Tuesday, May 26, 2009

sustainability - practical challenges

A couple weeks ago, I asked "How do we make that transition and change the mindset on quality of life that is not synonymous with material wealth?"

The short answer is that I do not know. The longer answer focuses on why this question is important in the first place. I touched on some of those points in that post a couple weeks back. The economy is built on growth. We can grow through efficiency and we can grow through numbers. Efficiency leads to per capita gains. Numbers come from population growth. We will always be able to extract more efficiency from a system, but it becomes increasingly harder to. I'm not going to say that there is some definite limit that we get ever closer to. It's more like a log curve that keeps going up but more slowly over time.

As I sit here and mull this point over, I cannot help but realize that the economy as we generally regard it in its semi-free form is dead. And not just dead because the bailout lunacy has killed it. But dead because it is not conducive to long-term sustainability. Given the significant vested interest, and a very disproportionate one at that, that people who are generally in power have in the status quo, the transition away from the economic system we know and love (or hate at this moment) will be long, painful, and frought with a great deal of waste. Has that process already started, perhaps been pushed along by this current crisis? Possibly, but probably not in any significant way. The expected long-term growth in the economy allows that transition process to pushed out. Immigration patterns for the United States will allow this debate to be delayed by 30-50 years. But we need to take a good look at Japan and Western Europe for how they handle economic life without population growth.

Sustainability. Yes, that's what this is supposed to be about. We need to address the point eventually, even if it isn't in our lifetimes. Think about everything you do in a typical day. Actually, think about the things you do in an atypical day, because those days are often the most resource intense. Things like travel, make large purchases, build/demolish something, etc. Now consider everything you consume during those days. Food, energy, water, air, money (not a real resource but somewhat part of the discussion), time, napkins, light bulbs, skin lotion, flatpack furniture, windshield wiper fluid, etc. Where did they all come from? What were they made of and where did those thigns come from? How did they get consumed? Where will they come from tomorrow? (Note: 'The 24 hr Wal-Mart' is not an acceptable answer to that last question.)

Energy is the big sticking point. It should be pretty apparent that many types of raw energy materials are not easily replaced. Like most items extracted from the ground, more can be discovered, we can get more efficiency from our systems, but ultimately, oil and gas products are a one and done affair. (Why yes, I do work in that industry. And that's as far as that point will be addressed right now.) Unlike metals and other mined products, we cannot recycle oil and gas. The long-term outlook for energy should be crystal clear. All energy will need to come from sources that are renewable or are mispronounced as nucular. In the very long-term outlook, the nuclear option runs out as well. The long-term application for non-renewable energy sources will have to end up in very niche applications with limited usage and need. (The mined goods side is still an area of concern. However, given sufficient energy supplies and transmutation technology, we can sweep those concerns under the magic technology rug.)

The renewable energy requirement means everything we get needs to come from the sun in some way shape or form. Solar is obvious. Wind is moderately obvious. Hydroelectric is obvious if wind is obvious. Geothermal is less obvious, but we need the sun for that to occur, but not because it is bright, but because it is heavy. Plant-based oil extraction should follow from solar pretty easily. The problem with many of these sources is that they are not very portable. This is why oil has been such a great transportation fuel: excellent energy density and easy to handle. The transition away from petroleum based transport fuels will eventually be one of the biggest challenges. It will essentially require the car to shift from almost every currnet model (you too Prius) to some Volt-like vehicles. However, this doesn't address our long-haul transport needs like ships, trains, and trucks.

Perhaps the biggest challenge will be to get people to buy-in before a catastrophic crisis occurs.

Monday, May 25, 2009

fell off the wagon

Wow, two weeks? I guess I sort of fell off the wagon there. At least I only mean that metaphorically, and not really in the traditional sense though I did partake in some drinking as a polite guest to some very entertaining Serbian hosts. In my defense, I've been on the road a significant portion of the last two weeks, though all day trips and really long days.

Monday, May 11, 2009

airline for pets

Further signs that the world is coming to an end. I wonder if pet owners realize how loud it is inside a Beechcraft 1900.

Sunday, May 10, 2009

america's place

We as Americans need to ask ourselves some very simple questions that have very complex answers. Unfortunately, with our modern media-stunted attention spans squirm painfully when asked questions that do not have straighforward answers like "yes" and "no" or "Let's get 'em".

What is the role of government?
What oversight should the government have on businesses and individuals?
What responsibility should the government have towards businesses and individuals?
Are we prepared to accept short and medium-term sacrifice for long-term success?

The last question is critically important. This is gut check time for us. The United States has enjoyed a special place in the world for a long time. Whether or not we're aware of it, we have been slowly relinquishing our hold on that special-ness for many years. Our financial security is increasingly tenuous with many good and unasked questions about the long-term financing of the nation that need to be addressed. Our physical security is also in doubt given many policy decisions that have been made over the years that have come to do long-term damage to our standing. In both ways, we have gone for the short-term fix at a price that has ultimately been very expensive in the long-term.

