Have the monkeys blown it?

The anticipation and chronicle of the woes soon to befall humankind. If you don't wish to know about bad things about to happen to you then you probably don't want to be here. Otherwise, I recommend you read any numbered topics, like Peak Oil, in sequence. If you comment I suggest you use a nickname, I'd appreciate you being consistent in what you call yourself.

Sunday, July 02, 2006

A balance of terror

[Ooops, this post was actually posted 21st July, accidentally replacing the previous post that was here that is now gone]

Hezbollah currently are predominantly a terrorist organisation, one of their stated objectives is the eradication of the Israeli state from the Mid East.

Hezbollah was spawned by the invasion of Lebanon by Israel in 1982, their killing of tens of thousands of innocent Lebanese, their near total destruction of much of the Lebanon's infrastructure. That time it was to do a similar job on the PLO in Lebanon. Sounds familiar, doesn't it?

Yes, suicide bombings and missile attacks on civilians are 'terrorism', Hezbollah and Hamas do these terrorist things. They are evil and bad things to do, I want them to stop doing such things.

BUT

Using such terrorism as excuse for wanton military destruction of a country's infrastructure is also terrorism. Such state terrorism by a democratic state (Israel) is even more sickening.

The US supports this terrorism by Israel, it maybe even encourages it. The US has done likewise in Afghanistan and Iraq.

Let me be very clear: both Israel and USA have deliberately chosen excessive military TERRORIST actions. They have attempted to justify their actions as 'reasonable' but anyone who gives it a more than cursory glance with open eyes could see otherwise.

Perhaps worse, the state terrorism of Israel and USA is counter productive. Israel might be gaining a semblance of short term peace and control but at the probable cost of increased desperation by palestinians in future. The USA hopes to secure access to mid east oil reserves but will acheive the withdrawal from global supply of a good portion of those reserves before too long.

Lebanon and even Syria are almost insignificant in this game, the USA and Israel have a bigger prize in mind: Iran. They both see this as the main key to Israeli security and US control of mid east oil. For the world this is a no win situation, if the USA wins then they have the freedom to plunder and squander the oil reserves, if they lose the US and global economy go down the tubes.

Hezbollah is like a gnat, it kills less Israelis in a decade than Israel has killed innocent Lebanese in the last week. Yes, Hezbollah is wrong and doing wrong, but Israel is more wrong and doing more wrong. It will come back to haunt them just as their previous incursion into Lebanon over 20 years ago has. I fear this time a rubicon may have been crossed and Israel might now be irrevocably seen as an intolerable 'cancer' in the region by all arab states and the vast majority of their populations.

Al Qaeda, Hezbollah, just about any other 'terrorist' organisation you can name - these are not the serious terrorists. Those are the powerful states, the ones who can project their military might and meddle in other countries, shape global policies and trade, bully diplomatically, economically, militarily. Take note populations of those states: when 'threatened' they respond with inappropriate and excessive force, and that applies when 'threatened from within' as much as from without.

Saturday, June 17, 2006

Commodity buy time

Things seem to have clarified. The violent moves of a week ago have reached their extent, stabilised, begun to move back. I think that medium term bottoms are in for gold and silver, time to bet on them going up, this may be the last good chance.

Oil and gas are less certain. I expect natural gas to be a more positive trade over the next 6 months but there will be more money to be made on oil if you get the ups and downs right. Oil is about $70 now and really resists temporarily falling more than a $couple below that. I think there is almost no chance of oil (WTIC next month) dropping below $65 before hurricane season end, I expect moments of $85 and if anything untoward happens $95 or more are very likely. Buy oil at $70, chicken out at $65 if nervous, sell on fast peaks to $85 cos TPTB will be against you (there was sign of this at the Katrina peak).

US$ is failing its bounceback around the 86% USDX level. This is ominous. Several people I respect are saying there will be a significant uptrend in $ about now with 90% and 92% in view, it doesn't feel so to me. I think a lot has to go right for $ to hold at or above 85%; breaks to 82%, 80%, 78% beckon IMO. What happens on this is probably most critical in determining the general shape of what happens. TICS data was $ bad this week, will lurk as a nasty smell for a while, if next month TICS is as bad expect a significant $ downturn.

Stocks looked over a precipice, turned round and ran to the nearest Fed beer pub. I can still imagine brief new highs but they would be artificial. If you are going to gamble I would say be prepared for highs of about 11,800 on DJIA and 1325 on S&P500 but bet for the downside and sell HARD if they make those artificial highs ;)

Gold and silver look good up bets now. I think some of the softs do too, I would go for coffee and wheat. Buying oil below $70 (WTIC) looks a good move.

These forecasts are invalidated by a US$ move to 92% of its USDX index, gold to below $525, silver below $8. This is not investment advice, if you listen to me it's your choice / problem / fault. I can't help it if I am wrong, or right ;)

Wednesday, June 14, 2006

That was quick!

When I started writing my previous piece "Wither..." a mere week ago I did not expect things to move quite so fast as they have. Inflation paranoia seems to be in early pandemic mode and causing mild panic effects.

We got the US$ bounce; further gold, metal and some commodity price weakness; significant stock weakness - except in US where the weakness is still mild. Looking at the numbers...

The US$ index is approx 86.5%, 1.2550 vs Euro, 115 vs Yen. Could go a little higher before it must make a choice to bounce maybe 5% higher or drop back by perhaps 5%. As a betting man I would just go for the 5% higher, if only because the consequences of 5% lower now ripple quite scarily.

Gold and metals - no messing about, gold and silver jumped straight to the critical lows (gold to near $560, silver below $10 - almost touched $9.50). If these give way expect a further 10% to 20% fall. If you spot the bottom and invest near it you will profit handsomely, it might have happened today or could be as much as 3 months away (highly unlikely to be longer ahead). Copper is a risky trade, a significant economic slowdown could halve and more its price in weeks but it could equally add 10% in a day or two due to labour dispute or increased chinese growth.

Oil is almost on the sidelines for a change. A relief pull back due to Alberto - first Atlantic storm of the season - having no oil / gas impact, and adjustment due to minor $ bounce, explain the WTIC price drop to about $68.50. It would be below $60 if following the gold and metals pull back.

Stocks. They have gone down significantly - 10% and more from recent peaks - but probably have a long way further down to go. Check out what's happened to stock markets in mid-east and asia, not pretty; US, UK and european markets are actually holding up quite well. On US markets: S&P500 broke through and closed below several important technical levels today, closing at 1223 - it needs to claw back to close above 1235 this week else 1160 and possibly lower will soon be seen. DJIA action was very interesting today, the first time below 10,750 for almost 6 months, closing near the day's low after a 100 point decline in last 30 minutes. There has been that pattern of a late in day sell off into a mid afternoon mini-rally recently, is it traders taking advantage of intervention?

Where now?

Could be things will pause for a while - even weeks ?!! - before choosing, but slight rebounds on stocks and metals are a pre-requisite for that luxury. When events find themselves on the brink of a precipice they either pause, plunge on, or runaway, perhaps that will be decided tomorrow, Wednesday, when the CPI data emoerges.

I expect the next serious moves up for silver and gold to be 50% increases and more from current prices but there could be a further 10% to 20% fall before that. I'm no expert market timer so seek those out for spotting the turn. US Stocks are equally critically poised, if they can't manage a bounce and hold of about 0.5% this week they could lose 5% to 10% and it could happen in less than a handful of days. Oil is more dependent on weather, US demand destruction, Iran nonsense etc. My personal guess is things will get surprisingly boring for the next 1 to 2 weeks, then something will trigger a breakdown in the quiet, whereupon US$ goes down, gold etc go up, stocks go significantly down, all quite fast.

Friday, June 09, 2006

Wither now for the markets?

(These comments were written on 6th to 9th June 2006)

Things feel positioned such that large change could happen fast. The equilibrium is fragile. Geopolitics are mostly behaving for now so I will focus on the US markets.

These have been a bit odd with stocks, commodities, bonds, currencies, moving in somewhat counter-intuitive ways in recent months. One would normally expect gold to go up when the US$ goes down, etc, but such 'normal' relationships have been at best unreliable, at times perverse, lately. I have the feeling that the reliability is creeping back in to those normal market relationships, the next Fed interest rate decision at the end of June will be particularly important in setting the tone. Reality is that the Fed MUST increase rates then - now that the majority expectation is that - to do otherwise would be admission that the US economy is too weak to take it.

US$ - about a month back it rapidly lost around 5% of its (DX) index value and has been in a narrow range between 84% and 85% of that index since. The question here is will it bounce back to perhaps 87% before declining to near 80% or miss the bounce phase.

Gold - has it retraced enough to build its strength for the next bull phase (price increase)? From the recent $720 peak it's back to $620-ish. Pragmatically I'd say: if the US$ bounces then gold has scope for more downside ($600, $560) but if you plan to buy gold for the medium to long term now is probably a good time to commit half your money, it should hit $1400 within 2 years. Silver too, it's below $12 now, it won't get much cheaper, could get much more expensive ($40 to $100). There is scope for a further 10% downside correction in next month or so and 100%+ increase in both gold and silver within a couple of years, buying opportunities (that is, moments of low price) will be limited, this may be the best chance you see.

Oil - currently about $71, declines much below $70 seem unlikely - the current trading range seems to be $70 to $75, moves below $65 would be surprising in the rest of 2006, $85 is more likely since we are now into hurricane season, spikes to $95 or beyond are plausible this year.

Property - has only begun to fall in price, there is much more downside to come. Properties for sale are higher than for more than a decade, many areas have 6 months worth of sales in unsold properties. Prices have barely started to reflect this change in supply / demand, price reductions of 30% and more are probable in recently overheated property areas and markets.

