My Predictions for 2011

Posted on January 18, 2011 by Charlie Pellerin

This is an update of a topic that I write about occasionally. I am not a certified financial planer and this is not financial advice. It is educational material integrated from multiple sources.

Here is my best guess about what 2011 will bring.

1. It looks like we are in a cyclical bull US stock market and a bearing secular market. In plain English, this means that stocks will go up in the short term (six months or so) and then down. The data that various experts use is consistent on this point. Some forecasters (e.g. Elliott Wave) forecast calamitous drop, i.e. 90%, over the next five years.

Conclusion: No US Stocks for me

2. World sovereign debt is now three times world GDP and growing more rapidly than the economies. There is no indication that governments world will stop trying to spend their way out of the high unemployment and slow growth. History is clear on this. Moreover, uncertainty is sure to increase as the situation in the US, Japan and Europe becomes more stressed.

Conclusion: Buy physical gold and silver and place them in a safe deposit box or a trusted external store. Think of these not as investments, but stores of value, like dollars were before 1971. I like Tulving.com for large purchases and silversaver.com for small ones.

3. US unemployment will continue to grow, even in the government’s “shadow statistics.” I read an interesting analysis that showed that the US unemployment grows at 1% per year if the real economic growth is 2.5%. Imagine 10 more years of growing unemployment. Moreover, I do not see how we can grow at 2.5% for more than a year or so. I see no outcome except a diminishing standard of living leading to social unrest and perhaps gangs.

Conclusion: You need to prepare to take care of yourself, with enough food, water and energy for months. You saw how the government took care of Katrina – Imagine what will happen when the entire country is troubled. (See my prior blogs and below)

4. Optimism is very high about the stock market and economy. I feel that we are on a luxury liner steaming through the water lying in our deck chairs sipping a drink. We can see the trails of many torpedoes heading toward our ship and we hold our course. They are coming so close that we can read the labels on them, but we do nothing:

  • $900B of debt soon due on the PIGS countries (Portugal, Italy, Greece, and Spain)
  • Ireland poised to restructure (default)
  • US short term debt of $3T plus $1T of new deficit to roll over
  • House prices continue to deflate
  • Climate change impacting world food supply
  • Climate instability increasingly wreaking havoc
  • California mega storm or earthquake catastrophe imminent
  • US population rapidly aging with unfunded pension expectations at every level
  • China’s economy uncertain
  • US wealth disparity growing
  • Global debt three times global GDP and growing faster
  • Commodity prices inflating 10% to 100% per year
  • Food shortages and price inflation inevitable
  • Fed has no exit strategy
  • War on the Korean peninsula
  • State and local governments restructuring/defaulting  (some estimate 50 to 100 this year)
  • Numerous bank failures as deflating properties wreck their balance sheets
  • Junk bonds are in a bubble – defaults coming
  • In addition, the mother of all problems – peak cheap oil arrived 5 years ago.

Conclusion: Can you believe every one of these torpedoes will miss our “ship of state.” The politicians will not stop spending to delay economic collapse.  All roads lead to gold and silver.

This is a special note about oil. I used to think of oil as a form of energy. I now see that it is very much more. Gasoline, for example, is a uniquely concentrated and portable form of energy. Imagine this thought experiment. Place a gallon of gas in your car and drive it until it stops after, for example, 30 miles. Now, assume you pay someone $12 per hour to restore your car back to its starting point and he or she can move your car at one mile per hour. (Normal walking is three miles per hour.) That means one $3 dollar gallon of gas equates to $3600! Now, get this. One 30-gallon tank of gasoline is, in this scenario, equivalent to $108,000, more than twice the median US household income! Moreover, this cheap resource is rapidly going away!

Conclusion: Life will change so begin preparation now (see my prior blogs and Chris Martenson’s web site). If you have money to invest checkout Bill Powers’s website about (mostly Canadian) “junior” oil companies. Because the public at large, not to mention our politicians, are not yet acknowledging the looming crisis, the oil futures market has an interesting dynamic. As Jim Puplava discusses, the “contango” on oil futures is near zero. In plain English, you can buy “calls” on $90 barrels in 2016 for $16,000 per thousand barrels. What this means is that if oil in 2016 sells for $106 per barrel, or less ($90 plus $16) you lose your money. If, on the other hand, oil in 2016 sells for more than $106, you make one dollar of profit for every dollar. If, for example, oil is at the price of $147, the peak just before the recent (current) recession, your $16 per barrel is now worth $41. Oil is so uniquely important, that I believe that people will pay any price for it. What do you think?

Finally, here is how you can help everyone through a wrenching time. Read my book, How NASA Builds Teams and use the free assets at NASAteambuilding.com to enhance your ability to lead your workgroup, your family, and your community through these difficult times. You will also gain real insights into why people are behaving as they are.

Thank you for reading my blog.

Charlie Pellerin

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A Guest Offering – More on Supervisor Feedback

Posted on December 18, 2010 by Charlie Pellerin

My friend and 4-D Certified Coach, Diane Brennan offered me this blog to post

I appreciated Charlie’s point that the behavior of providing honest feedback is not a matter of knowing how to do this task but rather a mindset the individual holds about this task. Providing honest feedback to a direct report, colleague, supervisor or even a family member or friend are common issues brought to a coaching session.  Identifying the story-lines one holds around the issue allows for increased awareness, perspective and understanding about beliefs, values and the situation or individuals involved.

If the leader holds a mindset that giving feedback will result in an individual becoming upset or angry, the leader might avoid taking action. The problem is that avoiding action causes unintended reactions in others and ultimately confrontation and conflict within the team and for the leader, which is really what,  the leader wanted to avoid.

When someone is not performing as necessary for the job, others do notice – even if we think they don’t – and there are consequences. The individual who isn’t performing as expected might not realize there is a problem or if he does, he’ll begin to learn that it’s OK to keep doing what he has been doing because no one has told him otherwise and performing poorly can become his norm. Others who work with him label the leader’s inaction as ‘special treatment’ because they see nothing change. In addition, the leader ends up taking more on to compensate for lack of performance or asks others to compensate which over time undermines authority, accountability and respect.

