The Creature From Jekyll Island
Probably one of the best books documenting our financial system and the history behind it.
If you don’t want to read the book, check out the author in this multi-video presentation: http://www.youtube.com/watch?v=F3TAh1gy6rc
*Note that there are 7 more parts/videos
The 6th segment addresses BAILOUTS.
Tuesday, September 30, 2008
The $700 Billion Bailout
The vote failed. I’m shocked, but it will pass on Thursday because “fear” has now replaced “greed” as the primary emotion consuming the world. The Plunge Protection Team has put fear in the minds of all. In addition, too many politicians are up for re-election. Placing a wrong vote is perceived to be better than casting no vote. Get ready for a temporary stock surge and gold plunge. It was stated this weekend that funding will be phased in and there will be congressional oversight….can we say IRAQ! This is so wrong. Financial markets, when left alone, behave in Darwinian fashion. Irrational exuberance will always correct itself. Poorly managed and unethical companies should be left to fail. Poor management should be removed without golden parachutes. The bailout won’t remove the correction it will only make it worse and last longer. Everyone is pointing the finger, but we ALL participated. Whether it was through the Dotcom orgy, cheap and creative mortgages, credit cards, or 0% financing. It’s a system and the consumer is one part of the equation. John McCain believes that firing the SEC Chairman solves the problem. It’s much larger than that.
Weekend at Pelosi's
“The Party is Over” Nancy Pelosi, 9-29-08
Euphoric credit orgy: 26 years
Time taken to come up with a plan: one weekend
Time taken to review the plan prior to a vote: 4 days
Priceless!!
Where were the politicians during Nancy’s party?? head under the keg tap!
“This is an economic Pearl Harbor.” Warren Buffett 9-23-08
Euphoric credit orgy: 26 years
Time taken to come up with a plan: one weekend
Time taken to review the plan prior to a vote: 4 days
Priceless!!
Where were the politicians during Nancy’s party?? head under the keg tap!
“This is an economic Pearl Harbor.” Warren Buffett 9-23-08
Economics of a 12 Year Old
Last Sunday morning I was watching C-Span where they were showing snippets of the many events of last week. My daughter walked in the room and we had this great discussion:
Daughter: Dad, can’t the president get as much money as he wants.
Dad: sort of
Daughter: doesn’t he have his own ATM machine?
Dad: sort of; he has a friend, Ben Bernanke, who does
Daughter: who is he
Dad: he’s the Federal Reserve Chairman
Daughter: he really has his own ATM?
Dad: sort of
Daughter: is he a good guy?
Dad: today he’s probably best described as the “fall guy”
Daughter: what’s a fall guy?
Dad: he’s someone who takes the blame for something he really didn’t do
Daughter: can we turn on the Disney Channel?
Dad: you bet!
Daughter: Dad, can’t the president get as much money as he wants.
Dad: sort of
Daughter: doesn’t he have his own ATM machine?
Dad: sort of; he has a friend, Ben Bernanke, who does
Daughter: who is he
Dad: he’s the Federal Reserve Chairman
Daughter: he really has his own ATM?
Dad: sort of
Daughter: is he a good guy?
Dad: today he’s probably best described as the “fall guy”
Daughter: what’s a fall guy?
Dad: he’s someone who takes the blame for something he really didn’t do
Daughter: can we turn on the Disney Channel?
Dad: you bet!
Weekend at Bernie-anke's
Remember the movie “Weekend at Bernies” where Bernie died and his two associates kept him “virtually” alive all weekend for the beach party? The current financial markets sure do feel a lot like Bernie. And how about Fed Chairman Bernanke. He’s holding Greenspan’s bag and trying to figure out what to do. He’s standing at the podium trying to explain Greenspan’s sins. Isn’t it ironic that he’s a student of The Great Depression? The Fed will only lengthen the correction. Don’t try to control Adam Smith’s “invisible hand”.
