- Big Stone Heads thinking goes back to 2005-2007...almost 15 years already! This was the appellation I came up with for part of human endeavors, and since I was for the first time starting to put my thoughts on life, economics, and everything down in writing, it sort of stuck for the overall effort.
At the time, I was tracking "peak oil", and striving to see a path through a demand-driven price run-up, my prediction of associated economic stresses popping the post-2000 bubbles, the resulting inevitable (in my view) major economic crash, and then divining what would come next. Would it be a deflationary crash with a run to dollars, or a crash-then-bailout leading to inflation (as the end-of-the-US-dominance people thought)? Would it be a V or a U recession, or even an apocalyptic TEOTWAWKI? Would it be the "end of oil", as a true peak, or just a local maxima? My friend Fred was very bullish on technology, as I always had been, but I was pretty sure any technical solution would not come quickly, and I wasn't sure oil volumes would ever recover. For something as existential as oil, I was unwilling to blindly believe that technology alone would quickly suffice. After getting hit pretty hard by the 2000 recession, I was motivated to not get caught wrong-footed. It was pretty clear to me that an oil-driven price shock would hit over-stretched consumers, and then equities. I was sure enough by 2007 to get my modest investments out stocks and into bonds, cash, and some gold. I was also pretty sure that regardless of whether we had a recession or society disintegrated, those on the "non-discretionary" side of the economy would do much better than those in "luxury services". I wasn't sure how telecom would do, given the slide after 2000, so I changed careers and shifted to the oil and gas industry, with an expectation that oil would be good for at least a decade and get my kids up and out...and maybe get me to retirement.
As it turns out, Fred and I were both right; the crash occurred, conventional oil has never surpassed the levels of mid-2000s, and technology in the form of shale oil eventually came to rescue the US economy and the global oil volumes. It also happened that telecom did just fine for the past 15 years, as smart phones like the new iPhone hit the markets at about that time. The markets indeed did crash, and by then I'd projected it would be a demand-driven crash, so it would be deflationary here and dollars would be short due to a global view of safety, and indeed it was. Dollars and gold did great, and I was too slow getting back into stocks...I definitely learned "don't fight the Fed!", but still I think I did better than many.
While thinking all of that through, and considering careers and the future, I came up with mental models of how I and most others spend their time, and I had an informal e-mail "blog" with some family and friends comparing thoughts. It was during this period that "Big Stone Heads", my term for this thinking, came into being. Big Stone Heads are one of 3 categories of human effort, as described below, and I was convinced that going into a recession the "non-discretionary" part of the economy wasn't going to be peacock feathers, but probably consumable stuff -- the more durable of sand castles.
- Big Stone Heads - Large, conspicuous creations built to impress, and to persist. Moai on Easter Island, great pyramids, the Mona Lisa, calculus, and the Theory of Relativity are all examples of this. My friend Lissa helped me latch onto this, and encouraged me to keep thinking along these lines.
- Peacock Feathers - Conspicuous show-off displays to attract mates, or recognition, or notoriety....and short-lived. F150 grocery-getters, McMansions, and private planes all are examples.
- Sand Castles - Stuff that takes a lot of work and seems like worthwhile accomplishment, but that fades to nothing with the passage of time. This is what most of us spend our lives doing, personally and professionally. Eventually a routine high-tide, a major storm, or the long-term effects of rain and wind will reduce all such to nothingness. "And to dust we return." This is perhaps a bit fatalistic, as much is quite durable, and as "cogs in the machine" what we do sometimes contributes opaquely to global success.
So, all of that worked out fine, and the kids are mostly through college and out, and oil has again had a demand crash with COVID, but now there are new pressures of EVs and climate change, plus concerted price competition from OPEC and Russia, and demand competition from China. Since I already had a recession playbook, as soon as COVID hit China I hit "replay" on my 2007 moves, and only slightly lagged getting back into the market, losing some of the recovery, but it was at least stress-free.
What does the future hold now? We are still in "don't fight the Fed" mode, but we've never really recovered from the last crash -- we've just spent (borrowed?) our way into new bubbles. With COVID funds, we're back to that again. The bubbles are big and overlapping, and it's not clear to me how these will pop when the Fed is determined to keep blowing, but I am positive that the market will eventually move to address it.
For me, I have a stack of questions to resolve:
- What's the future of US on-shore oil? That, as always, comes down to "at what price?" Somehow this was a topic that peak-oil adherents and economists always miss...projects of quantity always show slow growth, but as with shale oil, increased production is always a function of technology and economies of scale offsetting resource scarcity. Clearly, $40 means decline in production, and $100 (in 2008 dollars) meant economic slowdown, and $100 is the price that KSA wants to see, but so far cannot manage to attain. At $100, wind and solar are clear winners, and nukes almost make sense. At $40, wind is competitive, and solar gets close, but intermittency remains an issue.
- US shale has been built on loose investment money, so it's actually part of the easy-Fed bubbles, but benefitting the US economy overall. And yet, with cheap oil, rather than raising gas taxes and improving our infrastructure, we've just relaxed CAFE improvements and gotten bigger vehicles. We are squandering the "second chance" of oil, and ignoring climate change as we go. How long will we (the US and the world) stay on the oil-fed, car-centric direction?
- Where will fusion fit into the future on top of renewables, and when, and at what cost?
- How will we address intermittency? Will batteries drop in price, or will we adjust to higher energy costs?
Personally status check: will oil and petrochem carry me through to retirement, and am I happy with this trajectory? Would I be happier on a "greener" path into the future?
Speaking of happiness, what about legacies? As we go into 2021 and the end of COVID, I am trying to decide if there are any "big stone heads" in my future, or am I happy building sand castles? Since 2007 or so, when I developed this model, I've learned a LOT about information, and complexity, and entropy, and the spontaneous generation of information by dissipation structures in energy gradients at every scale. Big Stone Heads are simply durable information trying to hide out from entropy.
What are perhaps some accessible Big Stone Heads? Well, the most common example for the masses is DNA -- replicate and perpetuate the particular patters of DNA that make you up, and the universe will be happy. So, raise kids and grandkids, and support communities of people around them. Check - I can do this!
Is there more? Mathematical theories are great, and so is timeless art -- these are effectively eternal. But I am neither a mathematician or an artist.
Open source? Computer code is a pretty good example of persistent, replicating, information. It will last a long time (we don't really know how long, but COBOL built in the 60's, which SHOULD be a sand-castle, is somehow still standing), and it can shape the world while expanding the flow of other information. I like the sound of this.
Previously I noted useful life extension, AI, quantum computing, and fusion as "big bets". I think I'd be happy helping with any of those, but how to get there from where I am now? Is it good enough to support technology from the underpinnings, as I have always done, helping migrate emerging technology into existing industries?
Short answer: I am not sure.
Long answer: Stay tuned for part two.
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