Steve St. Angelo: Prepare For Asset Price Declines Of 50-75%

News & Current Events Public News & Current Events
, ,
1

Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.

Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt  -- which essentially steals prosperity from the future and consumes it today.

Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%:

What we have is a totally propped-up market based upon debt. Energy isn’t producing positive growth, really. So instead of having real economic growth, we have inflated economic growth and inflated asset values.

As the energy return on investment started to fall for the United States in the 1970s, we had to start off-shoring our manufacturing as a way to extend the US lifestyle. We couldn’t afford the manufacturing anymore because of our oil energy return on investment. It moved over to other parts of the world where labor was cheaper. And we started buying more homes, more things, more stuff. And we went into debt to do that. That has extended the "leech and spend" US suburban economy.

If you look at it on face value it looks like this is continuing. People are moving around, buying stuff, a lot of people are traveling -- but it is all based on a lot of debt. When the debt finally implodes, the really nasty face of this whole fraud will be shown to all Americans. I don’t think many people are prepared for it (...)

When growth starts to decline, I think we're going to see the valuations of assets decline considerably. It's anyone’s guess how quickly they can fall, but according to what I have been looking at, I think we are going to see a 50% increase in real estate values right off the bat. I am not saying this will happen in a day, but the first wave will be a 30-50% decrease in real estate values when the markets really start to crack. They are already at the edge of the cliff -- and I see prices falling down the cliff, struggling to recover, and then falling even further. Actually, I predict within the next 5-10 years, we can easily see a 75% or more reduction in real estate values.

What does that mean for stocks and bonds? The same thing. If we start going into more rapid disintegration, you are going to see the valuations of stocks, bonds and real estate really decline -- much greater than anybody has any idea.

Click the play button below to listen to Chris' interview with Steve St Angelo (60m:16s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/steve-st-angelo-prepare-for-asset-price-declines-of-50-75/

2

3

Great interview. Steve is one of my absolute favorite energy and economic commentators. I agree with all Steve and Chris expressed but I have a sticky. When the world figures out that growth is dead I don’t think PM’s will shoot to the moon, at least not early on. I’ll add that I have believed and invested in PM’s since the late 80’s in a very small way. I believe that all assets will depreciate enormously including PM’s. The social conflict that probably will ensue at that time will make individual safety and survival (which includes feeding your folks) job one. Maybe after the chaos which will last who knows how long and a period of some sort of status quo is attained then we will see a proper valuation of precious metals. I would be very glad to be wrong in my opinion on the timing.

4

Another excellent PP podcast. I hope you will invite Steve back for further discussions.
Gold and silver have served me very well over the years - the last dip being an excellent buying opportunity. If, however, the fuel for the economic engine becomes unavailable in quantities and/or at a price that would allow the economy to grow (which I’m sure will occur at some point soon), where will the money come from to sustain or boost the prices of precious metals? It seems to me that old paradigms will go out the window.
Mr. St. Angelo says investors will rush to PMs for safety, but will they? They might if they were universally educated, but I fear that is not the case. More likely, they will do as they have in recent years and seek shelter in the US dollar - currency of the global empire - at least for a time. It boggles the mind that some investors today are buying bonds from the US and other nations that either promise very low interest or none, or, as in the case with Argentina, offer high returns, but pose a significant risk of defaulting entirely.
Another question that comes to mind - Would not the large funds who have PMs in their portfolios already, try to save their other assets (bonds, stocks, and other “worth less” paper) sell off their PM holdings? If that happened, the prices of PMs would fall, no?
I have been selling off PMs gradually over a period of years now - in small enough amounts to avoid being taxed on the gains - and converting the proceeds into assets I can use in the coming years. I will still need something I can spend (or use for barter) in the years ahead and I don’t think my US pension or my wife’s Japan pension are going to be there. We have whittled away at our living expenses a lot, but we still need something. Holding currencies (of any design) seems a fools game; securities obviously no better.
Here we do a lot of gifting - neighbor to neighbor - with fruit and vegetables mostly; rice and legumes as well. We take care of each other to some extent - as I was glad to find when I had an “epic” bicycle crash last year. :wink:
But for some period of time after the SHTF there will be a need for a medium of exchange or barter. I think. Suggestions?