The Context Shifting Worksheet is an excellent tool for use in this type of situation. It allows one to consider the conversation or situation through the 4D framework. What I see most often when a leader complains about someone who is underperforming, is the realization there are unclear agreements, even if the leader thought these were clear, and poorly defined roles, accountability and authority resulting in inconsistent understanding of expectations among the leader and direct reports. Clarifying agreements and roles, accountability and authority are a great place for focus as you work to help someone more clearly understand performance expectations.

Adopting a green story line as Charlie wrote in the previous post such as:

  • Giving feedback is my duty as a supervisor,
  • I must give the individual feedback so that he can improve, or
  • If I don’t tell him what is not working and what I expect, how will he know allows the leader to engage in an open and honest exchange.

The key is to stay in the conversation and stay committed to your desired outcome. More often than not clients report that when they engage directly with a troublesome individual listening to understand and appreciating their perspective, they find opportunity to clarify agreements, come to mutual understanding and clear accountability for both parties that sets a strong foundation for success. If performance issues continue, the leader has the opportunity (given the agreements and expectations set in the previous conversation) and the responsibility (as a leader) to check in and depending on the findings take further action according to the organization’s process for performance and disciplinary concerns.

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Preserving Buying Power in Economic Chaos

Posted on December 11, 2010 by Charlie Pellerin

Perspectives by Charlie Pellerin, author of How NASA Builds Teams.

I wrote about why we will undergo wrenching economic and social change in prior blogs. This is about how to protect the buying power for whatever assets you might happen to have.

I am only sure about a few things:

- Massive, difficult change is upon us. We have an economic system that requires exponential growth and we live on a planet with finite resources. If you believe the world’s economies can grow indefinitely, I would be curious about what parts of Chris Martenson’s free on-line “Crash Course” you believe are incorrect.

- The condition we are in is unprecedented in human history. This is the first time the whole world is engaged in an economic crisis.

- Therefore, nobody knows what will happen.

- When the crisis comes, it is better to have more buying power than less.

- Many of us would be okay with half the buying power that we now have, but not zero of the buying power that we now have. Therefore, you need to diversify your assets.

- Since the value and stability of the US and dollar have significant risk, you must diversify by country which will also give you currency diversification.

- Given the choice, stocks are probably better than bonds.

Please note, I am not qualified or trained to give financial advice. As in my other blogs, I hope to stimulate you to think for yourself in unconventional ways. I do not believe conventional thinking will carry the day.

There are three principal possibilities, all in the hands of our electorate and politicians:

1)    To avoid disaster, we need to find a way to “grow our way out” of the horrendous debt at the national, state, corporate, and personal level. I do not see how this is possible, but I hope it is the case.

2)    We might enter a period of prolonged deflationary recession. This is more likely if the conservative Republicans have their way. In this scenario, you want cash (T-bills) because the price of everything is continuously dropping. The “Austrian” economists favor this prediction.

3)    The historically more likely possibility is hyperinflation or even default (called “restructuring”). This is even more likely if the liberal Democrats have their way. Watch for soaring deficits with tax cuts and more Fed “quantitative easing.” In this scenario, you want to maximize hard assets as in gold and silver.

4)    The third possibility is an oscillation between inflation and deflation, or inflation in some segments and deflation in others. The current condition in the US is very close to this with hyperinflation in commodities such as wheat, corn, gold, and copper, with high and rising unemployment.

How can one navigate these troubled waters?

First, remove all third-party liability from your assets. This means for example, no large amounts of cash in money market funds, credit unions or banks. The banks pay for FDIC or similar Credit Union insurance. In a large run, there will not be any immediate resources. I suspect you would probably get your money back eventually if you were under the limits, but you are powerless to manage through events as you wait. Any cash you hold (for the deflationary scenario) should be in a brokerage account such as Charles Schwab with 30-day treasury that you continuously roll over. If you want an investment play, you can also buy some “Treasury Inflation Protected Securities,” known as “TIPs.”

The core of my strategy involves hedging. Therefore, you need to go into your brokerage account and buy currency ETF’s (See Rydex in countries’ currencies with strong balance sheets to lower your risk of dollar value loss.  I suggest you research these countries yourself on the web but some obvious good choices would be Swiss francs and Swedish Krona, and perhaps Canadian or Australian dollars. I like to have Rydex foreign currency ETFs that equal any US dollar exposure. This gives you cash assets for deflation with protection against US dollar devaluation.

Next, I recommend buying some physical silver and gold. Since nobody knows where the near-term price of gold is going, I suggest you dollar cost average into gold and silver over the next six months or so. (Do not buy silver or gold ETF’s. To do so is back into third-party liability.) Here are a few options:

1.    Have the metals delivered to you by Tulving Company or Kitco. Silver is too bulky to easily store in significant amounts. Avoid other rare metals (e.g. platinum) as the reseller market is difficult. An ounce of Gold has bought a man’s suit since Roman times. Diversify your gold storage between safe deposit boxes, other locations, and trusted relatives (even in foreign lands).

2.    Buy the metals from a storage facility. Reselling is much easier. There are, however, storage costs. Peter Schiff’s company Euro-Pacific Capital offers a number of alternatives. I like their storage at Australia’s Perth mint, and the fact that you can put retirement plan money with them. You can choose “allocated” so you own a specific ingot, or ‘unallocated” where you own a share of a large piece of metal. Kitco offers similar services.

You now have your hedged dollars for deflationary scenarios and your hard assets for inflationary scenarios.

What should you do next? Since the presenting dilemma is resources shortage, I am buying resources stocks. This is also a way to invest in gold and silver as mining stocks move up and down about twice as rapidly as the price of the metals.

Chris Martenson summarized findings from the World Energy Outlook (WOE) 2010 report.

