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2022-06-23 08:00 by Karl Denninger
in POTD , 142 references
 

 

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2022-06-23 07:00 by Karl Denninger
in Macro Factors , 1334 references
[Comments enabled]  

"Oh nos, there's a recession coming!"

CHEERS, say I.

What, you say?  You must be nuts!  People lose their jobs in a recession and the economy stinks!

Oh, so what's going on right now doesn't stink?  Sky-high gas prices and a 50% inflation built into the PPI which has yet to work itself through the system -- and won't for at least another year even if all the crazy policies stopped now?  Of course it does.

The only reason to fear recessions and higher interest rates is if you, or your firm, is over-levered.  To put not so fine a point on it you cheated to obtain what you claim as "prosperity" and now you're staring down getting caught out while both unprepared and having done stupid things.

Key to this is that you did the stupid things.

What was the smart thing to do in such a time?

Live below your means and sock back capital during the good times.

Why?

Because then you have it, and its yours, when the bad times come -- which means you get to pick on the people who did stupid things and, by doing so, get far ahead and you didn't have to cheat in order to do so.

Twice in my time running MCSNet I feasted on other people's stupidity in regard to taking on leverage they could not service.  Neither time was I personally responsible for the stupidity of said others, but both times I made out like a bandit -- precisely because I had cash and, when the opportunity arose, could slap it on the table in exchange for what I wanted to grow the business at a ridiculous discount to what I would have otherwise paid.

One of those was Class "A" office space in downtown Chicago which I was able to lease for $8/ft, about one fifth of the going rate at that general time.  I had cash and thus was able to slap a big check on the desk in the management office and prove that I was able to fund the space and wanted it now.  I got it.

Why was that so critical?  In business you make your money when you buy things, not when you sell them.

This may sound counter-intuitive but it isn't.  Marketing (and its subset of advertising) are expenses. You not only have to out-market the other guy you must do so while every dollar you spend on same dilutes the results.  That's hard, and while marketing is necessary going at competitors from that angle is an uphill slog.  Necessary, yes, but still uphill.

On the other hand if you can acquire office space at a fifth of what the other guy had to pay now you spend less on said overhead every single month until the lease runs out, and during that time your operation costs less to run than his does.  That's a wild advantage that, assuming you're both equally good at what you do, drops immediately to your bottom line.

So do not fear recession, rather plan for it and patiently wait for the advantage, then take it.  There is nothing wrong with exploiting someone else's stupidity and it is in fact the way the patient and smart make money over time.  Not instantly to be sure, but certainly, and with no or little risk of blowing yourself up economically.

If you're one of those people screaming about an imminent recession you just marked yourself as either one of those who has been stepped on by various corporate interests over the last decade (in which case you have a valid complaint, but its not with an impending recession) or you're over-levered and starting at your own economic destruction, knowing its coming, and demanding that someone save you from yourself.

Sorry, not this time.

And, incidentally, my expectation is that this won't be over quickly either.  The closest analog is the 1970s in our recent economic past and the sucky economic picture went on for about four years.  Thus it is likely to this time as well, and in fact the PPI data, which I have reported on repeatedly, strong suggests that the Biden Administration component of this is just starting to show up at the consumer  level in the last few months and even if we were to stop all the craziness right now, which of course we won't, it would be 12-18 months before it started to improve.

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2022-06-21 08:19 by Karl Denninger
in POTD , 117 references
 

 

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2022-06-20 07:00 by Karl Denninger
in Energy , 1274 references
[Comments enabled]  

I'm getting tired of political feelz being paraded around as alleged "facts".

Treasury Secretary Janet Yellen said Sunday that the Biden administration’s policies are not responsible for record-high gas prices, and the only way to fix the energy crisis in the "medium-term" is to move towards "renewables to address climate change."

...

"Actually, consumption of gas and fuels are currently at lower levels than pre-pandemic, and what's happened is the production has gone down. Refinery capacity is declined in the United States and oil production has declined. ...."

Refinery capacity and production declined because Biden said he would ban both and, within days of being inaugurated, took concrete steps to do both.

Refineries and pipelines have a 30, 40, 50 or more year service life.  Nobody in their right mind is going to put forward capital investment with a 30 year payback when you're told that investment will be destroyed and that threat is credible because the people making it then act in accordance with same, thus confirming that its not mere election-year rhetoric (which we all know happens and usually means nothing.)

Yellen argued that the best way to address the energy crisis in the "medium-term" is to transition the country off of fossil fuels.

That's a thermodynamic impossibility within the current realm of knowledge.  In short: You can't.

To make an EV battery you must dig up 500,000 lbs. of earth.  For one battery.  Which has a service life, after which it must be replaced.  Which has no current means of economically recycling the components either, so unless you'd like the price of the pack to wildly exceed the crazy levels it is at now you will throw the old away and buy another one with another half-million pounds of earth dug up.  All of which are dug up, transported and processed using fossil fuels because there is no other rational way to do so.

