Saturday, August 27, 2005

Prognostication Test

OK, the first opportunity to test my paranoia is coming into play.

Hurricane Katrina sits in the Gulf
. (Source National Hurricane Center) It is at this time a category 3 hurricane. Its forecast path is one that encourages it to get stronger, and it's expected to make landfall near the mouth of the Mississippi river - actually crossing the spur of Louisiana to get there but crossing the mouth nonetheless.

So first point of test is that we're going to see an interruption in gasoline production for, oh, at least a couple of days while the refineries in the strike zone batten the hatches. They'll have to not only because of the storm but because for at least 24 and up to 48 hours no ship is going to run through the storm to deliver oil in the Delta Ports.

Second part of the test is that gasoline stocks are at the bottom of historical averages. (Source Department of Energy) For whatever reason, the margin available isn't near as large as it's been in the past.

What this means is that next week we're going to see gasoline stocks drop below historical averages (new low). The closing alone is worth ten cents, maybe 15. Add in the crunch and..l

I am predicting national gasoline prices crossing the $2.70 line by Friday, September 2, 2005. It'll "just" be a spike - it'll start down. Except it'll run against at least one more major hurricane (the NHC says at least two and maybe four more before the season ends.) Plus all the "lesser" hurricanes that are expected over the next four to six weeks. But this is a test of the pressures, only. If I'm more or less on target, a week from today I'll see $2.70-$2.75 per gallon at the pump. (Where I am, we tend to be real close to the national average at the pump, give or take a nickel or so.)

Tuesday, August 23, 2005

Our mission in Iraq

I'm seeing a lot of revisionism from both sides on Iraq. I thought I'd reference the two statements President Bush made at the beginning that specified the mission and highlight certain elements. The two statements are his declaration of war (actually the statement to the US people that he was attacking Iraq) and the more detailed statement of three days later.

First to the revisionists on the left. There were, perhaps, various indicators from subordinates that this would be a short war. But the specific statement of the president in both messages was, "As long as it takes."

To the right, the president had four missions, total between the two messages, for the attack on Iraq.
1) To Disarm Iraq of its Weapons of Mass Destruction. (both)
2) To end Saddam Hussein's support for Terror. (second)
3) To Free the Iraqi people. (both)
4) To defend the world from grave danger. (first)
The third mission is explained in both the above messages. In the first, it's "To restore control of that country to its own people." In the second, it's "To help Iraq achieve a united, stable and free country." These appear to be equivalent statements, the second more fully expanding the first. "To restore control to its own people" also implies a democratic government.

I address the above to the rightist revisionists who claim WMD were but a tiny part of the mission. It is, however, one of two missions repeated in both statements. It is implicit in the fourth mission as well - unfree Iraqis are not in themselves a grave threat to the world. They were, at core, the primary reason given for going into Iraq. Arguments otherwise should explain why we have not and are not invading other nations for which missions 2 and 3 (substituting the appropriate names of leader and nation) but not 1 would be applicable.

By default we accomplished mission one. While we have removed Saddam Hussein from power, there is strong local support for terrorists. I suspect whether we truly complete mission two (and in the context of global terrorism, mission four) will be reliant upon successful completion of mission three.

The remaining missions can be restated, then as:
"We will establish in Iraq a democratically governed nation that is united, stable and free, to eliminate it as a danger to the world."

Friday, August 19, 2005


This is a test, it is only a test... Yeah, right. This is a test of whether oil (in particular gasoline) ise as tightly strung as I think, or if there's still some slack on which to draw.

Recall that what I'm reading says supply and demand are matched. If someone has to stop for a bit, nobody else can take up the slack. If so, since gasoline demand is fairly inelastic in the short term (we need a certain amount regardless of price, though over time we can change that demand), the result of such an unexpected shortage would be a severe jump in prices. Not just the roughly 25% we here in the US have experienced over the past year. I'm saying at least 10-15% (locally, 25 to 37 cents per gallon) in the space of a week or two. OK, that's background.

