Contango

36 thoughts on “Contango”

  1. You may be interesting in this Johnny given your focus on the food supply.

    1. Yep. Lots of moving parts. If you pay attention to the ag reports it’s clear we may have a poor grain crop this year too. Lots of complexity…

  2. “Mostly that involves quietly detaching from those failing larger systems wherever possible and building alternative means of support on the sly.”

    I hope you’ll grant us the privilege to hear of and learn from those endeavors.

    1. Mostly – keep out of debt. If you need to make constant payments every month you’re already vulnerable in too many ways. Where does your next meal come from? How many outside forces are required to keep you warm and dry? If you didn’t have your car would your entire life break down? That kind of thing.

      1. Yes, I’m with you on the systems-level thinking. I just like to hear about what and how you follow through, both because it generally wakes me up to things I’ve overlooked and because cross pollination of methods is useful.

  3. Timely post Johnny, considering we were just chatting about inevitable oil shock to come a couple weeks ago.

    I bought my used Honda with 105k miles on it last year. Hybrids were a bit too expensive Was thinking I could get 10+ years out of it. But I’m wondering if 2-3 years will be a good time to trade that in and go hybrid. Gas will probably still be pretty cheap in 2023, but I have a feeling we’ll see $10/gallon before 2030.

    Full electric seems to be a bit risky. There will always be gasoline available, you just might have to pay a lot and might have to plan ahead to keep the tank full in case of short-term shortages. But I’m dubious about the wonderful promised buildout of rapid electric charging stations.

    1. I advise people to own whichever vehicle is the most useful and pragmatic for their circumstances. That could be a giant pickup truck, a minivan, or an SUV for a lot of folks. But make sure you organize your life so you don’t actually need to drive that vehicle very often.

      A walkable neighborhood with work, school, doctors, and basic shops nearby should be your first “vehicle.” That doesn’t have to be a big city. Most pre-WWII small towns in the countryside work just fine. Some suburbs (or select chunks of particular suburbs) can also work well enough.

      Next, keep and use a cargo style bicycle suitable for grocery trips and such.

      When you do consider a vehicle keep your debt load down. A gas guzzling behemoth that’s in good shape and is owned free and clear is the better option in a crisis than the “perfect” super efficient car with payments you might not be able to service. If gas does become expensive and/or unavailable unemployment might be the bigger challenge for a lot of people.

      All that said, I like a hybrid vehicle because it gives you the option of using whichever fuel is most available or cheapest. If you don’t need to travel very far or very often recharging an electric car isn’t much of an issue.

    2. I don’t know why we’d see $10 gallon gas in a decade. In some parts of the U.S. gas is near or even under $1 per gallon. Yes, the Saudis who seem able to pump oil with just a straw in the ground can throw a wrench in the works of the American and Canadian oil industry where oil and natural gas is more expensive to find and extract, but if they jack the price up again the frackers will be right back at work. There is a lot of oil in this world. In some places it is easier to get than others, but over the past few decades those places with easy oil have lost a lot of their pricing leverage.

      1. My goal is to organize my life in such a way that it doesn’t matter how cheap or expensive gas is. Then all the geopolitical drama can unfold and I don’t have to care.

  4. I think I’ll post a little music video that seems to be keeping with the theme. Corb Lund’s Getting Down on the Mountain.

  5. With regard to the health situation, I have no expertise, but I can’t help thinking about the book 1491, about just how many Native Americans there were before Eastern Hemisphere diseases wiped them out. Contemporary European accounts, it is now believed, vastly underestimated the native population because the diseases swept inland from the coasts after initial contact and wiped out most the natives before Europeans even got there. We’re talking 90 percent plus. This isn’t that bad, but it could have been.

    With regard to the economic situation, the desperate attempt to bail out asset prices is on, complete with crony capitalism, and I can’t help but go back to what Johnny wrote in The Golden Horseshoe. The whole unsustainable debt-driven economy is likely to collapse and painfully reboot. But let’s say that instead they pull it off and defer it another decade, even as most people, especially later-born generations, become much worse off yet again…

    https://www.bloomberg.com/news/articles/2020-04-22/-scary-time-for-american-middle-class-as-office-jobs-disappear

    You can just imagine what the political and social situation would be like in five to ten years, if the .01 percent have come out ahead yet again, the rich public pensions that later-hired public employees don’t even get are still being paid, and fiscal crises are imposing economic and social pain on everyone else.