By 2035:

  • Between 2008 and 2035, total energy demand grows by 36%, or 1.2% per year, far less than the 2% rate of growth seen over the prior 27 years.
  • Renewable energy sources will be contributing very little to the overall energy landscape, just 14% of the total, and this includes hydro.
  • 93% of all the demand increase comes from non-OECD (developed) countries, mainly China and India. Conventional oil has peaked, and this is a permanent condition.  All oil gains from here forwards will come from non-conventional sources and gas and coal-to-liquids programs.

He adds, “One glaring difficulty in all of this is that the IEA notes that China and India are going to consume nearly every drop of any potential future increases in oil production.  Yet overall production is only going to grow by a meager 0.5% per year.”

What do I make of this? I think it is likely that any economic resumption of growth in the US will stall under increasing oil and other commodities costs. Therefore, I am buying resource stocks under the assumption that demand from China and India will push the prices up. (Need to decide this is something you want to buy into or not.)

Now, which resources and where am I buying? Martenson’s most recent report urges purchases of natural gas companies, with “Natural Gas is the new Silver.” (Chris Martenson) Moreover, Bill Powers asserts that Canadian companies are much better bargains right now than US companies. The Canadian fields are rich (particularly the Cardium area) and I like Canadian investments because they are another hedge on the dollar. You might want to look at these:

- Spartan Exploration http://www.spartanexp.com/ Calgary

- Trican Well Service http://www.trican.ca/ Alberta – (Operating in Russia)

- Calfrac Well Services http://www.calfrac.com/ (Western Canada)

- Transglobe http://www.trans-globe.com/ Egypt

- Midway http://www.midwayenergy.ca/ Alberta

- PetroBank Energy (Calgary)

If you are buying small resource companies like these, it is better to buy smaller amounts of three or four because one or more individual companies might not do well. Again, diversify!

Chris Martenson also predicts a big rise in silver when the Commodities board soon prohibits JP Morgan’s gigantic shorts. I especially like Silver Wheaton (SLW) a “silver streaming” company.

You have probably heard that over 95% of the rare earths we need for so many electronics devices are mined in China. Moreover, China recently briefly embargoed these. If you want to make a play here, take a look at Lynas (LYSCF), Quest (QSURD) and Molycorp (MCP).

Chile and Brazil look at lot like the US in the 50’s. I like Market Vectors (BRF), Wisdom Tree (BZF), and IShares (EWZ and ECH).

For a broad Australian resource play, I like BHP Billiton (BHP)

Frankly, I have no idea if any of this is truly a good move. I just do not know any better way to preserve my capital than a combination of hedged treasuries, gold and silver, and resources denominated in currencies with less debt to GDP than the US. Moreover, it seems clear that the resources the world needs, particularly China and India, can only become more expensive and harder to find.

Begin with a small brokerage account at somewhere like Charles Schwab and begin experimenting with small amounts of money. As you learn, change or increase your holdings.

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The Transition (Money, Water, Food, and Energy)

Posted on November 30, 2010 by Charlie Pellerin

Perspectives by Charlie Pellerin, author of How NASA Builds Teams (See NASAteambuilding.com)

Do you recall the “N1H1” flu scare? I was fascinated to watch President Obama and other senior officials tick off the standard list of what you should do to protect yourself from this flu—except the last item. They all omitted the crucial step of preparing yourself to stay indoors for extended period. Why did they make this omission? They did this because they knew if they spoke these words, there would be a rush on supplies that would immediately empty the stores causing an enormous panic.

You need to understand something that your grandfather would have found unbelievable. In our quest for maximal efficiency, we ship everything ‘just in time.” The average city has three days of food supply, then everything is gone if trucking is suspended. If oil shortages suspend transportation even temporarily, we are “9 meals from Armageddon.” The average gasoline station refills multiple times each day. I recently verified this at COSTCO and asked the operator how long from full to everything gone. He told me 1.5 to two days. When the volcano delayed flights from Europe, automobile plants in Japan shut down for days.

Bottom line: There are no significant buffers in any of the “just-in-time” supply chains. Therefore, you need to stockpile your own essential supplies, now. The fact is, up to now, cheap oil for transportation has created a dangerous illusion that the supply chains are reliable under stress. The fact that restocking is required on short time scales is invisible to us as long as our oil-based transportation systems function.

The purpose of this blog, the second in the series, is to provide you some motivation to stock essential resources for your survival, while you still can. There are many sources of the kind of information. (See Chris Martenson) I hope to give you a slightly different and simpler slant on this.

You need to stock, in advance, four things. You need short-term money, water, food, and energy. (My third blog focuses on about investing your money to preserve your buying power.)

Short-term Money:

Anticipate that the first event in a real meltdown will be broad bank failures, including an (extended?) interruption in electronic services, e.g. credit cards. Therefore:

  • Have enough cash in your house in small bills for at least a month. This need not be a large amount, as you will not be going out much.
  • Minimize money in any bank or Credit Union, particularly large banks. FDIC and Credit Unions’ insurance funds come from fees these organizations contribute. It is impossible to protect deposits with large-scale bank failures. (See Chris Martenson’s Crash Course to see how many times a bank lends each dollar on deposit.)
  • Keep car gas tanks at least half full, as electricity will likely go away—even if some gasoline is in gas station tanks, there will be no way to pump it out.

Water Overview:

Why would water stop flowing or become un-potable? It is because of “just-in-time” stocking methodology. Water treatment facilities, I have read, have about a week of the chemicals they need to make water potable. I suspect that whatever back-up generators they have work on similar timescales. Moreover, in the flu-pandemic scenario, there may not be sufficient healthy and trained workers to operate the facility. You need back-up water.