This is an update press release from the National Weather Forecast system. Let me quote three important sentence fragments:

NOAA is calling for a 95% to 100% chance of an above-normal 2005 Atlantic hurricane season [.]
The updated outlook calls for an extremely active season, with an expected seasonal total of 18-21 tropical storms (mean is 10), with 9-11 becoming hurricanes (mean is 6), and 5-7 of these becoming major hurricanes (mean is 2-3).
Therefore, for the remainder of the season, we expect an additional 11-14 tropical storms, with 7-9 becoming hurricanes, and 3-5 of these becoming major hurricanes.

In other words, last summer redux. Now everyone remembers the triple run through Florida, but that hid something more relevant and significant. The hurricanes forced the Gulf oil platforms to shut down for almost a month altogether. And each of them caused about a 4-day delay in oil deliveries to the gulf refineries. We had a bit of a surge from those two little items, remember?

95 to 100% chance of at least three major hurricanes over the next 6 weeks. I'm betting we see gas prices to the aforementioned jump. That's a national average of ~2.80 to $2.97 per gallon. (West Coasters will bust the $3.00 mark cleanly.) Oh, it'll drop after -- the hurricane is a short-term effect -- but it's going to have some interesting aftershocks.

It's those aftershocks that are the test. Just how well buffered are we, economically speaking? Got some slack? Facing a little stagflation? Or on the precipice's edge of a major collapse? We'll have a pretty good idea by mid-October, I think, if not before.

Friday, August 12, 2005

revisiting PP part 5

[Edits to correct in red.] I don't think I was paranoid enough. I ran across some hard numbers for gasoline prices and for housing sales.

The EIA says the price of gasoline has gone up about 27% (49.1 cents) since this time last year - most of it (42 cents approximate) in the last six months. This has driven a CPI-W (consumer price index for urban wage earners) of 3.5% for the January to June values, with the rest of the values not yet available. The EIA says prices will remain high but gradually declining - just as they've said (and been wrong) for the past year. Most 'big name pundits' think the prices won't decline particularly till this time next year, but aren't projecting significant increases. Unless, of course, the winter's bad or there's any kind of event that rubs against the fact that the supply/demand margin is so slim.

Unfortunately, the National Weather Service is predicting another year of lots and lots of hurricanes - even more than last year. That will inevitably cause spikes in the price of gasoline at the pump. And a bad reality of "seller's markets" is that prices are easily increased but decreased only with difficulty.

Even if it doesn't happen, we're on track to break 4% inflation this year as PP5 projected. (Yeah, I know, three days ago. Big deal.) But I'm now betting we break 5%. And since it's not due to an overheated economy but 'merely' the cost of raw materials, I suspect the Fed will be facing an ugly decision after the holidays - controlling inflation or allow the only-just-recovered economy to recover. (Oh - some bad news on another front. Inventory on hand is increasing, and it's too early for the holiday pre-stock. Either sales pick up or production will start to decline.)

Second point. Some of the really hot housing markets are kicking out warning signs. Virginia, uber-DC (includes VA), and California realty organizations are reporting that resale times (time from putting on market to closing) have increased by multiples from three months ago. Virginia says it's increased by a factor of -f-o-u-r- 36%. California as a whole reports a factor of three. DC just says "more than double". Remember PP5's prediction - slowdown of sales causes stressing of those who've stretched, which in combination with increased interest (due to inflationary reaction) forces those on the edge to foreclose, which creates MORE slowdown due to even more houses on the market AND banks dumping (time equals money).

The next 12 months are not going to be pleasant for an awful lot of people, starting pretty close to the holiday season. Me?

Me, I'm:
- making sure I've restored savings to cover at least 6 months of current expenses;
- buying a used motorcycle for its fuel efficiency (I don't really like riding motorcycles as I had some bad experiences when I was younger, but quartering to halving my gas bill seems worth the discomfort);
- clearing as much of my debt load as possible (within a month I'll have returned to only carrying two loads: the house in which I live, and the "new" car. To the good, the anticipated effect of the inflation will be a defacto improvement in my cost of living - eventually);
- preparing a work-plan suggestion (actually, a few options for an anticipated meeting) for my place of employment that'll help my coworkers (and myself) get our hours while minimizing expenses. I'd like to swing four ten-hour days, but as we do 7 days a week and are stretched like a piano string it's not so easy;
- making sure my various tools and assets for "second income jobs" are ready.