Consumer spend - will contract significantly due to the above two paragraphs. The consequence is that the US economy will contract, quite sharply. This has begun and will accelerate over the next year.

Soft commodities (coffee, cocoa, wheat, corn, soybeans, etc) mostly haven't benefitted from the run up in price of the metals and energy commodities. With the centre of the USA being a mite parched, humans consuming more grains than they are producing, fertiliser and transportation prices climbing, I expect some significant increases in these. Food is going to get more expensive.

GDP - people are going to be very surprised when 2006 Q4 shows negative growth. They'll be a bit surprised when 2006 Q2 comes in at about 3% or less, rather concerned when 2006 Q3 is below 1.5%.

Inflation - is growing more than the market bozos expected, it will grow significantly more over the next 2 to 4 months due to the low rates in 2005 months dropping out of the calcs. Near the bottom right of this page:
http://inflationdata.com/inflation/Inflation_Rate/AnnualInflation.asp
you will see the individual month's data. Inflation over the 4 months so far reported in 2006 is at an annualized rate of over 7%, May and June 2005 had less than zero inflation overall, the inflation picture will be looking significantly worse once the May and June 2006 data is reported. Headline inflation will top 5% for the first time in well over a decade in the next 3 months.

A note on US govt inflation and GDP statistics: there could well be some sudden tweaking of these calculations in the near future. Because of the way the property element of inflation is calculated (using equivalent rent) it has the tendency to understate inflation when property prices are increasing and overstate it when they are decreasing. Since we are now in the latter state TPTB (the powers that be) might find it desirable to change the rules.

Interest rates - helicopter commander Ben Benanke must appear strong in the face of inflation (or the US$ will be toast and with it the US economy). Thus the Fed rate must continue to go up, probably at least twice more, to 5.50% or higher. Real US interest rates have, at long last, crept up a bit and sit above 5% now; fixed rate mortgages are above 6%; access to money is tightening. Even the current US interest rates will tip the US economy into recession soon enough.

Stocks - have held up well due to liquidity pumping, decent corporate profits and hot air. There are many 'defence forces' against a sharp drop in US stocks nowadays, the PPT (plunge protection team) being just one. It looks like reality is just beginning to percolate into this corner of Wall Street and that the happy gas of Fed liquidity has started to dissapate. A plunge is on the cards, we may have seen the first stages. The inevitable statistical spurt in inflation data and the almost inevitable further Fed rate hikes indicate a further 10% to 20% drop in stock price indices over the next 3 months - unless the floating and 'free Fed' money has nowhere better to go in which case we could even see new highs in the US stock indices, lol.

Next week - May's inflation data is due out, PPI on Tuesday 13th, CPI 14th June. If it's the least bit worse than expected (PPI core and CPI core +0.2%, headline CPI +0.5%) stocks will fall through some important support levels and probably keep going down. I don't expect the US$ to benefit much if that is the case, though, the Forex markets look to have priced in a rate hike at end of June. TICS data on Thursday is more likely to move the US$ up or down if outside the $65 to 85 billion range.

The US economic picture will be looking significantly worse in 3 months time, I will hazard guesses for 15th September 2006 (barring major geopolitical upsets):
US$ 83.5% trade weighted, Euro 1.31, Yen 108
Gold $680
Oil WTIC $82
Fed base rate 5.50%
Stocks DJIA 9,200 S&P500 1,090

Speaking of geopolitical upsets, now is the time my hunch that GW Bush has a nasty tumble becomes due. No obvious signs of it yet - except he seems to have been keeping a fairly low profile the last month or two, let's see what the next couple of weeks bring.

Thursday, May 25, 2006

Bird Flu 1: Indonesian cluster concern; intro

There has been a cluster of 7 cases of H5N1 in a family in Indonesia with no obvious close contact with poultry for 6 of them. Current transmission method is unknown but human to human transmission is a possibility. The WHO site is probably the best site to check for news:
http://www.who.int/csr/disease/avian_influenza/en/
The 23rd May 2006 update is a good summary of current knowledge:
http://www.who.int/csr/don/2006_05_23/en/index.html

The key aspects are:
1. There is no (yet) identified poultry to human infection path for 6 of the cases
2. No significant mutation of the H5N1 strain seems to have occured
3. No one outside the immediate family group has been infected in this cluster
4. 6 of the 7 infected have died

So, the feared mutation into an efficient human to human transmissible variant has probably not occured. However, it seems that very close contact with an infective human may result in infection. This is not particularly worrying and would not, of itself, lead to a pandemic.

Here's a BBC news story covering this and leading to some other good BBC resources on bird flu:
http://news.bbc.co.uk/2/hi/asia-pacific/5011210.stm
One worth noting is this:
http://news.bbc.co.uk/1/hi/health/4829858.stm
which may help explain how only very close contact with an infective human might cause infection.

The extremely high mortality rate (6 of 7) in this cluster compared with the very high 50% human mortality rate from H5N1 so far is worrying if human to human transmission has occured. One might expect a lower mortality should mutation leading to human to human transmission occur. It is plausible that this cluster, being all from same family, were more susceptible to infection and mortality than most other humans would be.

Apart from the WHO and BBC sites which are both well worth reading, here are some more about flu, avian and human:
http://www.fluwikie2.com/pmwiki.php?n=Main.HomePage
http://www.foreignaffairs.org/20050701faessay84402/michael-t-osterholm/preparing-for-the-next-pandemic.html
http://abcnews.go.com/Health/AvianFlu/
http://abcnews.go.com/Health/AvianFlu/story?id=1706048&page=1
http://www.pbs.org/wgbh/amex/influenza/ (about the 1918 US epidemic)http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B80E760E2%2D9CF1%2D437F%2D93BF%2D7F0DF3EE2E30%7D&siteid=mktw&dist=
http://www.eswi.org/ (European, more tech than other sites, does anyone have a similar USA link?)

This site is more a 'marketing opportunity' than truly informative site about bird flu. Note the lack of recent news, out of date statistics, emphasis on scare stories, products for sale at first, second or third click on any item. Don't be taken in by the marketing but such sites (no doubt there are others as well as this one, lol) do sometimes have useful info:
http://www.birdfludefense.com/
Do take care with info from such sites. For example: the 1918 flu killed a relatively high number of young and healthy people, possibly because they had good immune system function - they effectively drowned due to immune response in their lungs. Would you think it wise to take medications to boost your immune system if you were infected?

The coming 2006 hurricane season

I waited till the NOAA came out with their forecast before posting about this. Here's the NOAA links:
http://www.noaanews.noaa.gov/stories2006/s2634.htm
http://www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml

Other places have concluded similarly:
http://wwwa.accuweather.com/promo-ad.asp?dir=aw&page=hurr2006
http://wwwa.accuweather.com/promo-ad.asp?dir=aw&page=hurr2006_2
http://forecast.mssl.ucl.ac.uk/
http://hurricane.atmos.colostate.edu/Forecasts/

They are all forecasting another very active year but less catastrophic than 2005. Note that 2005 was a record bad year in almost every way and 2004 was quite bad, if 2006 is as bad as 2005 or even 2004 then hurricane probabilities for the next 15 years or so will be bleak - there have been pairs of bad years together before but not 3 in a row like 2004 or worse as far as I know.

Comments are being made about a significant storm hitting the east US coast further north than most people might expect. Yep, that sounds plausible. I have no skill I'm aware of for predicting hurricanes this far in advance but here's what popped into my head: mid July category 2 aimed at Houston; late August category 3 running up the Carolinas' coast; early October category 4 cutting across southern Florida.

When the season hots up these are probably the best first places to look for info, forecasts and warnings:
http://www.nhc.noaa.gov/
http://hurricane.accuweather.com/hurricane/index.asp

Wednesday, May 24, 2006

The disturbing CACOR view of peak oil and overshoot; So long, hydrocarbon man

CACOR are the Canadian Association for the Club of Rome, I've recently found their site and their perspective is close to mine. The home page is here:
http://www.cacor.ca/index.html

The September 2005 proceedings are about oil:
http://www.cacor.ca/Proceed-Sep%2005.pdf
http://www.odac-info.org/bulletin/documents/Proceed-Sep05.pdf (alternate, duplicate, source)

A brief article in it just about sums up my view on what is likely to happen to humanity in the nearish future. It can be found on pages 16 to 19. Here's its beginning and end....

What to do in a failing civilization
By David M. Delaney
Copyright © David M. Delaney, 2005

[he begins...] "Can global civilization adapt successfully to degradation of the biosphere and depletion of fossil fuels? I argue that it cannot. Important elements of all constituent societies would have to be reformed. Reform would have to be radical and would be uncertain of success. It could be undertaken only in the presence of incontrovertible necessity—a necessity that will reveal itself incontrovertibly only when catastrophic collapse has become unavoidable. I conclude that those who seek to preserve civilization should plan for its survival in restricted regions."

[...and ends...] "A catastrophic collapse of the economy and population ofthe world is more than likely. We cannot escape overshoot’strap. What should we do?

First, who are “we”? Until now I have used “we” to refer to all humanity. If we insist that “we’re all in the same boat”, we shall all drown, because the one boat will sink. Those who hope to preserve civilization must accept that it is likely to sink into chaos in much of the world. The survival of some elements of civilization will require lifeboats that can be constructed only from communities, regions, perhaps nations, that are not now in overshoot. To preserve civilization at least some of these must choose to stay out of overshoot, establish independence in the production of food, energy, materials, and crucial manufactured goods, and defend their borders against the migrations that will tend to spread overshoot everywhere.

This strategy may fail. The necessary awareness and resolve may not develop soon enough in any of those fortunate regions not already in overshoot. Awareness and resolve may be prevented by the very institutional and psychological mechanisms that have been described earlier in this essay. Regions with resolve may be prevented from implementing it by superior governments or by economically or militarily stronger trade partners. But those who argue for survival of a community may have a better chance of persuading their audience than had those who argued for better management of global population and resources. They will have the advantage of arguing at a time when less fortunate regions of the world have begun to provide both unmistakable examples and unmistakable threats.