What are we doing right now on the foreign policy front? We're fighting a war (or two depending on how you look at it) that is unwinnable by its very definition. It doesn't really make sense to wage war on a tactic but by golly, we sure are trying. (Well, except for that sideshow in Iraq, we sure are trying. Wait, we pulled troops from the first theater before securing it and now have to send more back in to re-secure the area? Damn our short attention spans.) To truly win this 'war on terror' it would come at the price of freedom as we know it. I would argue we also never won the war on drugs for the same reason. Either way, the best we can really do is hope for a stalemate and to avoid losing which might be loosely defined as a significant attack on American soil.

Now that I live and work in Europe, I have met many Europeans. (Shocking, I know.) And many of them hold a very low opinion of the United States, generally the government of the U.S. and more specifically the last administration. Most of them believe that the war in Iraq is about oil, and more than I would have expected believe that 9/11 was either staged or allowed to happen despite the ability to stop it. Admittedly, one of them also thinks that we faked the moon landing so maybe Europe is in worse shape than America. Either way, we squandered our 9/11 goodwill by losing focus six years ago when the message changed from fighting Al-Qaeda to looking for WMDs in Iraq.

What are we doing on the home front? Our economy did essentially nothing in the last six years. No jobs, no infrastructure, no substance. Businesses need to understand what they are doing. Banks need to be banks. Insurance companies need to be insurance companies. These are old, conservatively run enterprises. They are not places for exotic financial instruments. Exotic financial services belong elsewhere, for people who are smart, know what they are doing, are not recklessly leveraged, and are willing to accept total losses and not expect a bailout. Hey, I'll take jsut the last two points and might even settle for just the final point. Let's be very clear about something. Financial companies do not create anything. They can improve processes and efficiency, but they extract gains from the inefficency of others. They don't actually make anything of substance.

Beware the economy that runs increasingly on services, not on manufacturing. Beware the incentives laid out to those in power that reward short-term gain instead of long-term solvency. Is the problem that we have reach an economy of scale that is now big enough for the monied to thoroughly insulate themselves from reality? Or are they able to cash out quick and leave in their wake a trail of bad decisions? It doesn't really matter since they were allowed to make poor decisions with little to no consequence in the first place.

We got soft. We lack the political/economic/social will to say hard, horrible things to people, including ourselves. The truths we need to face must hurt, otherwise we will not change. But we need to make sure they really hurt because we have become numb to any sort of shock with our constant need for iPhone-fueled 24/7 diversions and entertainment. This decline can be stopped, but it will take time and we cannot wait until it is too late. We need to restore in ourselves the understanding that actions have consequences, that the long-term is the only term we can care about, and that we choose our destiny.

This is gut-check time in America.

wedding books?!?

You got wedding books? Hahahahaha. You really missed the boat by not getting married on a bus.

Thursday, May 07, 2009

the past cycle

I feel like the past economic cycle was a shadow cycle. From 2003 till now, we have basically gone nowhere. Well, we dug the debt hole a little (or a lot) deeper. We went through an economic 'upturn' that created remarkably few jobs, saw flat to down real wage growth, and was sustianed on a very temporary basis by the unsustainable rise in home prices and corresponding removal of equity from said homes. (You should ask yourself who owns your mortgage. If you own your home free and clear, then you shoudl ask who owns your neighbors mortgage because only about one in three homeowners are mortgage free.) Are we in a better position than we were six years ago? Do you feel like America has properly positioned itself for long-term success?

I realize it's a loaded time to ask such questions with companies hemorrhaging jobs, at least one iconic car manufacturer on the verge of disappearing as we know it, and financial companies that are amazingly 'profitable', but that's only because they took your money under threat of jail. (Hey, it's your tax dollars and if you want to know what happens when you don't pay them, you should ask Wesley Snipes. This is why you do NOT always bet on black. Oh yes, I did just work in a Passenger 57 reference.)

Yes, it's all down right now, but we can choose how long this lasts, but that choice may decide how soon we find ourselves down again.

Wednesday, May 06, 2009

PDVSA = train wreck

This can't be good for our receivables situation.

I have had the chance to know a handful of Venezuelans whie working here. By in large, they never want to go back to Venezuela.

Sunday, May 03, 2009

growth and sustainability - tip of the iceberg

The driver of economic growth is, well, it's growth. Our modern economic system is built on the idea of long-term growth. But what happens when growth is no longer possible? What kind of transition will it be, how messy will the process be, how long will it last before there is a true change? How long will money as we know it last?

A very simple type of growth is population growth. Right now, the population of the world is still growing. We arguably already have more than enough people on the planet, especially if the goal is for everyone to reach an Americna standard of living and a subsequent American level or per capita resource consumption. What happens when population in a country or region or eventually the entire world begins to plateau and possibly decline. We have an economic system predicated on continuous growth. The health of people's financial investments is linked to corporate performance which is in turn linked to how much those companies can grow. It's not exactly a Ponzi scheme, but what happens when the next level is smaller than the one before it?

