Taleb, Noonan, and a Supermarket Conversation

In her WSJ editorial dated March 13, 2009, There's no Pill For This Kind of Depression, Peggy Noonan described a phenomenon that I noticed recently in a supermarket checkout line. We all seem, pretty much simultaneously, to have come to believe that the world is not only worse off than anybody would have said a year ago, but that it will be bad for a long time.

Noonan credits this to the idea that

“The writer and philosopher Laurens van der Post, in his memoir of his friendship with Carl Jung, said, 'We live not only our own lives but, whether we know it or not, also the life of our time.'"

“Of our time,” meaning that we have come to a concurrent conclusion that we are all witnessing a Black Swan event. The concept of such a thing was popularized by Nassim Taleb in his book of that name: Once in a while something totally unforeseen happens. Taleb elaborates on that idea on his website, Fooled by Randomness. Taleb asserts that there are some kinds of events (Black Swan events) that you essentially cannot foresee, even when the warnings are there.

Noonan says that we have a collective unintended common belief shaped by our time (that Black Swan event). Today, the event is the serious near-Depression and the common belief is that it won’t get better very soon at all. Noonan describes a “wall street titan” she interviewed five weeks ago, asking him what people should do next. He said: “Everyone should try to own a house, he said, no matter how big or small, but it has to have some land, on which you should learn how to grow things.”

Now to my supermarket checkout line conversation. A middle-aged woman ahead of me was buying a bunch of pussy willows, and we got to talking. She said that once she’d stuck a branch in the grown and it rooted, almost damaging her plumbing with its growth. I mentioned I’d done something similar by cutting some tomato branches last October before the first frost – I’d put them in water, they’d rooted, and I expect to plant these now 2’ tall tomato plants in a few weeks.

She responded that she didn’t have much land in the back of her house, but was seriously thinking of digging up the front lawn to grow some vegetables. In Northwest D.C. you just don’t do that. It hurts property values, and neighbors complain. (Unless you are a wealthy heir of a food company, then you dig up all you want and plant sunflowers and potatoes out front… I’ve
seen that too.)

Taleb and Noonan are both right. The Black Swan event happened, and we were all caught by surprise. Noonan was right that we are all gripped with the same kind of pandemic fear, sharing the life of our time.

Maybe good will come of this. We’ll all get down to our roots, back to basics, and that will be part of our shared recovery. And we’ll collectively stop our blind consumption of resources of all kinds, including fossil fuels, buying some time to figure out sustainable alternatives.

I hope so.

Peak Lithium? Why Should You Care?

What the heck is lithium and why should you care? First things first; what is lithium?
My first encounter with lithium was as a surreptitious high school participant in a science experiment. My teen buddies and I got a small piece of lithium and dropped it into a toilet to let it fizz.

That was exciting. But beyond the plop-fizz thing, what else should you know about lithium?

Here is an excerpt from Wikipedia:
“According to theory, lithium was one of the very few elements synthesized in the Big Bang, although its quantity has vastly decreased since that time. The reasons for its disappearance, and the processes by which new lithium is created, continue to be active matters of study in astronomy. Though very light, lithium is nevertheless less common in the universe than any of the first 20 elements.”
To learn more, go to Wikipedia.

All this is mildly interesting, but it doesn’t answer the question “why should I care?”

Here’s why.

President Obama’s and others’ hoped for transformation of our transportation systems –including your car—from petroleum based to electric, depends on rechargeable batteries. The best chemical bet at this time seems to be lithium batteries. Lithium ion batteries are the majority choice, although lithium phosphate batteries are less apt to catch on fire – but they too depend on stable and abundant supplies of lithium. Click here for more on lithium phosphate alternative rechargeable batteries.

The common thread is easy to see: Lithium. Note this phrase in the above Wikipedia quote: …less common in the universe than any of the first 20 elements. And that leads to the next point.

Where in the world do you find lithium? Not at Home Depot. Here is a quote from Peak Oil Review from its February 9 2009 newsletter (ask me how to receive this if you’re interested).
In the rush to build the next generation of hybrid or electric cars, a sobering fact confronts both automakers and governments seeking to lower their reliance on foreign oil: almost half of the world’s lithium, the mineral needed to power the vehicles, is found in Bolivia — a country that may not be willing to allow much access to the mineral. (Peak Oil Review, 09 Feb 2009).
Recently Simon Romero wrote about this in the NY Times. Here is a quote:

“We know that Bolivia can become the Saudi Arabia of lithium,” said Francisco Quisbert, 64, the leader of Frutcas, a group of salt gatherers and quinoa farmers on the edge of Salar de Uyuni, the world’s largest salt flat. “We are poor, but we are not stupid peasants. The lithium may be Bolivia’s, but it is also our property.”

