Blog
Tracking
The Middle East and Us
March 11, 2011
The best case scenario for an American economic recovery, avoidance of inflation, and $6 gasoline? Moderation. Ghadifi quietly leaves Libya. A compromise between the separatists and the former cabinet and military. Eqypt remains somewhat quiet and their military fulfills promises of Mubarak crony removals and elections.
But those two possibilities are far less than certain. I’d give them less than 40% probability right now. Libya’s important production of light sweet crude oil will come offline for some time. Today I passed my first sign for $5.00 gasoline in San Diego, CA.
The more troubling events could occur in Saudi Arabia. The mere fact that government troops are firing rubber bullets at crowds is chilling. Despite the royal family throwing billions at the less advantaged citizens the groundswell from the educated population could destabilize the largest exporter of oil in the world. Crux facts: there is a huge concentration of the Shia minority around the Saudi’s oil production and shipping locations. Just like Benghazi in Libya, it’s strategic.
So what?
Think 1979.
Oil prices spike to $200 or perhaps beyond.
Oh yeah, you might not have been born then or you are too young to remember. Lines around blocks at gas stations (and there were almost 3 times as many as we have today with a population half the size). Declaration of a national crisis. Rationing. Price controls. Gas cans in auto trunks. Third world stuff.
Then, in the years that followed, runaway inflation coupled with a recession and double-digit interest rates. I was running a business in a market with real resistance to price increases when my operating line of credit went to 22%. It’s one reason I never, ever again want to make payroll for more than 40 people.
Worse, the US government can’t absorb a huge spike in what it pays to service the debt. The dollar will be wiped away as the world’s reserve currency, capital will leave the country, and the 1930’s will repeat and potentially be even more catastrophic.
I’m not saying the scenario is likely. I think it is still less than 30% probable but that probability increases daily to the point where we want to think through implications and actions.
In a recent Twitter post I pointed out a NY Times article on a fellow who’s gone “off the grid” in Texas by living in the desert on solar and wind power and capturing rainfall for water. Funny thing is that it’s both one of the most read and most e-mailed articles on the publication at this writing.
More in the days and weeks ahead. Hope for moderation in the Middle East and some leadership in our country. This could become a perfect catalyst for us to take steps to begin resolving our financial, energy, and world dominance issues.
Tracking, January 2011
January 13, 2011
A new year and new blips on the radar screen in our practice. I post items here from time to time that we’re watching because of our scanning, clients, or upcoming engagements.
Food Prices - for well over two years we’ve tracked a steady uptick in worldwide food prices. One visual element in our briefings and conference presentations is the UN’s index of world prices which shows a steady climb that now has exceeded the “trigger point” of 2007-08.
What do we mean by “trigger point?” When riots occur in less developed nations over food. Large portions of the population in these countries spend 50% or more of their incomes on food. This is a ticking time bomb that has been known to overthrow governments and even cause wars.
The “North Atlantic Recession” - come on, it is no longer a global recession or even the “Great Recession” when you view it from Brazil, India, or China. It’s the recession that still either cripples or impedes the US and the EU. Even Canada is out and expanding.
The “Employment Follies” - how badly can a government manipulate statistics? Just look at the jobless in America. OK, every governing administration wants to make the news better but creating 65,000 jobs in a month when it’s going to take over a quarter million new jobs every 30 days to get back to something like 5% unemployment is not good news. Especially when most of the jobs are in hotels, restaurant kitchens, or temporary services. Employment is a key trend for America’s return to economic health. We should be realistic about it.
Food Prices - for well over two years we’ve tracked a steady uptick in worldwide food prices. One visual element in our briefings and conference presentations is the UN’s index of world prices which shows a steady climb that now has exceeded the “trigger point” of 2007-08.
What do we mean by “trigger point?” When riots occur in less developed nations over food. Large portions of the population in these countries spend 50% or more of their incomes on food. This is a ticking time bomb that has been known to overthrow governments and even cause wars.
The “North Atlantic Recession” - come on, it is no longer a global recession or even the “Great Recession” when you view it from Brazil, India, or China. It’s the recession that still either cripples or impedes the US and the EU. Even Canada is out and expanding.
The “Employment Follies” - how badly can a government manipulate statistics? Just look at the jobless in America. OK, every governing administration wants to make the news better but creating 65,000 jobs in a month when it’s going to take over a quarter million new jobs every 30 days to get back to something like 5% unemployment is not good news. Especially when most of the jobs are in hotels, restaurant kitchens, or temporary services. Employment is a key trend for America’s return to economic health. We should be realistic about it.
The Consumer Christmas 2010
December 23, 2010
Don’t get me wrong. The store was busy but large areas were deserted. A store that stays open 24 hours a day is a phenomenon in itself but those wandering the aisles were being attracted to sale racks and less-spendy areas of the store.
