Mid-Aug 2013 Blog Update of THE GREAT DEPRESSION of DEBT

My novel “The Child Remover” is available on Amazon as both a paperback and in a Kindle version. 

This will be my final blog update.  Thanks to all of you who have stayed with me and shared thoughts over the years.  For many reasons, doing these updates, with all the required work, is no longer as rewarding as it used to be.  Also, watching the future economy is going to be more like tracking a moving train rather than the rocket it was when we were heading to the breakdown of our economy due to the debt, mortgage, housing, and banking issues.

POLITICS

I believe that politics will be a key mover in our economy in coming years.  I have already covered in great detail why I think we are heading towards energy independence.  But that could actually reverse if the government would suddenly cancel its stance on higher MPG for vehicles.   That could happen if a Republican gets elected president and he/she decides that one way to stimulate the economy is to remove all MPG targets for the automotive industry.  I have shown in earlier blogs that, although oil coming from fracking will contribute, the major factor for energy independence in the US is improved gas mileage for vehicles.  I am not saying that a Republican president would necessarily remove the MPG requirements, but it certainly would be a risk given the Republicans’ historical stance that the government has no business being involved in such detail – it should be market demand that determines vehicle design and the resultant MPG.

I have covered in earlier blogs that an on-going problem in the US is the continuing increased flow of money to the very wealthy.  This flow is enabled by current tax laws in the US and the continuing low wage growth by the average working person, including minimum wage.  This trend will likely only be reversed if both houses of Congress and the President are Democrats.  Unionism is starting to raise its head in the US, especially related to fast food workers.  But how much support this movement gets from the courts and Congress will greatly influence its growth.

The US is heading for isolationism, and I think that this trend will continue with either party in control.  Even the McCain-types are seeing the difficulty of finding any groups worth backing militarily in the multiple Middle East upheavals.  Even with Israel, US backing in any action they may take against Iran is likely to be muted compared to our commitment to Israel in prior years.  The US is tired of costly wars that never seem to resolve anything. 

How likely is it that the Democrats will win the 2016 presidential election?  Recent polls show that Hillary Clinton could beat all comers.  Chris Christie is the only Republican who even comes close, but he is looked on by many Republicans as being a RINO (Republican In Name Only). 

A May, 2013 Fairleigh Dickenson University poll shows unhappiness among Republicans for ALL mainstream presidential candidates, including Christie.  2016 is a while away, and things can change.  But if one were a betting man right now, Hillary easily wins by a couple body lengths.

Reading the above may give someone the impression that I am just a typical Democrat blindly promoting my causes.  Not true.  I believe that when Democrats are in charge too long they cause the economy problems by enacting too many giveaway programs with little thought of payment.  But right now, the biggest risk to our government, in my opinion, is the continual flow of funds to the ultra-wealthy.  Eventually that could lead to mass riots and a total breakdown of our government.  Even the most conservative Republican should be able to see that; but none of their programs seem to be geared to trim the ever-increasing flow of money upwards.  Even in the Middle East, much of the efforts to overthrow governments have been triggered by the have-nots demanding their share, rather than religious issues.  We are not immune to that sort of action by our populace.

WE DON’T HAVE TO RUN FASTER THAN THE BEAR

Economically the most important thing is to stay ahead of the competition, which includes Europe, Japan, China, and India.  Europe has an on-going problem that some member countries are heading to economic disaster, and economically sound countries like Germany are getting tired of supporting them.  This issue will continue to bog Europe down economically for the foreseeable future.

Japan has an on-going huge debt problem, and its energy policy is in tatters given the on-going issues with the Fukushima Dai-ichi nuclear power plant. 

China has been investing in factories, cities, and infrastructure faster than their economy can absorb, and this will eventually have to stop.  Then its political system may be challenged.  China may pursue a similar MPG goal on its vehicles as in the US; but China’s exponential growth in vehicle ownership will easily overwhelm any improvement in reduced oil usage through improved MPG.

India has potential, but has yet to figure out how to build on that potential.  Poverty and poor infrastructure are among many issues burdening India.

