It Won’t Be Avoided

Let me draw up an analogy for you.

You have $100,000 in your account, so you take your checkbook and go on a little spending binge.

You write checks for a new corvette ($50,000), a 1955 Classic Mason 45 Ketch sailboat ($30,000), five bottles of Remy Martin Louis XIII Cognac ($10,000), one of these foreclosed houses ($40,000), and $20,000 in cigars to top it off.

Nice work pal.

Unfortunately, you just wrote checks for one hundred and fifty grand on an account good for one hundred. Assuming your revenue sucks (and it does), and you can’t just deposit more cash (you can’t) you have something of a situation on your hands, now don’t you?

So here’s my question to you: which of the below answers fixes this problem?
(1) Ignore the problem and hope it goes away
(2) Beg the people you made the checks out to not to cash them
(3) Balance your budget going forward
(4) Take out a massive loan from yourself
(5) All of the above solutions fucking blow and you’re pretty screwed

If you answered (5), congratulations; you don’t totally suck at life. To everybody else: I hope you realize how dumb you’re being. There is nothing – let me repeat that: nothing – that the EU can do to avoid this hit. Unless of course your name is Marty McFly (or just The Fly), and your solution is to go back in time and stop the EU sovereign nations from being retarded.

If you are not fortunate enough to be a time machine wielding adolescent or Plutonium Petey, then I’m afraid your faith is misplaced. The EU has tried (1) determinedly, but unfortunately it’s difficult to not notice the mobs of people you owe money to preparing to rip through your living room to set your house on fire. When that failed, they sort of skipped to (2), trying to get creditors to just roll the debt over or take a “voluntary” haircut.

As it became obvious that they were not going to EFSF this problem away, then they started talking about balancing their budgets going forward. Ask anyone who has ever over committed their checking account how well balancing a budget going forward helps you. Fascinatingly, your past obligations still overdraw your account, leading to havoc.

Which led us to (4). The problem is convincing some of you that (4) is actually as silly an argument as it sounds, as most of you don’t have a printing press (or savings, for that matter). But precisely because it sounds ridiculous, I see lots of you are convincing yourselves it’s a real solution. It isn’t. Printing money will simply transform this whole affair from a debt crisis into a currency crisis. So sorry, but the LTRO will simply cause this problem to manifest itself in another way. And not all money printing leads to inflation. Sometimes, money printing leads to quick, short inflation, which almost immediately leads to crippling deflation when the savings of citizens are depleted and demand collapses.

Which leaves us with (5); admitting you’re pretty fucked and going forward. I don’t see what’s so hard about this option, but some of you seem incapable of honest assessment, so the euro goes above 1.32 while the Greeks adamantly burn their city-states to the ground. If that seems illogical, it’s because it is.

I am very sorry to offer you this rude awakening but: this crisis does not end with Greece, and the euro has not stopped going lower yet.

Yesterday, a most wonderful thing happened. For the first time since environmentalists initially lost their nerves with nuclear fuel, more than thirty years ago, a new nuclear power plant has been approved for construction right here in the U.S.

A new nuclear power plant is being constructed less than one year after the most high profile nuclear disaster since Chernobyl, or 3 Mile Island.

Already, the naysayers are out in force. I don’t blame them, as personally I was never interested in nuclear power until very recently when I started hearing that portion of the crowd (you know the ones) saying nuclear energy production would somehow cease to exist.

But whether or not this ushers in a nuclear renascence is irrelevant. Where we are, as a planet, is to acknowledge that nuclear energy is simply not going away. It will have a place in the future, alternative options notwithstanding.

Also, remember that much of the cost associated with building nuclear energy is legal and circumscribed in nature. Having a project deadlocked for decades while costs of filings and lobbying and assessments pile up certainly effects the end cost of the energy. How does the cost of building a plant, free from having a hundred different activist groups shoving lawsuits your way, compare with building one otherwise?

What does the cost look like when the government isn’t impeding the entire length of the process?

Besides, energy diversification is important. Sure coal and natural gas look like tantalizing and superior alternatives now. But what about when the push to design systems that use those energy sources goes into effect? I don’t believe costs will stay low, especially if you start to see natural gas power plants popping up around the country. And especially not if Obama follows through with his natural gas marketing and actually tries to take it somewhere…

More importantly then: (1) nuclear power is not dead AND (2) the supply constraints for uranium very much present before Fukashima Daichi will persist.

And accordingly, CCJ will soon see its day in the sun.

Although I continue to spite this rally of oil with all my heart and soul (but not US equities, no never those), I’ll be the first to admit that this “pullback” is not very impressive.

If this is the best that sellers can muster, then I will be clinging to these oil and energy shorts, impatiently hoping for redemption, for months longer still.

Just think, I may actually have held this short positions for a year, if I’m not careful!

Interestingly, I’m up for the year. But it just doesn’t please me. The gains are so little compared to what I lost in the final three months of 2011, just looking at their doleful size makes me want to punch my monitor. Once again, I was reminded the hard way; just say no to fall.

I should really close down my entire operation every year at Labor Day, leave my longs where they are, and let it ride. I’d save myself money and hardship.