It was interesting that many of the fur-bedecked matriarchs leading families very slowly and deliberately through the store’s luxury departments were speaking other languages. A lot of Russian and many Asian languages filled the air as we steered around them.
It’s not surprising. Almost all surveys of consumer behavior in the U.S. show a concentration on reducing debt that is unprecedented. Spenders are coming to grips with the fact that jobs are not multiplying, they’ve got to make do with what they have, and the smartest thing they can do is get out from under credit card and other debt as quickly as possible.
Where was shopping intense in Manhattan? Jack’s Dollar Store located just a few blocks from our hotel. Wall to wall shoppers all the way up to the closing hour.
The most likely scenario for the economy, in my opinion, is a long slow recovery. What I observed falls in line with that. I think a GDP growth near 3% in 2011 will enable the unemployment rate to drop below 9%. Spending will return cautiously. It won’t be for big-ticket items but will begin to bolster support for more indulgent food, some travel, culture, entertainment, and family involvement.
We attended sold-out Broadway shows but there were half-priced tickets available up to curtain time at almost all shows. Movies that you would have to buy tickets for days in advance at prime viewing times were walk-up purchases. Top-rated restaurants were busy but not overwhelmed. On the eve of the Christmas rush I’ve been getting discount and free-shipping (even of the rapid variety) offers on a regular basis.
We’ve moved into an era of moderation and introspection. May we emerge more sober and wiser.
Eyjafjöll
April 16, 2010
This is a classic situation of ripple effects that I discuss in presentations and help clients prepare for in consulting engagements and strategy sessions. Let’s take a look at just a few of the potential consequences:
- No air travel in and out of one of the world’s most crucial centers of commerce. Potentially for not just days but possibly weeks or months.
- Right now the volcano is erupting through hundreds of feet of glacier ice. As that ice melts the eruption might be less explosive but it could also launch finer ash even higher into the stratosphere. The effects of the ash on air travel might extend worldwide.
- The effects on air travel are in the UK, Scandinavia, and major airports in Central Europe. There are closures and delays in Rome, Moscow, and Eastern Europe. The airports affected handle hundreds of millions of passengers and millions of tons of cargo yearly.
- If the delays continue for weeks it will take weeks to clear the backlogs and return to any normal operation. Some of the slack will come from positioning larger aircraft to the routes but this will affect other air travel.
- Some passengers will crowd onto rail and ferry transportation to get to Spain, Turkey, perhaps even Moscow to get to airports still open and operating.
- Many passengers are stranded on other continents, notably the US, and face tough choices for getting back to their homes. Ocean crossings by boat may come back into favor if this continues for weeks.
- Airlines, especially those in the EU market, have been financially stressed by the economy and fuel costs. Expect this event to take down up to a dozen carriers. Even the low cost carriers in the EU will see significant effects. Losses per airline run between 3 and 20 million dollars per day.
- There will be pressure to fly through the ash. Some governments and airlines will begin to weigh the risks and consequences.
- The behavior of the volcano is unpredictable. New fissures might open. It may subside unexpectedly.
- We’ll see another spike in usage of telecommunication alternatives to travel. Probably with long term future effect. Telepresence will get specific attention and fiber optic advantages will come even more to the fore.
- Disruptions to supply chains, lowering of petroleum demands, economic effects, scarcity of air-freighted luxury products, changes in air travel routes, long term climate changes, and many other after-effects will arise.
Tracking, April 2010
April 01, 2010
Some recent updates and additions to items we’re tracking:
Water issues – it’s the next oil. With studies now emerging from non-politicized sources like the American Chemical Society that’s measuring how much water is consumed by industries or common products like a pound of sugar, the world is going to pay more attention to this vital resource. Sub-track: Desalination is gaining rapidly in efficiency and might provide a long-term answer. Look for a doubling of capacity in the next 5 years. Particular attention: agriculture (astounding figures on cotton production), municipalities (running out of water resources), manufacturing (might come out looking better), greentech (it’s not just about carbon).
Unintended Consequences of Healthcare Reform – the bill is law of the land but in the months ahead we’ll see the unintended effects of a major legislative course change. I’ve got an enlightened client company with 140 staffers that self-insures and provides a family practice doctor free of charge to any employee on their premises for a half day every week. Under the new law? Not permitted. Menu reprinting at restaurant changes? Coming. More insureds for America’s for-profit healthcare insurers? Well, we already know about that one. Watch for more.