Sunday, September 28, 2008
I Liked IKE
After being caged up in a “non-electric” world for five days after IKE, I had too much time to think. The result…….another rambling rant. Two weeks ago Wednesday at our 15th backyard, no-electricity BBQ, one neighbor said “have you heard what happen in the markets this week?”. I said “no”. He said “Lehman Brothers failed, Merrill Lynch was acquired, AIG may fail, and the market dropped 400 points!”. I responded “this is the week my mentors have been warning about and I missed it!”. Well, it appears that many more fireworks will be going off for all to watch in the near future.
It’s not all bad news! During the down cycle we’ll turn away from materialism and return to God. We’ll focus more on family and friends versus buying new toys. My IKE experience was that no electricity is a good thing. It was amazing to see how “community” emerges when the power is turned off. It was amazing to see kids playing in the street and building forts with tree limbs. It was amazing to see people working together with chain saws clearing out trees. It was amazing to see everyone getting along. I can’t tell you how many multi-family meals we had in our backyard. Challenging times will bring out the best in most. The human spirit is strong and good.
To close, an excerpt from Kuntler’s “The Long Emergency”:
"And in a way, I have my own thoughts about that because I’m basically a cheerful person, and in my own way I’m also an optimistic person. I’m not really a doomy-gloomy guy. And I would leave you with this thought: that the American people have historically been a generous, brave, forward looking, resourceful group, and we’ve shown great courage in the face of adversity before. I think we’ve become kind of a somewhat sloppy and complacent people in the last 25 years or so, but it doesn’t mean we can’t recover a lot of those virtues that are really part of the fiber of our national character. It’s still there and can still be recovered, and I think we’re going to be able to do that. It’s not going to be true for every place and everyone, but I think that’s going to help us a lot. So I have a lot of faith just in our national character, and the better angels of our nature, as Abraham Lincoln said.“
It’s not all bad news! During the down cycle we’ll turn away from materialism and return to God. We’ll focus more on family and friends versus buying new toys. My IKE experience was that no electricity is a good thing. It was amazing to see how “community” emerges when the power is turned off. It was amazing to see kids playing in the street and building forts with tree limbs. It was amazing to see people working together with chain saws clearing out trees. It was amazing to see everyone getting along. I can’t tell you how many multi-family meals we had in our backyard. Challenging times will bring out the best in most. The human spirit is strong and good.
To close, an excerpt from Kuntler’s “The Long Emergency”:
"And in a way, I have my own thoughts about that because I’m basically a cheerful person, and in my own way I’m also an optimistic person. I’m not really a doomy-gloomy guy. And I would leave you with this thought: that the American people have historically been a generous, brave, forward looking, resourceful group, and we’ve shown great courage in the face of adversity before. I think we’ve become kind of a somewhat sloppy and complacent people in the last 25 years or so, but it doesn’t mean we can’t recover a lot of those virtues that are really part of the fiber of our national character. It’s still there and can still be recovered, and I think we’re going to be able to do that. It’s not going to be true for every place and everyone, but I think that’s going to help us a lot. So I have a lot of faith just in our national character, and the better angels of our nature, as Abraham Lincoln said.“
Tuesday, October 9, 2007
My Email to Billy Boy and The Factor
It's painful to watch, but I have to admit that, on occasion, I watch the O'Reilly Factor. I find the man to be angry and spiteful. In October, 2007 after he called my musical hero, Bruce Springsteen, unpatriotic, I had to send him an email. Here it is.....