Tuesday, August 09, 2005

Practical Paranoia, part 5

I find I'm disappointed in what I've written in earlier sections, particularly part 4. Looking at it after another brief hiatus, I realized I've jumped to vague handwaves. Darnit, that isn't going to do the one certain reader of this blog - ME - any good. [heh- yes, I write this for myself more than anyone else. In some respects it's thinking out loud.]

Actually, one flaw of part 4 is that I fail to make clear preparing for inflationary economic doldrums is different from preparing for deflationary ones. Well, no, not really. Some of the basics for surviving both are the same. But it's been noted by many that if you successfully prepare for disaster you can actually gain from it -- almost all disasters include opportunities.

So with that, let's quit being general and try to generally forecast what I think is going to happen. After all, I kicked this off with the fact that I'm actually one of the folk thinking the bad stuff is coming - money, it's mouth time.

I think the earliest problem we're facing is a housing slump - a collapse of the housing bubble. Basically, we're going to see two things occur roughly simultaneously. We're going to see folk unable to purchase a house "a bit higher", with the result that the houses remain on the market for longer windows. We're also going to see the current gradual increase in interest rates continue - probably about 2% higher - over the next 6-9 months. This is going to be compounded by oil prices climbing some more - no, not peak, not yet, though I'll revisit that in a bit. No, it's just the fact that demand is so tight against supply that there's no slack, and there will be inevitable events that make supply slip for short periods. Basically, a repeat of last year's increases. All this - the interest rates, the fact that other things (especially oil) take bigger chunks out of the wallet - mean we're going to start seeing people unable to manage the mortgages they've already obtained. Bottom line here is an increase in foreclosures.

The result is a glut of housing, of which some (the foreclosures) start selling at what is presently below market value - as a commenter noted elsewhere, banks don't want to hold, they want to minimize their losses, so selling now for half beats selling in 3 months for full. [Yes, I exaggerate, but not so much as it appears at first glance.] With a glut of houses, new construction slows down. It has to - contractors can't build the next few houses till the last ones are sold (allowing for some overlap, but the overlap only goes so far). If they're not building, builders aren't working. Which means the construction industry - one of two industries that have made up the largest proportion of the recent employment gains - reverses its growth. How bad will this be? Well, that's tricky.

First, the bulk of this expectation overlaps the winter holidays. And that same window is the slow period for such workers. A large number of them expect to be out of work for a couple-three months anyway. Call it as much as 20% that fall into this boat - the rest take inside jobs and alternate employment during this window and ride out the storm. What I'm expecting, however, is a 25-30% decline. And it'll be obvious after the holidays when the workers can't find anything after what they think is a normal dropoff.

Of course there are other businesses associated with real estate that'll take hits as well - obviously real estate agents, but more subtly many of the mortgage specialty industries that have sprung up over the past few years. Sigh - I'm getting large view again.

The result of the housing slump - pop, hiss, hold, or whatever - will be a hit to the economy. Allegedly there are a lot of folk over-leveraging their houses. So they'll find themselves hurting for money - hurting hard, I suspect. My guess as to what is going to happen out of this is an economic doldrum that hits us in Spring of 2006.

I think the S&L collapse and the subsequent recession of 1990-1991 provide the best model of anticipation. A major financial industry is going to be left holding a bag and not carrying sufficiently deep pockets. Covering that industry's bets will require in turn deep and painful digging in taxpayer's pockets. One variant from that is that while the S&L "caused" the 1990-91 real estate slump, this time the cause and effect are reversed. Yet I think the end result will be sufficiently similar for my purposes. Subsequent, I think we have to use the current administration's history in regard to the 2001 slump for anticipating the recovery. Thus my anticipation is:

About 2% decline in real GDP over three quarters. A sluggish (12 month) recovery just to recover the 2%. Employment takes double that - almost two years - to recover.

In more detail, let's examine states. If your state was one of the majority that suffered from the declining revenues of 2001-3, expect a repeat. Except, if your state is one of those with the greatest gains in real estate, expect it to be worse. California is obvious. Colorado (the "monument gap" development from Denver toward Colorado Springs primarily), Washington State (Seattle), much of the northeastern seaboard (aka the NYNY to Newport Urban Corridor aka BosWash plus), Georgia (Atlanta) and Florida (Miami), Arizona (Phoenix) - that, I think, is the list of the big targets.

