The article began with a description of California’s current rail service between the Bay Area and Los Angeles. A commission of nine-year-olds in a place like Germany could run a better system, of course. It’s never on schedule. The equipment breaks down incessantly. A substantial leg of the trip requires a transfer to a bus (along with everybody’s luggage) with no working toilet. You get the picture: Kazakhstan without the basic competence.

The proposed solution to this is the most expensive public works program in the history of the world, at a time when both the state of California and the US federal government are effectively bankrupt. By the way, I wouldn’t argue that California shouldn’t have high-speed rail. It might have been nice if, say, in the late 20th century, some far-seeing governor had noticed what was going on in France, Germany, and Spain but, alas…. It would have been nice, too, if the doltish George W. Bush, when addressing extreme airport congestion in 2003, had considered serious upgrades in normal train service between the many US cities 500 miles or so apart. The idea never entered his walnut brain.

The sad truth is it’s too late now. But the additional sad truth, at this point, is that Californians (and US public in general) would benefit tremendously from normal rail service on a par with the standards of 1927, when speeds of 100 miles-per-hour were common and the trains ran absolutely on time (and frequently, too) without computers (imagine that !). The tracks are still there, waiting to be fixed. In our current condition of psychotic techno-grandiosity, this is all too hopelessly quaint, not cutting edge enough, pathetically un-”hot.” The fact that it is not even considered by the editors of The New York Times, not to mention the governor of California, the President of the United States, and all the agency heads and departmental chiefs and think tank gurus and university engineering professors, is something that will have historians of the future rolling their eyes. But for the moment all it shows is that we are collectively too stupid to survive as an advanced society.

Ironically (if you go for gallows irony) a sidebar in the same issue of The NY Times Sunday Magazine featured the latest architect’s wet dream of an airport-of-the-future (p.35). Note to the editors and architects: commercial aviation is toast (we just don’t know it yet). We’re back in the $70-plus a barrel-of-oil aviation death-zone for airlines.

Also ironically proving that America is not alone in techno-triumphalist mental illness was another big article in the same magazine featuring French President Nicolas Sarkozy’s neo-Modernist fantasies for vast new construction projects in Paris. Note to Sarko: the developed world’s metroplexes are headed for shocking contraction, not further expansion. I know this is counter-intuitive, but a little applied prayerful research will bear it out. And, by the way, the last thing any city on earth needs is more skyscrapers — i.e. buildings that have no chance of ever being renovated when they reach the senility stage of their design-life. For really mind-blowing statements, this one from that article is a standout: “Paris’s current problems as a city can be traced to the very thing that makes it most delightful — its beauty.” Right. So, the solution will be to make it more like Houston.

Actually, I doubt the French people consider these schemes anymore plausible than ur-Modernist Le Corbusier’s 1924 proposal to bulldoze half of the Right Bank and replace it with dozens of identical skyscrapers. The French people laughed at Corbu, and put their vertical slums outside the city center, but notice that we Americans actually did it, replacing our old human-scaled center cities with priapic arrays of glass-and-steel tubes surrounded by parking lagoons. Anyway, nobody in the OECD world will have the energy to carry out anything like this again, not even France with its nuke plants.

Which brings me back to the New Urbanist annual meet-up last week in Denver. Given the gathering conditions of what I variously call The Long Emergency or the economic clusterf**k, they have had to shift their focus starkly. For years, their stock-in-trade was the greenfield New Town or Traditional Neighborhood Development (TND), a severe reform of conventional suburban development. That sort of reform work was only possible when 1.) the continued expansion of suburbia seemed utterly inevitable, requiring heroic mitigation and 2.) when they could team up with the production home-builders to get their TND projects built. To the group’s credit, they realize that these conditions are no more. Suburbia is now cratering, both as a repository of wealth in real estate and as a practical matter of everyday existence. They get that the energy crisis and all its implications are real and that our response to it had better be deft. They understand that the capital resources we thought we had for Big Projects are flying into a black hole at the speed of light. Mostly they see that he time for “cutting edge” fashionista techno-triumphalist grandiosity is over.

To put it bluntly, the Congress for the New Urbanism (CNU) is perhaps the only surviving collective intelligence left in the United States that is producing ideas consistent with the reality. They recognize that our survival depends on downscaling and re-localization. They recognize the crisis we will soon face in food production, and the desperate need to reactivate the relationship between the way we inhabit the landscape and the way we feed ourselves. They recognize that the solution to the liquid fuels crisis is not cars that can run by other means but walkable towns and cities connected by public transit.