There is a great need for a culture of guerilla relocalisation—a movement that would have as its goal to partially prepare communities so that they may coalesce more readily into autonomous regions when the need becomes apparent. Richard Douthwaite has discussed methods that would serve these goals in his book Short Circuit.

Overshoot and crash may so damage the biosphere and deplete other natural capital as to extinguish humanity, or to reduce humanity to a few bands of wandering hunter gatherers.These possibilities are now beyond our control. We can only hope there will be enough world left to sustain at least a greatly reduced new civilization, and act to keep the final struggles of overshoot from precluding even that possibility."

The whole of those proceedings are well worth reading. As are the May 2006 proceedings which are about human ecological footprint and overshoot. Probably few of us in the developed economies are aware that per capita oil and grain production peaked over 20 years ago. Globally we are currently consuming more grain than we are producing:
http://www.fas.usda.gov/grain/circular/2006/05-06/graintoc.htm
There is a limit to how long that can continue without beginning to constrain population growth. Needless to say some more poor people in poor countries will be hungry and probably starving as a result already. That will be paralleled in oil soon enough.

Another stumbling was to here:
http://hydrocarbonman.com/index.html

Though it has only just opened there is something that rings very true about the place (to me, anyway), worth keeping an eye on. I particularly liked the "Peak Oil: Am I crazy, or what?" blog entry.

On one hand it is reassuring that others are seeing what I see, being truly mad and deluded is not something I wish for, but on the other hand it is utterly frightening and sickening thinking that what I anticipate will actually happen.

Sunday, May 21, 2006

Peak oil 8: The climate change trojan

This is probably more obvious in UK and the world outside the USA since GW Bush has ordained that climate change isn't happening.

Anyone who keeps an eye on their weather, climate, local and global weather / climate statistics, will know the climate is changing. How many of the 10 warmest years since we started to properly record such data have occured since 1990? 10. Which April was the warmest in the USA ever? 2006. Coincidences? Nice dust bowl you got growing in the southern USA methinks.

Yes, the climate is almost certainly changing, and a good part of that change is almost certainly due to us humans burning fossil fuels etc. And it will almost certainly have a quite nasty and possibly unpredictable impact on climate, and on human, animal and plant life.

But the real tsunami of climate change will take decades to build, centuries to play out, millennia (or longer) to dissipate. The current UK 'dear leader', Tony Blair, bangs on about climate change at every opportunity, but about the only practical solution he proposes is nuclear power. Something smells.

The words 'peak oil' have never publically passed a serving UK government minister's lips as far as I know. But in addition to 'climate change' we are hearing more about 'energy security'. I say these are 'trojans', preparing the ground for what they know is going to come too soon to prepare against hence they dare not mention. After the fact this will be justified by: avoiding panic and premature collapse of financial systems / it happened too quickly to foresee / we relied on the IEA and they didn't tell us.

Am I completely deluded and peak oil is more than 10 years away? I hope so. But I am pretty sure maximum global oil (IEA all liquids definition) production will almost certainly (99%) never exceed 95 mbpd, probably (75%) never exceed 90 mbpd. Current production is about 85 mbpd and demand is growing about 2% annually. That looks like peak oil by 2010 to me.

The probable truth is: the realisation of imminent peak oil breaks the current financial and monetary systems since we are too late to effectively adjust to peak oil. In that situation governments and 'those that know' need to resort to trojans like climate change and energy security to get at least some positive change in place without letting the rabid cat out of the bag.

BTW, a good new PO intro is here:
http://www.omninerd.com/2006/05/17/articles/52
A bit too even handed to be realistic but is about as fair, unsensational and unscary as it is possible to be.

To redress the balance: PO will probably happen before 2010, there is no way short of a severe global depression to adjust demand to available supply by then, it will probably break our economic, fiscal, financial and monetary systems. It's not money that makes the world go round, that is delusion, it is energy. I don't know what happens then but it might involve billions of premature deaths.

Thursday, April 13, 2006

The wall and the writing on it

Economic and market things feel eerily quiet just now. The US$ has been resolutely range bound at 90% +/- 2% of its trade weighted index for the last 6 months, stocks likewise within about 2% of current prices. Meanwhile commodities keep trending up: metals between 15% and 30% this year so far, oil making its seasonal spring high 20% higher than last year's and threatening the hurricane high of 1st September 2005 (Brent crude actually made a new all time high in the last couple of days). The data continue to suggest that the US economy is doing pretty well. Countries holding too much US$ reserves are trying to diversify but being ever so careful about it.

Beware, this unnatural calm does not mean all is well. Collective breaths are being held, eyes determinely looking straight ahead, not up nor down or to the sides, thinking: please let this tightrope hold. I can tell you what happens next...

It snaps!

I can't say exactly when but it will be before November 2006 that the first significant breakdown happens. Between now and whenever that is there is scope for minor gains in stocks and the US$, and for a downwards correction in commodities, but that scope is very limited: at most 5% for stocks, 10% for commodities. When it snaps the initial move will be at least double that scope (in the opposite direction).

Some background...

The US housing market has slowed, the peak was around July 2005 in the 'hot market' regions, the number of unsold properties is at 15 year highs (up 250% in the last year), consumer 'remortgage ATM' use has slowed 15% in the last year - in 2005 it was $600 billion, accounting for more than all the growth in the US economy. A few links substantiating my outrageous claims:
http://www.safehaven.com/article-4801.htm
http://www.financialsense.com/fsu/editorials/wakefield/2006/0406.html
http://thehousingbubbleblog.com/
http://calculatedrisk.blogspot.com/

The US economy is not the healthy beast that bubble vision, the favoured pundits and government statistics try to portray. The statistics are severely and deliberately massaged. Even on government statistics the US GDP would have declined in 2005 without the stimulus of 'remortgage ATMs' and the Homeland Investment Act (which gave one off tax incentives for repatriating corporate profits). But the government GDP statistic is overstated by its very artificial measure of inflation, the 'GDP deflator'. The US economy is actually in recession already.
http://www.safehaven.com/article-2482.htm
http://www.gold-eagle.com/editorials_05/willie062205.html
http://www.gillespieresearch.com/cgi-bin/bgn/

'Real' US interest rates (as reflected by bond yields) have increased over 0.5% this year so far, previously they had hardly moved in response to the Fed rate increases. Borrowing costs are going up and the US consumer is immensely over-borrowed. This will constrain consumer spend.

Energy prices continue to increase. Gasoline is 20% higher than it was this time last year, this will also constrain consumer spend.

All the above indicate a significant reduction in consumer spending, which makes up 70% of the US economy.

The Fed is in a troubling position. Commodity prices, incipient inflation and the value of the US$ indicate higher interest rates, but the threat of higher rates to the US economy and possibility of triggering a recession indicate a pause in rate hikes and a reduction in them this fall. I will put you and the Fed out of your misery: a recession (according to official statistics) is a nailed in certainty and that will be clear before 2006 is out. Unless you are very lucky it will be the start of much worse than a recession.

For now I think the eerie quiet will continue a little while. I don't expect stocks to go more than 2% higher than now, despite Fed liquidity pumping. The US$ could go higher in the next few months, but not by more than 5% and it is as likely to go down by as much. Commodities should correct by between 10% and 20% sometime soon before leaping up again (so treat the correction as a buy opportunity). When the quiet is broken expect significant moves, I would get out of stocks now and be very careful with commodities - take profits on half of holdings and await the next significant dip before buying. Watch out for the US trade deficit for March due in a month's time, I think it will be a new record and break $70 billion.

Thursday, March 09, 2006

As Iran might say it...

Iranians are a peaceful people and country. We have not aggressed against any other country in modern times. When we were attacked by Iraq we fought back and defeated them. The US supported the aggressor in that war.

We have abided by all aspects of the Nuclear non-Proliferation Treaty (NPT). We seek to develop nuclear power generation for the time when our oil and gas resources decline or are better used otherwise. Nothing we have done has been in contravention of the NPT, nothing we plan to do is in contravention of the NPT. We wish to develop our own skills and ability to enrich nuclear fuel for our own reactors, we do not wish to be reliant on other countries for this.

Why are we criticized, villified and attacked for our reasonable position?

We are surrounded by countries with nuclear weapons: Russia, Pakistan, Israel, India, US and UK occupying forces in Iraq. All we hear are threats from many of these countries. We wish to live in peace with our neighbours. We ask that we are allowed to develop our own peaceful nuclear facilities without threats of economic and military violence. We call on all countries to decommission their nuclear weapons, as the NPT intends and states.

If these threats against Iran continue and, in particular, if they escalate into any form of action against Iran, we will retaliate. Ultimately we may be forced to withdraw from the NPT (as Israel, Pakistan and India) and develop our own nuclear deterrence, if nuclear powers continue to threaten us and attempt to manipulate the UN Security Council against us. That is not our wish nor our intent.

Wednesday, March 08, 2006

March hares, lions and lambs

I'm very aware that I haven't given a general forecast for 2006 yet, I would if I could with any reliability. Things could turn on a sixpence (quaint, once silver, UK coin about the size of a current UK 5 pence or US dime, it equates to current UK 2.5 pence which ain't so far from a dime). I can tell you when those turning points are most likely to be, approx 2 weeks either side of these dates: 30th March, 6th June, 10th September (but note that I have a slight problem with future time and tend to see things as sooner than happens, trying to improve this flaw).