But as poorly as 2012 is off to a start, I’m not as disheartened as I’m letting on.

Firstly, I like what I’m seeing in the uranium space. I own CCJ is size, and reaffirm my commitment to its glory, in front of every one of you. That miner is going on a run that will undo all my losses from last year, by itself. It’s just a matter of time.

Second, I love the multifamily REIT space still. And I own AEC and CLP; which are both under the guise of management that are taking full advantage of this climate. Their operations are clean and powerful, and best of all, undervalued thanks to sordid property prices. When the prices fall, these two companies, and others, will demonstrate performance that will leave every behind-the-curve fund manager clamoring for them to be on their books.

And finally, I just don’t think I’m off the mark with my shorts. That’s the only thing keeping me to holding them. I’ve lost a ton, but I keep going over the problems in my mind, rolling them over and peering at the different outcomes, and I keep coming up with the same answer: we’ve come too far, and nothing can be done to avoid a demand crash.

So I’ll stay patient. I’ll playfully cheer on those of you who are absolutely minting money right now – I do envy you, on some level. And I’ll sit and suffer those of you kicking sand in my face.

But I’m actually pleased to see some of you out and about, acting cocky. Your presence, rather than demeaning me, gives me a boost of confidence. A few of you invite death upon yourself with every waking moment. If people of your caliber are mocking me, it can be only a matter of time before I get retribution.

BEIJING/LONDON (Reuters) – China is scouring the world for alternative oil supplies to replace a fall in its imports from Iran, as it seeks to negotiate lower prices from Tehran, and has been drawing heavily on Saudi Arabia.

Industry sources told Reuters that Beijing had bought the bulk of an increase in crude oil supplies from top oil exporter Saudi Arabia in the last few months.

The world’s second-largest oil consumer is also importing more cargoes from West Africa, Russia and Australia to replace reduced supplies from Iran.

China is the top buyer of Iranian oil, taking around 20 percent of its total exports, but since January it has cut purchases by around 285,000 barrels per day (bpd), or just over half of the total daily amount it imported in 2011.

Saudi Arabian output reached 9.76 million barrels per day (bpd) in December, up 360,000 bpd from October, OPEC data show, and has remained near that level in January, according to a Reuters survey. Several sources in the oil industry said China has bought a good part of the extra oil.

“On average, Saudi exports went up by 200,000 barrels per day and this went to the East, overwhelmingly to China,” said one of the sources, a senior executive with the trading arm of a U.S. oil company.

Look at what’s happening right under your nose. The world is changing, and for me, that’s for the better. The days of oil importing countries fighting one another tooth and nail to secure oil reserves are coming to an end.

It helps when the biggest oil importers also seem to have the biggest standing armies.

Why have we been letting OPEC set oil prices for this long, while a good portion of the proceeds go to causes directly pitted against us? There’s no reason for that sort of thing.

OPEC may control a huge chunk of the oil production, but we control the oil consumption.

Their fields are low maintenance and the recoverable oil is cheap. There’s no reason we should be paying Iran $100 a barrel when their costs are $10 (or whatever they really are). Especially since lots of that money is just flooding back into their weapons programs.

Here’s a better idea: the U.S., China, and Europe divide up the planets oil strategically, so that these places either provide the goods at lower prices to one or fewer consumers, or else they can see their net income from oil exports plummet perilously, sending their people into violent rampages.

Farfetched? What else was Geithner doing in Asia this whole time?

It’s happening as we speak. China is putting on a grand performance, demanding the West leave its super-best-friend Iran alone, and threatening WW3. But at the same moment, they are proceeding very delicately, setting up to knife Iran in the back and mow them over on the way to their energy needs. Who will over bid them; the EU? America?

A million Chinese boots will soon be high stepping over Khamenei’s backside.

The days of putting open with the OPEC oil trust are coming to an end. Those countries have become too dependent on their oil revenues. They cannot afford to cut production, and therefore cannot afford to force prices higher.

OPEC won’t be missed.

“Today’s imminent announcement of an agreement with our creditors will not be coming, er…today. Please forget all the hype that has been flooding the airwaves for the past three hours.”

I’ve ranted about this before, but just as always happens when any high profile event is on everyone’s radar, the analysts are out in force ushering in a statistical amateur hour.

The next bank that ups their “probability of a Greek default” DEFCON status or “chance of Greece leaving the euro” headline should have to endure a run on their reserves of epic proportions. I want Citigroups’s end of day balance to go to -$250MM for daring to front such nonsense today, telling me that Greece has a 50/50 chance of bucking the EU.

How did they measure that? Maybe they used that awesome history they have of all the other times that Greece has left the EU? Or perhaps they counted the faces of dishonest Greek finance ministers against honest ones, and came up with a more classical probability?

This is nuts. Nobody knows for sure what is going to happen, so these guys are trying to disguise that by dropping a guess. But the guess is meaningless, because either Greece eventually leaves, or it doesn’t.

Rather than hiding behind these numbers, which I know are being pulled out of thin air, these commentators should just take a chance, venture a guess about how things ultimately play out, and put their reputation on the table. Or stop throwing out indeterminable numbers parading as science. Either one, really.