumer's standpoint longer than anyone currently alive. Remember the oil shocks of the 70's and 80's? They were short lived and political in nature, so few lessons were learned.

I hear people saying that because oil prices have retreated from their recent highs that there is no supply problem. Exxon, BP and Shell would love for you to believe that, and are spending millions to get that message out. The reality is that new supplies from recent discoveries are not replacing even the decline in production from the existing major producing fields. Producing countries are rebelling against the bully tactics of the US, and global production is declining while consumption is still increasing. The short sharp decline in prices is the result of a well timed buyers strike. Longer term, prices will increase until demand is destroyed to match declining production, taking the global economy with it.

Among the causes of lower price are that the US government was buying a lot of oil to replace what was drawn from the strategic reserve after the hurricanes of '05, even though the reserve is still at least a million barrels short. That buying has ceased now and takes a lot of demand off the market, The majors and refiners have filled every tank, bucket and tin cup with crude so they can delay new buying for a short while, and hedge funds are selling and shorting energy hard now that the price is declining.

Few people understand the correlation between energy and fiat currency such as the US dollar and every other world currency in existence today. Fiat currency is created by the issuance of debt. In order for the scheme to continue there must be ever increasing debt, just to create enough money to pay the interest on the previously issued debt. Do you see where this is going? in order to create growth, energy is required in increasing volume. If there is less energy available there is less growth, resulting in less borrowing, and the interest cannot be paid. When the interest cannot be paid, default on the existing "house of cards" debt collapses, taking the currency and the economy with it. There must be increasing energy available or the whole thing blows up.

I believe what we are seeing are not normal cyclical energy market fluctuations, but the energy markets starting to wobble. The wobble will increase in amplitude and frequency until the obvious becomes apparent, and the population awakens to energy reality. Until then, Happy Motoring!

When the VIX is low...

Take your money and Go. When the VIX is high, then you buy. That's how the saying goes anyhow.



You can see from the chart comparing the S&P 500 index to the VIX, the Volatility index, that when the VIX is low its time to get out. Its a pretty good correlation that when volatility is high stocks move up, so why are stocks moving up and the VIX is scraping bottom? For the same reason I have sat out this rally since May. Its fake. Its electioneering, a bear trap, and in typical wall street doublespeak, a bear trap is not a trap set for a bear, its a trap set by a bear.

When will it tip over? Conventional wisdom would predict it will last until the election. But if you believe that, would you wait until then or would you cash out ahead of the crowd?

As Yogi Berra has astutely pointed out, "its hard to make predictions, especially about the future". I'm staying on the sidelines and watching. If the market charges ahead, I missed a good rally, if it tanks, I've avoided a beating. As a chaotic system driven by emotion the only thing for sure is that something will happen... it always does.