What Will 2011 Bring to Energy in Southeastern Europe? (cont'd)

In response to what I posted earlier to that online group, someone from the Croatian power company HEP responded as follows:

Some comment! I like it. We will see this time next year how it all fared. You shed light at one important aspect of whole electricity story in the region - sensitivity. Shut down a block in Kozloduy and prices rise, start a new block of 1000 MW band and prices fall. All in all, electricity is very shallow market. In that name every prediction has a lot of uncertainty instilled - e.g. you RES predictions might be right for first 6 months of the year, but with some cash boost it can implode during the three months later. Thanks for sharing your thoughts.

The following is a modified version of what I replied:

Thank you for your kind response.  Indeed many things are possible, and predicting the future is very difficult, so I avoided any overly precise predictions such as “the Dow Jones will hit ____ this year”, “gold will pass ____”, “___ GW of new generating capacity will come online”, “construction will be completed on the ___ power plant”, or “renewable energy will produce __% of ___’s energy by the end of 2011.”

Nevertheless, some things are constant.  Recently I read an excellent article on the Asian Crisis of 1997 – “The Three Stages of Delusion”, by Dylan Grice – and the author shows how at each point the authorities in the various countries claimed that everything was under control, that the worst was already past, that a general collapse would be impossible.  And yet in one country after another the unthinkable did happen, wiping out (or transferring) hundreds of billions of dollars of wealth.  As the author points out, the same sorts of responses, and the same sort of continual widening and deepening of the problem, have been seen in Western countries since 2006.  And just as most of the largest rallies in the history of the Dow Jones Industrial Average took place during the Great Depression of the 1930’s, to be followed in each case by a new decline, so too we can expect during the present depression that again and again markets will respond gullibly to words of encouragement or biased statistics from official sources.  (They say that back in the early 1930’s the rallies were influenced by Pres. Herbert Hoover getting on the radio and reassuring people that everything was all right in the markets.  Ben Bernanke’s infamous “green shoots” remark will be two years old this March, and Hank Paulson’s “bazooka in your pocket” remark was 2-1/2 years old last week.)

Another situation that nobody is paying attention to – due to the rotating problems with the PIIGS – is the dire situation in Japan.  As Mike Shedlock wrote in a recent article,

The Prime Minister's statement "Japan is approaching the edge of a cliff" is a sure sign Japan has already fallen off a cliff. Politicians do not admit problems until it is too late to fix them. Thus, we have official admission that Japan's demographic time bomb has just gone off. The only question now is how quickly the problem escalates.

One might think that economists would learn something from this, but they would be wrong.

Keynesian clowns think Japan failed to defeat deflation because government did not spend enough fast enough. In other words, Keynesian clowns think the way to get out of a hole is to dig deeper, faster.

Meanwhile, Monetarist clowns feel the central bank did not ease enough fast enough. They think if you just print enough money someone will spend it. In Japan, all printing money did was artificially suppress interest rates as the money went into government bonds.

Question of the Day: Do economists (in general) somewhere along the line acquire an inability to reason, or does an innate inability to reason lead one to a career as an economist?

As Mike Shedlock, John Mauldin, and one or more others have noted, there is ample evidence that China has overheated, and there is a growing possibility of a “hard landing” and hyperinflation for China in 2011.  And as economist Michael Hudson and others have pointed out, for two or more centuries the Western world has been using the marginal reserve system to gradually increase the indebtedness of states and individuals.  Yet total indebtedness has long since surpassed the ability to repay, and debts that cannot be paid will not be paid.  So trillions of dollars/euros of assets will now have to be cancelled, simply crossed off the books, and everyone is fighting to make sure it is not his own assets that end up being eliminated.  In Japan economic growth has been on hold for 20 years as people quarreled behind the scenes about who would pay for these bad debts, and I see no signs that the Westerners will be any quicker than the Japanese.

Because of all this darkness elsewhere, I see Southeast Europe, and especially the Western Balkans (former Yugoslavia), as a comparatively good place for investors in coming years.  Most of the countries in this area are already at the “bottom” – except perhaps for Slovenia, Croatia, and Greece, though Greece seems to be taking the elevator down quickly – and as things get worse and worse for the most developed economies, these countries will have several advantages: 1) being relatively poor and hence already “decoupled” from the hot spots of the world economy (and hence off the target screens of globalists who would encourage bubbles in real estate or other assets so as to create debts and then strip off assets), they will be relatively free of boom-bust cycles, and prices will have a greater tendency to reflect true economic value; 2) being outside of full EU integration, these countries will have less bureaucracy and also the option of having lower taxes; 3) those countries that are not using the euro will have the possibility of printing their own money to pay for public debts; 4) the mountains of the Western Balkans are rich in mineral resources, and the people are well educated; and 5) being less fully integrated into NATO than is Western Europe, the Balkans are less likely to become a major battlefield in the case of warfare between NATO and the SCO/CSTO/BRICS (except perhaps for Kosovo).

As for the BRICS (Brazil, Russia, India, China, and – since a few weeks ago – South Africa), they are the focus of everyone’s attention, so at a time when trillions of dollars/euros of capital is sloshing around the world looking for any meagre opportunity for profit, the BRICS will tend to attract damaging capital flows, i.e., speculative or predatory foreign capital that rushes in, creates bubbles, attacks the currency’s exchange rate, and rushes out again.  At a moment when there are no giant, billion-euro investments in the world that are both safe and profitable, the million-euro microinvestments available in Southeastern Europe may be among the best investments around for those who are willing to break their funds into smaller parcels (something the Chinese seem to be extremely adept at doing, more so than Westerners who tend to prefer mega-investments that they can boast about).

All in all, this might be a time when, just by holding its own, HEP can grow somewhat at the expense of large Western rivals like E.ON, RWE, GDF Suez (IP), REpower, Enel, and Edison.