Crap. I'm in government - here, sorta state, sorta local - a librarian. We saw many, many cuts in our jobs over the past half-decade, cuts which have not been recovered. One of my plans, therefore, has to be preparing for alternative employment. To the good, I'm senior. To the bad, I'm "only" a librarian, and there's a tendency to consider a library a frill. (Given that in EVERY depression library attendence rates spike hugely, this implies otherwise. But reality is that libraries are early on the cuts list.) Yep, time to take a good hard look at what else I can do around here.

That's two - housing bubble fizzle which precipitates a recession/depression. But as I said, there's the oil situation.

Remember last year? The hurricanes that ripped through the gulf? Remember what oil did for about a month after that - or rather, what gasoline did after that? Yep, it surged. Guess what - we're already busier in that region than we were last year. Current forecasts say we're going to have almost 50% more activity than last year. 50%. Ouch. Add to this a recent report by the DOE that notes gasoline stocks have declined. (The report's weekly. The decline's been consistent, however, for the past month. The DOE thinks that barring extraordinary events (such as the hurricanes) we won't see August spikes, but the agency does think prices are going to be nasty come winter.

hmmm. Which means the price of oil/gas is going to cut into the wallet BEFORE the housing bubble. Two possible reactions I see to that: people start bunkering, or people further leverage. Since I think we're in a bubble, I expect more leveraging - more stretching of credit. Which in turn means that the housing slump will have a greater impact than I originally expected.

Bleah. We're on the edge of a perfect storm - the 1-2 of oil-housing is going to push the economic doldrums hard. If it's hard enough it could cause distrust of US moneys - all those overseas holders of US trust funds exchanging them for other currencies. FWIW I don't think it's going to be that bad, but it'll not be pleasant.

OK, final swag.

4-5% inflation. 3.5% decline in real GDP over 9 months, 3 months lingering in the trough, 18 month sluggish recovery. Nasty, nasty unemployment levels - for the US these days, that is - exceeding 6 or 7% at the peak. Indicators appearing in about 2 months, much of it hidden in the normal holiday turbulence, the GDP decline in February/March of next year.

OK, the normal way to handle this is two apparently contradictory actions. First, make sure that you can pay for things when the prices rise while waiting for your wages to catch up. Second, as limited by the first, grab low interest non-adjustable loans before they go up. Be cautious buying anything that's "hot" as the prices will suffer in the near term, but don't hesitate to take a loan for a major item that you need or really want subject to that. In other words, a vehicle purchase is probably going to break your way. Buying real estate is a bad idea. A FIXED rent/lease agreement for the next year or two is probably a real good idea if you don't own your house, but avoid variables rates. Clearing credit cards with adjustable rates is GOOD, but don't get rid of them. (That is, unless you've more than two that you use. Heck, if you can keep it at one that's even better, and only use it in lieu of an ATM card - payoff that month before the climbing interest grabs you.) For the record, I have one active card. I have three more cards that were used for things that I want, good price, taking advantage of "12 months same as cash" offers. Funny, that. They pay the lenders because apparently over half the people using them run past the 12 months and owe the huge back-calculated interest load. My wife's a fanatic about paying them off - we've never paid the interest.

huh. Thinking out loud is fun. I've got my "probable future" set. It works well if things don't crash - which would be good. It copes well if things go the way I think, and to some extent past that. If things go beserk, well...

If we attack Iran, things go way out of hand. If the Peak is reached, things go nuts fiscally. If our financial difficulties cause a devaluation due to international loss of trust in our fisc, things get absurd. These fall into the "unlikely" range, I think - yes, even Iran.

I'll probably visit this again. I'd like to be set to not only get through the anticipated difficulties, but to successfully take advantage such that I come out ahead. But for now, I've gotten VERY longwinded. Enough.