Those feel to be the times of greatest risk this year, a sharp change during one of them could shape the future irrevocably, quite possibly change everything. The March period felt quite bad in late summer last year but has eased a good deal since December, that has let me see a bit further and identify the June and September times. September is a kind of unavoidable one, it will be quite seismic economically unless things haven't unwound dramatically earlier: if the present 'phoney war' of markets and reality hasn't begun to seriously resolve before then it will with a vengence, US$ and stocks in particular. June is more interesting, more a will it / won't it, political / geopolitical. If that happens then things move forward time wise and Bush has a hard job lasting out this year. I'll know more about these times in a couple of months.

Which brings me to March. "March comes in like a lion and goes out like a lamb" is an old saying about British weather (I think known from Shakespeare). This year the converse may be true, I expect severe squalls of geopolitical and economic / market related kind late in March. The Fed's continued pumping of money into the markets is keeping them up for now, I don't expect that to work so well for much longer but it will take a sharp knock on the markets' thick skulls to effect that change. Both oil and gold should be dropping now, based on data and fundamentals - they will but that will only be a very brief (between a couple of days and a handful of weeks) window before their next leg up happens. When it does the US$ and US stocks will dip in tandem, DON'T be tempted to buy on the dips since drops of 5%+ are quite possible. Oil has to drop to below $56 (Nymex light sweet crude) to invalidate these predictions.

More practically, the US trade deficit and OPEC meeting around 9th March look the first risk, TICS data on 15th another. Iranian oil bourse (IOB) opens on 20th, Israeli elections 28th. I really do not expect the IOB to be significant, look to June to be more dangerous if I'm wrong rather than some silliness to pre-empt its opening. Israeli elections are always an iffy time, both in their happening and their aftermath but I expect Ehud Olmert to be able to form a solid government with his Kadima party in coalition with Labor. That would likely be the most safe result for a reasonable Israeli regime, which is what they need now.

The first pebbles of US real estate and consumer spend decline have begun to spread their ripples, how long can the wind of Fed helicopters suppress them in the unreal world of the markets?

Meanwhile, in the real world, climate change accelerates, peak (all liquids) oil production remains at May 2005 [December just topped it - barely, but it will decline in January, March 8th correction], H5N1 flu infects a cat (some good news, LOL). Iraq continues its slide towards civil war, perhaps we are nearing the time to define what that means in modern terms.

Expect a madder than usual March, if not then you (and GW) should fear an even worse June, September will be 'bad' on the markets regardless.

The above was written on 28th February. March 8th additions: Gold probably made a short term bottom today (I cashed my shorts and bought, anyhow, missed the last $3 of the move though, bummer); oil should drop further from its current $60 but I wouldn't buy or sell until it makes a decent move up when I would hope to catch the move; stocks might blip up Friday if the NFP jobs data is strong (apparently whispers say it will be) but I would see that as a selling opportunity since the next 6 to 8 months should be mostly and possibly strongly downwards. I think the US$ has made a top in the last week and expect its decline hereafter, tomorrow's trade deficit and next Tuesday's TIC data will probably push down, Friday's NFP may push up. No significant changes in geopolitics in last week (OPEC didn't reduce production), they are much more likely in late March.

Saturday, February 18, 2006

Road

[I wrote this several years ago, apart from the last couple of paragraphs it was a true day in my life]


It is so different now. My journey round Cardiff and up to Merthyr today will take just forty minutes along fast dual carriageways. The roads around this part of South Wales are the biggest change I've noticed in the region on my brief trips back. Sometimes it's hard to remember how it used to be.

In the late sixties I often went North to the Brecon Beacons to walk the hills with scouting friends. If we were lucky we could get past Merthyr Tydfil in a couple of hours, then our spirits would soar as the Beacons rose to meet us and the industrial valleys faded behind. Today I wanted to re-live those escapes, experience the freedom of the hills once more and recharge my spirit.

Today the weather was smiling on me. A blue sky, a few friendly white clouds and a soft breeze. The new road shows a flattering picture of the valleys, skirting the grey communities whose life was coal, and climbing through the gentle, beautiful hills. What would they have been without coal? The most wonderful part of Britain, I think. Round, sculpted hills, friendly woods and streams, the russets of autumn bracken. Perhaps it is best they now evade the ravages of tourism, a small recompense for its century and a half of blight.

Thirty years ago this seemed far from the truth. The two hour or more crawl up to Merthyr was never a pleasure. Lorries groaning and belching like trolls along the narrow road with the mindless intent of ants on a trail. Coal smoke from the houses mixed an acrid soup with diesel fumes and grey, misty rain turning all to wet slate. Black slugs of towns glistening, creeping out of the pits to corrode the beauty of the valleys. It was like the hinterland of hell, corrupted by fiendish purpose for some evil design. The Empire, born of iron and coal, now gone, still plucked its merciless tithe from the oldest colony.

The dire land spawned a people: community, chapel, nobility. Adversity bred purpose, fuelled by anger, to change the world that gave them birth. Their legacy remains and will shape the world yet. The void, the wake of coal's demise, cannot devour their purpose. But today it seems so unreal, the new road runs west of Quakers Yard, Merthyr Vale, Troedyrhiw and Aberfan. They pass by unnoticed below.

Once there were black pyramids, six I think where this road runs, above Aberfan. The spoil heaps spewed out by the mines. No more. Shame has erased them but time has not erased that shame. I remember that October day, returning from school to see television images. Unimaginable horror. At nine thirty that morning one of the pyramids, one of the coal tips, became some nameless moster sliding relentlessly down the hill to smother the defenceless school of Aberfan. As I watched the grey murk of day turning to black night, lights burnt bright revealing that which should never be seen, that words cannot describe.

Men, half naked, bloody hands clawing the black filth. Black filth torn from hell by their fathers, with their fathers' blood, in the land of their fathers. Faces obscured by black sh*t, streaked by tears, frozen by yet unfelt, uncomprehended pain. Silent sobs pierce the unnatural silence, loud above the throb of generators and scrape of shovels. More than a hundred children entombed. What hope is left? So many meanings coalesce in horror. Families whose life was their children, whose hope was education, whose dream was escape.

Nothing left but horror.

I almost crash on the roundabout at Pentrebach. I stop to wipe my tears and resolve to return along the old road after my walk. The road winds up through the last vestiges of "The Whitey", a lunar landscape vomited by the Dowlais ironworks. It began in the eighteenth century and I remember parts of it still hot, now little remains. Up and on to the Heads of the Valleys road, a bleak limestone plateau, sheep rasping their living from the wiry grass. Then down to Llangynidr and Usk valley. Crossing the river brings me into a friendly countryside. The red sandstone soil works its magic, conjuring woods and hedgerows, foxgloves standing benevolent guard midst the hazel.

My route takes me near Partrishow so I detour to its church - St. Issui, Patricio. A small building of quiet magnificence and wonder in the middle of nowhere. Its rood screen alone is worth the journey but the red ochre figure of Time or Doom on its west wall, a skeleton with scythe, hourglass and spade, fills me with awe. I contemplate the wall and wrestle with its meaning but leave without conclusion, just a vague unease and feeling of its power. This soon fades as I wind along the Grwyne Fawr valley through the trees of Mynydd Du forest.

The road peters out apart from a track up to the reservoir. Leaving the car I rejoice in the feel of walking boots, rucksack and the freedom of the hills. Today is a good one for walking.

As I stroll gently upwards through the valley's trees Kapil Dev hits four sixes in an over to save the follow on and I chuckle at the apoplexy of the cricket commentators and with joy at the exuberance of it all. Yes, this is going to be a good day.

My walk along the western ridge of the Black Mountains - a curious name for these amiable green rolling hills - is a joyous one. Few people on the hills, perhaps they didn't anticipate the surprisingly good early summer weather and I enjoy the solitude. At one point I can see in the distance far below the heart shaped field that was our summer camp site in 1971. I can tell from here that it's a special place where the ley lines and other forces that pervade our planet, but few notice, converge. Thinking back it was nearly always me who chose the places for our scout camps. Maybe the others tacitly understood that I felt the forces and would choose well.

It's early evening when I return to the car, happily tired and feeling much better for the day's exertion. On my drive back I stop for a pint and a chat in Llangynidr, mostly about the day's cricket, before heading on to Merthyr.

As the road descends past Dowlais the weather changes fast. The sunshine fades to a grey and misty half-light. At Pentrebach I turn onto the old road, the change seems fitting, houses insubstantial ghosts in the murk, coal smoke pervading the air. I don't feel right - suddenly nauseous - perhaps because of the smoke - so I stop for a moment at Troedyrhiw near the old chip shop we used to call at. Strange, I thought it had been boarded up years ago, but surely it would be open at this time of the evening if still in business? I drive on southwards but just past the Aberfan sign I feel sick again. The west wall of Partrishow church seems to loom ahead of me in the deepening, chilly, gloom.

Hallucinating now? I pull over and stop, some fresh air might help but the smoky murk gives no relief. The silence is eerie, waiting. Somewhere in my mind an insane meaning stirs. Then I hear a rumble, the ground shakes banishing my doubts and I run, weeping, down the hillside towards the black tentacles of horror devouring the children of Abervan.

Tuesday, February 07, 2006

A quickie : global economics from first principles

The premise of this article is: what effect might an Iranian non-$ oil bourse have? But it goes much deeper into the meaning of money, the meaning of exchange, and so much more. It is a delight and entertaining too, a treasure:
http://www.financialsense.com/fsu/editorials/2006/0205.html

Peak oil 7 : Did we miss it?

