Thursday, August 28, 2008

Shifting Economic Winds

We are heading into the last four months of the year, a time which usually sees an increase in investment activity and generally improving economic strength. That means we can expect a rebirth in investor optimism to offset the barrage of negative press we have been subjected to this past year. It is truly necessary this time around.

The subprime disaster has shrunk the capital base of our banking system both here and globally. The huge amount of excess liquidity pumped into the economy has been sponged up through direct losses. We now have a chastened financial sector that has perhaps caught the religion of financial prudence.

That leaves one pending problem. A massive wave of bad paper has worked its way through the system almost choking it. Various newsletters have reported that a much greater wave of refinance paper will be coming due over the next eighteen months. Accepting this as true, we face the most serious financial crisis since the Great Depression that could handily reduce the value of assets to dimes on the dollar and collapse the money supply. If true, the only escape will be my prescription of refinancing by a mark to market strategy. And I doubt if anyone is listening.

The true question is how true is this? I am skeptical. The fact is that Cleveland and those developer paradises in the west were the sweet spot for debt promotion. They loaded up fast and rather quickly ran out of participants. Those chickens came home to roost and have now been handled the hard way.

A lot of asset debt was then put out to folks who had a creditable plan for paying it back as is still happening. That is actually business as usual. The only difficulty is that their assets are now priced at a level that forces them to pay of those loans the old fashioned way and most will.

The equity markets have been reduced by twenty percent over the past year while this scary news was absorbed. It is now absorbing the impact of expensive energy which will take most of the next twelve months. This may squeeze another ten percent out of the market.

That will then be followed by an explosive bull market in equities driven by the rapid conversion of industry to low cost alternative energy regimes. The solutions already exist and the tooling up has begun.

For those who like predictions, I expect static power to soon drop below $1.00 per watt and I expect us to vacate the oil trade causing that price regime to drop well below $50.00 a barrel. In ten years I expect oil to be under $10.00 a barrel because we will have quit using it as a fuel and static power to be at the price equivalent of pennies per watt. That is were we are going.

We just have a little turmoil to go through in lieu of good planning. The conversion is totally feasible now and direct action can make it all very quick. The problem, if any, is the efforts of special interests to push their doubtful solution into the regulatory environment. This is the history of the corn ethanol mess. It never made any sense, but that never stopped anyone.

As I have discovered, wetland cattail starch production can bury us in ethanol at a rate that is likely ten times more productive than any dry land crop. And we have unlimited wetlands to work with that actually need the attention. Then we can enter the boreal forest if we ever need more land. If ethanol can be produced from corn at $1.00 to $2.00 per liter from corn, it is a cinch to produce it a lot cheaper from cattail starch while producing unlimited supplies of cattle fodder from the non starch component.

And then we have our modified alga that just cranks out sugar and easily convertible cellulose.

The point is that we can already bury the world in ethanol without using any food production land and do it at a low cost with modern farm technology and equipment.

The global conversion to the use of ethanol can soon be in full swing.

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