This is exactly what you will not find in the pages of The New York Times or the political corridors of power. Oh, by the way, the Obama administration contacted one of the leading lights of the New Urbanism in the weeks after the inauguration. He never heard back from the White House. I guess they’re not interested.

Regards,
James Howard Kunstler

June 16, 2009

The High-Speed Rail Cart Before the Horse was originally featured on Whiskey and Gunpowder

Yes, I know. It’s been said before, but it bears repeating. The reason is that we tend to assume that progress will continue as an upward sloping straight line. It won’t, in fact, it will be much more rapid – even exponential at times.

Think about the changes in computer technology we’ve seen in the last few years. Computers have been getting cheaper and faster in relatively predictable ways for a while now.

Don’t be lulled.

The electronics and computing industries are getting primed for a massive transformation in the years ahead. Quantum technologies that were only theories in scientific journals just a few years ago are being prototyped in labs now. These new components will change the way we live forever. They will also create transformational profit opportunities. If you missed the chance to buy into the computer industry when it was young, this is a second shot.

Currently, the mainstream electronics industry processes data by moving bunches of electrons about in huge batches. Think of the components in your PC as electrical plumbing. Data are usually stored as batches of electrons. Imagine your computer’s hard drive as a bunch of very small buckets, some full of water, some not. This will change.

Improved materials technologies from emerging nanosciences are allowing us to replace batches of electrons with the smallest individual unit: the electron. As a result, computers will work at far higher speeds. Additionally, far less electricity will be required to do the same amount of work.

Much of this exciting news is being ignored by the market. It’s an unfortunate truth that investors often lose sight of long-term opportunities to create wealth because they get distracted by the short-term noise and news in the markets. When it comes to big transformational technologies, don’t worry about timing. The returns that disruptive technologies yield justify getting in early.

Quantum Superposition

One important quantum effect that will be used in future generations of computer technology is “quantum superposition.” In a nutshell, this means that a quantum particle can exist in multiple states and everything in between at the same time. This is because a quantum particle, such as an electron, behaves as both a particle and a wave.

Have you heard of the particle wave theory? In practical terms, it means that bizarre and counterintuitive effects occur on very small scales, and they can be harnessed.

This “quantum superposition” effect will, for example, utterly transform how we do “computer math.” Currently, nearly everything done by computers is done in binary. The smallest piece of information a computer handles, the bit, is either one or zero, something or nothing. A quantum computer, though, would be able to store and work with number systems other than binary.

This means computers would become exponentially more powerful because each “quantum bit” (qubit) could store a much greater range of numbers than the two that binary math restricts us to. Imagine a laptop with the computing power of the world’s 10 most powerful supercomputers. Then you begin to grasp the potential of quantum computing.

Decoding Quantum Encryption

Quantum computing also offers the means of making our communications and business transactions far more secure than they are today. Quantum cryptography exploits several remarkable effects of “quantum entanglement.” One is the ability to generate pairs of utterly unique and unbreakable keys. Basically, two random but identical particle keys can be created using entanglement. Since reading a quantum particle alters it, any effort to eavesdrop on communication is detected and that communication is either disrupted or ended.

Using this technology, we can create completely secure communications networks. Recently, Toshiba’s R&D labs announced the successful testing of quantum cryptography over fiber-optic networks. Austrians were able to send entangled photons between two Spanish islands nearly 90 miles apart.

Spintronics

One of the likeliest quantum technologies to go mainstream is the field of spintronics. This is the exploitation of different electron states. The only property of the electron that we use in electronics now is charge. Electrons, however, have another property called “spin.” Because we can change and read this spin, it can be used to compute. Already, the tech giants are investing in this technology. And there’s a reason.

I’ve written a lot about HP’s work on memristor technology. Memristors are going to provide the next great leap in computer technology. HP has been making rapid and well publicized advances. It could, in fact, have product on the market next year. This initially concerned me because HP is too big to get us anything close to a memristor pure play.

Fortunately, memristors can be built using techniques other than HP’s. My associate Ray Blanco has been poring through patents and tech journals. What he’s found is enormously exciting.

Basically, a number of other groups have made similar memristor advances using different technologies. One is based on spintronics. The big question now, however, is not which of these technologies will emerge as the best solution. The question we’re looking at today is who will build these new components. Who, in effect, will be the Intel of the future?

