Towards a new Economics?

[santafe2]

Re: Towards a new Economics?

I hate to derail another thread but I have to ask you, GRG55: how often do you change your oil and what kind of oil do you use?

You may be asking the wrong question shiny!. When GRG demands that oil change, it changes.

[shiny!]

Re: Towards a new Economics?

You may be asking the wrong question shiny!. When GRG demands that oil change, it changes.

HA! You're probably right. Thinking about it, I might have asked him this before in another thread but I have CRS disease ;-) .

[Chris Coles]

Re: Towards a new Economics?

I hate to derail another thread but I have to ask you, GRG55: how often do you change your oil and what kind of oil do you use?

In my now distant past I was asked by Hythe Chemicals, a division of BP to find a solution to their need to define the properties of what are known as polyalkylene glycol PAG Fluids when used as refrigeration compressor lubricants, quenchents, (Steel quenched from very high temperature) and Textile Lubricants. The work turned into a very interesting project where I learned a lot about synthetic oils.

Today synthetic oil is by far the best solution to the lubrication of an internal combustion engine.

[shiny!]

Re: Towards a new Economics?

Today's motor oils are amazing compared to when I was a kid. I use synthetic. Whenever someone tells me their truck's going on 300,000 miles I want to know their secret.

[charliebrown]

Re: Towards a new Economics?

I don't drive much and I live in the rust belt. I change with conventional oil every 5K. Usually my cars die of other diseases before the engine konks out. I do drive carefully, and usually get about 150K - 15 years, then stuff starts wearing out faster than I can replace it.

I think you live in the dessert, you don't have to deal with rust, but you do have the sun to contend with.

[GRG55]

Re: Towards a new Economics?

Today's motor oils are amazing compared to when I was a kid. I use synthetic. Whenever someone tells me their truck's going on 300,000 miles I want to know their secret.

Sorry for the delayed respons shiny! I am just head down, tail up with work these days.

I use a synthetic oil product called Mobil 1. Up here in Canada i normally use 5W-30 year round. I think the comparable Mobil 1 product in your much hotter area may have a bit higher viscosity range for that reason. Change the oil filter every oil change, no exceptions. I also change the air filter ever second oil change (we don't have terribly dusty environment up here - not like the Middle East where the air filter got changed every oil change). Oil change interval for my gasoline engine vehicles with Mobil 1 is between 10,000 miles and 11,000 miles. Because I do not live in the city my driving tends to be a lot of highways, the engine comes up to temp and gets a good run at moderate loads. That is one reason I get the engine life I do. If you are doing a lot of short trips and stop & go you can get a reasonable life out of your engine, but not likely quite as long as someone with the driving pattern I have.

[shiny!]

Re: Towards a new Economics?

Sorry for the delayed respons shiny! I am just head down, tail up with work these days.

I use a synthetic oil product called Mobil 1. Up here in Canada i normally use 5W-30 year round. I think the comparable Mobil 1 product in your much hotter area may have a bit higher viscosity range for that reason. Change the oil filter every oil change, no exceptions. I also change the air filter ever second oil change (we don't have terribly dusty environment up here - not like the Middle East where the air filter got changed every oil change). Oil change interval for my gasoline engine vehicles with Mobil 1 is between 10,000 miles and 11,000 miles. Because I do not live in the city my driving tends to be a lot of highways, the engine comes up to temp and gets a good run at moderate loads. That is one reason I get the engine life I do. If you are doing a lot of short trips and stop & go you can get a reasonable life out of your engine, but not likely quite as long as someone with the driving pattern I have.

Thank you GRG55. I'm doing the same oil change interval you're doing but didn't know to change the air filter so often. I will now, though. 90% of my trips are highway miles like yours. Crown Vics love to cruise :-)

I'm using Pennzoil Ultra Platinum (the synthetic they're making from natural gas) in 5W-30. I'd prefer 10W-30 because it doesn't get cold here but Pennzoil sent me a case of 6 quarts and a used oil analysis kit for free so hey- free oil! All they want me to do is send a sample in to Blackstone for a used oil analysis when I change the oil. They just sent me another free oil kit to do it again.

[thriftyandboringinohio]

Re: Towards a new Economics?

I am fond of certain writers who are bombastic and a bit hysterical but who present some good points.
Folks like David Stockman, Matt Taibbi, and James Kunstler.
Kunstler has an article up at his website now that makes a few good points. http://kunstler.com/clusterfuck-nation/zzzzzzzzzzz/

It's a rambling and profane rant about what's wrong with the global economy and who's to blame, and two particular thoughts in it are pretty good.

