The Season of the Witch

      In my father’s
house are many mansions. Surely one of them has a room with no elephants in
it….
     Not to crunch too many metaphors right
here at the top, but a consensus seems to be firming up in the animate jello of
the Internet that we have entered the Season of the Witch.  An odor of ripeness fills the virtual
air — something between dead carp and apples baking.  Whatever else appears to be going on in the upper stories
and verdigris-tinged turrets of capital finance — currency rackets, gold switcheroos,
interest rate arbitrage games, concealment of losses under rugs and behind
curtains, Chinese fire drills performed by Spanish prisoners, executive
three-card-monte set-ups, boardroom work-arounds, accounting quicksteps,
Peter-to-Paul-shuffles, check kitings, pigeon drops, Ponzi schemes,
hugger-muggers, bezels, shucks, jives, and enough monkeyshines to make Lord
Greystroke cry for mercy — apart, in other words, from business-as-usual, such
as it is these days, on Wall Street, there is a rising collective sense of
anxious expectation that things
are about to shake loose in the sad-ass shell of what remains of our
economy.  And the most perplexing
part is that there hardly seems any safe place to preserve one’s savings.

     The showmen over at
the Financial Sense website, have
put on an excellent month-long series of interviews and debate podcasts between
leading inflationistas and deflationistas — Daniel Amerman, Peter Schiff,
Robert Prechter, Mark Faber, “Mish” Shedlock, Harry Dent — and after weeks of
sedulous listening I still remain flummoxed as to where to stash the dwindling
cash.

     Harry Dent was a
curious case in point this week. 
He has made some howlingly wrong calls before (e.g. in 2006, predicting
a Dow 40,000 at the conclusion of the post-2001 bubble).  Perhaps he missed the crack-up aspect
of the most recent boom. He did not foresee the long gruesome meltdown of late
2007 to March 2009, or rather, his timing was off, since he called for the
commencement of a new Great Depression in 2010.  (And I hasten to insert here that my own timing of events
has not been so great either.) Anyway, Dent sees a “winter” of finance and
economy looming from here forward, characterized by extreme deflation, based on
his view that the amount of private debt going bad (est. $40 trillion) far
outweighs government’s ability to create new “money” (a few measily trillion) and hence
that there is no chance in hell we’ll find ourselves in an inflationary
situation for some time ahead.  The private debt workout has to be completed first.
      
Most curious, though, was when the interviewer, Jim Puplava, probed Dent
about his views on Peak Oil.  Dent
said he didn’t believe in it; that when he was in college in the 1970s (remember the OPEC
oil embargo of ’73), he learned to disregard any suggestions that we are
“running out of oil.”  He stated
this, by the way, as a simple assertion, without any further explanation, and
Puplava didn’t belabor him with arguments.  But it was a weird moment.  Of course, it hardly need be said that Peak Oil story has
never been about “running out of oil” per se, but rather about declining flows,
geopolitical management of flows, and the effects of depletion on industrial
economies — in particular the effect on regular, expected, cyclical “growth” of
the type that financial markets utterly depend on to power the trade in
investment paper.

      It
is exceedingly odd that this does not factor into Dent’s thinking, because what
Peak Oil inescapably does is introduce the very sobering idea of discontinuity
— that is, that the game has changed radically, especially where all our
assumptions about continued “growth” are concerned. In that brief exchange on
Peak Oil, Dent seemed to take the position that the “winter” part of any historical financial
cycle always produced “new technology” that invariably saves the day, putting
this seemingly very smart man in the camp of so many techno-cornucopian
triumphalists all wishing for the same outcome: that some mythical “they” will
“come up with” a set of rescue remedies to keep all the cars circulating on the
freeways, and all the WalMarts groaning with swag.

     Like so many major
league prognosticators, Dent arrives at his ideas by building models of
reality, assembling “data” to create charts of trends in prices, interest
rates, and especially demographics – what age group of people are buying a lot
of what in which stage of their lives. 
The whole business seems very rational and reasonable except when you
realize that it is just another “narrative” — to borrow one of Nassim Nicholas
Taleb’s terms — girded with statistical justification.  One can hardly fault it from a strictly
procedural point of view — since, in our culture, conclusions ought to proceed
from evidence — but one can’t escape the feeling that it amounts to little more
than old-fashioned augury… that someone examining the entrails of a dead
chicken, spread over the front page of The Wall Street Journal, might arrive at
very similar conclusions.  All that
said, Dent was an appealingly confident personality on-the-air, the kind of
authoritative voice you’d like to believe, if only it were possible.

     Prechter was much the
same a few weeks earlier, and he, too, foresees a darker American future, based
on a different set of models called Elliot Wave principles.  His forecasts derive from a picture of
“social mood” as much as economic data flows.  He, too seems to disregard the Peak Oil story and its implications
as the master resource driving growth in industrial economies.

     Personally, I am not
at all sure that the Peak Oil story, or its associated general resource
scarcity story, will shed a whole lot of light on the question of
inflation-or-deflation.  I say this
because I think it is a short way down the road of depletion-and-scarcity before
the major complex systems we depend on for daily life become so unstable that
general socio-economic collapse ensues. 
After all, capital finance is only one of these many complex systems —
some other biggies being food production, trade and manufacture,
transportation, electric power 
distribution, infrastructure maintenance, the military, and
governance.  Inflation-or-deflation
will only be symptomatic of larger failures and instabilities in these systems
necessary for modern, civilized life.

     All of it begs the
question not only whether you or I will have two nickels to rub together, or
two gold eagles, or a bundle of six month US Treasury bills, or a zillion
shares of Apple, or a gainful vocation, or a roof over our heads, or a hot meal
at the end of the day, or a safe place to sleep, or a country we can
recognize.  I’ve done my share of
forecasting, with some episodes of notably bad timing.  I don’t do it for grandstanding effect
but to provide some basis for knowing what to do in the years directly ahead, so we
can hope to construct lives worth living. I’m impatient with models, charts,
and statistical analysis.  Perhaps
this is childish.  I’d rather tell
a story or paint a picture.  So,
I’m going to spend the rest of the week finishing the last chapter of World
Made By Hand Two: The Witch of Hebron
while the US economy wanders where it will.