You can survive 30 days without food as your body gradually consumes fat and muscle in approximately equal amounts. You can survive, however only 3 days without water. Moreover, if you are out of water, stop eating as food increases your need for water. An average person requires about 3 liters (3.2 quarts) for drinking. When you add in sanitation and hygiene, the total is about 50 liters (13.2 gallons) per day. The average American today uses 10 times that amount. (See Water Encyclopedia)

Clearly, it is impossible to store sufficient water, so you need the capability to gather it and purify it. I like the Katadyn TRK Drip Gravidyn Water Filter for about $200 from Amazon. It is a plastic counter-top drip filter good to 0.2 microns. Water flows at about 4 liters per hour. When it arrives, verify that the ceramic filters (three) did not crack in shipment. I also recommend buying one spare cartridge in case you crack one. With reasonably clear water, you have a capacity of up to 150,000 liters. Now you can use contaminated city water that continues to flow. We need now to prepare for when the water stops. Remember, you need water to drink, prepare food, wash and flush toilets.

Obtaining Water

Purchase five plastic “jerry cans” that hold five gallons each. Keep your car’s gas tank at least half-full. Find a nearby river or lake and place a 12-volt bilge pump in a submerged stainless bowl. Plug the pump (e.g. a Rule 25D Marine Rule 500 Marine Bilge Pump about $21 at Amazon) into the cigarette lighter and pump 25 gallons of water in 3 minutes. You need to refill every other day.

Boiling Water

The best way to disinfect water without a filter is to boil it for one minute, if you can spare the energy (more on energy later).

Bleach

If you cannot boil water, you can disinfect it using household bleach. Bleach will kill some, but not all, types of disease-causing organisms that may be in the water. If the water is cloudy, filter it through clean cloths or allow it to settle, and draw off the clear water for disinfection. Add 1/8 teaspoon (or 8 drops) of regular, unscented, liquid household bleach for each gallon of water, stir it well and let it stand for 30 minutes before you use it. Go invest $7 at COSTCO for three gallons of Clorox and put them in your basement.

SODIS

There is one good reason to have some drinking water in PET (Polyethylene Terephthalate bottles—the most common consumer plastic marked with “1” inside the recycling symbol) bottles and that is “SODIS” or solar water disinfection. Choose colorless, transparent PET water bottles (2 liters or smaller) with few surface scratches. Remove all labels and wash the bottles before the first use.

To improve oxygen saturation, fill the bottles 75% full then shake for 20 seconds (with the cap on). Then fill completely and recap. You must filter cloudy water. Place the filled bottles on a slope facing the sun for 6 hours if sunny or 50% cloudy and for 2 days if more cloudy.

You might also want to consider rainwater harvesting. There are, however, some difficulties. First, you should not drink water from a composite roof without a high-quality filter. Second, the storage costs of any meaningful amounts are daunting.

Food

Reflect on this, “80 percent of the seafood consumed in the United States is imported, according to the National Fisheries Institute.”

I recommend a two-tiered approach to food. First, fill your pantry with a month or so of canned food and grains (e.g. quinoa) from COSTCO or the like. Although the expiration dates have little connection to anything except supermarket lawsuits, you should rotate the food. (There are stores in Denver that only sell expired canned food with no difficulty.)

Mountain House or Thrive

This food comes in #10 cans with a storage life of 30 to 50 years. All food expiration is in reality, strongly temperature dependent. Keep it in a cool place and your grandchildren can use it if you do not.

Energy (Electricity):

I need to tell you something important about those $30,000 solar panels you see on your neighbors’ houses. They are useless in a power outage! Their only purpose is to generate electricity to feed into the grid when the grid is up, thus reducing your electric bill. If you want to power your house with solar power, you need batteries and inverters. Inverters convert the deep discharge 12-volt battery output to 110 VAC. To preserve efficiency, the inverter must match the load. Moreover, there are two kinds: 1) Sine wave, which some electronics require, and, 2) Non-sine wave which are OK for most appliances. For long-term, limited survival, I recommend staying with 12 volts.

I recommend Backwoods Solar Electric Systems with a specialization in systems for people who want to go “off-grid.” Their catalogue is an excellent source of information about solar-electric system design. You can purchase a 245-watt solar panel for less than $700.

You will also need one or more storage batteries. One battery choice is a 12 Volt 105 Amp Hour Sealed Solar Deep Cycle Battery, Advanced Gel Technology by Power battery for $249 plus $50 shipping (Amazon). The capacity of this battery is 1260 watts. For emergency lighting, I recommend 12-volt 60-watt equivalent LED bulbs that require 3 watts each.

Energy – Cooking:

You need at least a Coleman stove and a number of large portable LP tanks for cooking.

Energy – Heating:

The most basic thing is to know how to drain your house if you cannot heat it. (Having your house plumbing pipes freeze is not a problem. The problem comes when the broken frozen pipes thaw.) This can be as simple as finding the lowest point in your house plumbing, closing the house supply valve, opening the faucets and draining your house. Investigate how to do this now. You may need a plumber to come and put in a special drain valve for you. It is cheap insurance. You can live in quite cold temperatures with adequate clothing without much difficulty.

To live more comfortably (and protect your plumbing) in a cold climate, I recommend that you install an aboveground Liquid Propane tank behind your house. A small 125-gallon tank costs about $200 with another ~$2 per gallon to fill it. You can purchase an 18,000 BTU vented, wall-mounted heater for about $400 from Northern Tool (Amazon) that does not require 110V. Propane contains about 91,000 BTUs of energy per gallon. Therefore, an 18,000 BTU furnace could run continuously for five hours per gallon. If you ran it 12 hours per day, it would be good for 60 days using one 125-gallon LP tank. (To estimate the BTUs you need for normal heating, multiply the volume of the space in cubic feet times three for average insulation.)

Miscellaneous Topics:

News and Information

I have a small solar-powered and hand crank radio (Microlink FR 150) from Amazon costing $32.

Toilet Paper

You do not want to run out of this. Go to COSTCO and stock up, now.

Barter

People will want alcohol. I suggest cases of vodka to drink and trade. A few cases of Scotch whisky would also be good barter material. Moreover, if nothing bad happens your grandkids will thank you.

Manuka Honey

I recommend stocking this incredible honey from New Zealand while you can. I like Wedderspoon Raw Organic Manuka Honey Active 16+, 17.6-Ounce Jar from Amazon for $25. Go read about its multiplicity of uses, including as an antiseptic.