Thursday, August 04, 2005

Lazarus and us

I'm rather fond of many (not all) the writings of Robert A. Heinlein. Even so, some things tend to stick in my memory. Over the past few years, a fewof the short, pithy sayings from the Notebooks of Lazarus Long have repeatedly come to mind. I'd like to share the three that have become engraved upon my consciousness, then go off on a rant.

Freedom begins when you tell Mrs. Grundy to go fly a kite.

Secrecy is the beginning of tyranny.

Anything free is worth what you pay for it. (This one is more evocatively echoed in The Moon is a Harsh Mistress: TANSTAAFL, or There Ain't No Such Thing As A Free Lunch.)

I have made few bones about being annoyed with the current administration. And the three aphorisms above form the majority of my complaint.

The government, especially under the current administration, has striven to make what we do its business. To know what we do, when we do it, and often to then tell us how (or if) we can do it. To be fair as government has to do so to some extent. After all, we won't tolerate murderers, and so we want to catch and punish them. Obviously this sets up a tension. But I've noticed in reading history that the balance point of that tension has moved further and further away from privacy - toward Mrs. Grundy getting to put her nose in our business. I find it more and more tempting to fight this trend in ways large and small - and succumb to the temptation at least in ways small.

It's the second where this administration has truly concerned me. Even before the attack on the Towers it was obvious they had a fetish over secrecy. They blocked release of Reagan documents. They made secret a number of meetings, and when the meetings themselves were discovered worked to make everything about them - not only the minutes but the agendas and even who attended - secret. Now, there's a war on. And I agree some things should be secret - if you tell the bad guy you're going to put your supplies at the X with so many guards from such and such forces, the bad guy knows where to bring forces and how many such forces he needs. But still I believe the administration has gone too far. WAAAAYYY too far. I think we'll spend decades finding out things that shouldn't have happened, but due to the extraordinary strength of secrecy presently existing won't be corrected till too late.

Finally, no such thing as a free lunch. You cannot cut income and increase spending. The end result of that is disaster - it's worse than increasing spending and keeping income the same. Eventually somebody has to pay, and the worse the deficit the more painful the correction. It is so for individuals, it is so for businesses and other organizations, nations and their governments are not exempt. I dread the correction, but have become certain it will happen.

Teaching, the easy life (snort)

Ever stop to think about rewards for work in the context of teachers? I mean, stop and think about it rather. Most peoples' intuition is that a teacher gets to the school a few minutes before the student, goes home on the students' heels, and gets nine months off plus all those huge breaks in the middle of the year. And they want HOW MUCH MONEY? hmmph, we wish we had it so easy.


8 to 9 hours per day at school every day for class with one 30 minute break for lunch and such which can be overridden by needs of the business. (Yes, that means no 15 minute breaks or bathroom breaks.) One to two additional hours at school for staff meetings, and another couple for parents who have questions, one to two additional hours at school for supervision of an extracurricular activity, another two to four hours at the school for "school spirit" (sports and other events), all mandatory, make the at-school workweek in the vicinity of 50 hours. Add in the two to four hours per evening at home to grade assignments and prepare for the next day, and you've got a job sucking 80 hours a week.

And as for that long summer, three things kill it pretty solidly. First is summer school - and most schools require teachers to do at least one session. Second is continuing education - a couple of college classes a year, crammed into the "free" summer - take a month to six weeks pretty close to full time. Finally the tendency toward year-round school. Down here in these parts (North Georgia) school is starting near the beginning of August (my daughter started today - August 4 - and she's envied by friends in a neighboring county who started earlier). As school ended the last day of May, that makes a whole two months available for the teachers. Less, actually, as they had to stay an extra week at the end of school and had to start last week - a week before school.

So two months, minus a month for continuing education, minus another three weeks for summer school, leaves... 1 week. And the end of the year break - about two weeks. And Spring Break, and (around here) Fall Break, except part of those have teacher meetings and they overlap holidays that most folk get, so... Four weeks of vacation a year spread over the entire year is pretty good. But it's not three months.

Around here a beginning teacher gets about $26,000 a year to have 40 weeks of 80 hour workweeks, another three to four of "only" 40 per week, and have to pay for a semester of classes crammed into yet another four weeks.

The next time somebody tells you teacers are overpaid, stop and think how much YOU would want to be paid for doing those kind of hours.