Under the Radar: How to consistently come to the wrong conclusion

Sunday, September 21, 2008

How to consistently come to the wrong conclusion

Three blind economists are feeling an elephant in an observatory. One takes the trunk and pronounces it to be like a snake, one takes a leg and pronounces it to be like a tree, and one takes the tail and pronounces it to be like a rope.

Meanwhile, the astronomer is looking through the telescope at the asteroid that is about to strike the Earth...

While the bean counters were busy refining their equations, winning Nobels along the way, making their equations more perfect so that they better modeled their transactions, they forgot what everyone who has studied ecology knows: Equations work well for systems near equilibrium; the real world is almost always in disequilibrium... and there are asteroids out there...

Some call these sudden events that upset their equations "black swans". What they are really saying is that they wander around the world looking through a microscope, so they sometimes get hit by cars while crossing the street.

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The shunning of the dollar and the braking for peak oil

Two of the biggest under-the-radar stories of all time, especially if you live in the reality-free zone that is the US: the dollar collapse and peak oil.

For years, the US has been printing dollars, buying oil, and selling treasury bonds for those dollars, in effect buying oil with promissory notes. We also ran up huge fiscal and trade deficits.

For nearly 30 years, due to overproduction of oil, there was little conservation, little investment in alternative energy, and the construction of an urban landscape that cannot function without cheap oil. The problem is not that oil has become too expensive; the problem is that for far too long, oil was too cheap. All that did was cause the oil industry to go bust and hollow out, greatly reduce the number of drilling rigs and people who knew how to operate them, discourage generations of engineering students from entering the field, and teach everyone to treat energy and food with utter contempt.

These two basic problems are about to grab each other by the tail in a vicious circle.

In the short term, the price of oil will go up, and it will go down. The dollar will go up, and it will go down. Do not avert your gaze from the brick wall we are approaching.

The price of oil and the supply of oil follow supply and demand... sort of. The problem is the supply and demand of oil are always in disequilibrium, because it can take significant amounts of time for price to catch up with supply and for supply to catch up with price. Texas used to be the "swing producer" (the one that could ramp up supply or ramp down supply quickly in response to price swings). For the last 30 years, Saudi Arabia has been the swing producer. Now, there is no swing producer. So what is different this time is that no one has excess oil production capacity, and since all the easy-to-pump oil is gone, new drilling projects now take 10 years or more to implement. Over the last three years, although the price of oil has substantially increased in all major currencies, the amount of oil pumped has remained at about 85 million barrels per day. So supply is clearly not responding to demand.

On the other hand, because the rest of the world is developing so rapidly, demand is not, and will not, respond to the limited supply until there is a global recession... and that would be only a temporary respite.

We are about to get a front seat view of what happens when supply and demand cannot respond rapidly.

The Cantarell oil field off the coast of Mexico is the second largest oil field ever discovered. It provides the US with about 7% of the oil the US uses. Even if Mexico started drilling in deep water today, because of the complexity of the drilling, the new oil would not flow for 10 years. In order to continue to export oil to the US the way Mexico has been, the Cantarell field therefore has to produce oil at the rate it has been for the next 10 years in order to continue to export oil to the US the way it has been. There is only 1 year of oil left in the Cantarell field. So, Mexico has two choices: continue pumping at the present rate and then have nothing to export for 9 years, or drop pumping immediately by 90% and export at the rate of 10% for 10 years. Either way, Mexico is about to rapidly decrease the amount of oil it exports to the US. I suppose in the next few months to a year, Mexico will have an enormous fiscal crisis because their oil exports provide the Mexican government with half of its revenue. (This is an extreme oversimplification for brevity.)

It is not like there were no warnings.

Prince Abdullah, now King of Saudi Arabia, said to the Gulf Cooperation Council in 1998:
"The oil boom is over and will not return. All of us must get used to a different lifestyle."

The King said in April 2008 that he had "ordered some new oil discoveries left untapped to preserve oil wealth ... for future generations".

In April 2008, the vice president of one of Russia's biggest oil companies said that Russian oil output is in longterm decline.

So whether they can't pump or they won't pump makes no difference. They aren't.