Rechargeable Batteries

You also need to buy rechargeable batteries. You can get them from Amazon. Backwoods Solar sells this 12 Volt : RECHARGER for NiCad batteries. Size AAA, AA, C and D. Automatically discharges, and then recharges to avoid memory effect. The design charges both Nickel Metal Hydride (NiMH) and Nickel Cadmium (NiCad) batteries. It comes with an AC adapter. Backwoods Solar adds a 12-volt DC power cord.

This paper is incomplete and does not address many issues that might be essential to your survival. I merely hope to jumpstart your creativity.

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Preparing for the Inevitable Transition (1)

Posted on November 17, 2010 by Charlie Pellerin

This might be the most important blog I have written because the information herein may save your life and those of your children and grandchildren.  Things are that serious.

There are many books and articles on this topic. I hope to offer some simple clarifying ideas to help you to make the preparations you deem necessary.

This has turned out to be much more voluminous blog than I first thought. I am now going to issue a series of blogs. I will begin by setting the context, reviewing where we are. In my book, How NASA Builds Teams, and our similar workshops, we teach the art of creativity. Over the years, I have read many books on the subject looking for how to help people be more creative. In the end, I only found one thing that works. Acknowledging unpleasant reality is the foundation of all creativity. Unfortunately, it is very human to prefer to ignore such realities. However, because it is the point from which creativity begins, I will start with my best understanding of where we are.

I am not an economist, and that is good. Economists tend to organize themselves into “schools” of common and conflicting thought.  Some are Keynesians. Some are Austrians. Just this week, I heard of the new group called Republican economists. As near as I can discern, economics has not risen to the level of a science in the way, for example, physics has.

I hold three premises about human behavior, at least in the US:

1.    While it is common to predict the future by extrapolating the past, I believe this will no longer work. I lay out the case for this premise below;

2.    We are not good at dealing with slowly developing crises until too late (e.g. Pearl Harbor); and

3.    We are not good at making near-term sacrifices in favor of long-term benefits. (One of my favorite psychological experiments has researchers placing a marshmallow in front of a young child, and then leaving the room. They told the children that if they could resist eating the marshmallow until the researchers returned, they would give them a second marshmallow. The researchers studied these children throughout their life and found a very high correlation between children who could delay gratification and life success. How does our country function in this regard, and what does it portend for future?

Setting the Context

1.    Sustained Exponential Growth: politicians and economists believe that growth is a requirement for future prosperity. Constant growth is exponential growth. You cannot sustain exponential growth indefinitely with a finite planet.  (see Chris Martenson’s free “Crash Course” ) This is important because it makes it clear we cannot continue the way we have been going indefinitely. Martenson puts it this way, “the next 20 years are going to look nothing like the last 20 years.”

2.    Debt Everywhere: The world owes 300% of its GDP. This is not sustainable. Lack of capital just exaggerates all the other problems. Here are the required average borrowing levels of some countries as a percent of GDP for 2010 and 2011.

a.     Japan over 50%

b.    U.S. Greece, Belgium, Italy, France, Portugal, Ireland are all over 20% each year. (in decreasing order) (Source IMF)

c.     Germany, Finland, Sweden and Australia are lowest with Switzerland omitted from the list.

This is important because there are only a few options to resolve this enormous debt. We can tighten our belts and grow out of it, which is the current hope. We can inflate it away. On the other hand, we can default. Moreover, in the midst of this debt, where do we get the capita to address our difficulties? My guess is that we will inflate it away because this is the simplest and most common remedy for this level of debt. One difficulty that this creates is it anybody with any money will lose the value. I will talk later about how to address this with your personal finances.

3.    Energy:

a.     The International Energy Agency concluded production of conventional crude oil probably topped out for good in 2006, at about 70 million barrels per day. We are running of oil that we can afford to burn. There is no easy substitute for high-energy liquid petroleum. Here is an interesting interview with James Howard Kunstler (obscenity)

b.    Solar and wind power are “head-fakes.” Since they are intermittent, you still need power plants that can provide the full “base-load.” Moreover, we do not have an electrical grid to move the electricity efficiently around the US, or the capital to build one. See Beyond Smoke and Mirrors: Climate Change and Energy in the 21st Century

I hear evermore economists making the same arguments that Jeff Rubin made some time ago. The subprime crisis did not cause the current recession. The root cause was the $150 spike in oil prices. This is important because if the “grow our way out of it strategy” begins to work, oil prices will inevitably increase, potentially choking it off.

4.    Environment:

a.     Scarcity is already driving up the prices of commodities. These are a few examples of increases over the past year: Wheat 74%; Oats 68%; Cotton 66%; Pork 60%; Copper 37%; Gold 31%; and Silver 36%. (Source – Casey Research Foundation) Interestingly, the residents in the Weimar Republic did not notice hyperinflation until it became crazy.

b.    Many voters and politicians reject climate instability as a matter of dogma. Unfortunately, a “Pearl Harbor” response after the disaster cannot work. The decay time for CO2 in the atmosphere may be over 100 years. Tom Friedman  recently wrote, (I Believe I Can Fly) “So here’s the math: 98 climate scientists out of 100 will tell you that man’s continued carbon emissions pose the risk of disruptive climate change this century. Two out of 100 will tell you it doesn’t. And, “conservatives” today tell you to bet on the two. If the climate-deniers are right — but we combat climate change anyway — we’ll have slightly higher energy prices but cleaner air, more renewable energy, a stronger dollar, more innovative industries and enemies with less money. If the deniers are wrong and we do nothing, your kids will meet the sudden stop at the end.

c.     Jim Hansen’s newest book Storms of My Grandchildren: The Truth About the Coming Climate Catastrophe and Our Last Chance to Save Humanity predicts a 150-foot rise in sea levels unless we clamp emissions now.  I read last week that scientists say that a rise of even three feet would cause coastal flooding of the sort that now happens once or twice a century to occur every few years and would contaminate fresh water supplies with salt. Here are a few examples: In New York, coastal flooding could become routine, with large parts of Queens and Brooklyn especially vulnerable. This rise could inundate 15 percent of the urbanized land in the Miami region. The ocean could encroach more than a mile inland in parts of North Carolina.

