Welcome New Reader

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Welcome new reader, my name is Mike Murphy, Software Architect and arm chair global financial watcher.

Back in August 2006, while talking to my friend John Chinnock, came to realize that the entire financial markets where based on a ponzi-scheme of subprime mortgages and off-balance sheet derivatives.   Since then I was obsessed with reading ever aspect of the global economic forces at work, up until about 2013, as you can see by looking at my posting activity.

One of the reasons I have posted less is in my minds eye, I grasp enough to personally satisfy my own curiosity of the pressures on the global economic system.   I hope to someday boil down all the information into a concise summary.  For now, here is my short-sweet version.

**UPDATE** Skip all the summary below and read future of employment Post (click).  While below are all important and factors, the reality that affects you most is your ability to be employed.

The world faces unprecedented challenges today, the most critical being peak oil.  Fossil fuels are the reason why we have the lifestyle we have today in the west.  Fossil fuels took about 400 million years of sunshine on plant life to create, and mankind will take about 200 years to burn.  That release of stored energy has created the incredible world we live in today.  Peak Oil basically means that the era of cheap fuel is over.  I urge you to watch the 58 minute video below to indoctrinate you on the many resource challenges we face today.

The world is facing epic deflationary forces driven by technology, except monetary policy which is helping hide the financial strain. As of this writing I believe stock market valuations are precarious at best, partially inflated due to monetary policy.  However, after living through the last few years I have come to realize that investing depends on laws, or lack of laws to determine valuations.   Given reasonable expectations of maintaining sane law enforcement in the USA,  a reversion to the mean is historically likely.   For an ample discussion on this, please see the third video below, starting at 50 minutes in.   An independent indicator for longer term investing that you can read more about here, I do apply this to other stocks and ETF's as an indicator.  The jump the shark moment will be if US Treasuries break the downtrend of last 40 years.

If you think China is somehow going to pull the global economy, I for one don't believe it.  I have posted much about the China ponzi scheme, and with Jim Chanos providing an excellent job in his 2013 synopsis below on China's troubles.  Even if somehow China is wildly successful it would result is substantial cuts to western lifestyles due to resource redistribution.

I do believe in crypto-currencies, a great place to start is my series on money, and what I wrote back in 2011 the ideal form of money.  I think crytpo-currencies are a manifest-ion of what I described back in 2011, and I am lightly following bitcoin and 100 other crypto currencies as they develop.  And I have great hope for the new economy that is brewing with latest manufacturing revolution. But for the old generation I see deflation for decades as robotics and technology sheds millions of more jobs.  Its a generational shift, bad for the older employees, good for latest smart students out of college.

As of June 2014 I do think Gold Miners are a good buy, however due to all the issues above I am nervous about them as a longer term play.  ( GDX at 24 dollars)

For more information, if you care to research, my old new reader post is here.  If you browse my old posts keep this in mind,  the world is changing as I am, which affects viewpoints over time.  Posts in 2008 are likely to be significantly different than my current view.

I highly recommend the first two videos as a must watch.

Headwinds ahead

China is NOT the answer

Market Investing June 2014

It is all about Oil

I may blog on a wide variety of financial topics, including gold, currencies, government debt, investing.
But the only one that REALLY matters is Oil.  For without cheap energy, the world financial dance stops.

I believe peak oil is here, and may have already hit the top, we are on the down slope.
One way to realize the reality of this is the current price of gas.  Europe markets are in a full recession collapse, so is Australia, and to some degree, China.   The USA isn't exactly leading economically either.

But here we sit, with gas prices much higher than second half of 2008 prices.  Some of it is explainable by the 3rd world markets growing, their demand is driving prices higher.  But the USA gas consumption is down to 2002 levels....and retreating!   So as the US retreats the rest of the worlds consumption rages on.

Overall this doesn't explain the price of gas today.  It is peak oil, in action.  Peak oil does NOT mean the world runs out of oil.  It basically means all the cheap oil is gone (% to consumption, new cheap well here and there immaterial).  The only oil left is costly and hard to get to, and will continue to get harder and costlier.

Think off-shore oil rigs costing billions to construct.  They are built because there isn't cheaper ways to get oil, we are tapped.

If you want to read a really in depth rant on oil, check out the Burning Platform by clicking here.  While I agree it is a dire situation, that blog does tend to get a little dramatic.   My take is next few years, everyone should spend money to focus on reducing monthly costs.  Buy solar panels, electric car, improve house inefficiencies.  Basically focus on reducing monthly costs to zero.

For once the masses want to do the same, it will cost you...big time.

Alternate Power as Investments

European economy is under fire, so is China, and to a lesser extent, the USA.

Yet gas prices are stubbornly high.  Every new well is MORE expensive to drill, as it gets harder to find new resources.  That drives fuel prices up, as well as energy demand from BRICK countries rise.

I still like two stocks for decade+ play, HTM and MGMXF, both in renewable energy.  Both their stocks trade at 40 cents, not something I advise dumping huge amounts into.  But a nibble here for the long haul to me seems like a winner.   As fuel prices go up, renewable energy from thermal simply increases profit margin.  These plants last 50-100 years at constant cost structure.  Check them out.