5

First of all, excellent interview.
Second of all, Energy Return on Investment (EROI) is such an important concept that it frustrates me how little governments understand that it directly correlates to our way of life. There was a recent paper published by Charles A. S. Hall and Jessica G. Lambert titled, “Energy, EROI and Quality of Life”. Its conclusion was profound; societies which possess a Human Development Index above 0.75 require an EROI of 20:1 and per capita energy consumption of 120 Gigajoules.
If we cross reference this with the EROI data (for electricity generation) from Marco Raugei and Enrica Lecissi’s paper, “A comprehensive assessment of the energy and performance of the full range of electricity generation technologies deployed in the United Kingdom” we find the following EROI from the following energy sources (taken from Figure 2);
Hydro = 58:1
Nuclear = 30:1
Wind (off-shore) = 18:1
Wind (on-shore) = 17:1
Gas Combined Cycle = 14:1
Nothing else comes close to the required 20:1 EROI for electricity generation. If we assume that we get to a low carbon future (either through policy or depletion) then we can only look at Hydro, Nuclear and Wind to do the heavy lifting. Note; solar power anywhere in Europe north of the Swiss Alps isn’t worth doing as it has an EROI of less than one, Ferroni et al put it at 0.82 : 1. (This figure was then refuted by Raugei et al and then reasserted by Ferroni et al. The exchange is quite humorous).
Now let’s focus on energy consumption per capita taking the population of the United Kingdom into account (where I live). Our current population is estimated at 65,507,097. As of 2013 UK energy consumption per capita was 125.06 GJ hovering slightly above the magical 120 GJ figure. However, let’s stick with 120 GJ to determine the minimum energy consumption required.
65,507,097 x 120 GJ = 7.86 Exajoules (x1018) per annum.
(Just for the record, the US consumes roughly 94 Exajoules per annum).
In 2015 the UK generated 40.4TWh/year equal to 145.44 Petajoules (x1015)
Let’s be generous and assume we double this in the next 5 years to 290.88 Petajoules
In 2015 UK Hydro power generated 5885 GWh/year equal to 21.19 Petajoules (we can’t really expand our capacity due to limited locations)
7.86 Exajoules – 290.88 PJ – 21.19 PJ = 7.548 Exajoules shortfall.
Rather remarkably the UK’s electricity consumption makes up only 14.2% of its total energy consumption. What can you say? We like oil!
If we assume that fossil fuels are no longer available to our economy then the UK is left with Nuclear power as the only 20:1 EROI to make up a shortfall of 7.548 Exajoules per annum.
Assuming a 1000MW 2nd generation Pressurised Water Reactor operating at full capacity with zero downtime will generate 31.53 Petajoules per annum.
7.548 Exajoules / 31.53 Petajoules = 240 reactors!
Given how the recent 2nd generation nuclear power plant, Watts Bar in the US, came in at a cool $12,000,000,000 for both of its Pressurised Water Reactors we can estimate a cost of $6,000,000,000 per reactor. Multiply this by 240 and the UK must invest an eye-watering $1.44 trillion or £1.11 trillion if it is to retain the 120 GJ threshold in a fossil free world (i.e. just over half of our GDP). Although, it must be said, that the UK currently has 15 nuclear plants.
What has been the UK government’s response? To install smart meters in every home to turn on washing machines at 4am so that the consumer can benefit from cheaper electricity prices. Have they officially thrown in the towel?
No doubt “Brexit” will be blamed for it all…
In terms of sustainability, I think we’ll see a rise in Biomethane to Grid systems (sometimes called ‘gas to grid’) but I think 120 GJ per capita going forward is a pipe dream – hence the current political turmoil.