This is important because remedies to the problems caused by climate change require infusions of energy and capital that we will not have. Mother Nature does not care about politics and “bats 1000″ relying on chemistry, physics, and biology.

4.    Finally, the US political system is broken. While it is popular to blame the politicians, I am convinced that our electorate is the problem.  We exist in six groups that do not like each other and do not communicate with each other.  See “Six Americas” Moreover, for the first time I can recall, it is meritorious to be stupid. Idiot America: How Stupidity Became a Virtue in the Land of the Free Moreover, we have adopted a dangerous “empire mindset. Dismantling the Empire: America’s Last Best Hope (American Empire Project)

This is important because we need an energy policy, an environment policy an immigration policy and an industrial policy to compete in the world. We have none of these. Moreover, our politics are getting uglier and angrier. Unfortunately, I expect this trend to continue, because of our findings of the effects of social contexts on behaviors.

5.    About the US:

a.     We frequently hear that our lifestyle is the envy of the world. In the 2010 Quality of Life Index, for example, compiled by International Living, we are no longer even in the top 10! As I frequently travel internationally, I often encounter people overseas with dual citizenship with the country they are and the US. Not one prefers to live in the US today.

b.    We used to be number one in the world in college graduation rates. We are now number 14, number 15. We are leading the world in high school dropout rates. PolitiFact.com

c.     I also recently read that we had dropped below 20 in world rankings of business ethics.

d.    Our high school students rank in the mid-20s regarding ability in math and science. The same students however, rank number one in confidence!

e.    The US ranks 43rd in income inequality out of 134 countries (ranking lower is better).

f.       US ranks 33rd out of 34 nations in acceptance of evolution (ranking higher is better).

g.    We tie for 57th place in measures of fairness of elections as well as the free choice of candidates, and the transparency of campaigns. (Ranking higher is better).

Why is this important? I just want to challenge the mindset that America is somehow magically endowed with prosperity forever. I think the more likely explanation is that we ended World War II with the biggest manufacturing capability in the world with all our competitors bombed to smithereens.

I encourage you to adopt a very specific mindset. I believe that if you own a house, you would have fire insurance, whether you believed your house would ever burn down or not. The argument here is very similar. You need to prepare for the worst and hope for the best. Moreover, many of the problems aside above are beyond the reach of anyone on this. Therefore, I would argue that you prepare for this transition on three levels.

The first is emotional. I believe that in order to remain high functioning as stresses increase, you to educate yourself about the realities of our situation. At first, you probably experienced mild depression. I did.  I find knowing what to do in taking action to protect my close family and myself has mitigated this. I moved past it as I feel emotionally prepared for whatever comes my way short of physical violence. (Note: I learned last week from Jim Rickards (King World News) that the US Military is conducting war games to manage US social unrest if foreigners dump their dollars.

Next, you must develop your leadership abilities using the free assets at NASAteambuilding.com and of course my book, How NASA Builds Teams. There is no doubt the community will become much more important as events unfold. I have for example, negotiated mutually supportive agreements with my neighbors. This coming environment will challenge your ability to collaborate.

Next, you must establish physical security. My next blog will address the fundamentals of being able to stay in your house safely and comfortably for 60 days at a time. You need to do this for many reasons. For example, when I was in Australia a few years ago, the headline in the newspaper was of a blue ribbon panel and determine a bird flu epidemic was the greatest risk to the Australian population not, terrorism. People, we discuss this all around the world except here.

Moreover, with our just-in-time economy, the average American city has nine meals and perhaps seven days of water treatment chemicals available.  If we have a sudden interruption of interstate transportation, everything will be scarcer than food right before a Washington, DC snowstorm. You have to stock up now, because when it becomes obvious that you need it, there will be nothing available.

My following blog will discuss preserving any financial assets you have. (This is for informational and educational purposes only. I am not a financial advisor. These are my thoughts to stimulate your thinking. In the end, you must totally trust yourself.) Here are some preview thoughts.

1.    A wrenching change of life in the US is inevitable.

2.    This is a “Black Swan’ event, unprecedented in human history in its breadth and depth. Nobody knows what will happen. You should ignore anybody who claims to know.

3.    A time of crisis is better to have more assets than less.

4.    Since nobody knows what will happen, you must diversify and hedge your funds. I could get by with half of my assets but not zero of my assets.

5.    Here are some of the possibilities you must anticipate and prepare for

a.     Hyperinflation: For this, you want maximum hard assets distributed worldwide and minimum dollars.

b.    Deflation: For this, you want dollars to buy things you want as prices go downward.

c.     A combination of the two, which is about where I think we are now: You need to employ hedging strategies.

Thank you for reading this. I look forward to receiving your comments. I also want to apologize that there may be errors in some of the details. I could not confirm some of my sources’ data. Please focus on the broader picture, because that is my message.

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Misguided America — Fixing the Economy?

Posted on November 15, 2010 by Charlie Pellerin

It was fascinating to see the draft report from the deficit reduction commission, and then the political reaction to it. It confirmed my suspicions that managing America’s economic future is far too important to relegate to politicians. The diatribe around taxes or not, entitlements or not, and so on completely misses the point.

Trained as a physicist, I innately prefer simplicity and principal to minutiae and details. Here is the point. The only way out of our problem is to change our economic structure in a fundamental way. Eric Janszen, in “The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble” makes a persuasive argument that we must stop bailing out the “FIRE” economy based on finance (which produces little tangible value) and real estate (which he argues is a poor  investment because over time it only tracks inflation).

Instead, we must move immediately into a“TECI” (transportation, energy and communications infrastructure) economy. Now the question becomes how to do this, and what is the proper role of government and private industry in making this transition? My point is this is the debate we should be having, not the hassling around about taxes and entitlements. My friend country singer Chuck Pyle has an expression I used to find humorous, “It’s a damn good thing we don’t get all the government we pay for.”