So, the US becomes the winner, as does the dollar.  This is important, because the strong dollar makes it likely that we can continue to borrow at a low interest rate until we start reducing our real debt in a substantial way.  Also, the strong dollar will enable the Fed to keep inflation under control.  The Fed wants some inflation, perhaps 4%, but not runaway inflation.  We are likely to have several years of slow or no growth, but that will actually look good compared to most countries.  Then after 2015 or so, when a lot of the energy independence gains start to be felt, the US economy may really take off.

BUDGET PROBLEMS

As noted in an earlier blog, 2014 is likely to see a sustainable budget deficit, which means that the growth in GDP is likely to exceed the growth of the deficit.  That budget includes some sizable reductions in money for the military, as determined by the sequester cuts.  But even with these huge cuts, Defense Secretary Chuck  Hagel said at a Pentagon news conference,  “This strategic choice would result in a force that would be technologically dominant but would be much smaller and able to go fewer places and do fewer things, especially if crises occurred at the same time in different regions of the world”.   That doesn’t sound like a risk to me.  We have no business trying to be the policeman for the world.

As I have stated before, some on-going problems like Medicare spending have obvious solutions.  We only have to look to countries that spend less on healthcare than we do but get similar or better outcomes.  We will eventually follow their paths, but not before we repeatedly get slapped in the head with our wasted medical procedure costs.

Social Security retirement needs relatively minor fixes, probably through some combination of delayed retirement, increased taxes, and/or changing the formula on how inflation is calculated for retirement benefit adjustments.

 MONITORING MY THREE STOCK PICKS

I assume that someone bought an equal dollar amount of stock of each of these companies at their closing prices on June 14, 2013.  I compare their average performance to the S&P 500 (SPY).  The three companies and SPY closing share prices are as follows:

CLR    6/14/2013  $86.31      8/10/2013  $95.77      

OAS    6/14/2013  $41.37       8/10/2013  $40.90

WLL     6/14/2013  $48.07       8/10/2013  $51.01

Average Gain = 6.07%

SPY     6/14/2013   $162.32    8/10/2013  $169.31     Gain = 4.30%

So, someone would have gained 41% more with my stock picks over the S&P 500.

Note for transparency: I own a small amount of all three stocks.  As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information.  Intelligent people can, and do, disagree.

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37 Responses to “Mid-Aug 2013 Blog Update of THE GREAT DEPRESSION of DEBT”

  1. goshdig Says:

    Hi Warren,
    Thank you so much for giving us an intelligent, independent opinion over these last tumultuous years. I have absorbed your continuing lesson to rely on statistics and not personal opinions.
    I wish you the best in your next endevours and hope it will include more books.

    • marcello Says:

      Hello Warren,
      Thank you for everything. I remember when we all shared on how to survive the turmoil. After the worst padded, the blog changed. People vented their frustration and in a way, it was cathartic. We lived through it, and you and this blog helped. People complaints were based on the fact we were OK. We were alive and financially fine (mostly). You had a part in this benefit. You should rest.
      Facts and numbers are important. I learned a lot. I also hope you learned, you cannot compute for every angle. People have a psyche and it can usurp the best reasoning, both good and I’ll. I shall miss this blog and your insights, but I feel enriched in the experience.
      Thank you,
      Marcello.

  2. Linda Says:

    I will truly miss reading your updates. All the best to you and your family. Keep following your dreams!

  3. Curtis Says:

    Hello Warren: Thank you for your updates over the years (even when you were blogging on Amazon). I hope you finally get to spend more time painting like you wanted to do.

    Note: I did buy your latest Statistics for 6 Sigma Made Easy book.

    • wbrussee Says:

      Curtis, and to others who have wished me well

      I am very lucky in that I have the time, the health, and the interests to pursue many things. Right now I am spending the most time with our two certified pet therapy dogs, especially my 125 pound Newfoundland “Josh.”

      I have had some very rewarding times taking him to the children’s hospital. For example, there is an eight-year-old girl that perhaps has spent half her life in the hospital. She loves Josh. She was going home several weeks ago, and Josh and I wished her well. The night before I visited the hospital last week, however, she was life-flighted by helicopter back to the hospital. I didn’t expect to see her, but she overruled her doctors and insisted on seeing Josh, even though she was exhausted by her ordeal. We can’t go in her room because it has positive pressure, but she comes to the door pulling her IV cart and Josh and I sit on the hallway floor. She picks up one of Josh’s huge paws and holds it while she tells us how exciting the helicopter ride was! Brave little girl.