6
Luke Moffat wrote:
Nothing else comes close to the required 20:1 EROI for electricity generation. If we assume that we get to a low carbon future (either through policy or depletion) then we can only look at Hydro, Nuclear and Wind to do the heavy lifting. Note; solar power anywhere in Europe north of the Swiss Alps isn’t worth doing as it has an EROI of less than one, Ferroni et al put it at 0.82 : 1. (This figure was then refuted by Raugei et al and then reasserted by Ferroni et al. The exchange is quite humorous).
Your whole post is worth a carful review because the number involved tell the tale. Where headlines breathlessly tell us how much costs have fallen for solar , in particular, the study you cited (which I had not yet seen) takes a very careful approach to calculating the EROI for solar and determines it is a sink not a source. That is, even if it falls to $0.01 for an entire installation, the faster we install solar the faster we lose. So I cannot determine if this study is accurate or not, as it's very extensive and each subcomponent would have to be individually thumped for accuracy, but given the shocking result of an EROI of less-than-one (0.82) I would hope that other researchers would begin to either tear it apart or confirm it. If confirmed, then we as a species ought to not spend any more time hoping solar is somehow part of a 'solution' because all it really represents is an alternative means of burning fossil fuels (in disguise). One clue, confirming the finding of a low EROI for solar comes to us from the waste involved in solar, often out of sight (and out of mind) for most people:
Are we headed for a solar waste crisis? June 21, 2017 Last November, Japan’s Environment Ministry issued a stark warning: the amount of solar panel waste Japan produces every year will rise from 10,000 to 800,000 tons by 2040, and the nation has no plan for safely disposing of it. Neither does California, a world leader in deploying solar panels. Only Europe requires solar panel makers to collect and dispose of solar waste at the end of their lives. All of which raises the question: just how big of a problem is solar waste? Environmental Progress investigated the problem to see how the problem compared to the much more high-profile issue of nuclear waste. We found: Solar panels create 300 times more toxic waste per unit of energy than do nuclear power plants. If solar and nuclear produce the same amount of electricity over the next 25 years that nuclear produced in 2016, and the wastes are stacked on football fields, the nuclear waste would reach the height of the Leaning Tower of Pisa (52 meters), while the solar waste would reach the height of two Mt. Everests (16 km). In countries like China, India, and Ghana, communities living near e-waste dumps often burn the waste in order to salvage the valuable copper wires for resale. Since this process requires burning off the plastic, the resulting smoke contains toxic fumes that are carcinogenic and teratogenic (birth defect-causing) when inhaled.
Generating a huge amount of waste per unit of energy is a dead giveaway that the EROI is probably not super healthy. Worth considering.
7

The unstated assumptions really need to be vetted in detail, the devil really is in the details as Chris mentioned. Often projections on energy consumption regarding the minimum need to maintain a modern lifestyle don’t take into account more radical paradigm shifts about how we might organize our selves. The insane level of waste in the current status quo never seems to be taken into account. There is an unstated battle those between those pushing for centralized solutions to everything, from food to energy production, to those seeking more organic decentralized solutions. The synergies in the latter I warrant are not properly understood. And who would be advocating for or producing research for that point of View?

8

Why does anyone NEED to buy gold? You can’t eat it or use it. You need to owe assets that produce stuff that other people NEED. Land produces food. Houses produce homes. Wind turbines produce energy.
Lets look at wind turbines in detail. EROEI of 18:1. Invest in building a wind turbine at today’s energy prices and get 18 times more at tomorrow energy prices. That is 1,800% return unadjusted for inflation or much, much more at future energy prices, by the end of the 30 - 50 (or more) year lifespan of the turbine.
Assumption: people will NEED electricity in the future for lighting, heating and cooking.

9

Chris,
Yep, I found the 0.82:1 EROI for solar in low insolation areas (northern Europe) surprising too. Hopefully, they’ll be further studies clarifying the issue. It should be noted that the Ferroni et al study use an extended EROI methodology as defined by Murphy and Hall called EROIEXT. It differs from the conventional EROI in that it also captures energy associated with the supporting labour, debt servicing, refinement of source into a useful product and the cost of infrastructure necessary to transport it to where it is needed.
Given your point about toxic solar waste I believe that should also be included in the calculation to complete the lifecycle costs.
Treebeard,
I don’t think that the assumptions are unstated; the EROIEXT is quite clear on the energy inputs it is capturing. The three papers cited above regarding solar power in low insolation areas give a nice back and forth about exactly what was included in the calculation and why.
Regarding how society functions in various EROI levels it should be noted that the “Energy, EROI and Quality of Life” paper lists a few examples. Pakistan has an EROI of 5:1 and Nigeria has an EROI of 4:1. Unsurprisingly these nations score low on the Human Development Index (0.336 and 0.246 respectively). Generally speaking this will mean low literacy rates (especially in females), higher percentage of children under 5 years old underweight, severely reduced access to healthcare, limited pension system (if any), higher gender inequality and reduced access to rural water sources to name a few.
Cheers,
Luke

EDIT: It should be noted that using EROI for solar in northern Europe instead of EROIEXT to allow for comparisons would bump the value from 0.82 up to 1.7. Apologies if I’ve confused people.