I now understand that in the world of international competitiveness, we need an effective central government more than ever.  For example, we need an energy policy. France has energy policy. Because of this 80% of their electricity comes from nuclear power with a common design for the reactors. We abandoned nuclear power after Three Mile Island although there was no injury to anybody whatever. (I met last week with the head of France’s nuclear program, EDF. EDF is using our 4-D processes to enhance technical team performance and reduce risk.)

France also has an industrial policy. The country is committed to maintaining manufacturing at 22% of GDP. Because we have no such policy, our manufacturing has fallen from approximately 22% 15 years ago, to only about 10% today. It does not help to have a weak dollar policy if you do not have manufactured goods to export.

Now I will tell you why I am not optimistic about our immediate future. I have worked for the past 15 years in understanding the role of social context in affecting human behavior. My specialty has been enhancing technical team performance as described in my book How NASA Builds Teams. The problem we have is that the US electorate is moving more and more into the drama state of “blamer” discussed in my book. In this state, our assignment of blame is both certain and wrong. This is why the political diatribe is so angry today. I forecast a worsening social context in the immediate future, and a greater deterioration of our political process. In my next blog, I give you some points about how to survive through the imminent societal transition.

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The behavior that many leaders/managers hate

Posted on November 12, 2010 by Charlie Pellerin

We received the following feedback from a senior executive in one of our Individual Development Assessments: “Consider including the behavior that many leaders/managers hate—correcting substandard behavior of their subordinates. Everybody wins when this is performed effectively, but it’s avoided like the plague.”

Our Assessments measure eight behaviors. The easy answer to the question is that we selected these eight behaviors with two criteria. The first criterion is that each behavior is fundamental to individual leadership effectiveness, and the second criterion is that we have reliable ways for people to learn to make each behavior habitual. This behavior does not meet the first criterion.

One of my colleagues suggested to the person who gave us this input that their institution should develop a course for supervisors to deal with this matter. I wrote in a previous blog about how attitude is central to leadership effectiveness. It occurred to me that this behavior is not a matter of knowing how to do this task. When the supervisors do this or not is a matter of the attitudes/mindsets they hold about this task. (We prefer the term “mindset” to “attitude.”) How do we teach attitude? We do this by using the “4-D Organizing System to analyze (simplify) mindsets into two manageable components, Story-lines and emotions.

If we were to improve supervisors’ behaviors in providing honest feedback to weak performers, we would begin with the Story-lines they are running. We teach people to “color” their Story-lines “Red” or “Green” according to the behavior they create. “Red” Story-lines limit individuals’ leadership effectiveness, and “Green” Story-lines enhance individuals’ effectiveness. Moreover, we define truth as that which is unarguable. Story-lines are thoughts we express that seem true to us when we run them, but are not truth as they are arguable. Since they are not truth, people can choose to run “Green” or “Red” Story-lines.

Here are a few “Red” Story-lines that are likely in play when supervisors resist “telling subordinates the truth:”

-         They will just become angry with me.

-         If I do this, I will have to generate extensive documentation for our lawyers.

-         No matter what I say, they will not change their behaviors.

-         This is a waste of time.

Here are some “Green” Story-lines that support the essential actions:

-         Everybody wins when this is performed effectively

-         If I construct the message carefully (e.g. using “4-D” methodology) I will be heard.

-         This is my duty as a supervisor to the people who work for me.

-         I must give them the feedback they need to improve.

Now, we address the other side of mindset, emotions. There are five basic emotion groups. They are mad, glad, sad, scared, and love. With a little effort, I can choose to express the emotion that is required for the conversation. I suggest the proper emotion is from the “love group.” No, it is not about romantic love. It is about expressing thoughtful, caring for the individual.

By managing their Story-lines and expressed emotions, supervisors can effectively provide the feedback their subordinates need. You can read more about this at our website and in my book, How NASA Builds Teams (Wiley, 2009).

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Preparing for Your Coming Lifestyle Transition

Posted on November 4, 2010 by Charlie Pellerin

Have you watched Chris Martenson’s Crash Course? I can summarize his perspective with this sentence. “The next 20 years are not going to look anything like the last 20 years.”

Why should you care what I think about this? I have a PhD in Astrophysics physicist, and have become a teambuilding and leadership expert during the past 15 years. I understand technical data and people, an unusual combination. Moreover, I am not an economist, which is probably an advantage. Economists tend to group themselves into schools of thought that I do not find particularly useful.

Why am I blogging about macroeconomics? First, I would like to persuade you to prepare you, and your family to transition into a different way of living. This preparatory activity is both emotional and tangible. (Chris Martenson’s web site has excellent free resources, and a nice daily blog.) I like to think of this preparation similarly to having fire insurance for my house. I do not have to believe my house will burn down to buy insurance. Rather, I am willing to pay modest amounts of money to indemnify myself from this risk. Therefore, I am not going to try to persuade that I know what the future will be. Actually, nobody knows. The world has never been in this condition before.) Rather, I would like to persuade you that the risk of forced lifestyle changes is significant enough that it makes sense for you to mitigate it.

Perhaps more importantly, I believe that successful transition into the new state of living depends on our collective “4-D Ability.” The challenge is to maintain functioning “social contexts” in our professional and personal lives. Our website, www.4-Dsystems.com, provides significant free assets to help you enhance your personal leadership effectiveness.

There are four primary interrelated “change forces.” Separately they would be highly problematic. Taken together, they portend an inevitable change that you ignore at your peril. I will develop each in more detail, in future blogs. I will attempt to describe the situation and options in the most simple and basic terms possible. (Physicists do this well.) In summary they are:

1.    Economic (from a recent report by J. A. Gould World): Worldwide (particularly the developed countries) have $188 trillion in global debt. World global productivity or GDP is about $61 trillion. World debt is 300% of GDP. The ratio for the US is about the same when you add it up all, not including obligations like Social Security and Medicare. The debt in the US has grown an average of 8.5% per year since 1952! Do the math. This is not sustainable. Moreover, we also have foreclosures and collapsing commercial mortgages.

