Showing posts with label Storm. Show all posts
Showing posts with label Storm. Show all posts

Tuesday, 15 March 2011

The Perfect Storm Six Trends Converging on Collapse

There are dark clouds gathering on the horizon. They are the clouds of six hugely troubling global trends, climate change being just one of the six. Individually, each of these trends is a potential civilization buster. Collectively, they are converging to form the perfect storm—a storm of such magnitude that it will dwarf anything that mankind has ever seen. If we are unsuccessful in our attempts to calm this storm, without a doubt it will destroy life as we know it on Planet Earth!

There is a popular saying that “the definition of insanity is doing the same thing over and over again, and expecting a different result.” If we keep doing business in the same way as we have for the past century, each of these six trends will continue their steep rates of decline, collapsing the natural systems that form the foundation for our civilization and the lifeblood of the global economy. Perhaps the current Gulf oil spill is the wake up call that mankind needs to snap us out of our complacency, realize that we are soiling our nest and that continuation of “business as usual” will destroy the world as we know it? Time will tell whether we heed this warning, go back sleep once the oil spill is contained, or simply tire of the endless media coverage, numb ourselves, and set these critical issues to the side.

We already have the technology and the means to turn this dark tide, but we lack the commitment to make the hard choices and sweeping changes that are necessary for shifting the future of our world from its current course of collapse to a new course of sustainability.

The following six trends are converging to form the perfect storm for global destruction, each of which is a potential civilization buster in its own right, if left unchecked:

1. Climate Change: with a 90% degree of certainty, the world’s top scientists believe that our planet’s climate is changing at an accelerating pace, that these changes are caused by man, and will have increasingly severe consequences for our world. Naysayers stress the 10% scientific probability that man is not the cause of current climate changes, but would you board a plane if you were told it had a 9 out of 10 chance of crashing? It is a rare person over the age of thirty who will tell you that the weather is not quite different now from when they were a child. Certainly far more erratic, though not necessarily always hotter.

Recent estimates by a collaborative team of climate scientists, including a group from MIT, calculate that even if we implemented the most stringent greenhouse gas limits currently proposed by some of the world’s governments, it is quite likely that our world’s climate will warm by 6.3F or more over the next century, leading to disastrous crop failures in most of the world’s productive farmlands and “breadbaskets”.

2. Peak Oil: Our global economy and culture are built largely upon a reliance on cheap oil. From the cars we drive, to the jets we fly, to the buildings we live in, to the food we eat, to the clothes we wear—almost everything that encompasses the fabric of our modern life is either powered by oil, built from oil, or made/grown via machines powered by oil. When the price of oil rose to $140 a barrel in 2008, the world’s economy went into a tailspin—collapsing local economies, reducing consumption, and bringing the price of oil back down to a fraction of what it had been just a few months earlier. Global output of traditional crude oil peaked around 2005-2006 and is currently declining. Expensive alternate oil and oil-equivalent sources, like tar sands, deep ocean oil wells, and bio fuels have taken up the slack for the time being, but these are limited resources and their utilization is not growing as quickly as anticipated to fill in the gap caused by the shrinking output from the world’s mature oil fields. In 2008 the International Energy Agency (IEA) estimated that decline at a rate of the world’s mature oil fields at  9.1% annually, with a drop to “only” 6.4% if huge capital investments are made to implement “Enhanced Oil Recovery” technologies on a massive scale.

Without developing energy alternatives at warp speed, or discovering and developing an entire Saudi Arabia’s worth of oil every few years from now until eternity (an impossible fantasy), our world will be in a heap of trouble if and when the economy starts to pop back and supply once again falls short of demand, resulting in more oil price spikes followed by another round of crashes. In the mid 1960s, when discoveries of new oil reserves reached their historical peak, we were discovering oil at a rate four times faster than we were consuming it. In recent years, the tables have turned. With technology that is miles beyond what was available in 1960, we are discovering about 1/10th as much oil each year as we did then, but consuming it at a rate five times faster than we discover it. That’s like charging $100,000 dollars on our credit cards each year, and only paying off $20,000. How long can we keep that up before we bankrupt the system? For years, governments have been official naysayers about the “Peak Oil theory”. However, in April the US military issued a report saying, “By 2012 surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach 10 million barrels per day.”

3. Collapse of the World’s Oceans: with 11 out of 15 of the world’s major fisheries either in collapse, or in danger of collapse, our world’s oceans are in serious trouble! The ocean’s planktons form the bottom of both the food chain and the bulk of the carbon-oxygen cycle for our planet. According to a recent British government report, the oceans have lost 73% of their zooplankton since 1960, and over 50% of this decline has been since 1990, and the phytoplanktons are also in serious decline! Unfortunately, the coral reefs aren’t doing much better than the planktons. By 2004, an estimated 20 percent of the world’s coral reefs had been destroyed (up from just 11 percent in 2000), an additional 24 percent were close to collapsing, and another 26 percent were under long-term threat of collapse.