As I speak May 2005 is the month of maximum oil (all liquids) production. We had expected it to pick up post Katrina etc, it has but not enough. Many variables and possible inaccuracies are involved but, as of now, we are waiting and hoping that global production will increase again. I personally think there is a higher top to come, but it may not be much higher. I guess we are on the plateau and within a very few years it will be clear we are on the downslope. That will test our humanity and wisdom, I hope (maybe in vain) we will not be found wanting.
http://www.theoildrum.com/story/2006/2/4/4015/39115

Sunday, February 05, 2006

Peak Oil posts' quicklinks

This post contains direct links to all the previous Peak Oil items in this blog, it's just a convenient way of navigating to them in order. I'll replace it with an updated copy when necessary.

http://theslide.blogspot.com/2005/12/peakoil-1-what-is-it.html
http://theslide.blogspot.com/2005/12/peak-oil-2-but-why-worry.html
http://theslide.blogspot.com/2006/01/peak-oil-3-where-youre-at.html
http://theslide.blogspot.com/2006/01/peak-oil-4-crucial-links.html
http://theslide.blogspot.com/2006/02/peak-oil-5-big-when-1.html
http://theslide.blogspot.com/2006/02/peak-oil-6-about-your-head-where-youre.html

Peak Oil 6 : About your head (where you're at followup)

Last week a chap at TOD raised an important question: 'How are you doing? Are you, like me, dealing with a professional career on the one hand, and reading this site at night, thinking through the implications, and then waking up the next day again to plan a 5 year engineering project with ROI and thinking - "This is unreal"????' You can read the post and a good number of thoughtful and personal responses here:
http://www.theoildrum.com/comments/2006/2/2/202144/5783/6#6

TOD's main premise is to discuss peak oil in detail: will it happen, if so when, what does the data say, what reliable data is available, how can we model that data and attempt to predict future oil production and demand, what technical solutions are there, how viable and useful might they be? etc. It is not a place of gratuitious hand wringing and woe, woe, woe diatribes.

The people there, probably as informed a group (on the possibility and implications of peak oil) that one could find, are also people. Many have personally confronted what peak oil might mean for them, at some stage in your journey I think you will find it very helpful to read how they have been affected and how they have reacted. One way or another you are very likely to have to face this mental problem yourself before too long.

I do urge you to read that discussion, it could save you considerable anguish, its tone is more positive and constructive than negative.

Here's one quote: You want to cope? Be glad you are one of those who "knows," brother. You were put here to guide the less fortunate. Get busy.'

Amen and blessedbe

Friday, February 03, 2006

Fiscal aside: rotting prawns in the curtain rails

I'm going to explain this simply, apologies to those who are more aware.

The USA needs approx $2 billion daily of foreign investment to stave off its bankrupcy. It gets this money largely by issuing treasury bonds, a bit like taking out fixed term interest only loans then repaying them when they become due.

Typically it repays these loans by issuing further treasury bonds. Now, that is not a long term sustainable situation for you or me. Fortunately for the US it's OK while foreigners, who have surplus US$ due to trade surpluses, continue to grant those loans.

OK, some day maybe they won't, what happens then? Hmmmm. I must digress. The US Treasury produces 'TICS reports' which say which overseas countries own what US debt. In 2005 there were surprising increases in certain countries' holdings, notably 'Caribbean' and UK, most markedly the former. Odd, methinks, as did others even almost a year ago:
http://www.safehaven.com/showarticle.cfm?id=2764

The US Treasury TIC page is here (but you would have to access the spreadsheet style data to see the foreign holdings info well):
http://www.treas.gov/tic/ticsec.html

Back then, a whole 45 weeks ago, the truth was merely hinted. Now it is being spoken aloud: "If foreigners decide to stop buying our government’s new debt, the Federal Reserve will have the ability to create new “digital” money out of thin air to loan it to the government themselves. This process is called “monetizing” the debt and is considered highly inflationary. They will use U.S. banks with offshore offices in the financial centers such as London and the Caribbean Islands to make it appear that foreigners are buying the debt paper." http://www.financialsense.com/Market/hartman/2006/0201.html

Now, this is not quite cricket! If foreigners will not finance one's debt then one must make 'economic adjustments' or call in the IMF who will loan one the readies in exchange for economic reforms. One should not loan oneself money by sleight of hand, that is poor form indeed. Let me assure you, when you look at the detailed data it is pretty hard to conclude otherwise than this is what the US is doing: buying its own debt and pretending foreigners are doing it. The US govt can print as much money as they want (and believe me, they have been for a too long time) but excess money printing has inflation and currency implications.

Does it matter? Well, it kinda compromises credibility, both economic and truthfulness. The buyers of US debt will be aware, no doubt, and will be taking steady and measured steps to reduce their exposure in US debt. If the signs continue in this direction you can expect a significant devaluation in the US$ and / or an upturn in US interest rates - regardless of domestic US economic circumstances.

That whiff of rotting prawns may soon become an intolerable stench.

Peak Oil 5 : The Big When - 1

My answer is 2008 unless economic recession delays or major geopolitical events intervene one way or another (but would probably foreshorten).

Note that 'conventional oil' (excluding: deepwater, polar and unconventional sources like tar sands) has peaked already, in 2004. I guessed you missed that, LOL.

This is a very contentious question and so is my answer. Some make arguable cases for 2005, some 2006 to 2009, some for 2010 to 2015, any such may be true. There are some who argue for dates beyond 2015 but their basis is so demonstrably erroneous that they can be easily dismissed by almost anyone who researches and analyses the known data.

If you want to grapple with the detail of 'when' I will give you profuse links in a second big when post, for now I will present my argument.

Oil prices have risen by over 30% in each of the last 3 years, 2003 to 2005. This has stimulated virtually all mothballed and relatively rapidly exploitable production to come onstream. New production must come from a combination of three main areas:
- new projects
- infill drilling for FIP (fields in production)
- EOR (enhanced oil recovery) like increasing pressure by injecting water

The second and third of these are already practiced just about everywhere. There is a worldwide constraint on new rigs (and on specialist steel to manufacture them, and the human skills). Drilling (new and infill) is running at maximum capacity and that capacity will not increase much, soon. EOR is a mixed blessing. Most EOR techniques increase production but result in higher decline rates once the field's production begins to decline, more on this later.

On the bright side there is a decent amount of new production that should come onstream in 2006 and 2007, it should exceed projected increased demand by perhaps 1 to 2 mbpd (million barrels per day). That is fortunate since supply and demand are currently very close to equal at about 85 mbpd. Less fortunately, things are looking bleak beyond that, there is likely to be a deficit of supply by the end of 2008 should business continue as normal. Note that major new production is usually known a good 5 years ahead - it takes considerable effort and infrastructure development to get most new fields capable of producing and delivering to market.

An aside: of course it is rather difficult for demand to exceed supply - one can only consume what one can get. Oil prices have doubled in 3 years, it is reasonable to think that would decrease demand somewhat. If it has it is not noticeable in the statistics. There was a slight decrease in US VMT (vehicle miles travelled) in the wake of the post hurricane US gasoline price spike (which was approx 50% increase) in September 2005 but latest VMT data is higher than a year earlier.

EOR and decline rates. When EOR is used it effectively brings forward production = more oil now, less later. If badly done it can actually reduce ultimate production, if well done it can increase ultimate production a bit. Most major FIP are using EOR now, it has been widely used in expensive production areas like North Sea (UK, Norway) since early on. When we look at the data we see that fields produced normally typically have decline rates of 2% to 5%, but those using EOR have a longer plateau of high production and a faster decline rate thereafter of 5% to 15%. Many projections about peak oil date use these atypically low decline rates. Of the 4 biggest conventional oilfields ever found on this planet:
Ghawar, Saudi Arabia
Burgan, Kuwait
Cantarell, Mexico
Daqing, China
Three are admitted to be in terminal decline (Burgan and Cantarell in 2005); the fourth and largest, Ghawar, we are unsure of since the Saudis don't disclose data, but there is evidence suggesting it too is, or will soon be. Since those 4 fields currently produce about 10% of this planet's oil best you hope their decline rate is in the 2 to 5% category, though we already know Cantarell's will be steeper.

This could be a problem. Higher than expected decline rates are the biggest downside risk to oil production forecasts and the odds favour higher decline rates than anticipated (the odds of lower than anticipated decline rates are minimal). In particular the black box that is Ghawar can only be inferred for now; it has been realistically been said that when Ghawar (which currently produces 5% of this planet's current oil production) dies, so does our society as we know it. I will leave you with just one link for now, draw your own conclusions:
http://home.entouch.net/dmd/ghawar.htm

Monday, January 30, 2006

Peak Oil 4 : The crucial links

You only need two links to keep up to date but just keeping up with them will take several hours per week!
Energy Bulletin for comprehensive up to date news and links relating to PO:
http://www.energybulletin.net/
The Oil Drum bulletin board for excellent detailed analysis and discussion:
http://www.theoildrum.com/
TOD is IMO (= in my opinion) the most significant and important site on the internet today.

Good explanatory sites about PO:
http://energybulletin.net/primer.php (Energy Bulletin PO primer)http://en.wikipedia.org/wiki/Hubbert_peak (Wikipedia)
http://www.lifeaftertheoilcrash.net/ (Matt Savinar)
http://wolfatthedoor.org.uk/ (UK, has French and some Polish content versions)
http://www.ccs.neu.edu/home/gene/peakoil/ (Detailed explanation and analysis by Gene Cooperman)

Other good resources:
http://www.globalpublicmedia.com/ (audio, video, written; interviews, presentations etc about PO etc)
http://www.peakoil.net/ (ASPO: Association for the Study of Peak Oil)
http://www.peakoil.ie/ (ASPO Ireland, mentioned because it's a better source of the ASPO newsletter and home of Colin Campbell)
http://www.odac-info.org/ (UK Oil Depletion Analysis Centre)
http://www.postcarbon.org/ (USA Post Carbon Institute)
http://www.powerswitch.org.uk/ (UK Powerswitch)
http://www.oilcrisis.com/
http://www.drydipstick.com/ (link metadirectory)
http://www.oilcrash.com/ (NZ, some Arabic, Chinese, Russian, French, Italien content)
http://www.kunstler.com/ (James H. Kunstler main site...)
http://jameshowardkunstler.typepad.com/clusterfuck_nation/ (...and blog)

Government and their official agencies:
http://www.eia.doe.gov/ (US Energy Information Agency, important source of data and dubious forecasts)http://www.dti.gov.uk/energy/inform/energy_stats/index.shtml (UK DTI energy stats)

Oil industry sites:
http://www.cera.com/home/ (CERA consultancy)
http://www.gasandoil.com/ (Alexander's)
http://www.willyoujoinus.com/ (Chevron - warning about PO!!!)