Billy-Boy,
I’ve watched your show for years and felt compelled so many times to send you a note, but your assault on Bruce motivated me to finally write. I should state that I claim no political party. All media channels appear to have bias, so one must watch several to get a balanced perspective. So a mix of Fox news, the NY Times, CNN, and NPR make an interesting blend. Your totally arrogant stating that individuals have to appear on YOUR show. When did you become the TV-god? Stating that you will donate $25,000 to Habitat for Humanity is such a farce. Bruce appearing on your show would provide Fox the opportunity to sell commercials at Super Bowl rates. $25,000 donation……give me a break. Your ratings would skyrocket even more! No one reports to you. Bruce for forty years has consistently written and sung about what he feels in his heart and ponders in his mind. He’s always had the courage to release music that was not what the mainstream wanted to hear. Whether it was the darkness on Nebraska, the pain in Streets of Philadelphia, the reality of American Skin or Dead Man Walkin’, or his perception of our country on Magic. You state that he is misleading the younger voters.
He has the right to his opinion just as you do. If people don’t like it, they don’t buy his CD or attend his concert. His business is about direct feedback. Your problem is that people are buying his “spin”. His problem is that people are buying your “spin”. You see, that’s the beauty of a free country.
Billy-Boy, you continue to mislead the evangelical/Republican babyboomers. You spit venom and spread hatred.
In the “up” cycle (1982-2000), you media mongers sold “greed”. Remember the euphoric ending (aka DotCom). Now in the early stages of the “down” cycle, you sell “fear”. Fear of muslims. Fear of Mexicans. Fear that our house value will drop in half. Xenophobia is a powerful force in the down cycle and you are fueling it as much as anybody. Why didn’t you care about illegal Mexicans in 1995? If you believe that the U.S. is in the business of removing evil dictators than why aren’t we in Iran, N. Korea, and Venezuela. If we are good Samaritans, why aren’t we in Darfur/Sudan, Ethiopia, and Uganda.
The interesting point regarding mass social mood is that two years into the “up” cycle (1984) Bruce released the album, Born in the USA. The title song ironically was misconstrued to be a national anthem when it really was a song about how poorly our Vietnam veterans were treated. Wikipedia states the following “Yet more notably, the widely-read, bow-tied conservative columnist George Will, after attending a show, published on September 13, 1984 a piece entitled "A Yankee Doodle Springsteen" in which he praised Springsteen as an exemplar of classic American values. He wrote: ‘I have not got a clue about Springsteen's politics, if any, but flags get waved at his concerts while he sings songs about hard times. He is no whiner, and the recitation of closed factories and other problems always seems punctuated by a grand, cheerful affirmation: 'Born in the U.S.A.!'.”
You see, in the “up” cycle we see the bright side of things. Now in the “down” cycle MAGIC is construed to be anti-American and unpatriotic. A very interesting psychology experiment.
Billy-Boy, on another note, Iraq and global warming are about the same thing, overconsumption. No one wants to talk about that because then we all are guilty. Al Gore in his many houses is guilty. Bill O’Reilly is guilty. I am guilty. As you know, we’re in Iraq for strategic reasons…..to control the oil output from the Middle East. Afghanistan provided a great landing base. Iraq provides great oil reserves and proximity to Iran. Please be honest. Yes, it was about WMD’s, but those of another kind: weapons of mass depletion. As a country that represents 5% of the world’s population, we consume 25% of its resources. That’s just irresponsible. Why don’t you spend a week focusing on US consumption. Have Jared Diamond as a guest (author of Guns, Germs, and Steel; Collapse). Or maybe have Richard Heinberg (The Party’s Over; Peak Everything).
Historically, conflict between cultures is sourced in resources or religion. The current and coming years provide an alignment of both. Stay tuned. You’ll have a lot more interesting topics to talk about than assaulting iconic rock stars.
Mr. O’Neill, you are subject to external forces much greater than yourself. Your selling what the mobs currently seek and feel…….FEAR.
I’ve purposely made this response long so that you can selectively edit and combine to make your point seem valid.
Enjoy!
