Posts Tagged ‘Sean Brodrick’

Five potential emergencies- water

Thursday, April 15th, 2010

Continuing from our previous article, we will focus on the issue of water security today. Please note that while this series of articles are on the theme of self-sufficiency (or rather, using our reader David?s words, ?community-sufficiency?), they are also great investment themes. As the Chinese word for ?crisis? has two components- danger and opportunity, each of these five potential emergencies is a source of both danger (societal collapse) and opportunity (lucrative investments).

With 70% of the earth?s surface covered by water, it is ironic that water can be a problem. But consider this diagram:

With potable water, scarcity leads to profits

As you can see from this diagram, less than 1% of the earth?s freshwater are readily available for human consumption.

That reminds us very much of what?s happening to China?s water supply. We first mentioned China?s water crisis at What is the key risk faced by China (according to Jimmy Rogers)?. With a fifth of the world population, China has only 7% of the world?s fresh water. Of these 7%, we wonder how much are polluted and abused? We saw documentaries and reports of China?s rivers being so polluted that they cannot even support aquatic life, much less human life. As at 2006, half of China’s population consumes drinking water contaminated with animal and human waste that exceeds permissible levels, which is why China has the highest liver and stomach cancer death rates in the world.

Globally, the situation is not good. With global warming, dry areas are becoming drier (e.g. droughts) and wet areas wetter (e.g. floods). As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

In 2002, 8% of the world suffered chronic shortages. More than 80 countries, with 40% of the world?s population, are already facing water shortages? The UN forecasts that by 2050, 4 billion people will lack adequate water as entire regions turn dry.

In Australia, we have severe droughts for many years already.

Water scarcity and climate change is one issue. Water infrastructure that delivers the water to the taps in your home is another issue. Booz Allen Hamilton released a report in 2007 titled, Lights! Water! Motion!. estimated that over the next 25 years, modernizing and expanding the water, electricity, and transportation systems of the world?s cities will require approximately $40 trillion. Of that, 60% of that bill is water infrastructure.

Water pipes and systems have a useful lifespan of between 50 to 100 years. Therefore, we can suggest that say, 1/75th of water infrastructure have to be replaced every year. The best places in the world are replacing 1/200th of it every year. Water leaks from ageing pipes. Here are some rough figures for water loss through pipes:

  1. Hong Kong- 33%
  2. Sydney 35%
  3. Philadelphia 30-35%.
  4. Places throughout the state of California: 10-25%.
  5. London: 35%

As you can see by now, climate change, pollution, abuse and ageing water infrastructure are reducing the margins with regards to our water supply. We are not saying that there will be a water disaster soon. But water emergencies may manifest itself in the form of disruptions (e.g. burst pipes), contamination to evacuations, and in the worst case, war (the UN said that the next war in the Middle-East may be over water).

Bottom line: bad for localities, but potentially good for water companies.

Five potential emergencies- energy crisis

Tuesday, April 13th, 2010

As you have read from our series on the self-sufficiency theme, the modern complex societies that we live in is not as robust as it seems. The reason why it seems robust is that (as we wrote in our ?How To Foolproof Yourself Against Salesmen & Media Bias? report), we have the habit of falling into one of the mental pitfalls. When you see that the tap flows and lights turn on reliably day after day, this mental pitfall will lull you into complacency. Then one day, when crisis happens, it will hit everyone on the head that modern life is fragile.

One of the main potential emergencies that can quickly disrupt our modern way of life is this: energy emergency. As we wrote in An Achilles Heel of modern society- specialisation and division of labour,

The crucial question to ask is this: what is the ?glue? that stick together all these specialised and divided labour into a system that we called the ?economy?? The answer is: energy.

Today, we can have 99% (a figure that we plucked from the sky, but you get the idea) of the population not working and yet not starve. That?s thanks to the Green Revolution that allows more and more food to be grown by less and less people.

But this comes at a cost- energy. As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Energy consumption by agriculture has increased 100 times, or more. According to 1994 data, 400 gallons of oil equivalents are expended annually to feed each American. The energy consumption breaks down as follows:

  1. 30% for the manufacture of inorganic fertilizer
  2. 18% for the operation of field machinery
  3. 15% for transportation
  4. 12% for irrigation
  5. 7% for raising livestock (not including animal feed)
  6. 5% for crop drying
  7. 5% for pesticide production
  8. 8% miscellaneous

These estimates don?t include the energy used in packaging, refrigeration, transportation to retail outlets, and cooking.

At the same time, the vast majority of Americans have gotten further and further away from their food sources.

The implication is clear. As energy prices increase (and they will), prices for our basic survival need- food- will increase. If you believe in the China growth story (i.e. the secular rise of China), you will have to seriously question whether the global energy production can keep up with the colossal demand of a rising China (see The Problem that can throw us back into the age of horse-drawn carriages). Since most of our energy comes from fossil fuels (especially oil), the question is this: how quickly can the global economy restructure itself away from using oil? To retool and reconfigure the entire economy away from using oil is not that easy and it takes time.

This is just the best-case scenario- a gradual rising in oil prices over the years, resulting in a gradual declining in the standard of living. There are other worse possible scenarios?

Now, consider these facts (source: The Ultimate Suburban Survivalist Guide):

  1. 81% of the world?s discovered and useable oil reserves come from just 10 countries.
  2. 30% of the world?s oil comes from just 3 countries- Iraq, Kuwait and Saudi Arabia.

Now, look at the second point more carefully. What is common among the three listed countries?

All three of them are close neighbours of Iran. The Iranians, who are Shiites Muslims, have ambition of dominating that region. They are steering the Shiites in these three countries into their sphere of influence. No doubt, part of their plan for domination includes acquiring nuclear weapons. If the Iranians (who are led by their mad President Mahmoud Ahmadinejad) acquire nuclear weapons, it will significantly tip the balance of power in the region away from the US.