      I am just finishing a Chapter book for young adults titled “Angelica and Anti-Gravity Particles.” And a New York company that makes retired executives available for companies has asked me to become a Senior Advisor. I am not especially looking for work, but it would be fun to do every once in a while. And they seem willing to make it very worth my while.

      And yes, I still do art. I am entering a portrait of one of my granddaughters into the Columbia State Fair this fall. Interestingly, the prize money is one of the highest of any art show in the country.

      So life is good!

  4. Laura Says:

    Warren your blogs, stats and insight have been a constant read for me. Your “Great Depression…” book saved me many dollars. I appreciate you and wish you and your family great happiness in the years ahead!

  5. Bill Says:

    http://www.zerohedge.com/contributed/2013-09-06/fed-has-wasted-trillions-and-us-remains-depression

  6. theeconomicfractalist Says:

    The Great Depression of Debt … Continues …. Part 2

    The difference between the equity collapse of 11 October 2007 to 6 March 2009 and for the SPX’s 2 August 2013 high to the low for 2013 will be the unexpected (for most) degree of valuation nonlinearity.

    Financial Industry new leverage tools,e.g. CDO’s and tranches, and defacto collaborative mortgage fraud on multiple levels, were used to create the great real estate bubble of 2008 and resulting overvalued toxic waste absorbed on the ledgers of the working tax payers.

    This time it will be worse. There will be no 3 day authorization of a 850 billion dollar bailout for the financial industry, who has been readying itself for this debt default. This time the debt default will be non sovereign municipal and state and PIGGS equivalent debt. Most of the holders of this debt are private citizens and pension funds.

    With the secondary derivative market making bets, a lot of debt assets and derivative assets with undergo default and reduce the global system one quadrillion dollar valuation worth in a nonlinear fashion …

    With the current mix in Congress, if there is a bail out, it will likely be both prolonged and for only 10-30 cents on the dollar, leaving the real economy less money equivalents for working private citizen debt leverage and transaction.

    The collapse of US and global equities will surprise many who have used Americans purchasing replacement vehicles for their ancient 11 and 1/2 year old on-average vehicles, mostly on credit, as a litmus test for the economy. Having a reliable vehicle to work to service debt is a deterministic necessity and the associated added debt to the working classes’ ledger doesn’t represent robustness of an economy.

    Central banks will once again step in to guarantee sovereign related jobs and federal entitlement programs – although likely a red line will be drawn and created by elements of congress pitting those who have worked for their entitlements – against those who have not distracting attention from trans generational uber .05% wealthy

    In reality as has been demonstrated by QE1-3 the US government has an infinite amount of credit at its disposal to mitigate a severe depression.

  7. Gary-in-TX Says:

    Hi Warren,

    Well, I missed this column initially because I was retired and was moving from Virginia to Texas. Today I finally had time to update myself, and found that you were retiring from doing this blog. I wish you the very, very best.

    Your blog has been wonderful. You also helped this econ. minor turn out a letter on the recent crash several years ago.

    As for the political situation, we seemed to have entered a period of selfishness. ObamaCare is to be destroyed because it is an expansion of the government (in an effort to help those who cannot afford medical insurance because of the growing income inequality). The Republicans don’t offer, or want to offer, an alternative. Compassion in American seems to be on life-support. Too many of the rich and powerful are now focused on what is best for themselves.

    But all situations are opportunities for growth. We are supposedly a Christian nation that now has less interest in helping our neighbor. We will have to try this approach for a while, and see if our own quality of life is improved.

    In any case, thank you so very much for sharing your thoughts and feelings. May we, the readers of your blog, do likewise.

    Gary-in-TX (instead of VA)

  8. Albert Says:

    Warren,

    If you are still reading this blog. Would you reconsider coming out of retirement and provide us with your insight in the current events that seems to be leading us to a stock market crash in the near future? What is your opinion of the recent slow economic slow down and tapering? Things are getting interesting and I think everyone is checking on this board hoping that you eventually come back. Do you still think we avoided a depression?

    Albert

  9. wbrussee Says:

    Albert,

    I don’t read the blog, but when someone comments, like you did, I get a copy. I don’t plan to “come out of retirement;” I am having too much fun, especially with my beautiful 125 pound Newfoundland who is a Certified Pet Therapy Dog. I visit children’s hospitals and do Read-to-the-Dog programs at several libraries. But I will give you several short answers to your questions.