Billy-Boy,
I’ve watched your show for years and felt compelled so many times to send you a note, but your assault on Bruce motivated me to finally write. I should state that I claim no political party. All media channels appear to have bias, so one must watch several to get a balanced perspective. So a mix of Fox news, the NY Times, CNN, and NPR make an interesting blend. Your totally arrogant stating that individuals have to appear on YOUR show. When did you become the TV-god? Stating that you will donate $25,000 to Habitat for Humanity is such a farce. Bruce appearing on your show would provide Fox the opportunity to sell commercials at Super Bowl rates. $25,000 donation……give me a break. Your ratings would skyrocket even more! No one reports to you. Bruce for forty years has consistently written and sung about what he feels in his heart and ponders in his mind. He’s always had the courage to release music that was not what the mainstream wanted to hear. Whether it was the darkness on Nebraska, the pain in Streets of Philadelphia, the reality of American Skin or Dead Man Walkin’, or his perception of our country on Magic. You state that he is misleading the younger voters.
He has the right to his opinion just as you do. If people don’t like it, they don’t buy his CD or attend his concert. His business is about direct feedback. Your problem is that people are buying his “spin”. His problem is that people are buying your “spin”. You see, that’s the beauty of a free country.
Billy-Boy, you continue to mislead the evangelical/Republican babyboomers. You spit venom and spread hatred.
In the “up” cycle (1982-2000), you media mongers sold “greed”. Remember the euphoric ending (aka DotCom). Now in the early stages of the “down” cycle, you sell “fear”. Fear of muslims. Fear of Mexicans. Fear that our house value will drop in half. Xenophobia is a powerful force in the down cycle and you are fueling it as much as anybody. Why didn’t you care about illegal Mexicans in 1995? If you believe that the U.S. is in the business of removing evil dictators than why aren’t we in Iran, N. Korea, and Venezuela. If we are good Samaritans, why aren’t we in Darfur/Sudan, Ethiopia, and Uganda.
The interesting point regarding mass social mood is that two years into the “up” cycle (1984) Bruce released the album, Born in the USA. The title song ironically was misconstrued to be a national anthem when it really was a song about how poorly our Vietnam veterans were treated. Wikipedia states the following “Yet more notably, the widely-read, bow-tied conservative columnist George Will, after attending a show, published on September 13, 1984 a piece entitled "A Yankee Doodle Springsteen" in which he praised Springsteen as an exemplar of classic American values. He wrote: ‘I have not got a clue about Springsteen's politics, if any, but flags get waved at his concerts while he sings songs about hard times. He is no whiner, and the recitation of closed factories and other problems always seems punctuated by a grand, cheerful affirmation: 'Born in the U.S.A.!'.”
You see, in the “up” cycle we see the bright side of things. Now in the “down” cycle MAGIC is construed to be anti-American and unpatriotic. A very interesting psychology experiment.
Billy-Boy, on another note, Iraq and global warming are about the same thing, overconsumption. No one wants to talk about that because then we all are guilty. Al Gore in his many houses is guilty. Bill O’Reilly is guilty. I am guilty. As you know, we’re in Iraq for strategic reasons…..to control the oil output from the Middle East. Afghanistan provided a great landing base. Iraq provides great oil reserves and proximity to Iran. Please be honest. Yes, it was about WMD’s, but those of another kind: weapons of mass depletion. As a country that represents 5% of the world’s population, we consume 25% of its resources. That’s just irresponsible. Why don’t you spend a week focusing on US consumption. Have Jared Diamond as a guest (author of Guns, Germs, and Steel; Collapse). Or maybe have Richard Heinberg (The Party’s Over; Peak Everything).
Historically, conflict between cultures is sourced in resources or religion. The current and coming years provide an alignment of both. Stay tuned. You’ll have a lot more interesting topics to talk about than assaulting iconic rock stars.
Mr. O’Neill, you are subject to external forces much greater than yourself. Your selling what the mobs currently seek and feel…….FEAR.
I’ve purposely made this response long so that you can selectively edit and combine to make your point seem valid.
Enjoy!