4. Deforestation: Over 50% of the world’s forests have already disappeared, and much of the rest is in threatened. Deforestation contributes approximately 25% of all global greenhouse gasses, nearly double the 14% that transportation and industry sectors each contribute. Additionally, the forests of the world are a critical part of the weather cycle as well as the carbon-oxygen cycle. Each large mature tree acts as a giant water pump, recycling millions of gallons of water back into the atmosphere via evaporation from its leaves or needles. It has been estimated that a single large rainforest or coniferous tree has an evaporative surface area roughly equal to a 40 acre lake. When the trees are decimated in a region, a process called “desertification” tends to occur downwind because the trees are no longer there to pump groundwater back into the atmosphere to fall back to Earth as additional  rainfall at some down wind location.

5. The Global Food Crisis: Soils, Weather and Water. For the first time since the “green revolution” started, our world is producing less food each year, yet its population continues to rise as we loose more top soil, arable land, and have less water for irrigation. Climate change is currently contributing more to losses than technology is to gains. In 2008 and 2009, food riots threatened the stability of many governments. In 2010 extended droughts in the breadbaskets of both China and India are threatening the food supply for over 1/3 of the world’s population!

6. Over Population: This is the elephant in the room that few are talking about. In the last decade, we have added more people to the population of our planet than were added between the births of Jesus and Abraham Lincoln.  In the mid 1980s our world first overshot its capacity to provide for its human population, yet this population continues to grow and we continue to live on borrowed time. One thousand years after Jesus walked the Earth, human population was around ½ billion. Eight hundred years later this population doubled to 1 billion. It took only 130 more years to double to 2 billion in 1930. When I was a kid in 1960, world population hit 3 billion people and it only took another 40 years to double to 6 billion in the year 2000.

It is anticipated that the world’s population will reach 7 billion in the year 2012, meaning that between the start of the year 2000 and the end of 2012 (barring some huge catastrophe that kills hundreds of millions), more people will have been added to the population of our world than lived on the entire planet just two hundred years ago!  There is simply no way we can achieve a sustainable future unless our population stops growing and starts shrinking. Either nature will do this for us, with starvation and plagues spreading across the planet as our natural and man-made systems fall apart, or mankind will use its intelligence and free will to proactively implement positive solutions to these issues.

My intention is not just to bum you out, but to do my part in sounding the alarm for a massive wake up call to start taking the sort of  wide ranging actions that will be required in order to succeed in changing the course of our “Titanic” (planet Earth) to dodge the iceberg of global collapse. Averting collapse will not be easy, but it is far better that the alternative! Highly motivated societies have shown that they are able to marshal huge forces to accomplish great things. When Hitler joined forces with Mussolini and Japan, the threat was great enough to unite the Russians and Americans with the rest of the world in a common goal. If we could put humans on the moon, build the Panama Canal, defeat Hitler, and rebuild Europe after WWII, why can’t we unite to create a viable planetary civilization? So far, we lack not the means, but only the will and the leadership. In general, people lead and governments follow. It took massive action on the part of millions of people in the  abolitionist movement to finally put a candidate in power (Lincoln) who was willing to do something about it, and for the suffrage movement to finally force governments to grant women the right to vote.  Though none of us will individually alter the course of the universe, collectively we can do this! Just as the German people were asked how they could have allowed the Holocaust to take place before their very eyes, do we wish to be held accountable by future generations for allowing the approaching “Perfect Storm” to devastate our world while we had the knowledge and technology to change its course?

http://www.matstein.com/blog/this-is-a-test/

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Tuesday, 8 March 2011

Moody’s Very Late, But Nevertheless Quite Appropriate Greek Downgrade Inches Us Closer To the Rate Volatility Storm

For the past two years, and particularly over the last couple of months,  I have been harping on the coming interest rate volatility storm. Things are now moving in lockstep, precisely as I have forecast. In the news this morning from the mainstream media…

Moody’s Downgrades Greek Sovereign Debt by 3 Notches:

Moody’s rating agency downgraded Greece’s sovereign debt on Monday from B1 to Ba1 and assigned it a negative outlook, citing significant risks to its fiscal restructuring program.

Moody’s now has the lowest rating for Greece of all the major credit agencies and is the first to classify Greek government debt as ‘highly speculative’.

“The fiscal consolidation measures and structural reforms that are needed to stabilize the country’s debt metrics remain very ambitious and are subject to significant implementation risks,” Moody’s said in a statement. It added that it saw risks that conditions attached to continuing financial aid after 2013 will reflect solvency criteria that the country may not satisfy, and result in a restructuring of existing debt.