The demogrpahics of Japan present an interesting example on aging and ultimately decreasing population base. Will it lead to a financial stagnation of sorts when it occurs elsewhere? Western Europe should serve up some interesting examples in the next few decades as well.

We can certainly move to the next level of growth: efficiency. If you cannot push the top line higher, then you need to push the cost line lower and/or the productivity per unit higher. However, there's only so much efficiency that can be wrung from any system. And the danger of an efficient system comes from the damage wrought by any significant disruption. At a certain point, the efficiency game has played itself out because further gains come with risks that are deemed too high. (Or they come anyway, the risks are too high, leverage is up, and any small waver causes the system to break. Sound familiar?)

The other issue is that the system, this economic machine is ultimately made up of discrete elements. They're called people. And people do not feel like statistics when they think about themselves. From a macro-level, we're all anonymous blips in the system. But here, on the street, with people, this is about individuals trying to carve out a life for themselves. At some point, it's not about growth for people, but about quality of life. Now, we've pitched in America for a long time that quality of life is synonymous with growth because money is supposed to buy happiness. More money means more goods, services, conspicuous consumption, ringtones, plastic crap, more, more, more! But this thinking is short-sighted and the end game is an ugly battle for scarce resources, including some we take for granted. Quality of life must take on a very different meaning than conspicuous consumption if we wish to have resources that will last into the next century.

How do we make that transition and change the mindset on quality of life that is not synonymous with material wealth? We could go French and start working 35 hours a week and pretend we don't care what the rest of the world thinks of us. Alas, America doesn't have that option. The last 60 years of foreign policy prevent us from having our cake and eating it too. The price we pay for being so big and so dominant for so long is that we made a lot of enemies, though some missteps along the way added to the total. In the face of that challenge, we must pursue an agenda that considers sustainability a high priority.

Saturday, May 02, 2009

Q1 earnings release

Like clockwork, since, well, it is on a schedule, the company's first quarter earnings were released last week. You can download the conference call from here on the investor page. As always, it was chock full of interesting tidbits though the Q&A is of course the fun part.

The main focus was how low and how long, meaning how much lower will the industry slide and how long will it last before any recovery. That answer is really two answers because the industry is in two basic pieces: North America and everywhere else. The North American market, especially land activity is dominated by natural gas drilling. And natural gas drilling is suffering very badly (links to a .pdf file). (You will also note on the top right chart that Canada is strongly seasonal which is a result of a slow down in the spring because many regions become inaccessible after the spring thaw.) Another handy base link is here which has some interesting interactive maps. Anyway, North America = lots of pain, recovery maybe next year. I have some general comments about the overall economic situation and how it impacts North America for another day. The rest of the world is relatively better, but that's hardly a ringing endorsement of health, and Russia is behaving similarly to the North American market for the time being.

There were also several questions about the seismic arm of the company since any down turn usually leads to an even larger down turn in exploration. The view seems to be that the situation will be less than glamorous, but steady enough to maintain acceptable cash flow from that segment.

The overall financial results were apparently better than expected and the stock jumped last Friday when these earnings were released. However, I found that strange since there was really no fundamental change in the outlook since the Q4 call three months ago. The results were helped by very strong fiscal discipline and some advance planning that led to an advantage based on timing that will not be repeated. To me, it was an excellent example that many so-called financial professionals are actually idiots.

Friday, May 01, 2009

labor day, sort of

Today is May Day or International Worker's Day which is basically the European equivalent of Labor Day in the United States but with some suspiciously Communist undertones. (Sorry Andrew, I haven't found any Soviet-era 'schwag' as you called it, though there is a museum on Soviet history in Hungary one town over from here. I have driven by it but never been inside.) Europe seems to be a fan of getting Friday instead of Monday off from work. However, when they get a day off from work, they're really serious about not working. In the States, every three-day weekend and even some borderline holidays like Columbus Day are an excuse for retail stores to have sales and bring in shoppers. Not here. Today is a day when you're hard-pressed to find an open store anywhere. Even the super-Tesco is closed. But good old McDonald's was open and doing seemingly brisk business.

This creates problems at work. See, the other exciting thing about Europe is that big trucks, mostly tractor/trailer or what they call 'combination' units cannot drive without a special exemption on holidays like today. Actually, they cannot drive from 10pm yesterday until 10pm today. We cannot get the special exemption (or perhaps do not want to pay for it - I'm not really sure which) so this slightly handcuffs field operations. But see, we're sort of used to this because that same 10pm to 10pm driving ban also exists for Sunday. Starting 10pm on Saturday night, that same 24 hour restriction occurs every single week. The general reasoning is to keep big trucks off the roads while people are going about their May Day festivities. In the States, the highways are a bit more robust, but out here in Central/Eastern Europe, the roads are generally not so big. And rules and regulations are generally more geared toward social, not corporate interests than in the States.

As a side note, the term 'schwag' is a great word. Apparently, it's a slang term for low grade marijuana which is somewhat unfortunate since it clearly should be a term that pirates and only pirates are allowed to use. Why? It just makes sense, at least in my mind.