Thursday, June 1, 2006
Purchasing Physical Precious Metals
Robert Prechter's recommendations for purchasing physical precious metals:
Gold Bars – buy standard bars and store a the safest depository possible; Two options:
-Commingled – piece of paper stating ownership
-Physical bar in vault – pay storage fees (Switzerland/Australia)
Gold coins – not collectibles; buy either:
-US Gold Eagle
-S. African Krugerand
-Australian Nuggets
-Canadian Maple Leaf
Silver coins – junk silver coins (90% silver) – up to 1964
Do NOT buy gold stocks. They are paper-based assets.
Gold Bars – buy standard bars and store a the safest depository possible; Two options:
-Commingled – piece of paper stating ownership
-Physical bar in vault – pay storage fees (Switzerland/Australia)
Gold coins – not collectibles; buy either:
-US Gold Eagle
-S. African Krugerand
-Australian Nuggets
-Canadian Maple Leaf
Silver coins – junk silver coins (90% silver) – up to 1964
Do NOT buy gold stocks. They are paper-based assets.
Thursday, May 25, 2006
Buying Physical Gold
Recommendations from Larry Edelson, Editor, Real Wealth Report
Consider These Core Gold Investments
Gold Bullion
One convenient vehicle is 1- and 10-ounce gold ingots. For larger purchases, think about 32.15-ounce kilo bars.
What about American Eagles, Canadian Maple Leafs, etc.?
No, because the premium you pay for coins could cost you the equivalent of several more ounces of gold bars over time.
One other piece of advice: Pick a dependable, trustworthy dealer. Here are some dealers I like:
American Century Brokerage (800-826-8323)
Dillon Gage (800-375-4653)
Jefferson Coin and Bullion (800-593-2585)
Rare Coins of New Hampshire (800-225-7264)
Gold Funds
Consider Scudder Gold & Precious Metals (SGLDX)
Tocqueville Gold (TGLDX)
American Century Global Gold Fund (BGEIX): This no-load fund has a total expense ratio of just 0.67% (less than half the category average). Its portfolio is stuffed with gold companies, but many of them produce silver as well.
And if you want a broader stake in the resources market, consider this fund …
U.S. Global Investors Global Resources Fund (PSPFX): It is consistently one of the top-performing funds in its category, and has the flexibility to switch from energy to base metals to precious metals — whatever it thinks is hot. PSPFX gets four stars from Morningstar, has a total expense ratio of 1.3% (lower than the category average), and some of the sharpest management in the business. Given the recent pullback in natural resources, this fund is a bargain!
Consider These Core Gold Investments
Gold Bullion
One convenient vehicle is 1- and 10-ounce gold ingots. For larger purchases, think about 32.15-ounce kilo bars.
What about American Eagles, Canadian Maple Leafs, etc.?
No, because the premium you pay for coins could cost you the equivalent of several more ounces of gold bars over time.
One other piece of advice: Pick a dependable, trustworthy dealer. Here are some dealers I like:
American Century Brokerage (800-826-8323)
Dillon Gage (800-375-4653)
Jefferson Coin and Bullion (800-593-2585)
Rare Coins of New Hampshire (800-225-7264)
Gold Funds
Consider Scudder Gold & Precious Metals (SGLDX)
Tocqueville Gold (TGLDX)
American Century Global Gold Fund (BGEIX): This no-load fund has a total expense ratio of just 0.67% (less than half the category average). Its portfolio is stuffed with gold companies, but many of them produce silver as well.
And if you want a broader stake in the resources market, consider this fund …
U.S. Global Investors Global Resources Fund (PSPFX): It is consistently one of the top-performing funds in its category, and has the flexibility to switch from energy to base metals to precious metals — whatever it thinks is hot. PSPFX gets four stars from Morningstar, has a total expense ratio of 1.3% (lower than the category average), and some of the sharpest management in the business. Given the recent pullback in natural resources, this fund is a bargain!
Monday, March 27, 2006
Oil Price Prediction With The Elliott Wave Theory - #3
The predicted price pattern of 2/7/05 has aligned very well. The price decline in October of 2004 is now labeled as the 4th wave in an overall upward trending cycle. The current forecast (below) calls for a continued surge above $75/bbl. At that point a correction should occur.