    I don’t see a market crash coming. There may be some minor setbacks, but I believe that our economy will continue to grow slowly but consistently, carrying the market with it. The tapering by the Fed was expected and is healthy.

    My prior observation that the US is becoming self-sufficient on energy is still valid, and it is happening even faster than I predicted. This is a huge deal for the US. In the President’s State of the Union speech he made several references (that seemed to go unnoticed) about the US pulling back from being on a war footing. This is largely enabled by our no longer needing much Mid-East oil. This savings in our war readiness can go to help grow our economy, as will the money we are no longer sending to the Middle East for Oil.

    A more difficult problem is reducing the financial differences between the haves and have-nots in this country. If the Reps lose the House in this fall’s elections, this will happen because the Dem’s will increase the minimum wage and make changes to the tax codes, bringing them back more to what they were perhaps thirty years ago. Will the Reps lose the House? Maybe. A few months ago, this seemed unlikely. But with the anger the government shutdown caused, and the increased popularity I expect the President to get as Obamacare gets to be an accepted part of our environment, the Dems may take control of both Houses.

    Note! If the Dems get control, inflation will likely start to rise. And TIPS will again be a good investment.

    Warren

  10. Albert Says:

    Warren,

    Thanks for the reply. You had written in your original book that the American consumer is drowning in debt and that would be one of the main reasons that we would enter into a depression. How has that changed for the majority of American where income inequalities is getting worse. Has the savings rate increased? In addition, do you think the industrial military complex will really allow Obama to pull out of wars? After the last couple of weeks of the market dropping 5% and the problems abroad with currency crisis in Turkey and Argentina, a slow down in China and most of Europe entering into a depression. Do you think American can be immune from this contagion and continue to grow economically? The next few months will be really interesting to see if the U.S. stock market can shake off the bad foreign news…..Maybe investors in other country are diverting their funds to the U.S. as the only safe haven.

    Thanks for your insight.

    Albert

    • wbrussee Says:

      Although individual consumer debt versus incomes has been level since 2002, bankruptcies are down as are credit card delinquencies. And, perhaps most importantly, 1.7 fewer homes are underwater on their mortgages, due to both people losing their homes and homes going up in value.

      As for fixing the growing inequality issue, as I said in my earlier response, watch the next election. If Dems get both houses, revised tax structures and a higher minimum wage will start to reverse this inequality.

      As for a “slow-down” in China, it is just a more reasonable growth rather than a slowdown. And yes, the US can grow despite slowdowns elsewhere if we bring manufacturing back, which we are likely to do given the self-sufficient energy future for the US. Incidentally, the US sources of energy will be much cleaner than in the past – they will trend more and more to wind and solar backed by natural gas, with fewer coal plants. And MPG of cars will go up substantially and more trucks will go to natural gas.

      The future for the US looks the best it has for 20 years. Bernanke and friends successfully stopped the US from going into a depression. Their ability to do this without causing rampant inflation has amazed me.

  11. Albert Says:

    Warren

    I found this article in the link below about the latest revision of the ISM. What is your opinion about this. Does the writer know what he is talking about regarding 6 sigma? Is the ISM revisions and miss really a disaster?

    http://www.zerohedge.com/news/2014-02-03/ism-plunges-biggest-miss-record

  12. wbrussee Says:

    • The author said that “the data came in at a 6-sigma miss to “economist” expectations.” Well, what does that mean? In general, most economists are looking at the same data to make their forecasts, and I presume that none of them were weathermen that could predict the bad weather. Even though the article said that “ISM’S HOLCOMB SAYS WEATHER DOESN’T ACCOUNT FOR ENTIRE SLOWDOWN,” what part DOES it account for? Probably enough that it no longer would miss by six-sigma, even if that were a valid analysis method for this data, which I doubt.
    • For example, did the author look at past data in the same way to see if the economists in the past also missed their predictions by an amount that can be shown to exceed six-sigma? My guess is that they have, and quite often. Because any large unpredictable change, such as a hurricane, wide-spread power outage, outbreak of war, etc. would cause economists’ predictions to be way off. All of them!

