Wednesday, July 18, 2012

Time to Start Posting Again

I stepped back from the Fireside Chat blog for awhile for a combination of personal and professional reasons. My main reason for doing so is that I've spent the last year starting a business.

As I looked around at the world situation, and reflected on my analysis and how it has evolved over time, I concluded that perhaps the best possible place to be as a business person was the nexus between energy and agriculture.

I have been researching natural gas for awhile (some of my readers will remember that I recommended and bought UNG a number of years ago, which is the natural gas exchange traded fund. It has been a huge money loser, but provided a key insight for me personally going forward.) The price of natural gas has collapsed in the last five years. We're swimming in it. Much of the rest of the world is as well, thanks to the combination of two technologies: horizontal drilling and hydraulic fracturing.

Most Americans don't realize that natural gas can be used as a motor fuel. Most Americans don't realize that the car or truck they are driving right now can be converted to run on natural gas. Most Americans don't realize that you can buy a device that will fill up your gas tank at home with gas off your home gas line. Most Americans don't realize that gas off your home line costs less than the equivalent of $1.25 a gallon in many areas of the country. Mine in Sturgis costs less than 75 cents a gallon equivalent.

At any rate, I began exploring this as an investment opportunity for my own IRA. Then I realized, "Hey, I can do this." As I began exploring this technology, I discovered that diesel engines can be run on a fairly high percentage of natural gas. This cuts the amount of diesel fuel that is burned dramatically. How dramatically? Well, I bought an F250 4wd pickup and converted it to find out. I now regularly get 45 mpg out of each gallon of diesel fuel. I burn natural gas at the same time, and get about 22 miles per "gallon" of natural gas. You can read about the conversion of my truck here.

My kits work with almost any turbodiesel engine. Most farm equipment is diesel powered.

I also discovered that farmers in Nebraska already have a lot of existing gas line, and are using diesel engines to drive their pivot irrigation engines. It just so happens that I can provide them with a conversion kit that lets a stationary diesel engine run off pipeline gas. That's a pretty rare confluence of events right there. It turns out some portions of Arkansas have roughly the same situation.

So I've spent the last twelve months building a business that helps farmers save money on their farm's diesel bill. There are some other interesting things on the horizon as well, at this nexus of energy and agriculture. I have some interesting projects in process, which I may write about later. I am also planning on selling kits to convert gasoline engines to run on 100% natural gas. I've also signed a contract to represent an Italian company who manufactures the home compressor units.

All of this is background to what I'm concerned to write about today.

The world economy is still in trouble. A lot of trouble. It is still in the process of a slow motion collapse. Europe's problems have not been solved by any means. China is in the midst of a major, major crash that will probably end in a 1930's style deflationary depression for them. They have massive overcapacity, a strengthening currency, and worldwide demand is deteriorating sharply.

In America we are facing a drought that will probably be as severe as the dustbowl conditions of the 'thirties by the end of this year. In western South Dakota the stock ponds have gone from full to empty so fast that it makes your head spin. Ranchers are saying that they've never seen anything like it.

There is no grass. It is not possible to make hay. Ranchers are selling their herds because they cannot afford to feed and water them. Corn is projected to break $8 a bushel soon, which is a record. It may go as high as $9. God help us if this goes on for more than one year.

The drought is not confined to the United States, either. Drought has affected the wheat producing regions of the former Soviet Union. It has hammered parts of South America as well. India is beginning to look very dry and the monsoon rains are late. Food producing regions in the Middle East are also in a drought situation. Iranian officials are blaming their drought on some nefarious western plot.

Although there are some bright spots in North American oil production, fuel prices remain stubbornly high, and Iranian oil has basically dried up because of sanctions against the Iranian regime for their pursuit of nuclear weapons technology. There is the very real possibility of a massive war in the Middle East. Israel will not sit idle and let Iran get the bomb, and the Arab street will not sit idly by while Israel attacks other Muslims. Shia and Sunni may hate each other, but they hate Israel more. If war breaks out in the Middle East, look for $200+ oil, at least for a short period of time under the best case scenario, and World War 3 under the worst case scenario.

In the U.S. the political and regulatory powers seem to be hell bent on destroying the U.S. economy with wrongheaded policies. President Obama has not been able to do all the damage he might have done because he is restrained by his desire to be re-elected. If he is re-elected, look out. You will see four years of Left Wing Enviro-Fundamentalism that will further hamper the U.S. recovery.

I personally do not believe that Mitt Romney is particularly superior to Mr. Obama in many respects. He strikes me as a bland milquetoast of a man, a moderate who is designed not to frighten the muddle in the middle who are the arbiters of the U.S. election process. He puts me in mind of Calvin Coolidge. But at least he is pro-business for the most part.

We may well be in a time when God is judging our nation and our world. We may well be coming to a time of real famine in many parts of the world... a time when even Americans are shocked that the basic necessities are only available at an exorbitant price, if they are available at all. Severe drought plus high energy prices will be devastating. It amounts to more input cost to produce and transport less food.

I ask my readers to discern the times and take what actions they deem appropriate.

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