Prior prediction:
Monday, February 7, 2005
Oil Price Prediction With The Elliott Wave Theory - #2
The current price pattern aligns well with the prediction of 10-22-04. The price appears to have completed an A-B-C down to $40/bbl and is rebounding into the next 1-2-3-4-5 wave count. The next leg is predicted to be well beyond the $56 peak.
The prior prediction:
Thursday, November 18, 2004
Prechter on Oil
Published by Elliott Wave International
Conviction as "Broad and Deep" as He's Seen in 30 Years...
The annual New Orleans Investment Conference was this past weekend, and, as in other years, Bob Prechter was there to give a talk. The November Elliott Wave Theorist (published today) gives Bob's impressions of what he heard -- several of his thoughts are well worth repeating here.
"If there was one theme of the conference, it was the inevitability of soaring oil prices.... People were clamoring to sign up for oil and gas deals, drilling operations, etc....
"The consensus that oil prices can only go upward for the rest of human existence is as broad and deep a conviction as I have ever witnessed toward any market in 30 years in the financial analysis profession. When oil was selling for $12 a barrel a few years ago, no one was interested. There were no booths at conferences touting higher oil. But isn't that exactly when investors should have been buying it?... The point is this: If almost everyone is betting on higher oil prices, then all bets are in."
What got my attention is the comment about conviction being as "broad and deep" as he has ever seen in 30 years -- that covers lots of ground and lots of conviction.
The key issue is clear: If all bets are in, where does the market go from here?
Conviction as "Broad and Deep" as He's Seen in 30 Years...
The annual New Orleans Investment Conference was this past weekend, and, as in other years, Bob Prechter was there to give a talk. The November Elliott Wave Theorist (published today) gives Bob's impressions of what he heard -- several of his thoughts are well worth repeating here.
"If there was one theme of the conference, it was the inevitability of soaring oil prices.... People were clamoring to sign up for oil and gas deals, drilling operations, etc....
"The consensus that oil prices can only go upward for the rest of human existence is as broad and deep a conviction as I have ever witnessed toward any market in 30 years in the financial analysis profession. When oil was selling for $12 a barrel a few years ago, no one was interested. There were no booths at conferences touting higher oil. But isn't that exactly when investors should have been buying it?... The point is this: If almost everyone is betting on higher oil prices, then all bets are in."
What got my attention is the comment about conviction being as "broad and deep" as he has ever seen in 30 years -- that covers lots of ground and lots of conviction.
The key issue is clear: If all bets are in, where does the market go from here?
Thursday, November 11, 2004
Puplava's Prediction at The Inflection Point
from financialsense.com
We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.
The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.
Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:
Large budget deficits
Deteriorating international trade balances
An eroding international currency
Eroding financial confidence
Growing protectionism
An expanding war on terrorism and the need for security
Growing entitlements
Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.
An expanding money supply, abundant credit, and negative interest rates are inherently inflationary. When investors realize that they can borrow money at next to nothing rates and invest that money in hard assets and get an immediate return, the demand for such assets rises. This leads to higher prices, asset bubbles or inflation. This is what is going on now in the financial markets, the real estate market, and in the commodity markets. A flood of money and credit throughout the world is driving asset bubbles and inflation. Central banks can create money and credit, but they are unable to direct where that money flows. One of the chief characteristics of inflationary cycles is asset bubbles. First, it was stocks in the 1990s. Then, it was real estate and mortgages in this new century. It is now working its way through to the commodity markets. The new bull market in commodities will dominate the financial markets the balance of this decade and the next.
As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is "measured." This means that real interest rates will remain negative for a long period of time.