Regards,
Patrick Cox

June 5, 2009

The Quantum Leap of Quantum Computing was originally featured on Whiskey and Gunpowder

BioTime, Inc. (BTIM: OTCBB) CEO Dr. Michael West was the final speaker at the World Stem Cells & Regenerative Medicine Congress 2009. On May 14, he presented preliminary scientific data about his ability to program stem cells to become precursors to joint, cartilage and other skeletal cells. An in-depth peer-reviewed journal article will follow.

If that doesn’t excite you, you haven’t been paying attention.

This is why it should: West produces these purified cell lines using information produced by his ACTCellerate platform. As you may know, it just won the California Institute for Regenerative Medicine’s largest grant ever. This programmed purity, in turn, makes regulatory approval far less problematic.

This is because all but a few other researchers using his platform extract stem cells from a soup of different developing stem cells. BioTime’s cell lines, however, are pure because they have all undergone the same biological programming. But I digress. Let’s talk about the implications of the fact that West and BioTime can program cartilage stem cells specifically.

Arthritis is a national tragedy. It is a human tragedy. It causes acute, unrelenting pain. Two-thirds of its victims are under 65, but the odds of getting it skyrocket as we age. As life spans continue to increase, arthritis will become an even larger catastrophe. Severe arthritis almost inevitably causes other problems. These include depression and conditions created by the lack of physical activity, such as heart disease and obesity.

How big is this problem? Think of this human scourge in financial terms.

In the long term, if we could increase our GDP by 2-3% annually, we could probably solve our current deficit problem. It would certainly move the entitlement crisis meltdown out by many years.

Somewhere between 2-3% of our GDP is currently consumed by arthritis. This includes increasingly expensive therapies and lost incomes. More than 46 million Americans have been diagnosed as having the disease. With unreported cases, the actual number may be 70 million. It is America’s leading cause of disability and morbidity. The CDC says it costs the U.S. $128 billion in 2003, but it is increasing rapidly.

Arthritis is caused by the deterioration of joint, cartilage and other skeletal cells. Like brain and heart tissues, these cell types are among the few that do not regenerate. With cells potentiated to regenerate these tissues, however, the cure for arthritis is at hand.

There are a few therapeutic details to be worked out yet, but they are trivial and will be worked out in clinical tests. The big breakthroughs have been made and Dr. West has patents pending on many of them. Moreover, the cost of a cure will be far less than the cost of current treatment modalities.

Oh yeah, one more thing. West also announced in Geneva that his road map includes spinning off companies to treat specific diseases, including arthritis. If you own BioTime, you will own part of those companies. There will almost certainly be other companies that license his cures, which may include cells that cure the leading cause of death today — heart disease. I’ll be speaking with Dr. West frequently to make sure you know about these companies as soon as the information is available.

I have much more information for you, but I’m over my word count. Specifically, I have personal news about International Stem Cell Corp.’s (ISCO: OTCBB) new stem cell-based cosmeceutical that will cheer the hearts of anybody who wants to look younger or make transformational profits.

I got permission from the boss, Addison Wiggin, and our legal department to accept some of ISCO’s skin treatment. I was concerned about possible conflict-of-interest issues, but my wife is now using the product. The results, happily, were rapid and dramatic. More on that later.

Regards,
Patrick Cox

May 27, 2009

Stem Cell Breaktrough was originally featured on Whiskey and Gunpowder

I’ve just returned home from Baltimore, where I met with some of Agora Financial’s leading lights. I felt especially privileged to do so because many other financial organizations have been holding emergency investor conferences recently. Most are playing catch-up to Agora Financial, which nailed the current crisis.

The wall of denial in the financial industry regarding the debt has been unbreachable for years. For the most part, people like Agora Financial’s Bill Bonner and Addison Wiggin have been ignored by the mainstream. Most analysts, unfortunately, pretended that banking and money policies didn’t matter.

That’s all changed now. So many major banking institutions are functional zombies that those who warned about macroeconomics are no longer brushed off as reactionary paranoids. Short-term portfolio values have gone down with the banks. Analysts who believed that irresponsible government would have no impact on their portfolios are now revealed for the fools they were. Personally, by the way, I began warning about government meddling in the banking system in the mid-’80s in my columns for USA Today and elsewhere.

Unfortunately, the current administration’s bailout is a cure worse than the disease. The Bush deficits, rightly criticized by Democrats just a few years ago, have been quadrupled. According to the Congressional Budget Office, they’ll fall to triple the size of the Bush deficits in 10 years. This is a larger problem than the subprime mortgage meltdown.