    1. Perhaps the most depressing thing I have read about the Roman Empire is that they managed to survive for centuries despite inequality far worse than what we have now. Repression doesn’t necessarily lead to revolt or reform. Revolts against inequality seem mostly to happen when basic carbohydrates become so expensive that the choice is between revolution and starvation – and most of those revolts still get put down.

    1. There’s a debate about whether or not our current systems are working well during this crisis. I see a lot of fragility a la Taleb. Other people see everything working just fine. I suppose it depends on who and where you are.

      Both positions can be true at the same time. Established institutions are papering over the cracks and keeping things moving for the time being. We can do that for a while. We’ve been doing it for decades.

      But eventually the driving rain soaks in and the paper goes moldy and rot sets in. That trajectory could carry on for a long time. But eventually we have to address the underlying dysfunction. And that’s never fun.

  6. The difference between human solutions and economic solutions is that human solutions degrade efficiency and “progress” while economic solutions degrade humanity.

    I don’t expect a lot to change once this is done. People will throw out, “look how strong we were; we got through the Great Pandemic. We’re GREAT! We WON!” And keep the current system…because it worked so well….

    Side note: slight fever, flu-like symptoms. I got ’em. I’ll be inside for some time.

  7. The means of production are themselves subject to the rigors of the market, making the means of production, which are themselves products, increasingly cheap, advanced, efficient and available. The system, without intent, increasingly creates the ability of individual members to be able to survive without being dependent on the system. Thus home solar and wind, new water from air technologies and water filtering technologies, hydroponics, vertical farming, agriculture mechanization and genetic refinement, increasingly cheap 3d printing, information systems supporting resource and information networking and sharing will all make a lot of things possible that no one expected and make the overall system that much more complex, resilient and even anti-fragile.

    1. Really?

      Most home solar depends on subsidies and grid connection (Johnny’s is an exception, and one that works well for certain situations). Home wind is neglegible for the simple reason that wind speeds increase with altitude; small wind installations near the ground are seldom worthwhile. Water from air? You mean rain?

      Vertical farming is a poor use of land and relies on (grid) electricity. There are reasons it hasn’t taken off. Agricultural mechanization depends on large plots, finance, and a supply chain for repairs and replacement. Large farms imply extensive storage and long distance transportation systems.

      High tech systems, whether centralized or (notionally) decentralized, also rely on abundant, cheap, reliable energy. Most of which come from fossil fuels. Which have many issues, non-renewability being an important one.

      I will stick with Eliot Coleman and his ilk – imperfect, low tech, resilient techniques. There is probably a multi volume set to be written as well on “developing country” low tech that gets the job done well enough.

      1. Protein. America runs on protein. “Cellular agriculture” and “vertical farming” of greens and vegetables do not provide the building blocks of protein that extensively-farmed grain, rice, and beans do. Not to mention livestock (for eggs, milk, meat).

  8. So much data collection during this ordeal.Heat mapping of cell phone users to spot areas of potenial contaigon. Supplying bank account info for collection of your stimulus payments for those who may be off the radar with minimum filling requirements. Are people really just leaving home to buy groceries or are they hitting the beach? Individuals posting everything they know on social media , and things they didnt even know the knew. Online purchases, credit cards in meltdown mode with hackers watching . Next headlines will read ,data breach and individuals personal information possibly compromised.

    1. “So much data collection during this ordeal.”

      It’s where the U.S. invested most of its resources, other than consumption. We’ll see if there is an app to stop the coronavirus.

      1. LOL. Big Telephone and Big Data and Big Government are already proposing to track contacts via a (supposedly confidential and opt-in phone app.

        Of course, employers and Big Airlines and Big Entertainment (Disney, Universal, Major League everything, cruise lines, museums, movie and stage theaters, restaurants) will require that app as lawsuit/insurance defense.

        Right. Read 1984 again. 36 years late, but this will bring the Surveillance Society. (China is a few years ahead.)

  9. What I find remarkable is the extent to which people think this is a top-down edict. What in the last 50 years would lead us to think the our disfunctional & fragmented government is capable of shutting down the whole economy – everywhere? I think a lot of people are going to be sorely disappointed when “re-opened america” looks nothings like it did before.

    1. Really. Lack of trust in government goes both ways.

      “Liberate Michigan.” How about hell no, I’m not buying what you are selling.

      People have had their ability to spend money taken away for the first time since WWII. Even on “elective” health care. They are finding out that there are many things they miss. But also many other things they don’t need, and why the heck did we spend on them to begin with?