No matter how high inflation finally gets, it is abundantly clear that the financial markets are undergoing a paradigm shift from a bull market in paper to a bull market in commodities or "things" as I like to call them. Investors will need to focus on a different class of assets. Real assets are going to be the big winners in this new emerging bull market. Commodities are becoming "The Next Big Thing." Precious metals, base metals, energy, water, and food are where the next fortunes are going to be made. Precious metals have, will, and are going to lead this new bull market. It is in regard to precious metals that I devote the remainder of this essay.
We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.
The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.
Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:
Large budget deficits
Deteriorating international trade balances
An eroding international currency
Eroding financial confidence
Growing protectionism
An expanding war on terrorism and the need for security
Growing entitlements
Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.
An expanding money supply, abundant credit, and negative interest rates are inherently inflationary. When investors realize that they can borrow money at next to nothing rates and invest that money in hard assets and get an immediate return, the demand for such assets rises. This leads to higher prices, asset bubbles or inflation. This is what is going on now in the financial markets, the real estate market, and in the commodity markets. A flood of money and credit throughout the world is driving asset bubbles and inflation. Central banks can create money and credit, but they are unable to direct where that money flows. One of the chief characteristics of inflationary cycles is asset bubbles. First, it was stocks in the 1990s. Then, it was real estate and mortgages in this new century. It is now working its way through to the commodity markets. The new bull market in commodities will dominate the financial markets the balance of this decade and the next.
As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is "measured." This means that real interest rates will remain negative for a long period of time.
No matter how high inflation finally gets, it is abundantly clear that the financial markets are undergoing a paradigm shift from a bull market in paper to a bull market in commodities or "things" as I like to call them. Investors will need to focus on a different class of assets. Real assets are going to be the big winners in this new emerging bull market. Commodities are becoming "The Next Big Thing." Precious metals, base metals, energy, water, and food are where the next fortunes are going to be made. Precious metals have, will, and are going to lead this new bull market. It is in regard to precious metals that I devote the remainder of this essay.
Friday, October 22, 2004
Oil Price Prediction With The Elliott Wave Theory - #1
I'm embarking on an analytical exercise to test the Elliott Wave Theory as applied to oil price prediction. The chart patterns since 2000 appear to align well with this theory. The price patterns in the late 70's oil boom and the associated "rig count" provided patterns very typical of Elliott Waves. I present my first prediction of a potential future pattern or trend. The 5th wave appears to be near completion with an A-B-C correction to follow with a price correction to the $30-35/barrel range.
Monday, October 11, 2004
Hugging Sheiks
A former colleague of mine who is the editor of the Houston Geological Society published an informative article on the history of the U.S. and Saudi Arabian oil dependence. I thought that you might find it interesting. After watching Fahrenheit 9/11 last night, I think everyone needs to realize that we've been hugging sheiks through many administrations.....
Election Issues in the Context of Petroleum and History
Art Berman, Editor, Houston Geological Society, October 2004
Key topics for the upcoming presidential debate and election directly relate to petroleum: the war in Iraq and the economy. As the situation in Iraq becomes increasingly complex and uncertain, the issues and the debate become more diffuse. I do not mean to diminish the importance or urgency of the current civil war in that country or differing views of our conduct there. As earth scientists, however, we surely must understand that petroleum
supply is and has always been the basis for everything we do in the Middle East since at least the end of World War II. The economy, likewise, is a complicated subject that consists of a tangle of important and inter-dependent issues that can obscure or over-shadow what cannot be disputed: American dependence on imported oil is an unavoidable aspect of the economy in this country and that is nothing new either. The fact that the price of oil is presently at its highest sustained level in decades is not disputed nor is its affect on the cost of doing business in America. As earth scientists we