How much lithium is in Bolivia and elsewhere? The article goes on to say that “The United States Geological Survey says 5.4 million tons of lithium could potentially be extracted in Bolivia, compared with 3 million in Chile, 1.1 million in China and just 410,000 in the United States. And beyond the current use of lithium in cell phones and laptops, what will be the impact of plug-in hybrid automobiles on the supply of lithium? Here’s what Mitsubishi spokesman said on the BBC News, November 9, 2008: “Mitsubishi, which plans to release its own electric car soon, estimates that the demand for lithium will outstrip supply in less than 10 years unless new sources are found.”

Now technology optimists will always say, and sometimes be right in saying, that we can always find alternatives. Still, the time is short for alternatives; GM is pinning its hopes for survival on the Volt, to be available in 2010. Not sure
Google “peak lithium” and you’ll find this WSJ blog. http://blogs.wsj.com/environmentalcapital/2009/02/03/peak-lithium-will-supply-fears-drive-alternative-batteries/
This blog describes alternatives such as zinc-air batteries. However, one very large obstacle: they aren’t rechargable and have a short lifespan. That’s akin to saying “except for that Mrs. Lincoln, how did you like the play?”

So are plug-in hybrid automobiles truly a climate-friendly, peak-oil mitigating alternative to the internal combustion engine?

API Energy IQ

At a time when Americans are focusing on energy issues and policies, a survey from API and Harris Interactive finds that most U.S. adults have a fundamental lack of knowledge regarding energy demand and supplies and the role of America's oil and natural gas companies. In fact, when presented with 23 multiple choice questions, on average more than 25 percent of respondents said they were "not sure," and in many cases people chose the response that is farthest from the correct answer. Test your knowledge on 10 questions.

Think you understand energy issues? Click here to see the questions and comments on TheOilDrum.com.

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It Aint Easy Being Green

Green Challenges

I try harder than most both to live an environmentally frugal life and to prepare for an era of fossil fuel scarcity. I garden (fruit trees, berries, vegetables, flowers), and have been gardening for over 40 years. I have a compost bin, and I grow worms in my garage (to reduce waste to the sewer and waste systems). I bought 5 expensive “Earth boxes,” essentially potting-mix based hydroponic systems, including wheels to move them around to the best areas of the yard depending on season.

Outside of my gardening efforts, I have replaced every light possible with CFLs (and will use LEDs when available). I’ve added insulation to the attic. We use a portable outdoor clothesline. I have a sun oven. We drive a Prius, when we drive; I have used only public transit (D.C. bus and metro) for the past 4 years. I could go on and on.

And I’m discouraged.

Whether it’s due to climate change, or just the gardener’s perennial luck of the draw, my gardening yields in recent years have been at best mediocre. Animals (from deer to raccoons to rats) have taken their toll. I’ve built a deer fence (that the deer smashed into and I repaired). I (hate to admit) I have put out a rat trap. Still, the birds, raccoons and squirrels take their pick of the best of everything from berries to tomatoes. And they’re getting slim pickings too.

This year I decided to try planting more “heritage” varieties of tomatoes and lettuce (for starters). I assumed they would be more resistant to variations in the weather, they would not need as much (or any) artificial fertilizer, and they would taste better than hybrid varieties. That was the theory. I’ve never had such skimpy yields; tomatoes with blossom end rot; the pumpkins and squash have no fruit set. I blame that (in part) on the nearly complete lack of bees.

And if everything worked fine and yielded as much as I used to get in New England, the effort would still be significant. And I’m willing to pay that price of effort, materials, etc. Now I pay the price and get very little in return.

No matter what the advertising brochures claim, the Earth Boxes, I hate to report, yield far less than simply planting veggies in the ground. CFL bulbs (especially the more expensive dimmable versions) burn out in as little as 3 months – not 5 years.

Recently I tried a different approach. I asked for a solar panel assessment, knowing I had some daytime shade. Result: You’d have to cut down all the trees around your house (illegal in D.C. unless the trees pose a danger or are diseased), since if one cell of one panel is shaded, the whole panel’s output is diminished. And if one panel’s output is diminished, the whole series work inefficiently. Just not worth the $25-$30 thousand investment, even though I know electric costs are going to skyrocket while electricity availability will become increasingly intermittent.

