Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

[stockman]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

yeh, everyone's a ka-poom theorist now.

"More impressively, for the past 18 years his flagship hedge fund, Pure Alpha, which now holds more than $38 billion, has averaged an annual return of 15% before fees - gliding through the Asian flu of the 1990s, the dotcom implosion, the terrorist attacks of Sept. 11, 2001, and the current worldwide financial crisis without ever suffering an annual loss greater than 2%. Last year, when 70% of hedge funds lost money and the average fund fell 18%, Pure Alpha generated a gross return of 14%."

http://money.cnn.com/2009/03/18/news...tune/index.htm

[WildspitzE]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

"More impressively, for the past 18 years his flagship hedge fund, Pure Alpha, which now holds more than $38 billion, has averaged an annual return of 15% before fees - gliding through the Asian flu of the 1990s, the dotcom implosion, the terrorist attacks of Sept. 11, 2001, and the current worldwide financial crisis without ever suffering an annual loss greater than 2%. Last year, when 70% of hedge funds lost money and the average fund fell 18%, Pure Alpha generated a gross return of 14%."

http://money.cnn.com/2009/03/18/news...tune/index.htm

From the article:

"... Out of those four historical examples, Dalio says that our current situation most closely resembles the Great Depression because of the global breadth of the problems. But he doesn't like to use the term "depression." He thinks it's too scary, evoking as it does images of hobos and Hoovervilles, and distracts people from focusing on the mechanics of what is going on. He prefers to use a term he coined: "D-process."

Most people, says Dalio, think that a depression is simply a really, really bad recession. But in reality, the two are distinct, naturally occurring events. A recession is a contraction in real GDP brought on by a central bank tightening monetary policy, usually to control inflation, and ends when the central bank eases. But a D-process occurs when an economy has an unsustainably high debt burden and monetary policy ceases to be effective, usually because interest rates are close to zero, and the central bank has no way to stimulate the economy.

To compensate, the value of debt must be written down (risking deflation) or the central bank must print money (a trigger of inflation), or some combination of both.

In recent years the level of debt as a percentage of GDP in the U.S. has skyrocketed past previous highs last seen in the early 1930s. And the Federal Reserve's benchmark rate is now hovering just above zero. To Dalio, therefore, it's clear that a D-process is under way. "It seems very likely that stocks will get materially cheaper," he says. "We have to go through an important debt restructuring process, and a lot of assets are going to be for sale, huge numbers of assets. And there's going to be a shortage of buyers". ..."

Ah, familiar?

[stockman]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

From the article:

"... Out of those four historical examples, Dalio says that our current situation most closely resembles the Great Depression because of the global breadth of the problems. But he doesn't like to use the term "depression." He thinks it's too scary, evoking as it does images of hobos and Hoovervilles, and distracts people from focusing on the mechanics of what is going on. He prefers to use a term he coined: "D-process."

Most people, says Dalio, think that a depression is simply a really, really bad recession. But in reality, the two are distinct, naturally occurring events. A recession is a contraction in real GDP brought on by a central bank tightening monetary policy, usually to control inflation, and ends when the central bank eases. But a D-process occurs when an economy has an unsustainably high debt burden and monetary policy ceases to be effective, usually because interest rates are close to zero, and the central bank has no way to stimulate the economy.

To compensate, the value of debt must be written down (risking deflation) or the central bank must print money (a trigger of inflation), or some combination of both.

In recent years the level of debt as a percentage of GDP in the U.S. has skyrocketed past previous highs last seen in the early 1930s. And the Federal Reserve's benchmark rate is now hovering just above zero. To Dalio, therefore, it's clear that a D-process is under way. "It seems very likely that stocks will get materially cheaper," he says. "We have to go through an important debt restructuring process, and a lot of assets are going to be for sale, huge numbers of assets. And there's going to be a shortage of buyers". ..."

Ah, familiar?

Yes.

And as someone who was also correctly anticipating- and managing assets through this period... their shift in position last week is interesting.

[jk]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Yes.

And as someone who was also correctly anticipating- and managing assets through this period... their shift in position last week is interesting.

with a prediction of real growth of 2+/-5 %, do you read them as predicting a significant cyclical upswing from here?