Renewables in the form of wind and solar require these fossil fuel inputs, as do storage batteries.  Because the energy they produce is uncertain, that is the sun does not always shine and the wind does not always blow, you can never guarantee how much output you will have from them even if you could somehow resolve the fossil fuel requirement for creating the panels, concrete and blades for the windmills, and rare earth materials you must dig out of the ground and refine to make them.  For this reason the energy they produce will always fluctuate wildly in price simply due to fluctuations in supply.

If you build "enough" that you're comfortable you will not be short there will be times there is so much supply the price is zero and the economic incentive to build them will likewise be zero.  At any build-out less than this there will be times when you demand it but can't have it.  Of course the time when you demand it and can't have it will be at the most inconvenient time of all, typically when its freezing-butt cold or broiling hot.

Look at the price of these things and the fossil alternatives over long periods of time.  Natural gas has seen wild spikes in both directions in price.  So has wind power, solar and similar.  There are only two that do not over our history of use: Coal and fission-based nuclear.

It doesn't matter one bit whether you like any of this or not.  These are facts and unless you want a power bill that varies by 400% or more (natural gas has seen price variations of ten times or more in reasonably recent history) you are out of your mind to not build the base demand capacity out of things that do not have that fluctuation and aren't dependent on those that do.

This isn't complicated.  Yellen famously said that inflation was "transitory" not all that long ago -- about a year back -- when she was arguing for, and implementing, the next round of wild money-printing after Trump did it too and I remind you that she has now been proved to be completely full of crap.

Now she's doing it again and if you let her and this Administration get away with it I hope you are ok with the wild price spikes and shortages, up to and including black-outs, that these policies will lead to.

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2022-06-19 07:00 by Karl Denninger
in Social Issues , 483 references
[Comments enabled]  

Father's Day.

Allegedly, anyway.

You can find all manner of lament about how we have an epidemic of fatherless children and fatherless families.

You can also find plenty of people, although few will say it out loud, who are fully aware that their Dad was a jackass -- or worse.

Isn't it interesting how we create a problem through either intentional neglect or outright malice, then lament it?

As just one of many examples there's a hell of a lot of fentanyl that comes into this country and kills people.  Most of the precursors, if not the drug itself, comes straight out of China, and much is manufactured and trafficked through Mexico.  We could shut down both tomorrow -- but not only have we refused, we consider both nations "reliable trading partners" despite them shipping literal addictive poison by the ton into our nation.

Until the "Great Society" black families had a very high prevalence of 2-parent homes.  Then we handed out money and incentivized breaking up said families or not forming them in the first place -- and we got exactly what we bought.  Now we "lament" it, but never reverse course on what caused it.

We hear people complain about "toxic masculinity" yet it is precisely the fact that men and women think differently that such complaining is attempting to step on.  Thomas Edison was doggedly dedicated to finding an answer to why his electric lights burned out very rapidly.  He wanted to -- and did -- isolate himself finding the answer.  Had he not had said dogged...... dare I say.... toxic masculine doggedness you'd probably not have said lights today.

I could go on for pages and pages, but I won't.

You know I'm right.

You also know we, as a society, threw it out.

You know that was stupid.

And you know we're paying for it -- and will continue to -- because we will not demand that this nonsense not just stop, but be reversed.  Not individually because even though some do the benefit of individually, as a man or woman, making that decision is at best individual.  To fix the problem it has to happen at a societal level.

There are some smart women who have figured this out.  They have no interest in trying to make men into women -- not psychologically, intellectually or otherwise.  They recognize that men and women are different and they respect that difference.  They know why the man cave is there, and they leave it -- and the occupant -- alone.  They don't crawl up a man's ass 24x7x365 any more than a man tries to convince a woman shooting and gutting a deer or engaging in a fart contest is fun if she thinks its disgusting.  The problem is that society makes it all too easy to expect whatever you want from someone who isn't you, and if you don't get it then you can bash the other over the head and even, if you managed to connect yourselves sufficiently, get paid to do it because society says that's ok too and labels anything that's not you as "toxic."

You can't argue with the historical record.  You can burn the books and try to "cancel" it, but tell me why if banishing "toxic masculine" traits such as "sink or swim", "work or starve", getting rid of the entire premise of the "den", "library" or "smoking room" in a house (a place to go to withdraw from others) and refusing to "give money to people when they break up families" are all good things and lead to superior outcomes why are 70% of black children are born out of wedlock while in 1960, before all that, it was about 20%?

Facts just are, whether you like them or not.

Happy Father's (or what's left of it) Day.

I guess its only fitting, all things considered, that it has been subsumed by Juneteenth.

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