I was pleased to see that the eminent futurist Juan Enriquez of the Harvard Business School “gets it.” The impact of the radical increase in spending will be to move the entitlement crisis much, much closer to the present. He predicts the date of meltdown as 2017.

Fortunately, Dr. Enriquez sees an avenue of escape, as I do. He calls it the “reboot,” but he is really just talking about the transformational technologies I’ve been telling you about. These technologies, ranging from cellular engineering to robotics, have the potential to save our collective butts and make you rich enough to buy that private island you’ve had your eye on.

Prior to the bailout, I was confident that the reboot would come well before entitlements consumed our entire budget, precipitating an intergenerational political crisis. Now, however, it’s clear that we’re in a race. If transformational technologies are brought to market quickly enough, huge components of our current budget will simply disappear.

Take, for example, just one biotech example: Alzheimer’s disease. Estimates are that AD costs the U.S. at least $100 billion annually. Throw in cures for late-stage renal failure and cancers, along with longer productive life spans, and we’ll be in the black again.

Speaking of Alzheimer’s, Dr. Mark A. Smith is, in my opinion, the foremost authority on AD today. A renowned research scientist from Leicester, England, he is executive director of the esteemed American Aging Association. He is also the editor-in-chief of the critically important Journal of Alzheimer’s Disease.

More importantly, he saw and warned 20 years ago that Big Pharma’s focus on amyloids as the cause of AD was wrong. Today, we know that the billions of dollars spent trying to treat amyloid plaque buildup in the brain have been spent largely vain. Now proven right, Smith has joined forces with Anavex. He told me, in fact, that Anavex appears to be the only company that is pursuing the correct path to curing AD, and recent tests have borne out that statement.

Turning our attention to communications, we see that Apple has allowed Skype to offer an iPhone app. This means that iPhone users can make free phone calls from any Wi-Fi hot spot.

The iPhone is by no means the first phone to utilize Voice over Internet Protocol (VoIP). More sophisticated phones have had the capability for years. When a technology reaches the iPhone, however, it has gone mainstream.

So why are we still paying phone companies for phone calls? To a 3G phone with a mobile Internet connect, a phone call is the same as a picture of Angelina Jolie or a forwarded e-mail joke. It’s the Web connection that provides the value, not the dialing technology.

VoIP is basically software, so it offers options that old-style hardware switching simply cannot. It is also free beyond basic connections charges. There are no long-distance or country charges on the Web.

The phone companies, of course, have been fighting VoIP tooth and nail. Their business model is obsolete and they know it. Only Apple’s massive clout has allowed this small and long-delayed step forward. Nevertheless, iPhone users are already learning how to use the feature well. The Skype app transitions between Wi-Fi and AT&T almost seamlessly.

Old-school phone companies are, therefore, doomed. Only those that become full-blown ISPs will survive. If the past is any indication, current phone companies will resist the inevitable for so long that upstart ISPs and technologies will leapfrog the dinosaurs.

Speaking of dinosaurs, newspapers continue to collapse as I predicted. Bankruptcies have hit Philadelphia papers as well as the Journal Register chain. The Rocky Mountain News shut down and Hearst has turned the Seattle Post Intelligencer into a smallish Internet site. The San Francisco Chronicle is in a death spiral and the Minneapolis Star Tribune has filed for Chapter 11. The Miami Herald and the Boston Globe are teetering.

I suppose I ought to have more sympathy for those who work at those papers. In truth, however, I welcome their collapse. I left policy research, in fact, to help Jim Barksdale and the Netscape crew destroy the old media monopoly on information dissemination.

The mainstream media has done enormous damage by aligning itself with only one side of the political debate. On the one hand, journalists who are unable to solve even basic mathematical equations gave inordinate coverage to climate change hysterics. On the other hand, they refused even to cover myriad warnings that Congress, Fannie Mae and Freddie Mac were taking our financial institutions over a cliff. It’s conceivable that if not for that tribal media bias, we wouldn’t be in the shape we are in now.

Incidentally, I would be just as opposed to an incestuous monolithic media run by the right. It wasn’t, however, and the creative destruction of old media is a necessary part of our economic recovery. No matter what your political affiliation as old institutions fall, new ones will arise — making fortunes for those who know they’re coming.