  10. Johnny
    As a member of the lockdown rebellion, lemme say Mayor Sanphillippo would win my loyalty with his understanding of the tradeoffs in compassion for those out of work as well as those who are ailing. Such compassion is not in evidence in the political class of California at the moment, which is only fueling the fire. For them, there are no tradeoffs, only opportunity in crisis.
    But you’re right to look at this systemically. The fragility of global trading and credit networks can no longer be ignored. This would be the perfect time to rethink a few things. How many of us are willing to pay $3000 for an iPhone to make it happen?

  11. The modern system has its fragilities, but are they really worse than what they’ve been historically? Dependence on local crops has certainly led to mass starvation during droughts or the arrival of locusts. 350 years ago the plague killed off much of urban Europe. Deaths from Covid19, while scary, are nothing on that scale. You don’t really have to go back far in history to reach a time when people did little more than work and sleep to stave off collapse. I’d say that the systems that support us today are better than they’ve ever been at any time in history, but it’s true they’re not perfect. So, there’s probably nothing wrong with maintaining a stockpile of food and ammo.

  12. “…building alternative means of support on the sly.” We can get rid of debt, grow some vegetables, keep a deep pantry… but then what? Short of going 100% Little House on the Prairie, even the most resilient people will need a job. Unless you already own an apartment complex outright, FIRE is dead.

    What kind of jobs will be available? I’m looking to the Third World for clues to our immediate future. A few evil big companies sucking all the energy and a lot of crappy informal work. If I can survive this environment without draining my savings, I’m looking to buy a little property in a previously “impossible” location on the West Coast.

  13. A >> People are aware of more cracks in the systems than ever before, forcibly stuck home to think about it. The fact that everybody and their brother is buying seeds is, to me, a good sign. People are starting to think about food security, local food, and growing ‘Victory Gardens.’ Not a moment too soon. <<

    I share the same dim view of people that you hold of government. I agree that people are more aware of the cracks, but whether they're thinking about them broadly, beyond their own situation, well, I wouldn't want to put money on _that_. That kind of engagement has to fit in between working from home, minding the kids, and keeping up with "Tiger King".

    As for people growing Victory Gardens, I see the seed purchases the way I see the wave of sourdough breads parading across popular media. People are trying it because it's the cool, celebrity-anointed thing to do and there's a perception that they have the time to do it. Once people new to gardening find out how much effort it takes to grow anything more than a vestigial amount of vegetables, most will be more than happy to relegate that task to the grocery store and the faceless farmers and migrant workers who have kept them supplied in the past.

    There's a reason the folks outside the box don't get the votes they need to effect change. Maybe I'm wrong and this is the start of a big shift in attitude. But thinking is hard for many people. I don't hold out hope.

  14. A few years ago I recall reading about the heartrending dilemma of people with a lot of money & no attractive investment opportunities. This included some national governments, who were willing to pay what was called negative interest just to have a safe place to park all their money. This sounds similar to the ‘contango’ situation just announced–the demand for oil has dropped so low that the problem is finding places to store all the stuff safely until the price goes back up. My prediction: governments will start fining people whose consumption falls below a certain threshold & the well-connected will get richer.

    1. You predicted that “governments will start fining people whose consumption falls below a certain threshold & the well-connected will get richer.”

      Really? No need for that. Governments throughout human history have been quite adept at just confiscating wealth through taxes and spending it themselves on guns and butter. That is Keynesian Economics 101.

  15. Funny, it seems the local Mom’s Facebook group has turned out to be the blackmarket badasses who figure out how to solve problems. Someone out of yeast but has extra bread flour? Deal gets made. Need some books for homeschooling but can’t get to the library? Teacher says she can get them from the school as she has access. But she needs some masks as she doesn’t have a sewing machine. Ba-da-bing! As you’ve said all along, it’s not MRE’s and tactical gear & guns we need but relationships and some thinking ahead. My buddy is a contractor and he is now building lots of his stuff semi-prefab in his shop and then doing final install on-site. Much more efficient and less time needed for his slot at the construction site.

    PS I don’t think it was spot price for oil but the front month contract (in this case May) which requires physical delivery.

  16. We didn’t disagree. We agreed. Our opinions were no different. I saw the casino for what it was, and is. We specifically discussed, and I wrote about, the eventual re-use of the structures. In the end it a small hotel even by local standards, a medium sized movie house(7 screens), a small mall(6-7 shops), a small food court(6 stalls), and three restaurants. I said at the time that I agreed with you on every point. I said, and we agreed, that such enterprises do not last forever. It’s still good for the city, certainly better than a collection of tornado damaged vacant buildings and empty lots! Intentionally or not you are misremembering our conversation.