It's all about Oil

As I have posted before, I am a believer of peak oil.  Whether the peak has past or will past soon is immaterial.  In the scheme of 100+ years of oil use, we are about to hit the peak, and afterwards we will experience continued rising costs for energy.

Governments can and have been promoting green energy.  But the adoption rate is slow, but hopefully will accelerate with technology efficiency advancements.

The growth for energy in India and China is staggering.  The consumption monster drives all energy sources higher.  China has done much with nuclear and coal to relieve pressure off oil.  

So when resource costs are going higher, what can governments do?  Why a stronger currency helps offset these pressures.  Think of it this way, if the USD was worth 10x more than other currencies, oil to US Citizens would cost less than people pay in their countries.  The irony is governments are publicly advocating cheapening of the currency to make them more competitive (and help pay down debt cheaper, but that part they don't announce).  The act of lowering money's value is a tax on every single citizen, in higher expenses.

We may be seeing another round of deflation to start, to help kick resources down a few notches in cost.  And of course, sometime between September and February of next year, another round of loose money will hit the world.  But only after resource costs go lower.

To get an idea how expensive oil is, and remember, the US and Europe are experiencing weak economies, look at the graphs below.  The second one is important, it helps make the costs of oil reletive in current dollars. By any historical standard, oil is expensive.

From WebSufinMurfs FinancialBlog2

From WebSufinMurfs FinancialBlog2

We are all fleas on an elephant

In our day to day, I forget sometimes how truly out of control life is for everyone.  Sure, I think I have some control over my job, my home life, my play time.  But really, I owe my entire life on some basic structures that dictate my entire living standard.

The largest one is cheap energy.  For without it, I couldn't have a career in Computing software.  The energy it takes to make one PC is amazing, my car, everything that is complex.  Without cheap energy, these items just wouldn't exist.   Not to mention my 99 cent burger at McDonalds.  Every aspect of my life depends on this building block, cheap energy.

I have posted before about peak oil, and it is REAL issue.  People can dismiss it, but those who look at the facts, that every production of a limited resource hits a bell curve.   It's a mathematical reality, it can't be escaped.  I was bouncing around on the web when I hit the wikipedia article on peak oil.  I highly recommend reading (or skimming it).

I cannot for the life of me even understand what we face, and how we will cope. Think I am over-hyping?  Read the quotes below.  The greatest hope is if we can accelerate alternative fuels we can sit at the top of peak oil for years as new demand, and shrinking supply, is offset from reduced net demand.  So it is possible we can avoid a severe economic calamity.  This isn't a crazy far-fetched possibility.  Peak oil was originally predicted to be in 1995, but has been pushed out by increasing efficiencies.

All the easy oil and gas in the world has pretty much been found. Now comes the harder work in finding and producing oil from more challenging environments and work areas.
— William J. Cummings, Exxon-Mobil company spokesman, December 2005


It is pretty clear that there is not much chance of finding any significant quantity of new cheap oil. Any new or unconventional oil is going to be expensive.
— Lord Ron Oxburgh, a former chairman of Shell, October 2008

In Feb 2010 the US Joint Forces Command issued the Joint Operating Environment 2010[114] warning US military commands "By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day."


"A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict. One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest."


"Energy production and distribution infrastructure must see significant new investment if energy demand is to be satisfied at a cost compatible with economic growth and prosperity."


"The discovery rate for new petroleum and gas fields over the past two decades (with the possible exception of Brazil) provides little reason for optimism that future efforts will find major new fields."

Peak Oil is real, the true crisis

I may focus on various economic issues, focus on currencies, gold, food, and energy.

But the single worst disaster the world faces is peak oil.

The global society is predicated on cheap energy. Without it, the laptop I am using right now would be insanely expensive to produce.

The world is facing catastrophic problems with energy costs, as the world is too dependent on oil for energy. Oil unfortunately has a problem with increasing production capacity to meet increasing demand from China and India (2.5 billion people) and western consumption. The US is already back at peak consumption levels set back in 2007, with a weak economy.

The concept of Peak Oil eludes most people, and many debate it as real. Let me be crystal clear what peak oil means to me. Oil will NOT run out in the next 50 years. Oil will continue to be more expensive to procure and rise in price by lack of increasing total global output. So in a sense, peak oil is lack of continued increase in net oil production, at a low price.

The net result is too little oil for too much demand, with higher production costs. This will be a continual problem for the rest of human existence until we can find a new primary energy source.

The net result will be increasing costs in food, energy, and consumer products relative to income. This is in-line with my view of continued downward spiral of US living standard, along with western countries, until these economies can experience a rebirth away from debt and new energy sources.

To articulate finer points on this issue, I have links to resources.

Shell Oil predicts Great Depression 2.0 Sooner rather than much later - Full PDF here

Financial Sense News hour podcast, Energy Crisis likely in 2012

Baron's Magazine, calling for Oil at 150 a barrel and beyond.

As a side note, Saudi Arabia is building a large solar farm. For the largest oil producing country in the world to entertain Solar tells me they think it will be cheaper than consuming their own oil.

Mentioned in the Shell article is movie Collpase, never heard of it. Snippet below.
UPDATE 6-21-2016 - the PDF and video are gone, I found alternate PDF copy here