[stockman]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

with a prediction of real growth of 2+/-5 %, do you read them as predicting a significant cyclical upswing from here?

No. The way I would read it- worse case off the table; significant headwinds remain. Unacceptable inflation not a major threat at this time (next few years?) due to excess capacity, slow growth, distressed asset sales, etc.

Sounds like a 'Japan' scenario' to me. Great trading market; poor for those who are buy and hold equity types.

They are bulls on bonds; neutral on stocks at this time.

[jk]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

No. The way I would read it- worse case off the table; significant headwinds remain. Unacceptable inflation not a major threat at this time (next few years?) due to excess capacity, slow growth, distressed asset sales, etc.

Sounds like a 'Japan' scenario' to me. Great trading market; poor for those who are buy and hold equity types.

They are bulls on bonds; neutral on stocks at this time.

"Because the sizes of debts and non-debt obligations (e.g., pension, health care, etc.) are so large relative to the likely cash flows to meet them we can not imagine that they will be serviced in real dollars (i.e., without a major devaluation/inflation), so we now assume that they will be dealt with via greater money creation – i.e., we assume that the Fed will do whatever it takes to produce the desired level of nominal GDP growth (and that the market place will determine how that’s split between real growth and inflation).”"

that's hard to reconcile with being bulls on bonds, unless there's an implied timing of sluggish/disinflationary/deflationary immediate to intermediate future, with inflation an inevitability in the more distant future. does that sound right?

[stockman]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

"Because the sizes of debts and non-debt obligations (e.g., pension, health care, etc.) are so large relative to the likely cash flows to meet them we can not imagine that they will be serviced in real dollars (i.e., without a major devaluation/inflation), so we now assume that they will be dealt with via greater money creation – i.e., we assume that the Fed will do whatever it takes to produce the desired level of nominal GDP growth (and that the market place will determine how that’s split between real growth and inflation).”"

that's hard to reconcile with being bulls on bonds, unless there's an implied timing of sluggish/disinflationary/deflationary immediate to intermediate future, with inflation an inevitability in the more distant future. does that sound right?

That is how I read their current opinion/position.

[ViC78]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Stockman -

Thanks for the Dalio extract. However, ultimately stocks have to be priced based on their earnings and the earnings for the past few years have been inflated by the consumer debt phenomenon (MEW etc.)

A lot of stocks are now priced at 20 - 25 times their trailing earnings. Unless there is significant wage inflation on the horizon (which I find difficult to believe), how is that sustainable? Also, how do we reconcile the wage inflation with rising unemployment?

BTW, this is my first post on this forum and it has been very educational. Thanks all!

[Jim Nickerson]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Here is an interesting piece by David Rosenberg http://zerohedge.blogspot.com/2009/0...rg-ver-10.html

A couple of snips.

"We are in year 9 of an 18-year secular bear market"

"Deflation will win out over inflation

"We are concerned that deflation will win out over inflation this time around. While the data cited above are indeed impressive in terms of their track record, since this is not a manufacturing inventory recession but rather a downturn deeply rooted in asset deflation and credit contraction, we may find out that the economic releases that were tried, tested and true in the other post-war cycles may not be appropriate today given the overpowering secular trends of consumer deleveraging and frugality."

Joe Granville once said in effect "if it is obvious, it is obviously wrong," and though I do not subscribe to that as an immutable truth, it does concern me when most everyone seems to have something figured out in the markets. One does not, or at least I do not, have to read much to find many comments on the inflation that lies ahead. I suppose one can look to Japan to see that low interest rates have not in any longterm sense been inflationary nor was its quantitative easing (money printing) if that is correct as I understand it.

Something that "lies ahead" in the greatest sense could approach infinity, and the important question as I see it is "when" will inflation kick in to the degree that EJ, for instance, has suggested one place or another?

Personally, I do not have a clue.

[FRED]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Here is an interesting piece by David Rosenberg http://zerohedge.blogspot.com/2009/0...rg-ver-10.html

A couple of snips.