    I see public transit, restaurants, museums, and a host of other enterprises as being seriously harmed in the aftermath of the pandemic, were cities wrong to have ever allowed their development?

    Given that the choice we were given as a region was where to put the casino, not whether or not to have one, how would the city be better off if it hadn’t come here? Are the renovated parks, improved sidewalks, and updated infrastructure…paid for by MGM…going away?

    Springfield has extra hospital space in the form of…an old hospital basically mothballed repurposed as a mental health facility, next to the Masonic lodge, now repurposed as a high school, across from the armory, now repurposed as a college building, next to the farm bank, now repurposed as an office building, across from my high school, now remodeled into condos, up from the Mass Mutual insurance building, now the offices of MGM…it’s almost like stuff gets built in cities and then gets used for other things all the time…one doesn’t need to be Nostradamus to predict it occurring.

  17. >>My goal is to figure out how to put out those fires without mentioning it to anyone who might be empowered to get in the way.

    I used to think you were too cynical, but my view of local gov’t changed a bit in the last year. There’s no putting lipstick on the pig. Gov’t wants obedience and trimmed lawns and to hell with anything that might lower the property value and their tax revenue.

    That’s the bottom line not in what they say but what a person sees. The attitude of “Can we squeeze blood from this turnip or not?” So yeah. I’ve been cynical about federal gov’t for a while, but now local as well. I wish there was a better system that didn’t involve beating every dead horse possible in the name of the economy and lockstep, outdated standards. I think if anyone ever got serious about global climate change there would be a ban on unproductive lawns, instead of fines for people who fail to maintain that stupid aesthetic.

    I do wonder how things are going to shake out. I hope there will be changes for the better. At this point I think there have to be. People are aware of more cracks in the systems than ever before, forcibly stuck home to think about it. The fact that everybody and their brother is buying seeds is, to me, a good sign. People are starting to think about food security, local food, and growing ‘Victory Gardens.’ Not a moment too soon.

    I think the realization that we’re all in this mess together is a good thing. Maybe there are no quick fixes, but knowing we’re not as independent and bootstrappy as some of us believe ourselves to be will ultimately be healthy. The growing deaths of despair have always needed community to combat them, not just personal mental health work or addiction programs.

    Maybe we will start building local communities now. I hope so. Locally there are people sharing free food, pet food, etc. I gave away some plants for free, since the local nursery is closed for being non-essential.

    Anyway, it’s harder to blame your neighbor for their problems when you’re all facing the same problems. Mind you, I still find myself with judgmental feelings towards people who had good jobs and maintained NO emergency fund. I’m trying not to point fingers about it, though. Frankly it doesn’t help right now.

  18. “What I do know is that we have a set of hypercomplex interconnected systems that are so vulnerable to collapse”

    Mostly the system doesn’t seem to be on the verge of collapse. People aren’t working in restaurants but the supermarkets are on a hiring spree. The hair dresser is closed but delivery companies are recruiting. The Formula one team just down the road from me is busy making medical equipment.

    It seems having a buffer of frivolous activity in the economy might actually be useful in the same way that keeping your larder stocked is.

    Having said that I do think many countries will start thinking about manufacture of medical supplies being strategic instead of letting the market find the cheapest solution.

    1. A massive number of people with my exact skillset, the same exact education I have (I have an international MBA), have cashed themselves some big bonus cheques making decisions such as buying imported surgical masks, offshoring supply changes, removing the slack from our system.

      I don’t even know how we get less screwed. I thought your comparison to the Bronze Age collapse was alarmist until this. I was in denial.

      We have a system of deep inter-dependence that, unlike the inter-dependence that human civilizations developed with, one of neighbors and trust, to a system of financialization, insurance, fragile interests pretending to be dependable and beggaring the central bank and federal government at within just weeks of any shock.

      North Korea manages to manufacture smartphones, so maybe we won’t have to do without those. But maybe that’s just bargaining.

      Prestige Ameritech can barely keep themselves in business because the same entities that charge $80 for a single aspirin, $40 for a bandage, and $600 for an IV of simple saline, who are paid by the $1200/month average health insurance premiums, refuse to pay just a few more cents for an American-made surgical mask.

      “If every hospital would pay just a few cents more for a mask, there wouldn’t be an issue here,” – that’s a direct quote from their CEO Mike Bowen. He’s angry. Listening to him makes me angry.

      But $7 bluejeans? Fresh watermelons in December? People making six-figure incomes being flown from one metropole to arrange the imported floral arrangements for the destination wedding parties on a third world beach attended by people from another metropole?

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