They are not, however, always obvious. The collapse of newspapers is accelerating the trend toward online news sources. If owners of these decrepit businesses had been thinking, they would have leapt at The Kindle when it emerged. The New York Times, for example, could cut its delivery costs in half by abandoning paper and giving all subscribers new Kindles.

Kindles are only the tip of the convergence iceberg, though. The next generation of mobile devices will combine the features of Kindle, netbook, iPhone and more. We already own several companies that hold key patents in this media evolution. We’ll be adding more in the future.

Regards,
Patrick Cox

May 1, 2009

Alzheimer’s Cure and the Collapse of Old Media was originally featured on Whiskey and Gunpowder

“It’s not the lie. It’s the coverup” is the old political adage.

Usually, in politics, it’s much better to admit a mistake and move on. I wish to heaven we could learn that lesson in regard to economic downturns.

Downturns are not inevitable forces of nature. They are created, and usually by bad economic policies. This one is no exception.

Most of you have been Agora Financial readers for many years, so you knew this was coming. There is no question that Fed monetary policies, combined with congressional mandates that made easy mortgage loans a virtual entitlement, caused our current economic affliction. I suspect even the people behind these mistakes know this. There’s darned little confession going on, though.

Instead, we’re watching the financial equivalent of a coverup. The politicians who defended and promoted the practice of handing out and then bundling bad loans are blaming the financial institutions that did their bidding.

I’m not saying, by the way, that financial institutions are without blame. We know that because some resisted the lure of commissions that flowed like water from the affordable housing Ponzi scheme.

I’ve told you several times about Jeff Scott, the Austrian economist whose unwelcomed Jeremiah-like lamentations kept Wells Fargo from diving into the subprime river. W.F., as a result, is the healthiest bank in the country. My guess, by the way, is that Scott, like Jeremiah, will pay the price for having been right. You know the old saying about prophets in their own land.

Regardless, my point is that this recession was caused by meddling in the market. The solution to our current distress, therefore, would be to stop meddling.

Unfortunately, our government is in full coverup mode. Those responsible are not only pointing fingers elsewhere, they’ve increased the magnitude of their meddling. Now they are propping up institutions that made bad investments.

The term for these bad investments, in the jargon of Austrian economics, is “malinvestment.” These mistakes take resources out of the self-perpetuating economy, slowing economic growth. When enough malinvestment is eliminated, our economy will grow again. This is a natural process that Austrian economist Joseph Schumpeter called “creative destruction.”

Delaying that process will not help. The healthiest thing we could do now is to let institutions that mishandled resources fail. Most would be bought by better firms. Many individuals would need help during an intense period of creative destruction, and we should probably give it. The bankers who did the bidding of Congress, however, could sell their Manhattan townhouses and weather the storm well.

On the stem cell front, at least, there’s really good news. Transformational technologies will always overcome downturns in the long run. Some countercyclicals will even do well during a downturn. Once again, however, the media are getting the stem cell story wrong. This change will have little impact on companies working on SC therapies. As I’ve said many times, the ability to create induced pluripotent stem (iPS) cells from adult cells has changed everything. The use of embryonic cells in future therapies is now unnecessary, if not foolish.

This is not to say, though, that lifting the ban on the use of federal funding will not produce winners. The reason is that stem cells have important uses beyond therapies that were stifled by the funding ban.

Theoretically, it was possible to privately fund research on unapproved eSC lines under the Bush ban. To do so, though, researchers would have had to cut themselves off from any other work involving federal grant monies. In most cases, disconnecting from the intricate network of federally funded research was a practical impossibility. You would be hard pressed to find a university or big pharmaceutical company that does not accept government grants in some form. The impact of the ban was, therefore, enormous.

The field of research that suffered most was genetic disease drug discovery. Specifically, it was research aimed at finding cures for the inherited genetic diseases that afflict millions of Americans alone. What scientists have long wanted is access to stem cells that carry the diseases they want to treat. With an unlimited number of disease-carrying cells, potential treatments could be tested and analyzed with far greater efficiency.

It is ironic, by the way, that the availability of these cells will actually lead to fewer abortions. Researchers will use stem cells carrying cystic fibrosis, breast cancer, muscular dystrophy and other diseases to produce effective therapies for those conditions. This means that parents who carry those genes will be less likely to screen and reject embryos that have those DNA markers. Obviously, those therapies are also going to make smart investors fortunes. And they will deserve them.