...Monetary deflation has been underway for years because that’s what happens when debts can’t be repaid: money vanishes...

That's a possibility I hadn't thought about before. We talk much about how credit creates money -money is loaned into existence out of nothing.
And we talk about the fact that when a loan is repaid the money loaned into existence vanishes back into nothing, but the interest paid is tangible and stays in the pocket of the lender.

Kunstler seems to be making the point that bad loans extended and rolled over are fundamentally deflationary.
Debt that can never be paid back becomes a huge deflationary pressure in the global economy.
That idea is new to me, and a bit confusing. A loan never repaid creates money at the moment of lending but it is never destroyed becuase it is never repaid, so I would expect bad debt issued to be inflationary instead.
Right?
At first glance Kunstler seems to have the economics exactly backwards.


He also says:

...But we are no longer in Alexander Hamilton’s world of cornucopian American abundance, just needing to borrow a little from the future to get at the gargantuan riches of a wilderness empire....

That's a pretty important idea that makes a 21st century economy much different that a 19th century economy.
In the 1800's we had vast untapped resources waiting to be claimed and put to use as timber and grazing land and building lots.
Not so much now.

I have no dramatic conclusion to draw from his article, but these ideas seem worth exploring further.
I'll let you know if I find anything further, and I'd love to hear your thoughts.

[GRG55]

Re: Towards a new Economics?

I am fond of certain writers who are bombastic and a bit hysterical but who present some good points.
Folks like David Stockman, Matt Taibbi, and James Kunstler.
Kunstler has an article up at his website now that makes a few good points. http://kunstler.com/clusterfuck-nation/zzzzzzzzzzz/

It's a rambling and profane rant about what's wrong with the global economy and who's to blame, and two particular thoughts in it are pretty good.



That's a possibility I hadn't thought about before. We talk much about how credit creates money -money is loaned into existence out of nothing.
And we talk about the fact that when a loan is repaid the money loaned into existence vanishes back into nothing, but the interest paid is tangible and stays in the pocket of the lender.

Kunstler seems to be making the point that bad loans extended and rolled over are fundamentally deflationary.
Debt that can never be paid back becomes a huge deflationary pressure in the global economy.
That idea is new to me, and a bit confusing. A loan never repaid creates money at the moment of lending but it is never destroyed becuase it is never repaid, so I would expect bad debt issued to be inflationary instead.
Right?
At first glance Kunstler seems to have the economics exactly backwards.


He also says:


That's a pretty important idea that makes a 21st century economy much different that a 19th century economy.
In the 1800's we had vast untapped resources waiting to be claimed and put to use as timber and grazing land and building lots.
Not so much now.

I have no dramatic conclusion to draw from his article, but these ideas seem worth exploring further.
I'll let you know if I find anything further, and I'd love to hear your thoughts.

Is it really the massive amount of credit that was issued and continues to be rolled over that creates deflation? Or is it the excess capacity in 'everything' that credit was used to create that causes the deflation? Perhaps the fact the loans are 'extended and pretended (to be paid back some day)' that then allows too much of that capacity to be retained in place (witness the so called China miracle today) that perpetuates a deflationary bias?

[thriftyandboringinohio]

Re: Towards a new Economics?

Is it really the massive amount of credit that was issued and continues to be rolled over that creates deflation? Or is it the excess capacity in 'everything' that credit was used to create that causes the deflation? Perhaps the fact the loans are 'extended and pretended (to be paid back some day)' that then allows too much of that capacity to be retained in place (witness the so called China miracle today) that perpetuates a deflationary bias?

Bingo!
That's why I find the idea so fascinating.
You are clearly correct that the overcapacity is deflationary, and it's huge.
If the loans themselves are also deflationary we've got double the trouble.

[rjwjr]

Re: Towards a new Economics?

This is fun reading, but you guys aren't going to solve it here.

It will work itself out. It will take a long time. The history books will make a name for it and teach it along with the Agricultural Revolution, Industrial Revolution, Information Age, and ???.

It's nice outside. I'm going for a walk.

[thriftyandboringinohio]

Re: Towards a new Economics?

This is fun reading, but you guys aren't going to solve it here.

It will work itself out. It will take a long time. The history books will make a name for it and teach it along with the Agricultural Revolution, Industrial Revolution, Information Age, and ???.

It's nice outside. I'm going for a walk.

Wise and excellent sentiments rjwr, enjoy your walk.

Although I agree we won't work it all out,we might be able to get a few months warning as things change.
Maybe avoid losing some money, and maybe make a bit.
iTulip has done it twice before, in the dot-com bust and the 2008 crash. I saved a bundle by twice dodging the bullet.