Detroit as Harbinger – yep, that’s right, the most challenged city in America is going to be interesting to track as it attempts to drag itself out of the canyon of economic collapse. This is a classic case of reset and resurge. Things are so bad in Detroit that we may see large portions of the city converted to agriculture in the form of a garden meant to contribute affordable food and a tourist attraction. Motown may also host some of the more interesting developments in green technology. And it’s got almost nowhere else to go but up. A canary in the economic recovery coal mine.
Water issues – it’s the next oil. With studies now emerging from non-politicized sources like the American Chemical Society that’s measuring how much water is consumed by industries or common products like a pound of sugar, the world is going to pay more attention to this vital resource. Sub-track: Desalination is gaining rapidly in efficiency and might provide a long-term answer. Look for a doubling of capacity in the next 5 years. Particular attention: agriculture (astounding figures on cotton production), municipalities (running out of water resources), manufacturing (might come out looking better), greentech (it’s not just about carbon).
Unintended Consequences of Healthcare Reform – the bill is law of the land but in the months ahead we’ll see the unintended effects of a major legislative course change. I’ve got an enlightened client company with 140 staffers that self-insures and provides a family practice doctor free of charge to any employee on their premises for a half day every week. Under the new law? Not permitted. Menu reprinting at restaurant changes? Coming. More insureds for America’s for-profit healthcare insurers? Well, we already know about that one. Watch for more.
Detroit as Harbinger – yep, that’s right, the most challenged city in America is going to be interesting to track as it attempts to drag itself out of the canyon of economic collapse. This is a classic case of reset and resurge. Things are so bad in Detroit that we may see large portions of the city converted to agriculture in the form of a garden meant to contribute affordable food and a tourist attraction. Motown may also host some of the more interesting developments in green technology. And it’s got almost nowhere else to go but up. A canary in the economic recovery coal mine.
Tracking, August 2009
August 23, 2009
Just a few of the many indicators and trends we’re watching closely now:
Mortgage delinquencies – perhaps no other measure shows the painful decline in consumer wealth in the US. We’ve been tracking the delinquency rate well into double digits in many areas of the country as we’re asked to offer economic forecasts as part of almost every presentation. We expect worse before things improve.
There is a side metric related to delinquencies that seems to be critical. When a homebuyer is more than 25% underwater on their mortgage to market value they look carefully at turning in the keys, taking the financial hit, and starting the slow climb back to financial trustworthiness. My smartest financial services clients watch this metric carefully and work hard to keep mortgagees in those homes to preserve their capital, even writing down the loan balance and working out negotiated settlements to do so.
Oil price trends – with a stronger likelihood of an oil price spike sometime in the next 4 years we’re watching for speculation to reenter this market. Supply and demand pressures alone in this sector look like they’ll begin to force prices upward in the 2010-2011 window. Our scenario of not only demand pressures but speculation could bring prices up earlier and spell big trouble for consumers in developed nations, prices on all goods that require transportation, the economies of oil-importing nations, and the return of greed on the part of sovereign wealth funds.
The “S-word.” It’s not just the environment any more that is seeing burgeoning use of the term sustainability. There are a number of definitions floating around but they all boil down basically to “long term balance.” The UN uses a definition of “meeting the needs of today without jeopardizing the needs of future generations.”
I’m now seeing “sustainability” extend from environments to economics, strategies, capital investing, organizational history, and even marketing. Being able to demonstrate to your stakeholders that you’re not jeopardizing the future with your present actions is going to be an important measure at all levels of human endeavor over the coming years.
There is a side metric related to delinquencies that seems to be critical. When a homebuyer is more than 25% underwater on their mortgage to market value they look carefully at turning in the keys, taking the financial hit, and starting the slow climb back to financial trustworthiness. My smartest financial services clients watch this metric carefully and work hard to keep mortgagees in those homes to preserve their capital, even writing down the loan balance and working out negotiated settlements to do so.
Oil price trends – with a stronger likelihood of an oil price spike sometime in the next 4 years we’re watching for speculation to reenter this market. Supply and demand pressures alone in this sector look like they’ll begin to force prices upward in the 2010-2011 window. Our scenario of not only demand pressures but speculation could bring prices up earlier and spell big trouble for consumers in developed nations, prices on all goods that require transportation, the economies of oil-importing nations, and the return of greed on the part of sovereign wealth funds.
The “S-word.” It’s not just the environment any more that is seeing burgeoning use of the term sustainability. There are a number of definitions floating around but they all boil down basically to “long term balance.” The UN uses a definition of “meeting the needs of today without jeopardizing the needs of future generations.”
I’m now seeing “sustainability” extend from environments to economics, strategies, capital investing, organizational history, and even marketing. Being able to demonstrate to your stakeholders that you’re not jeopardizing the future with your present actions is going to be an important measure at all levels of human endeavor over the coming years.