Now, let’s move to the thorium front…

The Thorium Energy Independence and Security Act of 2008 is sponsored by Senate Majority Leader Harry Reid and Republican Sen. Orrin Hatch, and is designed in large part to produce an alternative solution to the problem of nuclear wastes. Thorium reactor technologies fit that bill for two reasons. Not only do they produce fewer byproducts, they can be used to burn the wastes produced by other nuclear technologies.

A couple of weeks ago, President Obama dramatically moved the thorium industry forward. He announced that he would kill the Yucca Mountain nuclear waste depository project. This is despite the $9 billion already spent on the project.

Reid, of course, is bragging about his role in the decision. So where does this leave us? The Yucca Mountain project, located in Reid’s home state of Nevada, was considered critical to the future of nuclear power generation in America. Since Obama, Reid and Pelosi all promote nuclear power, this significantly increases the likelihood that thorium reactor technologies will be fast-tracked.

Sincerely,
Patrick Cox

March 12, 2009

Stem Cells, Obama and the Austrians was originally featured on Whiskey and Gunpowder

As you will read, the methodology I relied upon for anticipating the events that are now unfolding – 11 years later – were actually quite accurate, confirming, in my mind at least, that now is a time to be very cautious in your personal and financial affairs.

The article is unaltered in its text from the original, though I have added some current commentary in bold italics.

Foundations of Crisis

“Don’t know much about the Middle Ages, look at the pictures an’ I turn the pages. Don’t know much about no rise and fall, don’t know much ‘bout nothin’ at all.“

– “Wonderful World,” Sam Cooke

The lyrics quoted above probably describe the average American’s knowledge of history about as well as any academic study. Not only don’t they know anything about it, and think it’s irrelevant, but what they do know is inaccurate and slanted. And they must not think very much about the future either if the amount of consumer debt out there, mostly accumulating at 18% interest, is any indication.

One point of studying history is that it gives you an indication of what’s likely to happen now, if you can find an appropriate analog in the past. This is a tricky business because as you look at factors contributing to a trend, it’s not easy to determine which ones are really important. Making that determination is a judgment call, and everyone’s judgment is colored by his worldview, or Weltanschauung as the Germans would have it.

Let me briefly spell out my Weltanschauung so you can more accurately determine how it compares with your own, and how it may be influencing my interpretation of the future.

I’m intensely optimistic about the long-term future. It seems to me a lock cinch that the advance of technology alone – and nanotechnology in particular – will result in a future of incredible abundance and prosperity, and that alone will solve most of the problems that plague us. Space migration, intelligence increase, and life extension will be commonplace realities. These things, plus the growth of both knowledge and its accessibility and the concomitant rise of the individual from the group, will constantly diminish politics as an element of life. The future will be much better than anything visualized on Star Trek, and will arrive much sooner. That’s the good news.

The bad news is that within the longest trend in history, the ascent of man, there is plenty of room for setbacks, and much of history is a case of two steps forward and one back. My gloomy short-term outlook, and my reasons for maintaining it, is recounted here monthly. Whether it’s right or wrong, from an investor’s point of view, the short term is more relevant than the long term. Notwithstanding Warren Buffett’s great success in going for the long term, Keynes was right when he said that in the long run we’re all dead. History shows that goes for civilizations as well as people. The problem is that our civilization is probably just now on the cusp of the long term.

Hari Seldon: Where Are You When We Need You?

Isaac Asimov’s classic Foundation trilogy centers around a scientist, Hari Seldon, who invents a science called psychohistory, which allows the fairly accurate prediction of broad trends in society going for centuries into the future. Seldon lives on Trantor, the planetary capital of a galactic empire; the entire planet is covered with a high-tech version of Washington, D.C., devoted to nothing but taxing and regulating the rest of the galaxy. Seldon forecasts that the empire will collapse and Trantor turn into a gigantic ghost town. And of course that’s what happens, because it’s a novel, and that makes for a good story. It’s a good story because it’s credible, and it’s credible because people know nothing lasts forever, and there is a cyclicality to everything; birth, youth, maturity, senescence, and death. These stages are shared by everything in the material world, whether it’s a person, a city, a civilization, or a galaxy. It’s just a question of time and scale.

From that point of view everyone knows the future, i.e., we all know that everything eventually dies. But we’d like a bit more precision on the timing of their lifecycles. Some gurus believe, or appear to believe, they can actually predict the details of the future; I consider them knaves. People who actually do believe them should be considered fools. That said – Nostradamus, astrology, channeling, tea leaf reading, and the like aside – I do think the best indicator of what will likely happen in the future is what has happened in the past. That may seem like an obvious statement, but it’s not. There have traditionally been three ways of looking at the problem; call them theories of history.