10

In reading through Luke’s post the biggest takeaway for me was the low overall rerurn on oil and coal.
Then look at Chris’ recent article on future oil price and production and project the decline rates of existing conventional oil fields. Soon the net energy of conventional will decline to the level of unconventional fields. New discovery of conventional will slow that, if any worth getting is found.
What is much more difficult to quantify is the utility value of oil for transport and especially construction. This value is very sticky. For instance, when the EROEI for oil drops below 1:1, other sources of energy may well be cannibalized to allow oil to support transport and construction for needed movement and infrastructure to allow hydro, nuclear, wind and PV to function. Oil will become a net negative commodity like iron that continues to be mined for its utility. At that point, even the 58:1 EROI for hydro will plummet, but oil won’t be abandoned until the totally entangled EROI of our technology reaches 1:1.
I’m not sure we can sufficiently untangle the interdependent nature of technology to measure that decline. It will likely occur as a series of avalanches with periods of stasis at lower levels along the way.

11

aggrivated,
Just a quick point, the numbers that I cited refer to electricity generation. I’m assuming that burning oil in a car engine would give a higher EROI than the value shown in Figure 2 of Raugei’s paper as the thermal energy is being converted into mechanical energy and not electricity. But I’ll double check to make sure that’s the case. EROI is also region dependent - the Raugei et al paper only looks at the UK. The USA tends to have higher quality coal than the UK and thus a higher EROI (as we burnt through all of our high grade stuff decades ago).
However, I take your overall point that as the quality of our resources diminish so too will the EROI.
Cheers,
Luke

12

You cannot compare solar panel waste directly to nuclear power plant waste ! While it is never good to have piles of garbage, a pile of waste that does not particular harm just sitting there is completely different from one that is radioactive and needs energy inputs to keep it safe for a great many years

13

Do they assume supporting trillion dollar military budgets, dysfunctional medical system, corrupt banking system, inefficient unsustainable industrial agricultural, dysfunction suburban infrastructure? Then let’s compare that level of consumption to ex European African colonies to support our feelings of superiority?

14

We do waste ALOT of power, we do not need to be a third world country to use ALOT less. A number of years ago, when the thought that we needed to stay below 350ppm of CO2, the calculation going around was that we in the USA needed to use 10% OF current usage for that to happen (90% reduction), and a number of us set out to see what that looked like, to run the experiment, and many of us are still doing it today. (90% reduction plan, nicknamed by original participants as the Riot For Austerity)
The first takeaway I can give you of this is that an awful lot of savings are there for no appreciable lifestyle changes. Second largest takeaway is that the hardest last part to deal with is transportation useage, which is no surprise to anyone here. But, I have been doing this in my household and we still are basically a middle class family, still using a washing machine, for example, and a refrigerator.
So, of course saying that we need to have the SAME amounts of electricity we are now using, or same amount of transport fuel, well, we dont need that much.
How to get the average household to cut back is not so easy. That campaign would need a nationwide campaign with people in government, celebraties etc… showing how cool it is, which is not going to happen. More likley forced by economics is what will happen, which is too bad.