The dollar has dropped by nearly half against the euro, and could drop further against the euro and other major currencies. This is part of the reason that the price of oil has risen to about 5 times in price in dollars; it has risen to about 4 times in yen, and about 3 times in euros.

There is wholesale buying of oil futures using all the dollars lying around because who knows how much a dollar will be worth in 5 years, but a barrel of oil will still be a barrel of oil in 2013.

Iran no longer accepts dollars for oil and only accepts euros and yen. Even some Japanese are starting to sell US treasury bonds because they lost 7% in value in two months, and they think the dollar will fall even further against the yen.

Ultimately, the oil exporters are doing us a favor. It is better to hit the brakes before we hit the brick wall rather than run into it at full speed.

Everything President Carter said is coming true.

ISBN-13: 978-0295985350

みなしご元禄津波
The Orphan Tsunami of 1700

One winter's night in the year 1700, a mysterious tsunami flooded fields and washed away houses in Japan. It arrived without the warning that a nearby earthquake usually provides. Samurai, merchants, and villagers recorded the event, but nearly three centuries would pass before discoveries in North America revealed the tsunami's source.

The Orphan Tsunami of 1700 tells this scientific detective story through clues from both sides of the Pacific. The evidence uncovered tells of a [magnitude 9 earthquake off the coast of the Pacific Northwest] a century before Lewis and Clark...

You can see a summary at
http://pubs.usgs.gov/pp/pp1707/

http://www.amazon.com/Orphan-Tsunami-1700-Japanese-Earthquake/dp/0295985356/ref=sr_1_1?ie=UTF8&s=books&qid=1204357404&sr=1-1

Video simulation of the megaquake.
http://video.google.com/videoplay?docid=72698052150208427&q=pacific+northwest+megaquake&total=1&start=0&num=10&so=0&type=search&plindex=0

Map of simulation of the megaquake.
http://ucsdnews.ucsd.edu/newsrel/supercomputer/02-08Virtual90Megaquake.asp

A tsunami is unlike any "wave" you have ever seen.

http://www.youtube.com/watch?v=6jixyBvjJZQ

http://www.youtube.com/watch?v=Kl8giZ66j7o

TED (Technology, Entertainment, Design)

Liberal, optimistic, exhilarating. The most spectacular lectures you will ever see.

www.ted.com

Try these to start

The best presentation ever... legendary... your view of the world will change in many ways... and there will be hope...
http://www.ted.com/index.php/talks/view/id/92

The World Now Eats (and Dies) Like Americans
http://www.ted.com/index.php/talks/view/id/10

Extremely graphic... even made me queasy... but you cannot understand the light without knowing the darkness...
http://www.ted.com/index.php/talks/view/id/142

The Law of ACCELERTING Returns

You have probably heard of the Law of Diminishing Returns: more effort gets you only marginal increase in reward (for example, if you exercise for half an hour a day, you get most of the health benefits; if you exercise for an hour a day, you get almost all of the health benefits; and exercising for two, three, or four hours a day will give very little added health benefits).

However, there are situations in which reward does not diminish (at least for a long while) and actually speeds up over time. People tend to see progress in technology as proceeding in a linear fashion, so they expect the 21st century (barring something truly unfortunate) to progress something like the way the 20th century did. But according to Ray Kurzweil, the technical progress in the 21st century will be more like 1,000 times that of the 20th century.

Here is an example. Cost to read the DNA of one person
in 1990: 3 billion dollars
in 2005: 2 million dollars
in 2006: 200,000 dollars
target for 2010-2015: 1,000 dollars

Being able to read your DNA will allow medical treatments to be tailored specifically for you, vastly improving outcomes.

This BBC Horizon program is, granted, sensational infotainment, but it is probably the most efficient introduction to this topic.

http://video.google.com/videoplay?docid=3882715179234602208&q=human+v2.0&hl=en

The article below is very long, and there may be parts that are difficult to follow, but look over the entire article because it is a map of the world we are already living in, and it shows what looms up the road.

http://www.kurzweilai.net/articles/art0134.html?printable=1

Step 1: Slow the ageing process

Something that humans have seen only once is about to happen again: functional lifespan will vastly increase.

