We have temporarily dodged a bullet. The upcoming IEA World Energy Report will say that global oil supplies are falling faster than expected, and massive investments are required just to (almost) stand still. The only thing making things marginally less calamitous? The current downturn-induced demand collapse has given us a little more time to prepare for the inevitable.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed.

…The agency says even with investment, the annual rate of output decline is 6.4 per cent.

…All the increase in oil demand until 2030 comes from emerging countries, while consumption in developed countries declines.

As a result, the share of rich countries in global demand will drop from last year’s 59 per cent to less than half of the total in 2030.

More here.

Michael Milken (yes, that Michael Milken) was on Charlie Rose last night. While his fellow guest, Mohammad Yunus, is a fascinating guy doing great work in microfinance, at some point I would still like to have Milken alone for the hour.

The Peterson Institute has brought back the “misery index”, a combination of the inflation rate and the level of unemployment, and added to it a measure of asset price declines. The upshot? The modified misery index is now at record highs:

[via PI]

I’m a big fan of Jared Diamond, in particular his books Collapse and Guns, Germs, and Steel. both of which are laudable efforts to take on massive and highly complex subjects, albeit at opposite ends of societal evolution. Anyway, I see that a 2003 TED talk of his is now available online:

Since my friend Joe Nocera first wrote about it last weekend in the NY Times, I have seen a spate of other articles all saying that bank executives are bad people for taking money from the U.S. Treasury and not ramping up their lending.

Trouble is, that’s wrong-headed. Recall, the intent of the bank capital infusion was to backstop banks so that insolvency fears would be reduced, or even eliminated. While solvent banks will eventually make loans, it is meddlesome and illogical to say that having made injections we should now be tapping our collective feet at bank unwillingness to extend more credit than they are.

Banks are looking at a changed world, one with deleveraging everything, consolidation happening apace, and defaults almost certain to rise rapidly over the next 24 months. Imagine that despite all of this banks began “business as usual” lending. What would happen? Almost certainly the banks would see higher levels of non-performing loans and defaults on these new efforts, perhaps even to the point that they would require more capital to reduce solvency fears. And what would we say then? We’d say, “Idiots, why did you race out and loan the money that we gave you into this weakening economy?”

Now, was this bailout sold properly, with people told that banks shouldn’t and wouldn’t begin lending straight away? No, it wasn’t. Nevertheless, reasonable people should have been able to figure out on their own that giving banks capital just so they lend it out again into a deleveraging economy is absurd. We were trying to save the banks, not screw them up worse.

I have a new column up on the “whys” and “how longs” of the dollar’s recent moonshot. More here.

Some quick links to items of interest:

• TV seeing political ad spending 40% below some forecasts, despite record fund-raising (Bloomberg)
• Profile of Bill Fleckenstein and fellow short-sellers (Bloomberg)
• Predator-Prey Model for Stock Market Fluctuations (arXiv)
• Financial leverage – lights on an elusive concept (EDHEC-Risk)
• Infrastructure – an attractive long-term asset class (EDHEC-Risk)
• Farm credit crisis may cut crops, spur good crisis (Bloomberg)
• How you might actually list credit default options on an exchange (Crookery)
• Is volatility embedded in the financial system for a generation? (IA)
• This Economy Does Not Compute (NYTimes)

I have been remiss in doing this for a bit, so here are some links to papers/abstracts that recently caught my eye:

• Didier Sornette on how to repair trust in a complex system post-crisis (Source)
• Analytical and Numerical Investigation of Ant Behavior Under Crowded Conditions (Source)
• 'Bubbles in Society' - The Example of the United States Apollo Program (Source)
• How anchoring leads many people to pay more credit card interest (Source)

Nice Bloomberg chart of how market liquidity has trended over recent years, with things currently remaining highly restrictive in historical terms:

More here.