15
How to get the average household to cut back is not so easy. That campaign would need a nationwide campaign with people in government, celebraties etc... showing how cool it is, which is not going to happen.
It didn't work back then. Carter was, and is, widely mocked by "the people in government, celebrities, etc." for his approach to energy and the movement he hoped to spark (from the most influential pulpit in the world) never got off the ground. I'm very pessimistic about this kind of campaign working now (until we have our collapse and the subsequent die-off, after which no campaign will be needed). I've given up hoping for this kind of cultural movement. So, I think we're back to making individual, family, and small group changes (as you described) and resign ourselves to experiencing whatever disaster is approaching us. And for the celebrities helping out: http://dailycaller.com/2017/05/10/obama-travels-in-private-jet-to-italian-climate-change-conference/
Former President Barack Obama arrived Monday by private jet to a climate change conference in Italy. Obama traveled to Milan, Italy to discuss U.S. environmental policies at a sold-out climate change conference in Milan. He stayed at a snazzy, $20,000-a-night Tuscan villa during the two-day trip, which culminated with a high-profile meeting with former Italian President Matteo Renzi. He arrived Monday in a jet flanked by an entourage that reportedly took over two floors of the expensive Park Hyatt hotel — rooms in the luxury hotel typically cost about $10,000 a night, The Daily Mail reported Tuesday... It is not yet known what jet model Obama used during his trip, but Leonardo DiCaprio, one of the former president’s biggest Hollywood supporters, saw his carbon footprint increase dramatically after making a similar trip last year. The Hollywood actor and longtime environmental activist flew 8,000 miles from Cannes, France to New York City to secure an award from a clean-water advocacy group at the Riverkeeper Fishermen’s Ball. DiCaprio then flew back to France a day later to attend an AIDS benefit gala. All told, “The Revenant” actor burned more than 17,000 gallons of jet fuel during the trip, which, according to the Environmental Protection Agency Greenhouse Gas Equivalencies calculator, equals approximately 169,400 lbs. of coal burned, or about 90 tons of coal. TheDCNF’s calculations were based on the Gulfstream IV, a jet DiCaprio often uses when gallivanting across the world. The calculations give a basic understanding of the sheer amount of carbon emissions are spewed into the air when wealthy activists gallivant around the world.
16
And so the energy return on investment as it fell, it was like 30:1 in 1970 for the United States and that was still profitable. What we had to do and many people will disagree with this but offshoring or manufacturing was a way to extend the US lifestyle. We couldn’t afford the manufacturing anymore because of our oil energy return on investment.
Can someone explain the above quotation for me? Perhaps I'm just dense, but this isn't making sense to me. Thanks!
17
Quote:
http://dailycaller.com/2017/05/10/obama-travels-in-private-jet-to-italian-climate-change-conference/
Former President Barack Obama arrived Monday by private jet to a climate change conference in Italy. Obama traveled to Milan, Italy to discuss U.S. environmental policies at a sold-out climate change conference in Milan. He stayed at a snazzy, $20,000-a-night Tuscan villa during the two-day trip, which culminated with a high-profile meeting with former Italian President Matteo Renzi. He arrived Monday in a jet flanked by an entourage that reportedly took over two floors of the expensive Park Hyatt hotel — rooms in the luxury hotel typically cost about $10,000 a night, The Daily Mail reported Tuesday... It is not yet known what jet model Obama used during his trip, but Leonardo DiCaprio, one of the former president’s biggest Hollywood supporters, saw his carbon footprint increase dramatically after making a similar trip last year. The Hollywood actor and longtime environmental activist flew 8,000 miles from Cannes, France to New York City to secure an award from a clean-water advocacy group at the Riverkeeper Fishermen’s Ball. DiCaprio then flew back to France a day later to attend an AIDS benefit gala. All told, “The Revenant” actor burned more than 17,000 gallons of jet fuel during the trip, which, according to the Environmental Protection Agency Greenhouse Gas Equivalencies calculator, equals approximately 169,400 lbs. of coal burned, or about 90 tons of coal. TheDCNF’s calculations were based on the Gulfstream IV, a jet DiCaprio often uses when gallivanting across the world. The calculations give a basic understanding of the sheer amount of carbon emissions are spewed into the air when wealthy activists gallivant around the world.
Sounds like a weekend in Mar-a-Lago, except Obama may actually accomplish something worthwhile and most of the costs of Mar-a-lago are footed by us. It's a peachy world for the .1%. http://www.bbc.com/news/world-us-canada-39497447
Quote:

Mar-a-Lago

$3.3 million Estimated cost of each weekend trip by President Trump to Mar-a-Lago
$85,000 Daily overtime pay for county and city police officers when Trump is in town
$200,000 Up front cost for membership (doubled after the election) 500 Members of Mar-a-Lago, where membership records are private $65,000 Cost so far to one small skywriting business which can’t fly on the weekends
18
Pandabonium wrote:
Mr. St. Angelo says investors will rush to PMs for safety, but will they? They might if they were universally educated, but I fear that is not the case.

The amount of gold and silver available for investment purposes is tiny compared to the amount of paper wealth out there. My numbers may be a little incorrect but I believe if only 1% of the population (looking to preserve value during a financial crisis) tried to get their hands on PMs, the price of same will take off like a moonshot.
One man’s (possibly fuzzy) understanding…
VIVA – Sager

19

Treebeard
I don’t understand the question. America is the New Rome. It exports violence (or the threat of it) and abuses its position as reserve currency to secure resources (or deny others access to them). How is the comparison with ex European African colonies valid (I assume you’re referring to Nigeria)? America has the world’s largest military because it burns more hydrocarbons than anybody else. Remove this ability and the military goes with it. As does the petro dollar, as does reserve currency status, as does its ability to import everything that it requires to function in its current format.
Are you saying that a reduction in EROI will lead to a reduction in corruption, a reduction in dysfunctional medical care and suburban infrastructure? That doesn’t seem like a sensible deduction.
Cheers,
Luke

20

mntnhousepermi,
That’s not what we are saying. We are suggesting that waste disposal has an energy cost and that energy cost should be factored into the EROI regardless of the energy source in question.
Cheers
Luke