Saturday, January 28, 2006

Peak Oil 3 : Where you're at

1. Avoidance
2. Denial
3. Anger
4. Acceptance
4. Depression
5. Positive action

No, it isn't a mistake having two #4, either or both can happen, simultaneously, separately, in either order.

You may not experience every stage, some may never get past the first, but the odds are you will get to at least 2. since you are here.

I'm probably at a combination of 4 and 5. I've definitely been taking some positive action for a year and more. I no longer seek to find ways to 'logically' avoid what is inevitably coming so I presume I'm past acceptance, but I am often depressed by how stupid we humans persist in being, especially most of our political leaders.

You will have to decide for yourself where you are at, but I will add some words of caution. I'm not talking about 'rational' things here, you may well understand peak oil on an intellectual level, understanding it on an emotional level is quite, quite different. That is what I am referring to. Don't be surprised if you get the urge to weep or bang your head against a wall, I would consider that normal and perhaps a healthy sign that you are nearing acceptance. After all, life as you have lived it and expected it to continue will be gone within a mere handful of years at most. It's kinda like a devout Christian, ecstatic at the sight of God descending to Earth, then hearing him say "I'm Beelzebub, I killed your God 10,000 years ago, Christ was my son, you are mine."

Tuesday, January 24, 2006

2005 Predictions Assessed

I made these specific predictions in late December 2004 and have added my assessment of their accuracy in early December 2005 in brackets below each paragraph. Got a couple of fairly stunning long shots (Pope and Israel), but a couple of others failed totally (Bush, Japan). The economic predictions were an average mix, the US $ and economy proved stronger than I expected. I failed to predict two major hurricanes hitting near New Orleans.

2005, the "maybe but probably not" year

I think that 2005 will not see the inevitable coming storms unleashed, but if we are unlucky and / or some semi-random events trigger it then 2005 may be the year "the slide" clearly begins, 2006 or 2007 are more likely.

The two important underlying threats: peak oil and the great global (economic) depression will probably not hit in a big way during 2005. The depression is the more likely, I guess a probability of about 40%. Many events could trigger it: a too rapid decline in the $, rapid increases in US interest rates, one of the US asset or debt bubbles bursting, China or Japan selling their $ bonds, a terrorist or geopolitical event. My feeling is 12 to 18 months hence is more likely as the clear start of the depression.

The sooner the depression starts the later peak oil is likely to hit, and since this is the greater threat maybe we should hope for an early global depression - there is a slim chance that a few years' grace before peak oil really hits may be enough time for humans to devise a way out of the consequences. Hopefully some temporary interruption to supplies of oil will help us see sense, perhaps a revolution in Saudi Arabia which disrupts their supply for a year or two. Without the depression kicking in first or some other major temporary interruption to oil supplies I expect peak oil to be apparent and real by 2008 at latest.

So much for the maybes and important issues.

Iraq will go from bad to worse, well before yearend it will be obvious that a multi state solution or very loose confederation is inevitable. The US will either be humiliated by its inability to maintain adequate security and stability or will have to introduce the draft to provide the troops required (at least double, more likely treble current forces) to have some semblance of control. I do not expect the 'global community' to be stupid enough to help the US out with troops so the US can start conflicts elsewhere.
[30% Iraq got worse but not enough to trigger the drastic US actions I expected]

I feel that neither GW Bush nor Dick Cheney will be US president at 31st Dec 2005. It's not clear how this could happen, the death of both is a possibility but I don't think that occurs. More likely is some impeachment or similar process that affects them both. I think this starts in early May and ends in October.
[0% but I still feel it will happen before the normal end of Bush's term]

If a significant terrorist event on US mainland occurs I feel that will be in March, round about 22nd, but I think it will be averted. I also think that is when China will revalue its currency aganst the US $, I expect the trade weighted value of the $ to be worth over 10% less than currently by late April - that will be its lowest value for well over 30 years - it will be lower still by yearend.
[25% got the China revaluation, though I expected it in April, almost no one expected it before Sept at the very earliest so I was better than them; totally wrong on the US$]

Tony Blair (Labour) will barely win the UK election if held on 5th May - he will have an overall majority of less than 10 seats, if this happens I expect Blair to resign by September. The Liberal Democrats will do (relatively) best but still not have 100 seats, their increased vote will have the effect of giving the Tories some gains (the only ones they get, lol). It is very possible - about 40% - that the election will not be held then due to world events, Blair would win more conclusively if the election were held in October 2005.
[25% Labour did worse than expected but not as badly as I thought]

The Pope dies, in April I think, next Pope is Italian but a black (skinned) Pope comes close to winning.
[80% spot on for J-P II but the replacement, Benedict, is German]

Something very odd happens in Israeli politics, this is the most significant mid-east event of the year (therefore I do not expect Saud to be overthrown), like the Likud party splitting and part joining with the Labour party. In May I think.
[80% though it happened near 6 months later than expected, it happened almost exactly as I felt but I didn't describe it well. This is the most significant happening in Israeli politics for 30 years so I am proud of this long shot]

A major environmental event happens in Japan in early June, probably a problem with a nuclear reactor, perhaps in part due to an earthquake.
[0% on this long shot]

Interesting, the shaping events seem to all happen in the northern spring quarter (March 21st - June 21st) then things seem to go on pause till the autumn quarter (starts 21st Sept). I interpret this as: wait until the spring events clarify before seeking to read further.

Independence Day in USA will be a time of sad reflection and soul searching - I don't think this is due to some dire event, more a questioning of what was taken for granted: self doubt, state doubt, religious doubt? I think it is partly GW Bush related - he is seen as a betrayer.
[0% but, again, I feel this will happen some US holiday in the next couple of years and will be obvious]

The price of oil will fluctuate a bit, with a low of just below $40 in January, a lesser peak of over $60 in April and a higher peak of maybe $75 around late October. US shares are at their maximum early in year, my guess Feb 12th, but the low for year will be more than 25% below that peak, that could happen in April or October onwards.
[60% the oil prices were pretty good, though both the April peak at $58.10 and September peak at $70.85 were a tad lower than I guessed and the second was near 2 months earlier than I expected. Stocks - as measured by DJIA - did peak on Feb 16th but made a very slightly higher peak on about March 12th, I don't think they will beat that in the next month though they are close. Totally wrong on the 25% dip which would have taken the DJIA down to near 8000.]

Assets should be moved out of US and $ denominated stocks and securities, if you are in US open a Canadian account and move surplus money there. Debts should be at the best fixed interest rates you can find, move them if not, US interest rates may double this year.
[0% US stocks have held up, $ has gained, real US interest rates are barely above where they were, but the time is coming...]

An odd year and probably seemingly inconclusive in the scheme of things. Could be the events of 2005 will give decisive shape to what follows soonafter. It could be a very hot summer in several parts of northern hemisphere, mid June to mid July in UK (August wet again, lol) and Europe, August in USA and Canada.
[0% on weather]

[Overall I rate these predictions at 30%, should do better but shows promise. ]

Sunday, January 22, 2006

How to get $500 bbl oil in 3 months

[Note: I wrote this last October, 2005, before the media noise about the US or Israel bombing Iran. It was never a prediction, only an artificial scenario illustrating how close a massive increase in oil prices might be if events conspired. It was unlikely when I wrote it, it is less likely now that Ariel Sharon is incapacitated, but best hope that Netinyahu isn't the next prime minister of Israel ;) However, I do feel that late March / early April 2006 is going to be a very dangerous time.]

I'm amused by the shock some folks express when a price of oil of $100 or $200 is predicted in the next few years, and by diehards who say it will drop back to $30 (not before US unemployment nears 20% I'd guess), so here's a scenario that could easily result in $500 bbl oil in 3 months...

March 2006
Israel bombs Iran nuclear facilities ; oil $130 from $70 (note: overflies Iraq, avoiding Saudi airspace, USA complicit)
China begins noticeable selling of US securities, $ drops 10% in a month

April 2006
Widespread uprisings assisted by Iran in central & southern Iraq ; oil $160
US casualties in Iraq over 1000 in one month

May 2006
US Invades Iran "to secure Iraq border" ; oil $240
Revolution in Saudi ; oil $360
US too stretched to intervene in Saudi until too late
US$ plunge continues China revalues Yuan to 5 per US$ ; oil $400

Note that approx 20% of global oil production comes from Saudi, Iran, Iraq, Kuwait; a fair bit of that will be off the table for some time, at least. I guessimate that there would be an approximate 50% increase in the oil price for every 2% of global supply reduction due to short term disruption, on that basis a reduction of 10% of global supply (that is 5 multiplicative 50% price increases) would result in a jump from $70 to over $500.

