The Next Big Thing

In 2008, I created The Crash Course.  If you haven’t seen it, well, you really should.  It’s both very outdated and still spot on.

In it I made the case that by looking through a resource lens we could come to this conclusion:  The next twenty years are going to be completely unlike the past twenty years.

There are lots of ways to look at the world – geopolitically, spiritually, ecologically – but I’ve found that resources have both power predictive and explanatory powers.

Now that we’re more than half-way through that 20-year period it’s fair to ask how the Crash Course predictions have held up.

Well, like any big set of future predictions, the record is spotty.  Got some right, got some wrong.  Got some directionally right but really missed the magnitude of the move.  A few were more or less correct.

Money

This is the area I got directionally right but badly underestimated the magnitude of the printing.  Yes, I expected printing, and I expected that printing to exacerbate an already large wealth gap, but I never thought things would go this far.

I first used this quote the original crash course back in 2008, and I now repeat it almost weekly.  I hope someone is listening.

Never in my wildest dreams did I think that we’d be facing the situation we’re in.  I literally have no words for any of this.  So maybe a chart of currency creation will do:

That hefty 65% increase in total money stock in just one year has mainly flooded over to the already rich.  The wealth gaps that I thought too far and too much back in 2008 is now an order of magnitude worse.

Of course, that’s just one problem.  The larger problem is that money isn’t a real thing.  It’s an intangible.  A marker.  It’s a social contract.  More of an agreement than actual wealth.

As you probably know, I consider real wealth to consist of real things like land, oil, trees, water, finished products, houses, and valuable intellectual property.  Money, or currency, is a claim on those things.  Not wealth itself.

Accordingly, there always has to be a balance between the real things and the claims.  Right now, that balance is tipping dangerously to one side.

The claims are exploding upwards, but the real things are now declining.

One place we can see that beginning to play out, and this is the next big thing that will impact us all, is in the price of commodities.  Yes, boring old commodities.

When compared on a ratio basis to stocks they are generationally cheap.

I couldn’t easily find a more updated chart, and this one is now a couple of years out of date, so it’s certain to be an even more extreme ratio now.  Stocks are higher than ever and commodities have only recently begun to wake back up.

When they do, that’s what we’ll be told is inflation – that mysterious thing the Federal Reserve always wants more of for some reason – but it will actually be several factors colliding at once.

The first factor is plain old money printing.  We’ve already laid out a bit of that story above.  Too much money chasing too few goods is always a recipe for price increases.

The second factor is that the west’s bungled response to Covid has led to an enormous number of shortages, work stoppages, and supply chain disruptions.  Consider boring old lumber.  Not so boring on this chart, is it?

It’s vastly higher than at any other time over the past 12 years.  Everybody in the construction trades is talking about it and I know carpenters who will no longer provide a fixed quote for jobs because the price of the lumber is spiking so rapidly.  They’ll tell you job price the day of, but not sooner.  Sounds kind of like Venezuela, doesn’t it?

There are now shortages of computer chips, copper stocks are ‘dangerously low’ and shipping containers are all exactly not where they are needed to be so shipping costs are spiking.

The third, and most important reason we’re going to see massive price spikes is due to the King of all Commodities. Which brings us to…

Oil

The Crash Course was fascinated by peak Oil – which is not a theory but an observation.  Oil fields deplete and oil output declines.  Oil is a finite resource, as least as far as human civilization timeframes are concerned, and it’s not hard to reason it all out.  Dip into a finite anything, burn it, and over time you will use it all up.

As we know, things didn’t at all turn out the simple way I thought back in 2008.  Shale oil came along and, coupled to endless easy money from the Fed, a seeming bonanza of oil was wrested from the ground.

But not easily.  The costs both environmental and financial were extreme.  The entire industry as a whole burned through more than a trillion dollars and never made a dime.  A few of the better companies did, but most didn’t and when you add them all up it was a bust of an adventure.

Well, maybe not so fast.  In truth the US gained an enormous temporary advantage by not having to import oil and all it cost it was a bunch of evaporated currency which the Fed merely printed out of thin air.  All in all, maybe it wasn’t a totally bad deal, but it wasn’t conventionally successful in the way you or I have to be.

We have to assure that cash in exceeds cash out or we go bust.  The shale industry was never subjected to such harsh terms and managed to keep plugging along.

But Covid came along and wrecked all that.  Now we’re facing what I believe to be the mother of all oil shortages.  It will be the function of crushed oil companies smashed against oil prices that were far too low to sustain operations let alone fund the sorts of aggressive drill programs required to offset the horrendous decline rates of existing shale wells.