“At a time when the global economy is fragile and market sentiment is sensitive, unbalanced and unjustified rating decisions such as Moody’s today can initiate damaging self-fulfilling prophecies and certainly strengthen the arguments for tighter regulation of the rating agencies themselves,” it said.

So, the Greek officials threaten to “regulate” those who FINALLY come out with the truth. Did you guys ever see that movie called the “Adjustment Bureau”?





The Greek government wants the truth “Adjusted”, and will even go so far as to do it themselves – see the Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! excerpt below.

In addition, Moody’s is soooooo late to the party. As illustrated in explicit detail nearly a year ago, this event is practically a foregone conclusion. See What is the Most Likely Scenario in the Greek Debt Fiasco? Restructuring Via Extension of Maturity Dates and look as Greece’s situation before and after any restructuring after 2013 (Professional and Institutional level subscribers (click here to upgrade) may access the live spreadsheet behind the document by clicking here (scroll down after for full summary, spreadsheet and charts).

image017

… and that is with their “pie in the sky” estimates, as clearly pointed out in Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

…try taking a look at what the govenment of Greece has done with these fairy tale forecasts, as excerpted from the blog post Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!

greek_debt_forecast.png

Think about it! With a .5% revisions, the EC was still 3 full points to the optimistic side on GDP, that puts the possibility of Greek  government forecasts, which are much more optimistic than both the EU and the slightly more stringent but still mostly erroneous IMF numbers, being anywhere near realistic somewhere between zero and no way in hell (tartarus, hades, purgatory…).

Now, if the Greek government’s macroeconomic assumptions are overstated when compared with EU estimates, and the EU estimates are overstated when compared to the IMF estimates, and the IMF estimates are overstated when compared to reality…. Just who the hell can you trust these days??? Never fear, Reggie’s here. Download our “unbiased, non-captured, empirically driven” forecast of the REAL Greek economy – (subscribers only,click here to subscribeGreece Public Finances Projections Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb.

The Greek Restructuring and Haircut Analysis that linked to above goes into explicit detail, showing the NPV of cashflows to investors after a a wide scenario analysis of prospective default and restructuring scenarios. It ain’t pretty!

greek debt restructuring spreadsheet

We have performed similar analysis for the usual suspects: Portugal, Spain, Italy and Ireland. Portugal is currently at record high funding rates – and that’s AFTER the bailout!

This is Portugal’s path as of today.

Even if we add in EU/IMF emergency funding, the inevitability of restructuring is not altered. As a matter of fact, the scenario gets worse because the debt is piled on.

Let it be known that there are larger sovereign states that are worse off. Ireland is a prime example. If one were to look at the cumulated funding requirement of Ireland over the next 15 years as clearly illustrated in Ireland’s Bailout Is Finalized, The Indebted Gets More Debt As A Solution But The Fine Print Is Glossed Over – Caveat Emptor! Monday, November 29th, 2010

There are other states that are not in as bad a shape but are poised to do much more damage,  and then there are a plethora of states that will get dragged down through contagion. Yet, the natural manner of pricing risk in the equity markets does not transmit these facts because of the unprecedented amount of liquidity stemming from central bankers around the world doing the Bernanke/Japanse QE thing.

Keep in mind that the German’s game plan is to kick this down the road till 2013, at which point it will be unsustainable butthe mechanisms will be in place to force bondholders to take haircuts in front of the tax payers…

Sounds like a plan, doesn’t it? Except for the high probability that you will probably have a rate storm well before 2013. If rate volatility and/or levels spike for the more developed nations before then, all hell breaks loose. In the US, we’re damn near zero now. Hey, what happens to residential and commercial real estate valuations when rates spike higher? See  The Coming Interest Rate Volatility, Sovereign Contagion, Geo-political Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global Real Estate Through This Mess.

Now, let’s return to the post “The ECB Loads Up On Increasingly Devalued Portuguese Bonds, Ensuring That They Will Get Hit Hard When Portugal Defaults“. All readers should open this link in a new window, scroll down to the spreadsheet at the bottom of the post, and reference the first column with the cell labeled “Decline in present value of cash flow for creditors” under the label “Haircut in the principal amount”. Now, scroll over the to the column labeled “Restructuring by Maturity Extension & Coupon Reduction w/Haircut”, which is the second to last column in blue highlight and carefully read the figure for the “Decline in present value of cash flow for creditors”. Booyah! And that’s the unlevered losses. 5x leverage wipes you out several times over. It is rumored that the ECB is levered over 90x, just for the sake of discussion. I strongly suggest anyone interested in this space study this spreadsheet very closely. This level of analysis is probably not available anywhere else on the free Web.

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