If you see how Russia uses the supply of natural gas as a tool against its neighbours (e.g. Ukraine), we can imagine the Iranians trying the same on the Western world.

There is a worse scenario than that. That region is a potential military flashpoint. What if Israel miscalculates (see New urgency for action against Iran) and plunge the region into war? In any shooting war involving Iran, we have no doubt that they will find ways to block the Straits of Hormuz, one of the energy chokepoints in the world. As the US Department of Energy reported,

Chokepoints are narrow channels along widely used global sea routes. They are a critical part of global energy security due to the high volume of oil traded through their narrow straits.


The international energy market is dependent upon reliable transport. The blockage of a chokepoint, even temporarily, can lead to substantial increases in total energy costs. In addition, chokepoints leave oil tankers vulnerable to theft from pirates, terrorist attacks, and political unrest in the form of wars or hostilities as well as shipping accidents which can lead to disastrous oil spills.

A temporary disruption lasting not more than say, 40 days is manageable for the US because they can open up their Strategic Petroleum Reserve. But if the emergency last longer than that, then there will be a heavy price to pay.

That?s not all the Iranians can do in a shooting war. Since the oil fields of 30% of the world?s oil is so near Iran, our guess is that it would not take them too much to take down these oil fields? productive capacity. Back in 1990, Saddam Hussien sabotaged the oil fields of Kuwait by setting fire to them. An irrational Iranian President will surely think of trying something worse with missiles, artillery shells, ground troops or worse still, nuclear missiles. Although the Iranian may not have military technology as sophisticated the US (although the gap is probably closing with Russian help), they have a large pool of manpower to call up as canon fodder. During the Iran-Iraq war, the Iranians used human wave techniques to beat back the Iraqis.

Therefore, a second oil crisis (the first one is in the 1970s) is definitely possible. The question is, are you ready?

Before complex societies can collapse…

Monday, April 12th, 2010

We are certainly living in interesting times. Our global village is facing very serious challenges ahead and very unfortunately, many of these challenges are confronting humanity at around the same time. As we wrote in the previous two articles (Another Achilles Heel of modern society- narrow margin and An Achilles Heel of modern society- specialisation and division of labour), the two Achilles Heels of modern complex societies will mean that it will be very difficult for nations and the world to adapt and adjust to these challenges.

In his book, The Collapse of Complex Societies, Joseph Tainter seems to say that as societies get more and more complex, more and more investments will produce less and less benefit until the point is reached when investments in more complexity no longer brings and increase in benefits. This is the point when complex societies are at its most vulnerable. Such societies can easily weather crisis in the past (e.g. military loss, drought, resource depletion, etc). But at that point, another crisis will become the tipping point that triggers the final collapse.

Regarding the idea that more and more investments will start to produce less and less returns as societies become more and more complex, it reminds us of many state governments in Australia. The Australian public are generally fed up with more and more state government incompetence as more and more public money are sunk into wasteful non-results. Although we are not sure whether Australia is at the point whereby investments are no longer producing any benefits, it seems that it is getting closer day by day.

Across the Pacific Oceans, we see many American states (most notably, California) more or less bankrupt. It seems that more and more money have to be thrown just to maintain the status quo. To his credit, Barrack Obama is attempting to reform the American system to reverse this trend.

When you look at the economic ‘results’ that the Chinese get by throwing money at their system, it looks like they are at the earlier part of the investment cycle. Ditto for the rest of Asia, excluding Japan. But mind you, the Chinese had already experienced collapse of their complex societies dozens of times in their thousands of years worth of history.

As Sean Brodrick wrote in The Ultimate Suburban Survivalist Guide,

Our [American] society is probably the most complex that has ever existed. Bigger and bigger investments in agriculture, medicine, energy and government are bringing smaller marginal returns.

But all this is still not enough to ring about a civilisations collapse. In Tainter’s view, a real collapse only happens in a power vacuum. That is the reason Europe did not collapse long ago- if one country fell, it was taken over by its neighbour- and according to this line of reasoning, is why the next collapse will be global in scale. Because this time, if one of the leading powers of the world goes down, we are so interconnected that we all go down.

Now, the question is: what about China? If the US collapse, will China be the ascending power that fills the ensuing vacuum? Or will it collapse along with the US? Or will it just continue on its own business and leave the US in the dark?

That’s the reason why Marc Faber is recommending that investors have half of their investments exposed to Asia. That is a very useful advice for very high net worth people who have the money and connections to resettle. But for the rest, it is very important to have your own plan B if something happens in your local area. Sean Brodrick made a very good point in his book,

Despite the scary scenario I’ve outlined so far, I don’t think societal collapse is a done deal. I believe we’re going to see waves of chaos going forward… … after a breakdown, the chaos will likely recede, and there will be some sort of recovery, perhaps even a return to normal.

As I said earlier, Rome didn’t fall in a day. It took hundreds of years from when the first wave of barbarians crossed the frontier to when Rome itself was finally conquered…

But if you were a Roman citizen unlucky enough to be in one of the areas that quickly descended into chaos, it was a world-changing and potentially fatal event.

The last paragraph is the point to remember. Your entire country will not be likely to collapse overnight. But if you are unlucky, your local region can be the one that descend into chaos first. The hard question to ask is: do you trust that your government (e.g. NSW State government) will have the resources, and competence to cope with large-scale crisis? We are not talking about small-scale crisis that affects small communities- we are talking about a scale large enough to affect at least hundreds of thousands of people.

If you are going to plan for Plan B, then you will have to increase the margins in your life and acquire skills outside the area of your specialisation.