We are going to experience some combination of the following:

-         Hyperinflation, which is already under way in commodities, such as corn and copper, which are up as much as 30% this year already (Buy your Thanksgiving turkey, now.);

-         Deflation, which the Federal Reserve is rapidly throwing our dollars at in a process known as “quantitative easing;” and

-         Default, when governments simply stop paying their debt.

All three occur commonly, many times in the last century. In upcoming blog, I will show you some strategies to hedge any money you might have to survive these events. There is, however a bigger message here. Addressing the next two issues requires significant capital that may not be available.

2.    Energy: Peak oil is upon us. When I mention this, some immediately want to argue with me. I want to explain what I mean by this because it may avoid this argument. Peak oil does not mean running out of oil. As economist Jeff Rubin says, “The world is never going to run out of oil. The problem is that we are running out of oil that we can afford to burn.” As Dr. James Schlesinger  recently proclaimed, “The Peak Oil Debate is Over.”

Have you ever wondered how we enjoy a standard of living so much greater than people experienced only 100 years ago? The reason is that we have been able to purchase over $3000 of human labor in a highly mobile form for about $3. Imagine this experiment. You put a gallon of gas in your car and drive it until it stops. Then hire someone for $12 an hour to restore your car to the starting point. If they push your car at 1 mph, you would spend, say 30 hours or $3600 00. (I will show you later why solar and wind energy as substitutes for oil are both “head fakes.” Most importantly, however, is the fact that any remedy for loss of cheap oil, for example, nuclear energy, requires large capital investments. Given item 1 above. Where will we get the money?

3.     Environment: here we have two difficulties. First, we are running out of many resources from so-called “rare earths” to ocean fish. Moreover, I do not doubt that global temperatures are gradually rising, making storms more severe, and changing weather patterns and affecting human populations. Once again, we do not have to argue about whether humans are creating climate change or not, although I am convinced that we are.

From a risk management perspective, we cannot ignore catastrophic risks, the matter what we believe as the probability of occurrence. Massive increases in storm strength and climate change are catastrophic to humans. Once again, the difficulty is where we get the money to make the preparations we need. When I speak publicly about this I challenge people in the audience to name an effect of global climate change that does not require more money to mitigate. Nobody ever has.

4.    Political gridlock: While the deepest purpose of politics is to find good compromises, it seems unlikely that will happen anytime soon. Some people like this expression from folksinger Chuck Pyle, “it’s a damn good thing we don’t get all the government we pay for.” It is my view, given the nature of the world, that we have never needed a high-quality central government more.

- We have no energy policy. France makes 80% of its electrical power with nuclear energy using a single nuclear reactor design.

- We have no immigration policy. Ironically, we had a visiting worker program with Mexico until Johnson eliminated it at the request of US farm workers. I have been to Dubai and watched a country effectively use an 80% immigration workforce, primarily for construction, with few difficulties.

- We have no industrial policy. Again, France has a government policy to intervene when manufacturing falls below 22% of GDP. American manufacturing just sank and sank and now it is near 10%. It actually does not matter what China does with their currency, as we manufacture very little that they want to buy.

My next blog returns to a topic I actually know something about, leadership effectiveness. I will follow-up in detail on the issues raised here in future blogs.

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Mr. America and Mr. Asia Are Farmers

Posted on November 2, 2010 by Charlie Pellerin

Many people find this very simple parable appealing to describe the state of our country. I first heard this some time ago from Peter Schiff. Mr. Asia grows oranges and Mr. America grows apples. They meet and decide it would be mutually beneficial to trade produce with each other. It would provide greater variety for the people living in each of their countries.

Over the years, Mr. America forgets that “Mother Nature bats 1000″ and becomes sloppy about taking care of his orchard.  He soon is producing very few apples. So he asks Mr. Asia to accept some paper IOUs so his people can supplement their diet with oranges. Mr. Asia’s people are used to making sacrifices, so he sent some of his oranges to Mr. America and received the IOUs in return.

Mr. America is borrowing money and enjoying life. He soon finds growing apples is a lot of work, so he converts his apple orchard into a golf course. Now he can work much less and just charge fees for golfers. He does not realize that he is traded manufacturing something he can export, for services that he cannot.

After a few more years, however Mr. Asia decides he doesn’t want any more of Mr. America’s IOUs. He says if you’re not manufacturing anything that you can export, how can you pay me back?

Mr. America realizes that he must get back into Apple production. However, it’s been so long since he farmed, he’s forgotten how. Moreover, bankers and tight credit markets are unwilling to take a chance on giving scarce capital to a farmer who doesn’t know what he’s doing.

I think you can see how this provides insight into where we are.  I’ll be writing more about our situation and what you can do about it in future blogs. My answer is leadership of your life and your family, as described in my book, How NASA Builds Teams.

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If we were a serious country…

Posted on October 25, 2010 by Charlie Pellerin

Tom Friedman wrote an article in today’s New York Times entitled “The Election That Wasn’t.” The second paragraph started with “If we were a serious country, this is what the midterms would be about: How do we generate the jobs needed to sustain our middle class and pay for new infrastructure?” It was the usual Tom Friedman call to arms as trying to get Americans to address the issues that we keep postponing. He cites Harvard economist Lawrence Katz’s message to “be a artisan.” Japan is a country of artisans, and I’m not sure it’s so helpful to them in this time of mass production and consumption of commodities.

I say “be a leader.” Without leadership, none of our problems are solvable and with leadership, they all are. How does one become a more effective leader? Reading “business books” doesn’t work, although I’ve written a very good one called How NASA builds Teams. you need every current and effective stimulant for behavioral change. Because I worry about our country and where we’re going, I provided such an instrument free on our website at NASAteambuilding.com.  You no longer have any excuse for less than leadership excellence as thousands of NASA managers verified this process works.

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