This happened the first time in the 20th century with improvements in public health, sanitation, nutrition, vaccination, and pharmaceuticals. Someone from the 19th century would not believe how low our risk of death is, how free of disability and pain we are, and how long we live now. Things are hardly perfect, but to all humans who lived before the early 1900s, the world we live in now would be an unbelievable paradise.

In the next leap, we will not only live even longer, but disease and disability will often be delayed by years if not decades. If we can just make it through the next 15 years or so, the interventions will be unbelievable. It is quite possible that many of us, even those in middle age, will live to see the dawn of the 22nd century, looking and feeling like 40. I am not joking.

So, how do we improve our chances of getting there? Doing basic things to take care of your health is obvious, but there are other things that can be done.

We have known for 70 years how to slow the ageing process and delay the onset of the diseases of old age: eat less. Or more exactly, reduce the number of calories while maintaining adequate amounts of protein, fats, vitamins, and other nutrients. The difference is shocking, and it has been shown in animals from ameba to monkeys without exception. Basically, when calories are low, cells turn on genes that fix damage, so you age more slowly. Fasting at least once a month seems to produce most of the desired effect.

If you have not seen this New York Times article, take a look at the monkeys.
http://www.nytimes.com/2006/10/31/health/nutrition/31agin.html?ex=1163480400&en=193a4a4fe169ec69&ei=5070

The monkeys are both about 25 years old. The one on the right ate a normal diet and is old, frail, gray, scruffy, and has the shrunken skull of an old monkey (like a 90 year old human). The one on the left ate a diet with the same nutrients, but with about 30 percent fewer calories. The contrast is shocking. The monkey that ate fewer calories still looks young and healthy (like a 60 year old human).

So, step one is avoid excess calories, especially from sugar, white bread, white rice, and white potatoes.

But the amount by which you have to reduce calories is quite difficult for most people to maintain. Is there another way we can turn on the damage repair genes? The answer seems to be yes.

Throughout human evolution, we have always eaten plants that were far from perfect. They were drought stressed, attacked by fungi, and attacked by insects. Ironically, this seems to have been good for us. When plants are attacked or do not receive enough water, they produce huge numbers of chemicals to defend themselves. In seasons when there were a lot of these chemicals in plants, animals eating the plants used that as a signal that hard times may be coming, so their cells turned on the damage control genes to protect what the cells already had. We also did not have steady supplies of food, so whenever we didn't eat for a day, again the damage control genes turned on. Specifically, unnecessary molecular tags are removed from the DNA, returning gene expression to the way it was when we were younger. In modern life, all the plants we eat are completely protected from fungi and insects and are watered carefully. All the stress response chemicals that they would normally produce are not there. We never go for a day without eating. Therefore, our damage control genes are never turned on, so the molecular tags on our DNA become more and more different from the way they were when we were young, our gene expression becomes more abnormal, and we age at a high rate.

If we consume chemicals that plants make in response to stress, it turns on the damage control genes, and voila, the effect is the same as caloric restriction, although it is unclear what dose is necessary. One chemical that has been shown to turn on damage control genes is resveratrol, which is found in the skin of grapes, especially when the grape plants are stressed by drought or fungus infection, and is found in many other plants as well. Since people who drink red wine made from grapes harvested and processed in the French way seemed to have extremely low levels of heart disease, researchers tried screening red wines from France to find out if there were compounds which produced the effect. Resveratrol is the most potent found so far. When given to laboratory animals, it slows ageing by 20% and even much more, and it decreases risk of cancer by up to 70%. Further evidence comes from numerous studies showing that consumption of 3 glasses of red wine per week is associated with 70% reduction in colon cancer, non-Hodgkins lymphoma, and other cancers.

I have been taking resveratrol for two years now, and I think the effects are apparent. When I stopped for 6 months because I ran out, the skin started to look old and wrinkled. Resveratrol is easily destroyed by exposure to air, heat, and light. I take the one from Longevinex at
http://www.longevinex.com
because it seems to be the most biologically active. It costs about a dollar a day, which is much cheaper than a glass of wine, though much less fun, so I do both.

These results are not obscure, but you may not have heard about them. Do a Google search for any of these topics and you will find thousands of hits.

So, step 1, let's at least do simple basic things to slow the ageing process and delay the onset of serious diseases of old age. You may be rewarded beyond your wildest dreams. 万歳！

Under the Radar