Oldest is what might be termed a chaotic view, which presumes mankind doesn’t have any ultimate destination but is wafted on the wings of Fortune or hangs by the thread of Fate. Subject to the arbitrary will of the gods, whether it’s the Old Testament’s Yahweh, or Homer’s Zeus, the future is unpredictable, and prophecy or an oracle gives you as good a read as anything else. I discount this theory heavily.

A second ancient view is that everything is cyclical, and therefore somewhat predictable. History may be viewed like a giant sine wave that’s possibly headed somewhere, but the direction is unknown. Or history is really a circle, constantly repeating itself, much like the four seasons of the year. There’s a lot of wisdom to the cyclical view.

The third view sees history as a linear sequence, one that’s actually headed somewhere. That view holds a special appeal for followers of evangelically oriented religions, particularly Christians (many of whose beliefs have an apocalyptic tinge) and Marxists (who were, until lately, given heart by the “scientific” inevitability their views would prevail). The linear view ties in with the idea of Progress, that (more or less) every day and in every way, things are getting better and better – although there’s also a subculture populated mostly by deep ecology, animal rights, and anti-technology types who believe things are headed to hell in a hand-basket. But they all believe we’re headed somewhere in a more-or-less straight line. There can be a lot of truth to the linear view, certainly if you look at the technological progress of mankind over the past 10,000 years, and this view prevails today.

My own view is a synthesis of the cyclical and linear theories. I see history evolving towards an incredibly bright future, but cyclically suffering setbacks, cyclically repeating the same patterns along the way. To me history looks like a spiral, heading off in a specific direction, but always covering the same ground in a different way with each revolution.

That’s one reason The Fourth Turning (Broadway Books, NY, 1997) by William Strauss and Neil Howe got my attention; we’re all drawn to those who see at least part of reality the way we do. The book is an extrapolation of their last work, Generations, and notwithstanding its literary faults, is simply brilliant. I’ve never met Howe, but did have lunch with Strauss once about five years ago. The way I see it, although they’re both conservatives, neither of them has any particular economic, political, or social philosophy, and they’re not trying to grind an ax. Their books are a value-free look at U.S. history, and their conclusions are more credible as a result.

Their basic hypothesis is one I suspect Hari Seldon would recognize, and my thoughts are built on the research Strauss and Howe have done over the years. I suggest you get a copy of The Fourth Turning while it’s still in the stores. That’s also true for my own Crisis Investing for the Rest of the ‘90s, which has several chapters on related subject matter, and Arthur Herman’s just-released The Idea of Decline in the West, which also bears on the subject. With 50,000 new books published every year, very few stay available for more than a few months. If something has appeal, you should buy it now, because it may be hard to come by when you have the chance to get into it. (Of course, I was wrong on that point — websites such as Amazon and Alibris.com now make it easy to pick up many older books.)

Regards,
Doug Casey

January 19, 2009

P.S.: I’ll be back tomorrow with more. See you then.

Foundations of Crisis was originally featured on Whiskey and Gunpowder

And the same thing will also hit the Western U.S. And the Southeastern U.S. And parts of the Midwest.

They sure did not talk about power failures in the presidential debates, did they? I don’t know why not. All the insiders know about it. Indeed, power failures and price spikes are baked into the national economic cake. People who follow these things are quite sure of it. It’s just a question of when, exactly, the lights will start to flicker.

We already had one experience with a regional blackout. Do you remember the power failure of Aug. 14, 2003? Almost the entire Northeast U.S. went dark, except it occurred in the middle of the day. The effects were immediate on over 50 million people in the U.S. and Canada.

Skyscrapers just stopped working — no elevators, no lights, no water, no nothing. Hospital operating rooms went dark. Traffic signals stopped functioning and people were in the midst of instant gridlock. If you ran out of gas, there was no power for the pumps at the gas station. Refrigerators stopped humming and large amounts of food spoiled. Rail systems stopped running — from streetcars in Toronto to subways in New York and Amtrak and freight trains in the middle of nowhere. FAA flight controllers had to communicate with airborne pilots via battery-powered walkie-talkies. Sewage systems shut down, and a lot of you-know-what backed up in many low-lying areas.

The 2003 power failure was bad news, although short in duration. And then it was back to business for the U.S. Things became (if you will excuse the expression) “normal” again. Just like in Amity.