    Few economic reports can’t be read with some negative viewpoint. But here is the overview from the people that actually put out the ISM (http://www.ism.ws/ismreport/mfgrob.cfm):

    New Orders, Production and Employment Growing
    Inventories Contracting
    Supplier Deliveries Slowing

    Economic activity in the manufacturing sector expanded in January for the eighth consecutive month, and the overall economy grew for the 56th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

  13. Bill Says:

    “Bernanke and friends successfully stopped the US from going into a depression. Their ability to do this without causing rampant inflation has amazed me.” Hmm, yes quite mysterious. I don’t suppose the plummeting labor participation rate had anything to do with it.

  14. wbrussee Says:

    Bill says: “Bernanke and friends successfully stopped the US from going into a depression. Their ability to do this without causing rampant inflation has amazed me.” …I don’t suppose the plummeting labor participation rate had anything to do with it.

    The dropping participation rate was certainly one of the severe adjustments happening in the economy during this period that helped keep inflation down. Labor was not in a position to fight for higher wages. But, ignoring momentarily the pain inflicted on those directly affected, could this be a healthy labor adjustment in the long run? Between 1948 and 1972, the US labor participation rate was a very stable 59%. It then shot up to 67% in 1998 when our economy was arguably overheated. The participation rate is now down to 63%, the same as it was in 1978 and half way back to where it was in 1948 – 1972. Obviously, if the participation rate keeps dropping, we have huge problems. Instead, I would hope that this untapped available workforce will be utilized as the economy now grows related to the coming US energy independence.

    The challenge will be the required skills of the labor force to support the coming explosion of industry. Manufacturing that returns to the US will be far more automated, requiring much different skills than needed when our labor participation rate was 67%. Remember, in those days we had secretaries and manual assembly workers. Now we will need programmers and people who can design/maintain sophisticated robots. Technical school training working directly with industry can help fill some of this need. We don’t need a country filled with degreed engineers to support this new industry. This will enable our labor participation rate to stabilize and perhaps even grow.

  15. Albert Says:

    Warren,

    What is your opinion regarding the recent down turn in the stock market? The bio tech sector and the goverment questioning the cost of expensive life saving drugs has seem to trigger selling not seen since the early 1990’s during the bio tech bubble at that time. In addition, the momentum stocks have crashed in the last few days. It seems like the investment community is starting to worry about government intervention, stock valuation and crack down on high frequency trading. Could this be the trigger for a stock market crash?

    Albert

  16. wbrussee Says:

    I have no idea what the market may do over the next several months. But I don’t think that there will be a crash. What I look at is the market several years from now, and I am very upbeat.

    I still believe is that we are at the beginning of a great growth period for the US, triggered by energy independence mainly led by improvement in vehicle MPG. Also contributing is the energy growth within the US, including fracking, solar, and wind.

    Companies like TESLA are pushing disruptive technologies that may very well jump us ahead ten years on the normally expected movement towards clean energy. The batteries that Tesla plans to make at their Mega plant will reduce battery costs such that we may very well pass the threshold cost of energy storage such that solar and wind become the most economical energy sources.

    Within three years, many of the cars sold in the US will be pure electric, like Tesla with 200 or 300 mile ranges, or like the Chevy Volt with perhaps 50 mile electric range but unlimited gas-driven backup. These will further drive down fleet average MPG. Buses can easily use Tesla batteries, with either 2 minute battery change or 20 minute recharge. New factories and new homes will be energy independent, and many items now made overseas will come back to the US with robotic manufacturing powered by the factories’ own solar power.

    The greatest risk to the US is that we continue to enable the wealthiest 1% to garner all the wealth. This can be remedied by a return to the tax structure we had perhaps thirty years ago. Whether we do that seems to be based on what happens in the next few elections.

  17. Albert Says:

    Thanks for the response. Are you fully invested in the stock market currently?

    I cannot see any politician increasing taxes for the rich since they are all bought and paid for by the rich. Therefore, it doesn’t matter who wins the next few elections. The rich will continue to get richer

    I doubt poor or middle class are educated enough to know what to protest about. As long as the poor receive just enough welfare and food stamps they won’t protest.

    Therefore, the status quo of slow growth, low interest rates, low dividend and capital gains taxation, allowing multinational corporation doing business here to get away from U.S. taxation….government money printing will keep Wall Street happy.