"We are in year 9 of an 18-year secular bear market"

"Deflation will win out over inflation

"We are concerned that deflation will win out over inflation this time around. While the data cited above are indeed impressive in terms of their track record, since this is not a manufacturing inventory recession but rather a downturn deeply rooted in asset deflation and credit contraction, we may find out that the economic releases that were tried, tested and true in the other post-war cycles may not be appropriate today given the overpowering secular trends of consumer deleveraging and frugality."

Joe Granville once said in effect "if it is obvious, it is obviously wrong," and though I do not subscribe to that as an immutable truth, it does concern me when most everyone seems to have something figured out in the markets. One does not, or at least I do not, have to read much to find many comments on the inflation that lies ahead. I suppose one can look to Japan to see that low interest rates have not in any longterm sense been inflationary nor was its quantitative easing (money printing) if that is correct as I understand it.

Something that "lies ahead" in the greatest sense could approach infinity, and the important question as I see it is "when" will inflation kick in to the degree that EJ, for instance, has suggested one place or another?

Personally, I do not have a clue.

For a recent short term analysis, see Everyone is wrong, again – 1981 in Reverse Part II: Nine Signs of Inflation

For 11 years of writings on the cyclical processes of disinflation and inflation in a post gold standard world:

google site:itulip.com inflation deflation

The theories on inflation and deflation presented here for over a decade have correctly forecast two non deflation spiral outcomes to asset price deflation and credit contraction, first in 1999/2000 when a deflation spiral outcome to a collapse of the stock market bubble was expected and again in 2006/2007 when many economic commentators forecast a deflation spiral outcome to a collapse of the housing bubble and credit markets.

Anyone still arguing a deflation spiral outcome with oil pushing $54 and gold trading over $900 is either deluded or does not understand the nature of inflation.

[Jim Nickerson]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

For a recent short term analysis, see Everyone is wrong, again – 1981 in Reverse Part II: Nine Signs of Inflation

For 11 years of writings on the cyclical processes of disinflation and inflation in a post gold standard world:

google site:itulip.com inflation deflation

The theories on inflation and deflation presented here for over a decade have correctly forecast two non deflation spiral outcomes to asset price deflation and credit contraction, first in 1999/2000 when a deflation spiral outcome to a collapse of the stock market bubble was expected and again in 2006/2007 when many economic commentators forecast a deflation spiral outcome to a collapse of the housing bubble and credit markets.

Anyone still arguing a deflation spiral outcome with oil pushing $54 and gold trading over $900 is either deluded or does not understand the nature of inflation.

So, FRED, does "anyone" refer to Dalio and Rosenberg, or just to the rest of us who might bring up the issue of an IMMEDIATE on-going period of inflation not being a major problem?

[ax]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Stockman -

Thanks for the Dalio extract. However, ultimately stocks have to be priced based on their earnings and the earnings for the past few years have been inflated by the consumer debt phenomenon (MEW etc.)

A lot of stocks are now priced at 20 - 25 times their trailing earnings. Unless there is significant wage inflation on the horizon (which I find difficult to believe), how is that sustainable? Also, how do we reconcile the wage inflation with rising unemployment?

BTW, this is my first post on this forum and it has been very educational. Thanks all!

Earnings? Some of these stocks have earnings?

[FRED]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

So, FRED, does "anyone" refer to Dalio and Rosenberg, or just to the rest of us who might bring up the issue of an IMMEDIATE on-going period of inflation not being a major problem?

Jim,

Depends on what you mean by "immediate" and which asset and commodity prices you are observing.

Clearly we already have inflation in stock (asset prices within the FIRE Economy) and commodity prices within the P/C Economy.

Meanwhile, residential and commercial real estate (asset) prices continue to deflate, along with the securities that back the loans that financed purchases of the actual homes, condos, and commercial buildings.

The last place to look for evidence of broad based inflation or deflation in the prices of goods and services is in the prices of government bonds and in government measures. Treasury bond prices are being intentionally manipulated and BLS inflation measures are suspect.

As liquidation sales end and inventory is sold off, we expect to see inflation show up first in raw materials, then intermediate goods, then in finished goods, then in consumer prices, and finally in wages.

A common fallacy is that inflation comes from one place, money growth. Inflation is a complex phenomenon. The Warburton interview notes nine factors contributing to future inflation today. Under most circumstances falling demand reduces inflation pressures, but not always. In Zimbabwe unemployment exceeded 80% when inflation was in the millions and billions of percent annually.