Looking back, the utility companies got the power back up and running, right? And the experts investigated the origins of the problem, right? The people who know all about power grids fixed the problem, right? It could not happen again, right? The U.S. power grid has ample electricity-generating capacity, right? And there’s plenty of transmission to move power from one region to another, right?

Well, no.

Earlier this week, I attended a privately sponsored presentation on U.S. energy policy. The main speaker was a senior faculty member from Carnegie Mellon University. This guy has been “doing electricity” for about 40 years or so. He has written reports for the National Academy of Sciences. When the people at the U.S. Department of Energy have a question about electricity, they call this CMU professor.

The news is not good. In 2007, there were about 144 new coal-fired power plants on the drawing boards of the U.S. energy utilities. But, said the professor, “We will probably build none of them.” Indeed, “The electric industry in the U.S. is in terrible shape,” said the CMU man. So we should expect local and regional brownouts and blackouts to become common occurrences “within five years.” But the first isolated instances of brownout and blackout will hit us much sooner than that.

Why is there such a gloomy forecast? Because essentially, the deregulation of the 1990s was botched. According to the CMU electricity expert, botched deregulation “slowed investment, raised prices and led to more and more uncertainty.” So now few utilities or their executives want to take political, regulatory, technical or financial risks. Hence, the entire long-range planning cycle has broken down.

It’s almost impossible to decide what to build, and at what scale. Costs are exploding, particularly for new construction. It’s safe to say that most power plant construction cost projections have doubled within the past 18 months. The prospect of fast-changing environmental regulations also adds to the uncertainty. No one wants to build a power plant and learn in five or 10 years or so that environmental regulations are going to shut it down.

Even the alternative energy industry — with wind, solar and geothermal as the poster children — has formidable challenges. The biggest issue is cost competitiveness. That’s because alternative systems provide power at costs that range from slightly higher to much higher than traditional power from, say, coal plants. Then there are issues of reliability, due to the intermittent nature of wind and solar, and the still-novel nature of geothermal power. And other issues include the lack of transmission from the usually remote sites of wind and solar facilities.

Overall, U.S. power producers face the prospect of many different forms of investment uncertainty. What will be the availability of different fuel mixes? Will coal still be useable? Or will natural gas be available at a cost they can afford? Can power producers invest in nuclear systems when there is still no definite program for disposing of the waste stream over the next 50 years? Or should the utility companies go all out for alternative systems?

But the next question is how much can consumers afford to pay? And what rates will the regulators allow? If utilities invest in alternative power systems (like wind or solar) that produce electricity at, say, 20-30 cents per kilowatt hour (kwh), will the regulators set those relatively high costs as the level of reimbursement? And for how long? What if the regulators permit the higher costs for only a few years and then penalize the utilities because some “better” technology comes along? At the end of the day, the base line cost of electricity is set against the cost to produce comparable coal or natural gas-based electricity. And this cost setting occurs even though there is a growing bias against burning carbon in the U.S. political and regulatory culture. One attendee at the discussion commented, “When you’re in a ‘no-win’ situation, guess what? You can’t win.”

The CMU professor has looked at historical trends for power in the U.S. His best estimate is that over the next decade or so, the price for electricity will about double on average throughout the nation. “This would put the cost of electricity about on par, as a percentage, with where it was back in the 1950s.” But that is only if people keep making investments in new power systems and the nation adopts conservation and efficiency measures on a large scale. Absent that? It’s lights out.

So you might not see it in your daily life — not yet, anyhow — but the power industry is currently paralyzed by the uncertainty of lopsided risks. And as old power plants age and go off stream, there will be less and less reserve power. Costs are going to rise. And reliability will fall. It’s inevitable.

So one investment sector that ought to do well over the next five years is power and backup power systems. And particularly, the companies that should do well are involved in power systems that are off the drawing boards and in some phase of construction, or near completion.

Best wishes, until we meet again…
Byron W. King

November 04, 2008

It’s Election Day and I just want to remind all Whiskey Shooters not to get too excited nor too upset by the results.

You’d have to go back to the early 1790s — the time of the Whiskey Rebellion, which inspired our name — to find a government worth caring about or saving.

If you think your vote is going to do anything to reverse the growth of government or get the dollar backed by gold, then I wish you the best.

Stay tuned to Whiskey & Gunpowder as we shout into the wind and try to figure out how best to protect ourselves.

The Coming Electricity Crisis was originally featured on Whiskey and Gunpowder