It will also be a function of all major and national oil companies severely curtailing oil investments all across the globe.  Future supplies cannot possibly rise to meet any pick-up in demand.  The lead-times are too long.

Which brings us to the final factor, the inevitable explosion of economic activity that will accompany mountains of stimulus printing and pent-up consumer demand.

People will want to do all the things they have been unable to do.  Weddings, travel, moving, etc.  This will lead to a rather rapid increase in oil demand.

This is my macro thesis for the next 1-2 years.  Lots and lots of $$$ and too few commodities = huge price increases in things like industrial metals, oil, and food.

This chart of a rare earth index is no outlier.  I have dozens of similar looking charts.

I believe this is just the first inning of this story.  While these charts all look crazy and extended to the upside, it’s really just the beginning.

At any rate, I didn’t see the shale miracle coming along but now we can all clearly see that it’s in the rear-view mirror.  Sure, there will be more oil to extract from the shale plays, but the bust there will take so terribly long to recover that it’s very unlikely we ever see the old oil production highs exceeded.

Ecology

The final part of the Crash Course story was about the environment, or as I now prefer to call it ecology.

Here I got things very wrong in the opposite direction.  I underestimated the amount of destruction and change we’d experience.  I never foresaw a complete insect apocalypse, nor all the world’s oceans experiencing a thiamine deficiency (say wut???), nor the amount of ice loss and weather instability we are currently living through.

How did we even do that?  How did we mess up the thiamine cycle in the world’s oceans?  Was it microplastics?  Warming?  A new chemical released that we don’t yet know about?

And this weather weirdness…it’s almost been normalized.  We expect extremes now.  Fires and droughts and routine “500-year” floods.  Cat 5 hurricanes and a polar jet stream that can’t keep in its former track any longer.

That thing in Texas this past week that saw south Texas colder than parts of Alaska?  In February??  Truly impressive.

Humans spread across the globe during a period of exceptional and benign climate stability.  That stability is now becoming instability.

Species are disappearing rapidly.  Soils too.  On and on.  The UN and the World Economic Forum crowds have really caught onto that vibe now and are talking about our many ecological predicaments in increasingly dire tones:

Huge Changes in Society Needed to Keep Nature, Earth OK

Feb 18, 2021

(AP) — Humans are making Earth a broken and increasingly unlivable planet through climate change, biodiversity loss and pollution. So the world must make dramatic changes to society, economics and daily life, a new United Nations report says.

Unlike past U.N. reports that focused on one issue and avoided telling leaders actions to take, Thursday’s report combines three intertwined environment crises and tells the world what’s got to change. It calls for changing what governments tax, how nations value economic output, how power is generated, the way people get around, fish and farm, as well as what they eat.

“Without nature’s help, we will not thrive or even survive,” Secretary-General Antonio Guterres said. “For too long, we have been waging a senseless and suicidal war on nature. The result is three interlinked environmental crises.”

Thus the 168-page report title is blunt: “Making Peace With Nature.”

“Our children and their children will inherit a world of extreme weather events, sea level rise, a drastic loss of plants and animals, food and water insecurity and increasing likelihood of future pandemics,” said report lead author Sir Robert Watson, who has chaired past UN science reports on climate change and biodiversity loss.

“The emergency is in fact more profound than we thought only a few years ago,” said Watson, who has been a top-level scientist in the U.S. and British governments.

The report highlighted what report co-author Rachel Warren of the University of East Anglia called “a litany of frightening statistics that hasn’t really been brought together:”

• Earth is on the way to an additional 3.5 degrees warming from now (1.9 degrees Celsius), far more than the international agreed upon goals in the Paris accord.
• About 9 million people a year die from pollution.
• About 1 million of Earth’s 8 million species of plants and animals are threatened with extinction.
• Up to 400 million tons of heavy metals, toxic sludge and other industrial waste are dumped into the world’s waters every year.
• More than 3 billion people are affected by land degradation, and only 15% of Earth’s wetlands remain intact.
• About 60% of fish stocks are fished at the maximum levels. There are more than 400 oxygen-depleted “dead zones” and marine plastics pollution has increased tenfold since 1980.

“In the end it will hit us,” said biologist Thomas Lovejoy, who was a scientific advisor to the report. “It’s not what’s happening to elephants. It’s not what’s happening to climate or sea level rise. It’s all going to impact us.”