In my youth I was an aspiring musician and taught private lessons at a little music store.
I could not play the banjo, but the owner convinced me to take a banjo student anyway.
I stayed one lesson ahead of him all summer. Now he actually can play the banjo, and I still cannot.

If we can just stay a few steps ahead of the changes, it's worth the effort to me.

[DSpencer]

Re: Towards a new Economics?

Wise and excellent sentiments rjwr, enjoy your walk.

Although I agree we won't work it all out,we might be able to get a few months warning as things change.
Maybe avoid losing some money, and maybe make a bit.
iTulip has done it twice before, in the dot-com bust and the 2008 crash. I saved a bundle by twice dodging the bullet.

In my youth I was an aspiring musician and taught private lessons at a little music store.
I could not play the banjo, but the owner convinced me to take a banjo student anyway.
I stayed one lesson ahead of him all summer. Now he actually can play the banjo, and I still cannot.

If we can just stay a few steps ahead of the changes, it's worth the effort to me.

I'm curious, what is your portfolio now? What will you do if itulip says a market crash is imminent tomorrow?

[jk]

Re: Towards a new Economics?

I'm curious, what is your portfolio now? What will you do if itulip says a market crash is imminent tomorrow?

i'll answer these questions, and i'm very interested in the answers of any others who will do the same, along with their rationales.

my current portfolio:
cash 50%
gold 22%
long duration treasury bonds [tlt and edv] 15%
real estate [eastham cap iv] 14%

if the equity markets crash tomorrow i will count my profits.

i've seen the current equity market valuations compared with 1997 - i.e. quite high but able to go still higher. that is likely true absent market dislocating events, but i'm not willing to expose myself to equities right now.

long interest rates are historically low, but relative to other countries globally u.s. rates are quite high. plus, of course, the dollar is the global reserve currency. treasuries benefit from foreign purchases and flights to safety. if the economy is as soft as i think, rates will go lower and treasuries go up further. i consider this position aggressive and risky.

gold is still long term insurance against monetary disorder. it will benefit from disorder of any kind, inflation or deflation or event-based dislocations. i think it established a solid intermediate bottom in the 1100's. my basis is 380-400.

[Milton Kuo]

Re: Towards a new Economics?

i'll answer these questions, and i'm very interested in the answers of any others who will do the same, along with their rationales.

my current portfolio:
cash 50%
gold 22%
long duration treasury bonds [tlt and edv] 15%
real estate [eastham cap iv] 14%

if the equity markets crash tomorrow i will count my profits.

i've seen the current equity market valuations compared with 1997 - i.e. quite high but able to go still higher. that is likely true absent market dislocating events, but i'm not willing to expose myself to equities right now.

long interest rates are historically low, but relative to other countries globally u.s. rates are quite high. plus, of course, the dollar is the global reserve currency. treasuries benefit from foreign purchases and flights to safety. if the economy is as soft as i think, rates will go lower and treasuries go up further. i consider this position aggressive and risky.

gold is still long term insurance against monetary disorder. it will benefit from disorder of any kind, inflation or deflation or event-based dislocations. i think it established a solid intermediate bottom in the 1100's. my basis is 380-400.

Thank you sharing your allocations. I've often wondered how much cash very good investors (which I feel that you are) hold especially since we all know that long term, cash as managed by the Federal Reserve is garbage. I'm sitting on the largest cash position I've ever had in my life on a quantity basis and as a percentage of assets and I'm constantly worrying that the Fed or the U.S. government will screw me some way. It's somewhat reassuring to know that someone smart has chosen a similar boat. Here are the asset buckets where I've put my money:

20% cash
30% precious metals
30% private equity
11% stocks
9% bonds of which one-third is long duration USTs and the remaining two-thirds is short-term corporate trash in a 401K that doesn't even yield 1%

Meanwhile, the money I save from working my job is going in to cash but I'll probably starting trickling some money into equities because the central banks have shown that they will stop at nothing to force people to buy stocks.

Related to TINA (forcing people out on the risk curve), from various readings and conversations with friends and acquaintances, I am under the distinct impression that the Federal Reserve is setting everyone up for yet another credit bubble, either intentionally or due to hubris/stupidity. It seems everyone sees any correction in the stock markets as an opportunity to buy the indices (at least the 2008 crash did a good job of killing actively-managed funds) and housing, at least in the areas where I look and have contacts, is a can't miss proposition: You can never lose money on housing. You just have to have enough cash on-hand to make the P&I payments for a year or two before everything will recover.