June 2006
Impeachment of Bush and Cheney begins (ostensibly for illegal war but really because of oil shortage and price)
New Saudi regime ceases all trade with USA, signs agreements with China
China annexes Taiwan peaceably (almost totally)
OPEC bans all oil exports to USA
US$ 50% of Dec 2005 value ; oil $500 ; gold $2000 per oz

July 2006
Bush and Cheney resign, put under arrest
Senate and Congress unanimously request ex-president Jimmy Carter to serve till 2009 with John McCain as VP
US pulls out of Iran, begins negotiations for pull out from Iraq at UN
Oil $450, US gasoline $20 / gallon
Goldbugs who took profits at $1000 per oz back in early May are unhappy

Subsequently...
OPEC oil is no longer sold for US$
World Court requests extradition of Bush, Cheney and others on war crimes charges
Saudi requests extradition of Saud families and their money from USA (to where they mostly escaped) as a precondition for them and OPEC resuming oil exports to USA
USA endorses World Court, extradites Bush, Cheney, Sauds - neatly avoiding divisive US trials
US economy shrinks by 25% over 2 years
Oil price drops to $300 by end of 2006 but mid east output still 25% below 2005 levels
2004 becomes recognised as the probable year of peak (conventional) oil [actually we know this is true already!]

I know some of this is a bit fanciful, particularly the JC for president bit, but it would be deliciously ironic if he could at last implement his energy plan of 25 years ago. I think most of these events are plausible and many less predictable things have happened. Note that no terrorist acts against the USA, no newks, no plagues, no major wars, no mining of Saudi oilfields, were needed to conjure $500 oil, so there is plenty of scope for $1000 oil!

Levels of Collapse (warning: may be disturbing)

A couple of years ago I invented this scale as a broad framework for assessing what might be expected. Someday I will probably devise intermediate points, especially for levels 2, 3 and 4 which I anticipate being the low point of the next 30 years and for which knowledge and skills preservation will be most critical. If anyone knows of similar attempts to devise such a scale I'd be very interested, I've not seen any.

1. Short term, basic infrastructure and money system remain operational, possible interruptions to electric, gas and water supplies. Less locally devastating than severe floods, earthquakes, storms etc but much more widespread. Many businesses cease operation, significant unemployment. Larger impact than anything in developed countries in last 50 years, worse than 'Great Depression' of 1930s.

2. Short term, considerable economic dislocation but basic infrastructure and money system (local at least, but probably not at 'normal' value) remain largely intact. Low die off (< 5 to 10% ?) unless widespread lawlessness when it could be higher, perhaps >25% in some dense population areas. Probable need to survive a few weeks or months without normal water / gas / electricity / shopping supplies for a significant proportion of population.

3. Short term, significant collapse of infrastructure and money but sufficient remains to re-establish pre-existing society if it does fragment and repair most critical damage within months or a few years. Electricity, water, currency value all largely absent for several months, maybe years. Low to medium die off for developed countries, perhaps 20% to 60%. Probably equivalent to go back 40 to 80 years. Most important knowledge probably preserved.

4. Medium term, most infrastructure, government, money systems fail. Most systems and infrastructure have to be rebuilt locally once the population has learned to survive and feed itself. Medium die off for developed countries, 40% to 80% overall, very variable between urban and country areas, could range from 0% to 95% for different localities. Probably equivalent to go back 100 to 300 years. Significant knowledge lost.

5. Long term. This is mostly differentiated from medium term by the amount of population, skills, knowledge, that are lost. Major die off for developed countries, 70% to 90%. Go back 500+ years. Most knowledge lost.

6. Very long term. 90% to 99% human population lost, survival and repopulation first priority. Go back 1000+ years, nearly all knowledge lost.

7. Re-evolve 1. Human experiment terminated. Go back 1+ million years, apes probably still best bet.

8. Re-evolve 2. Back to small mammals / reptiles / insects, back 50+ million years.

9. Unicellular / full restart.

The first two levels are insufficient, of themselves, of providing sufficient 're-adjustment' to solve the resource and other problems we will imminently face, thus it is very likely that further shocks / collapses would follow level 1 and 2 collapses.

A level 2 collapse might hopefully trigger a massive change in human priorities, behavior and intent such that we could avoid anything worse and buy us the time to find solutions - that is my best guess of our best hope. A level 1 collapse is unlikely to be sufficient.

Level 3 or greater collapses will disable countries as functional entities, mostly temporarily in the case of level 3. But local survival becomes the priority for years. Level 3 is the least level of collapse that, of itself, probably makes humanity sustainable beyond this century.

Friday, January 20, 2006

2006 Financial forecasts

(Written late December 2005, first posted online 2nd January 2006 here:
http://www.theoildrum.com/comments/2006/1/2/101214/8972/2#2 )

Things will remain much the same until something breaks or some event breaks them. What happens then could be dramatic or could be manageable, that is difficult to predict yet. So far the US Fed, in particular, combined with cooperative and blinkered markets have proven very capable at managing things smoothly. One must remember that such a course is also to the benefit of the major market players, for example, stocks become a safer bet if one knows the Fed will step in to help avoid a serious plunge.

But massive global and US imbalances remain. Can they be managed away before some exogenous events trigger less controllable adjustment? Do the imbalances generate sufficient tension to make drastic adjustment inevitable without exogenous events. I am pessimistic that the status quo is viable much longer and expect at least the first signs of catastrophic change to show in 2006. But the US and global economies have been more stable and resilient in 2005 than I expected so I may be premature on this.

The big winners of the year will continue to be commodities and especially gold. Inflation is seen as a growing problem, much more so than in the last decade, that is a major driving force for gold to increase in value. There has been a significant increase in liquidity (central banks printing excessive money) in the last 4 years particularly but also, especially in the US, over the last decade. So far that has popped up mostly as booms in things like stocks, property, now commodities. Excess money from oil revenues and Chinese trade surpluses must go somewhere and gold looks safer than currency denominated assets. Some central banks have also been diversifying into gold and the central banks which have been selling it in recent years (most developed countries who have held major gold reserves) haven't so much now.

I expect gold to make a jump to near $600 by April before pausing, and to climb above $650 later in 2006 - it could exceed $750 but that would be more dependent on response to unexpected events. The risk of gold dropping below $400 are very, very minimal (say 1%), below $450 is unlikely (10%). With current gold price about $500 I think the bet is straightforward: 10% risk of 10% loss but a 10% chance of 50% gain and 50% chance of 20% to 30% gain (30% probability it remains in $450 to $600 range throughout 2006).

Oil is close to a cusp, I think. It has increased in price by over 30% in each of the last 3 years. That has spurred just about all possible rapidly available production to come onstream. Some biggish new projects are due to come online in 2006 so there is a possibility that there will be a slight oversupply in the near term. The two critical factors are: will decline rates in the current major fields in production (FIP) be higher than current fairly optimistic predictions; will there be a significant reduction in demand (currently expected to be 1.9% increased demand) due to a global slowdown? A few months back I coined "Agric's law of oil price" which is: the average price of oil in a calendar year will be within 5% of the maximum price for the previous calendar year (Nymex light sweet, next month quote). This has been true the last 3 years, I expect it will continue to be so until prices go haywire. That gives an average price in 2006 of $70.

I expect the oil price to creep up to $70 by mid march. Thereafter I predict a spike to about $95 in response to some external event, it could happen by mid April. Will $100 oil happen in 2006? Maybe not based on current supply and demand but there is a significant probability that geopolitical or supply disruption events do cause a $100+ spike. I do not expect the oil price to drop to $40, even $50 is unlikely since a key support level at $56 has held well in recent months.

Silver price is likely to follow gold. Copper is much more difficult to predict. It has doubled in price the last couple of years and is due for a 25% downwards correction. However, there are conflicting reports on whether supply will be above or below demand (much driven by the Chinese building and infrastructure boom). Three to six months ago most industry watchers were saying that supply would be above demand in 2006 and a drop in price inevitable. Since then the price has risen 20+% and people are less sanguine about supply. I think a correction is likely but the general strength in metal prices may make that fairly short lived until an economic slowdown (especially if in China) happens. I expect the price to drop from current level of about $2.00 to below $1.60, probably by March to May, then climb back to above $1.80.

I need to digress about the US Homeland Investment Act, 2004 (HIA). It gave US corporations a two year window to pay only 5.25% tax on profits repatriated from overseas operations rather than the normal 35%. This provison ends with a company's financial yearend preceding 22nd October 2006 and should be mostly unwound before mid 2006 (dependent on individual companies' financial years, most end 31st December). It is estimated to have created an inflow of $300+ billion into the US economy. In retrospect I think this will be seen to have given a significant boost to US economy and stocks, and its ending may bode ill for them. It may also have helped a little to support the US$.

Currencies. Well, I got this wrong in 2005. In part I think this was due to the HIA and increased price of oil which is traded (almost exclusively) in US$. Also I expected the US economy to be weaker and probably limit the Fed rate hikes. The Fed are expected to have a further 2 or 3 rate hikes, ending in March or May, these should continue to support the US$. But, by mid year, supporting pressures on the US$ are likely to be dissapating, the US economy weakening, and a downwards correction probable. Until then, barring major geopolitical / market events, the US$ should remain in the 88 to 92% range of its index. Thereafter it should decline to about 85%. However, I expect events to intervene and cause some quite sudden drops in US$: down to about 82% in April and, later in the year, (after a recovery to possibly 85%) I expect a dip to 80%.

Can the US economy continue to grow at around 4%? No. OK, how about 3%? Possibly, but the odds are against it. For US growth to stay at or above 3% almost everything has to go right. US consumers must continue to spend money they don't have and further increase borrowing beyond current record levels despite interest rate increases. There must be no significant drop in US property prices. Foreigners must continue to increase investment in US treasuries. There must be no major financial market problems like hedge fund or derivatives domino style collapse. US stock prices need to remain near present levels. I find it difficult to believe that all of these will come true.

I expect US GDP (as currently measured) to drop to 2% growth for the first half of 2006 and be flat in the second half of 2006.