The planet’s problems are so interconnected that they must be worked on together to be fixed right, Warren said. And many of the solutions, such as eliminating fossil fuel use, combat multiple problems including climate change and pollution, she said.

The report “makes it clear that there is no time for linear thinking or tackling problems one at a time,” said University of Michigan environment professor Rosina Bierbaum, who wasn’t part of the work.

In another break, this report gives specific solutions that it says must be taken.

This report uses the word “must” 56 times and “should” 37 times. There should be 100 more because action is so crucial, said former U.N. climate chief Christiana Figueres, who wasn’t part of the report.

“Time has totally ran out. That’s why the word ‘must’ is in there,” Figueres said.

The report calls for an end to fossil fuel use and to $5 trillion in government subsidies for fossil fuel and other industries that degrade the environment. It says governments should not tax labor or production, but use of resources that damages nature.

Finally, world leaders seem to be as alarmed as I have been for the past decade.  This sort of new attention is guaranteed to lead to huge changes in our lives.

But the so-called experts are still largely in the dark about the actual dimensions of the nested predicaments we all face.  Consider this one line from the above article:

“many of the solutions, such as eliminating fossil fuel use, combat multiple problems including climate change and pollution”

Uh, sure.  But eliminating fossil fuel use will also call for smashing the global economy to a fraction of its current output and the elimination of a big part of the current population.  Nobody ever seems to get around to mentioning those part of the “eliminate fossil fuels” plan but I will.

That’s what implied when every food calorie has 10 fossil fuel calories silently embedded within it.  That’s what explicitly called for when 95% of all transport is still powered by fossil fuels.

The Davos (WEF) crowd is calling it The Great Reset.  They have fancy plans for what all that entails, and it’s a lot of reading to power through, but I think I captured it well in my recent piece on it all:

“ They get more power, more money, more freedoms, and the rest of us get the exact opposites of those things.”

~ The Great Reset – Link

There.  That’s the whole Great Reset in a nutshell.  The world isn’t infinite, there are limits, we’ve hit those limits, somebody has got to stop consuming too many resources, and the elites have decided that you should be that ‘somebody’ not them.

That said, I can’t disagree with the ‘what’ of it all.  I agree that we’re way past our carrying capacity and that we’ve got to do something.  I agree that it’s long past time to get serious and begin to live within our means.

I agree with all that.

I disagree with the ‘how’ of it all.  My ‘how’ would include being straight up with people, being blunt with our situation and then providing a clear vision of where we’d like to end up in a few dozen years.

Give people a believable vision and they will always surprise you with their collective and individual determination and brilliance.

The ecological data says that we need to begin doing a heck of a lot more than I can possibly even imagine within our current understandings and frameworks.  So we have to really break our mental models and come up with brand new narratives.

We have to begin using our big brains to create abundance, and to carefully observe nature to live within its rules rather than plunge in with new ideas and technologies which only ever seem to create slightly more problems than they solve.

So I am sorry for all my Texas readers who got smashed with the polar vortex that invaded from the north.  I’m sure some of you are still dealing with the aftermath.  My caution for all of us is that such weather instability is not only a thing, but it seems to be increasing.  I haven’t a clue how to factor that into your plans, but for me that means living in a place with ample rainfall, out of a flood zone, and good soils.  Beyond that, who knows?  Maybe Phoenix AZ will somehow become more temperate and New England a desert and I’ll have picked wrong.  Such is life within a complex system.

Conclusion

The Crash Course got nearly everything wrong in its specifics.  But it got nearly everything right as a whole.

Even though it’s taking a lot longer for somethings to play out, and lot less time for others, the main conclusion remains on target; the next twenty years are going to be completely unlike the last twenty years.

In 2028, we get to see just how true that statement was.

But we all have a sense of it already, right?  We know that as foul as 2020 was for a lot of people, that 2021 is going to be even more extreme as the nuttiness of 2020 becomes the new normal of 2021.

$1 trillion-dollar deficits?  Pshaw!  Now it’s not really a deficit unless it’s $2 trillion.

A local health board member with the power to whimsically shut down your private business?  Yep, that’s ‘a thing’ now.

Insane weather events?  You might have to start organizing them by region to be able to keep up with them.

Shortages?  Just part of life now.

This is how it will go for a long time to come, and any future oil shortages and associated price spikes will only serve to accelerate these trends.

This is why I keep harping on the same ideas.  Plant a garden.  Meet your neighbors.  Practice generosity.  Learn new skills.  Control what you can and leave the rest.