[Jim Nickerson]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

Jim,

Depends on what you mean by "immediate" and which asset and commodity prices you are observing.

Clearly we already have inflation in stock (asset prices within the FIRE Economy) and commodity prices within the P/C Economy.

Meanwhile, residential and commercial real estate (asset) prices continue to deflate, along with the securities that back the loans that financed purchases of the actual homes, condos, and commercial buildings.

The last place to look for evidence of broad based inflation or deflation in the prices of goods and services is in the prices of government bonds and in government measures. Treasury bond prices are being intentionally manipulated and BLS inflation measures are suspect.

As liquidation sales end and inventory is sold off, we expect to see inflation show up first in raw materials, then intermediate goods, then in finished goods, then in consumer prices, and finally in wages.

A common fallacy is that inflation comes from one place, money growth. Inflation is a complex phenomenon. The Warburton interview notes nine factors contributing to future inflation today. Under most circumstances falling demand reduces inflation pressures, but not always. In Zimbabwe unemployment exceeded 80% when inflation was in the millions and billions of percent annually.

I suppose I mean "immediate" to mean in the next 2-5 years, as I have a sense that is is going to take failures of that length at least to get to "As liquidation sales end and inventory is sold off, we expect to see inflation show up first in raw materials, then intermediate goods, then in finished goods, then in consumer prices, and finally in wages." [FRED's words].

Until better arguments begin to stick in my brain, I think debt deflation will continue until loan holders make progress with writing down the value of loans or writing off the loans. The Senate just rejected a law change that would allow bankruptcy judges to reset mortgage values, so the FIRE people are not about to give up on the notion they will someway collect what is owed them.

So, FRED, I ask you: WHEN will "As liquidation sales end and inventory is sold off, we expect to see inflation show up first in raw materials, then intermediate goods, then in finished goods, then in consumer prices, and finally in wages" that happen?

[phirang]

Re: Janszen Interview on NPR on 05/01/2009 - Power Hungry...Energy Green Bubble?

June 2008, I was in NYC presenting to a group of investment bankers and private equity managers on alternative energy. Firms with a big stake in solar were terrified that a critical tax credit that was due to expire at the end of 2008 was certain to be allowed to expire. I asked the audience for a show of hands: How many expect it to expire? Half the hands went up. How many expect it to be continued? No hands went up. To the half of the audience with an interest in solar I explained that the chance of the tax credit expiring in 2008 were close to zero. Since in fact the tax credit was indeed extended, I have developed good relationships with a couple of them since then, now that they understand my arguments.

Long term we will move to a distributed energy generation infrastructure, and solar will be part of it. Short and medium term, the picture is far more cloudy. Deep structural flaws in our economy created by the FIRE Economy remain, and trends that have been in place since the early 1980s will continue to reverse. Finance, Insurance, and Real Estate will revert to a subsidiary from a dominant role. The financial sector will continue to contract. The personal savings rate will rise. National savings will rise. The dollar will become part of a multilateral global monetary system rather than dominating it as it has since WWII. The dynamics of Peak Cheap Oil will subject the global economy to a series of price shocks, the first of which occurred between 2007 and 2008.

Stock markets broadly tend to perform poorly in periods of transition. That said, it is in these periods of transition that selective opportunities are best; companies like Standard Oil, RCA, Microsoft and Google come to be. Our focus is on identifying the most likely winners in a new economy, rather than timing entry into the broad markets themselves. Our primary interest in the short term movements of the stock markets, such as ducking the decline in 2008, is to make sure we money to invest in these opportunities once we identify them and do not allow bear markets to take it away.

Amory Levins loves to talk about distributed energy, but the reality is, greentech has 0 productive advantage over fossils. The only value of greentech is if you can find a greater fool to pay for your "carbon" offset... I exaggerate, there's a slight BoP advantage, too, if you're an importer of fuel.

I remember having the same conversation EJ had with his folks as I did with a friend at SAC capital, who managed their alt e portfolio. He, too, had no doubt the incentives would survive into the following year.

Fwiw, EJ, Bob Hemphill has left AES to start his own solar firm. You should look him up... maybe interview him?