Stocks are likely to take a small battering. I predict a steady mild decline for the DJIA to about 10,000 by mid March, a sudden drop to perhaps 9,000 in April. A deeper low of between 7,500 and 8,500 is probable, most likely in October. Of course there will be bounces back up a bit, but if the DJIA is much above 8,500 at yearend they will have done well. That would be a 20% drop on the year. Retailers, automotive, financial sectors are likely to be hard hit. Utilities and commodity stocks least hurt.

Who killed the 'American Dream'?

(There are a number of answers to my question but I am thinking of two specific ones: an individual, and a group of people. No conspiracy, both obvious and inter-related.)

Last August (2005) I penned this for a young american friend of mine...

Back when there were about half as many humans, before Intel made the first integrated chip (1974), when mainframe computers about as powerful as modern wristwatches were just becoming available costing $ millions and were the size of rooms, I read a book. "Limits to Growth" was written by a handful of academics who wanted to try out these new computers for modelling and forecasting something. Nowadays they'd probably try it on stocks and shares, then they modelled the future of the human race and its interaction with this planet. Some people walked around with their eyes open in those days and were brave enough to look at meaningful things.

The computers were slow, the models simple, the results probably mostly inaccurate, but it was the first time people had systematically considered human and economic growth and when it would run into the natural limits of this planet to support them. There was no simple answer but the one I remembered was: things probably start to run out around 2016 give or take a few years. More than 40 years away, plenty of time for us smart humans to fix things. Ah, the optimism of youth.

About four years ago I was seeing mention of 'peak oil' and began looking into it. Realistic estimates (from ASPO) then were that it would happen about 2012, still over 10 years away but starting to get close - time for me to begin thinking of what I should be doing, and where, when peak oil hit. Well, in these last 4 years I've watched with growing concern as that estimate has moved to 2010, 2008, 2007 - the estimated date for peak oil and the present date have been rushing together at similar speed [Note: January 2006, ASPO have put their peak oil date back to 2010 mostly due to anticipated additional non-conventional oil]. Like two galaxies colliding the first impacts have already happened and their ripples have begun to distort and rip our reality, though few have noticed yet.

Peak oil brings the end of the 'American Dream', the US economic and financial systems have minimal chance of surviving it, the next 10 years will bring at best the halving of wealth of the american people, or halving US population, or maybe both, or maybe worse.

In the latter half of the 1970s the american people elected a truly honest president, it coincided with the last energy crisis. He set out what the USA must do to become virtually independent of foreign energy supplies. It never happened, he wasn't re-elected.

Had the american people, congress and senate supported Carter and implemented the energy policy that he spelled out very clearly the world would be very different today and peak oil would be at least a decade farther away. We would have time to change further and the US would already be at least half way on that positive road. But, as Carter said "There is no way to avoid sacrifice...". That didn't sound nice so the american people turned their back on truth, embraced illusion, and postponed the (then small) sacrifice. Thus was humanity and this planet betrayed.

Tuesday, December 06, 2005

Efficient Money

"The US government currently borrows $5,000 a year on behalf of each US family, which it dares not tax for electoral reasons. This is the source of the budget deficit.That uncollected money remains in the hands of the family, which currently prefers buying foreign goods and spends $5,000 on them, producing the trade deficit. The foreign supplier sends the $5,000 back to the US by buying government bonds and American businesses. This money from abroad is the source of the fine-sounding US capital inflow."

It struck me as the most concisely accurate description of current US economics I'd seen so had to share it with you. From here: http://www.financialsense.com/fsu/editorials/tustain/2005/1205.html

I'll leave you and the theoretical economists to work out how many times that $5,000 'works' in the US economy but it's at least twice - once in the family budget (or is that in the Federal spend?) and once in foreign reinvestment back into the USA. If you begin to feel dizzy, sit down and congratulate yourself for beginning to understand. But in this high stakes game of fiscal musical chairs when the music stops we'll all fall down.

The article is by a goldbug, I'm not one of them ( I have a bit of a problem with the concepts of 'money' and 'property', though less than my problem with monotheism) but I'd bet that gold will more than double its current price of $500 within less than a handful of years - the printing presses of the US Fed make it almost inevitable. The article has some nice snippets of info too, for example: "Gold is famously useless in almost everything except that it cannot be made, and is reliably difficult to find. Even now if all the gold ever produced on Earth were formed into a single cube its edge would be less than 20 metres - 2 metres shorter than a tennis court. Annually mined production grows that cube by about 12 centimetres a year, and more than each year's production is used up by jewellers such that now 75% of that cube is fabricated in an art form worth several times its bullion value. "

I'm going to have lots more to say on the US and global economics later but I have a few more Peak Oil missives to post before I wander down that thorny lane. Hopefully I'll get a round tuit before my economic expectations come to pass - you would be wise to hope that takes a decade and yet remains true ;) . Meanwhile I strongly recommend this place:
http://www.financialsense.com/index.html
as the best resource online for attempting to inform people about what is really happening economically. I especially look forward to listening to their Saturday morning MP3 files. Though its balance is (realistically) less than optimistic, the site is HUGE and gives many differing views a chance to express themselves. It has true integrity.

Saturday, December 03, 2005

Peak Oil 2 : but why worry?

I want you to think hard before reading on.

If you read this post and some of its links you will be wiser but sadder, your awareness and thinking will have changed, the equations that decide your choices about life will be different. In some ways you, and your perception of reality, may change in an irrevocable way.

Last warning: what you are about to read cannot be unread.

Unless we can find, and implement on sufficient scale, alternative cheap energy sources by the time peak oil happens, it will cause massive economic disruption, probably widespread famine and death even in Europe and USA, most likely wars over oil and other resources. No combination of existing known energy resources - fossil and renewable - plus massive conservation measures could compensate for peak oil if it occurs within 10 years, but more about that another day.

Humans have always had a new and more powerful energy source to turn to when needed. Initially we had only our bodies, powered by the food we could find. Then our use of biofuels like wood, and animal labour for transport etc. Wind and water power helped with early mechanisation. When industrialisation began coal was found and mined, steam power became an important flexible energy source. The last century has seen the widespread use of oil, gas and nuclear power. Oil is the most critical of these: it is very energy dense, easy to mine and transport, incredibly cheap (so far), and very versatile.

Humanity has never, on a global scale, faced the problem of a reducing supply of energy.

Read that last sentence again and let it sink in.

It has been faced on a more local scale, usually disastrously, as in this Bronze Age example of 'Peak Wood':
http://anthropik.com/2005/10/peak-wood/

There is a strong argument that the growth in wealth and size of the human population over the last three centuries is almost totally due to humans' exploitation of fossil hydrocarbons. Our economic system is dependent on continued growth - not steady state - more than a year or two of contraction will cause serious problems for the current economic and financial systems, peak oil will certainly break them.

Population is dependent on food production, which has increased about four-fold in productivity per unit of land in developed countries over the last century. Some of this is due to better / more productive plant varieties, some due to better knowledge, skills and methods; but most is due to fossil fuels: mechanisation, fertilisers, herbicides, pesticides, refridgeration, transportation, preserving.

You will find this article truly shocking:
http://www.fromthewilderness.com./free/ww3/100303_eating_oil.html

This planet has one military superpower and it will stop at nothing to secure access to the oil it demands. As Dick Cheney - the current US vice president - said in 2004 (I think): "The american way of life is non negotiable" - and he was specifically speaking about access to sufficient energy supplies and oil. The Iraq invasion was the first large scale military expression of that philosophy.
http://www.consortiumnews.com/2005/110705.html

So, there you have it: peak oil will break our economic and financial systems, cause widespread starvation and be the direct reason for further major wars. By the time things have stabilised in a sustainable way after peak oil I expect the global population to be between 20% and 50% of its current level, that could be any time from about 2020 to 2100. The stabilised 'post-peak' population could be significantly lower than 1 billion but it won't be significantly higher than 3 billions unless something unforeseen and unpredictable occurs like a previously unknown, cheap and flexible energy source, invasion by benevolent aliens etc.

Here are some sites that explain the gory details better than I can...

Richard Heinberg writes and lectures well, this from 2001 sets the scene nicely:
http://www.museletter.com/archive/110.html
(later it is worth coming back to his Museletter site and reading more
http://www.museletter.com/index.html
but, for now, I recommend you visit some others...)

This site is fairly pessimistic:
http://wolf.readinglitho.co.uk/index.html
..as you will realise if you get to this page:
http://wolf.readinglitho.co.uk/mainpages/whattodo.html

Matt Savinar was qualifying as a lawyer when he heard about peak oil, thought: it can't be true, then researched a bit and realised it was. He started writing and talking about it and his life changed completely. He's good at explaining the important aspects:
http://www.lifeaftertheoilcrash.net/Index.html

This site is by a non-scientist who recently discovered peak oil and has done a good job of organising most of the important facts:
http://www.eclipsenow.org/

A fair summary of current oil supply situation from The Guardian, April 2005:
http://www.guardian.co.uk/life/feature/story/0,13026,1464050,00.html

I have avoided the frequently updated news and discussion sites about peak oil (for now), there are several excellent ones, and have tried to give links that explain the basic background to the peak oil. There is one last such site that hasn't been updated much in the last 3 or 4 years but is an impressive collection of articles up to then. Don't attempt to read too much of it - it would take days - but you will be surprised how much information was available 5 years and more ago. It isn't an optimistic site, as you will guess from its appropriate name:
http://www.dieoff.org/

Happy reading!

If you can listen to audio files like MP3s on your PC here are a couple of good ones (the best way to listen is to save the MP3 file first then listen to that when convenient) ...(both about an hour long and 10 to 20 MB size)
1. Interview Jim Puplova / Matt Savinar about peak oil in general
http://www.financialsense.com/Experts/2004/Savinar.html
2. Peak oil and food, a good lecture by Richard Heinberg
http://www.globalpublicmedia.com/lectures/446