I also visit and read nearly every post on theoildrum.com, daily.For another wakeup call (if you need one), read “Gail the Actuary’s” post on the “oildrum,” at http://www.theoildrum.com/node/4381, titled “The Path From Petroleum Shortages To Electricity Shortages .” If Gail is right (and she is certainly persuasive and informed), we can all look forward to a large assortment of unexpected consequences from peak oil supplies, including intermittent availability of electricity.

Here is an excerpt from Gail's recent post:

"The issue I see is that if we know we are very likely to have electrical difficulties within twenty years, it does not make sense to start a transformation to a more electrical society. For example, if we start building a lot of electric trains, we are likely to discover that that we don't have the electricity to operate them when they get built."

Now if I am working this hard to become a darker shade of green, and getting so little effort in return, what about the other 99% of society who probably either are ignoring peak oil issues or doing very little to prepare. If you think you can just dig up a patch in your back yard, buy some seeds, and haul in the veggies to supplement your grocery bill… good luck with that.

Still, I am something of a perennial optimist. I believe if you try hard enough to improve your processes, learn from past mistakes, and continue trying, you’ll both be better off and provide credible insights for others how to succeed when they decide to try out gardening or energy saving strategies. Or at least I hope it works out that way.

Investing in a Post Peak World

It is only prudent to prepare for a post-peak Oil world, and part of that planning is financial planning. Specifically, I've been wondering whether there will be a pronounced use of online commerce when automobile fuel cost becomes scarce or prohibitive. If people flock to the web to make their purchases, then it follows that home delivery of those online purchases will also increase. OK, so does that mean that UPS or FEDEX could be stocks to buy as part of a personal hedge against the difficulties of peak oil?

I contacted Jim Hansen, a financial consultant at KMS Financial Services based in Seattle, Washington. He posted on The Oil Drum and writes an investment newsletter titled the “Master Resource Report.” I asked Hansen specifically about whether he thought FEDEX or UPS might be good Peak Oil investment plays. My paraphrase of his reply follows.

First, he's not giving any advice on the companies specifically but suggested instead some guidelines for evaluating them or other delivery services.

1. First, consider the GDP issue raised by Roger Bezdek and Robert Hirsch. With a flat to declining GDP, consumer spending will decline. That decline could be significant and last for a long time. This could hurt online sales and economic activity in general.

2. Many times the shipping cost is a large percentage of the cost of the item being shipped. At what point do consumers flinch and say “I'll pass”?

3. In every case, localization is important (and among other things, reduces the use of shipping long distances).

4. High value items will probably benefit from the use of delivery services, but probably not low-value items such as CDs, books, etc.

5. The primary advantage of FEDEX or UPS is speed versus shipping by rail or ship. Cheap energy is an important factor to make the FEDEX or UPS model work.

6. And the business model is critical. Jet fuel cost less than .41/gallon recently, and is now about $3/gallon. Airline fuel expenses are now 30-40% of total costs, more than labor for the first time ever. What happens when fuel costs approach 50% of costs? If they try hedging forward that won't help since markets will realize that future fuel supplies will be constrained, essentially forever.

So if online commerce goes down with the economy in a post-peak world, what are some other investment alternatives beyond the obvious (oil services for example). Other companies with an online presence such as Disney?

I'd love to hear your thoughts.

What the heck is "Peak Oil"?

The term "Peak Oil" hasn't yet gone mainstream, but you are hearing that catch-phrase occasionally on mainstream financial sources and even in USA Today. Do you wonder what that term means? Click here for a very simple explanation, developed by "Gail the Actuary," one of the contributors to The Oil Drum -- a great site for information on this topic and for discussions about energy and our future.

USA 2034: A Look Back at the 25th Anniversary Year

Alan Drake presented a great piece, at this year's ASPO Conference in Houston Texas, of optimistic fiction about the US, 25 years from now, and how we managed to do the right things. Alan's story was also posted on one of my favorite sites, The Oil Drum.

Here is an excerpt from this post, along with a link to the post itself on The Oil Drum. Here is a brief excerpt from his story. I hope this whets your interest enough to read the whole thing.

After an extended period of bewildering, painful and rewarding transition, the people of the USA finally feel that they have found their feet underneath them, with a clear and hopeful path to the future. Oil consumption is down to 6.6 million barrels/day, 30% of our 2007 peak oil use, and CO2 emissions are 26% of their 2011 peak, a matter of pride for most Americans.

As we close this year of 2034, for the first time in a quarter century, we can now say that next year looks to be better than this last year. Our problems are not solved, but we know the solution and we are confident of our ability to work and sweat towards sustainable, workable solutions !

Go read the whole story. It is the most credible and optimistic scenario I've yet seen.