    Warren Buffett and his billionaire friends received tax payers bailouts, avoided large losses due to influencing politician to change accounting rules….how can we expect tax rates to ever return to what it was 30 years ago.

  18. Bill Says:

    If the economy in 2008 could not handle gas prices at these levels, why would it handle them now?

    • wbrussee Says:

      Bill,

      At the high in 2014, gas was 20% higher than now. Add in the 10% inflation since 2008, it was about 30% higher.

      At the same time, sales averaged MPG has gone up 20%. So the effect of gas prices on the average individual is far less now than in 2008.

      Warren

  19. Bill Says:

    http://finance.yahoo.com/echarts?s=UGA+Interactive#symbol=UGA;range=my

  20. Albert Says:

    Do you think the current U.S. stock market correction will continue? Has the world economy started a downward spiral due to the current world conflicts and the threat of potential spread of Ebola? Why do you think the oil company stocks have taken such a beating in recent weeks?

    • wbrussee Says:

      Albert,

      Yes, I believe that the world economy is in a downward spiral, due to political unrest, Ebola, concerns on global warming, etc. However, the U.S. is likely to come through this relatively unscathed versus most economies because the U.S. is now largely energy independent and manufacturing is returning. But we are not immune to what is happening in the rest of the world, so any recovery will be slow. And, the stock market may drop for a while.

      But there are some bright sides coming for the U.S. I believe that we are on the cusp of a real breakthrough in converting to a clean energy environment. Tesla is showing that electric vehicles do not have to be like golf carts. They can be spirited and beautiful. Right now, they are priced for the wealthy. But the engineering is being done on the profits made on these expensive cars, and once the engineering is done, Tesla will be able to manufacture a car for the masses (or at least for those with above average incomes). And, as battery prices come down, electric cars will truly become generally available. (Note, I own some Tesla stock, so I am likely biased.) These cars will go in excess of 300 miles on a charge and will be able to charge at charging stations throughout the U.S in twenty minutes or less. And a growing amount of the energy used in charging these vehicles will come from solar and wind.

      But independent of Tesla is the work being done using graphene. I believe that this will be the miracle material of the next decade, improving efficiencies of batteries, solar collectors, computers, medical applications, etc. If you are not familiar with the potential of this material, do some Google searches. You will be amazed! I own no graphene stock.

      Auto pilot cars are on the way. We will see them within three years from all high-end car makers. This will enable drivers to travel freeways hands-free. Completely automatic cars will probably come five years later. There is little risk of this happening since so many car makers (along with Google) are already experimenting with these cars. And this will open a whole new market for new automobiles, with people wanting to move up to this technology. If you look at the number of people killed and injured in car accidents in a year, this has potential for huge savings for our society.

      So, in five years the U.S. will see growing numbers of electric cars, solar powered grids and homes, a dramatic drop in U.S. contributions to global warming, the beginnings of a reduction in automobile deaths, etc.

      Okay, here is my worry, as it has been for years. It is the continuing problem with the wealth/income distribution. You cannot continue to have all the economic gains go to the wealthy few. For people to buy the new electric cars, solar panels, products made by U.S. manufacturers, etc. the economic gains have to be distributed more broadly. Again, for those of you wanting to label me as a socialist, communist, or any other “ist,” I only want the wealthy and corporations to contribute the same proportion of their income to taxes as they did fifty or sixty years ago. If I remember, there were still wealthy people and corporations then, just not to such a ridiculous level!

  21. Albert Says:

    Warren,

    What is your opinion regarding Jim Rickards prediction of a 25 year depression and a stock market collapse starting in the middle of 2015? Is he just fear mongering or do you think he may be right?

    • wbrussee Says:

      Just silliness! Yes, the stock market may drop somewhat because it is quite high priced. And Europe may be in for an extended slowdown. But nothing indicates that the world is heading to the disaster predicted.

      Actually, the US is doing quite well, partly due to dropping oil prices, an abundance of natural gas, and automation which are making bringing manufacturing back to the US very attractive. Although we would be even better off if there was a better distribution of wealth, the middle class seems to be adjusting somewhat to its current static income status. They are doing this by kids staying at home after college, people delaying retirement, working part time when full time jobs aren’t available, and various cost savings. Lower gas prices certainly helps!

      As evidenced in the recent OPEC meeting, we have essentially neutralized the power of OPEC through our own energy development and by using less energy. People are driving less, and when they do drive, it is in more efficient vehicles. And continuing energy efficiency gains in autos are just starting to have an effect.

      Most recent predictions are that the US will be a net exporter of natural gas in two years and be energy independent by 2020. This is huge! Solar and wind continue to make slow gains, and these will take off once we have economic battery storage. The Tesla mega battery factory is projected to cut battery costs by 30%. Combine that with the historical 7% annual gain in battery efficiency and it won’t be many years before battery energy storage becomes cost competitive with more polluting energy sources. By the time the more economical/efficient batteries become available, I suspect that additional data will support the dangers of climate change, convincing even some of the nay-sayers and further supporting solar/wind.

      Politically the world is a mess due to terrorists groups. But the direct involvement of American troops is continuing to drop and is likely to continue at this lower level under President Obama. The data supports that he is being successful in getting the surrounding countries more involved in policing their own backyards. The US supporting groups that are fighting the worst terrorists with arms is expensive, but it does create jobs and is not as devastating to our country as committing large number of troops on the ground. I am sure that this comment will trigger controversy, but the data does support these statements.

  22. Fetal Says:

    Still feel the same about the US becoming energy independent?

  23. Fetal Says:

    http://www.economic-undertow.com

  24. Albert Says:

    Warren,

    With the big drop in the stock prices of the shale oil producers. In your opinion, do you think it’s a good idea to buy stock in these companies now or will alot of them be out of business in a few years?

    Albert

  25. wbrussee Says:

    I owned stock in several of these companies (WILL and CLR) but sold them just before the drop in oil prices. I no longer own any of these, nor do I have plans on buying back in the near future. I just don’t know how long low oil prices will go on, and many of these companies will not do well at current oil prices.

    I do own stock in Tesla, but I don’t believe that their sales are much influenced by oil prices. They make high performance luxury cars that happen to not use gas.

  26. Albert Says:

    Warren,

    Do you think todays black swan event in Europe…the Swiss franc disaster for the hedge funds and currency traders is proving that central bankers are in trouble? That all the financial market manipulation and quantitive easing is finally causing the markets to crack or crash? With the recent plunge in U.S retail sales over the holidays and crashing oil prices. It seems that U.S growth has stopped and increased job layoffs in the oil fields of Texas and South Dakota will increase. Do you think the U.S. could be heading toward a recession or worse? Does your analysis of the data show this is where we are headed?

  27. wbrussee Says:

    Europe and the US are currently in different financial situations. Our central bank has been more proactive than central bankers in many other countries. Yes, their issues will affect the US, but not in a disastrous way. The reason is that the US is heading into a positive economic period.

    The lower gas prices, which are likely to stay, give an equivalent of 1 ½ % to 2% after-tax raise ($750 per year per the latest government estimates) to the median income household. This at least helps in that real wages are not rising for most wage earners. Sure, there will be more layoffs in the fracked oil fields, but that effect will be far less than the extra gas savings that will be immediately spent and help our economy.

    By the way, the lower gas prices will stay quite a while because, despite some articles, many existing fracked wells can make money at current oil prices. It is just that new well drilling will go down. However, once prices go up at all, the new well drilling will come back. This puts a damper on oil prices going back anywhere near where they were a year ago. Also, the slowdown in the rest of the world is likely to continue, keeping oil demand low. And the new cars are replacing cars that got far worse gas mileage.

    But the US will be undergoing a second industrial revolution. The manufacturing coming back will require far less direct labor than when manufacturing left this country. However, the support of this renewed manufacturing will still require labor. Robots require programming and maintenance. Restrooms must be cleaned. Roads must be built to the plants and garbage must be picked up. Restaurants will open. But, as has been the case, to really get a robust recovery, more of the profits have to go to the workers. That is unlikely to happen with the Republicans in control. So the US economic recovery will be slow. But I do not see a recession for the US. The stock market may continue to drop, but that is reflective of its being overpriced.

  28. Gary T Says:

    Hi Warren,

    As Trump begins to close in on the Republican nomination, it is amazing how close you were to what is happening in the United States. Robert Reich, in his books, seems to see into this future, too.

    Keep writing… You offer an amazing understanding of our world here in the United States.

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