understand that the need to import oil is unavoidably related to well-established and painfully clear statistical tendencies about basin and province maturity, and is not something that can be fixed by some change in domestic energy policy. This month I will focus on the first of these subjects, namely the war in Iraq and Afghanistan though not from a political but, rather, a geological and historical perspective. To fully understand current events in Iraq and the Middle East it is first necessary to view the roots of the conflict in a broader context than simply as part of the aftermath of the September 11,
2001 attacks on New York and Washington. As World War II drew to a close President Franklin Roosevelt recognized that the United States would play the major role in the Middle East as a warweakened and empire-weary United Kingdom, France and
Germany abdicated positions they had held for nearly 150 years in foreign affairs. Roosevelt appointed State Department economic advisor Herbert Feis to head a study on American strategic policy in a post-war world. Feis’s study concluded that U.S. access to oil was the primary reason for victory over German and Japanese forces in World War
II. Oil had powered the vast network of tanks, ships, aircraft and personnel carriers that gave allied forces the competitive edge over their adversaries who lacked sufficient access to petroleum. Germany and Japan had, quite simply, run out of enough oil to continue the war effectively. It had been, ironically, access to petroleum that lead to Japan’s attack on Pearl Harbor in December 1941. By the late 1930s the Japanese Empire had largely accomplished its territorial objectives but wanted to take Indonesia for its oil and rubber, both critical parts of a military empire that ran on petroleum-powered ships, planes and land vehicles. Indonesia was a Dutch colony and Japan’s leaders worried
that the United States’ treaties with the Netherlands might bring the United States into a war against Japan if Indonesia were attacked. In an odd quirk of logic, Japan decided to make a pre-emptive strike on U.S. forces at Pearl Harbor to prevent war with the United States. Feis and his colleagues recognized that the Kingdom of Saudi Arabia held the world’s most plentiful source of petroleum. They also recognized the political instability of the Kingdom and concluded that the United States must assume responsibility for
the support and defense of Saudi Arabia in return for a guarantee of oil supplies. On his return from the Yalta Conference in February 1945 Roosevelt met with King Abd al-Aziz Ibn Saud, the founder of the modern Saudi regime, on a U.S. warship in the Suez Canal. Roosevelt gave the King a promise of U.S. protection in return for privileged American
access to Saudi oil, an arrangement that remains in full effect today and constitutes the core of the U.S.-Saudi relationship and American policy in the Middle East. Fast-forward to 1979 when a series of events raised the U.S.-Saudi relationship to a new level of strategic importance. In 1979 the Soviet Union invaded Afghanistan, the Shah of Iran was overthrown by anti-government forces, and Islamic militants staged a short-lived rebellion in Mecca in Saudi Arabia. President Carter stated that the United States would view any action that threatened supplies of oil from the Middle East, and especially from
the Persian Gulf, as a threat to U.S. strategic interests with military force as a possible consequence. Carter established the Rapid Deployment Force that later evolved
into the U.S. Central Command in order to provide combat forces to the Persian Gulf Region if necessary. Carter authorized covert U.S. actions to undermine the Soviet presence in Afghanistan. The Saudi government was deeply involved in both of these initiatives and was responsible for providing both funds and manpower for the anti-Soviet effort. It was during this period that Osama bin Laden went to Afghanistan to fight with
the mujahedin rebels against the Soviet occupying forces. The United States and Saudi Arabia spent more than $3 billion under Carter and Reagan in arms and support to the anti-Soviet insurgents in Afghanistan (Klare, 2001). The main aim of the first Persian Gulf War under George H.W. Bush was to protect Saudi Arabia from threats of attack by
Saddam Hussein. Kuwait was the catalyst but really a secondary cause for the invasion of Iraq. In fact, there are tape recordings of an interview on July 25, 1991, between U.S. ambassador April Glaspie and Saddam Hussein in which she gave him diplomatic
permission to invade Kuwait. "We have no opinion on your Arab-Arab conflicts," the recorded transcript reports Glaspie saying, "such as your dispute with Kuwait. Secretary [of State James] Baker has directed me to emphasize the instruction … that Kuwait is not associated with America" (Cole, 1999). Some argue that Hussein was baited into attacking Kuwait to justify armed action against Iraq for the protection of Saudi Arabia.
Hussein invaded Kuwait on August 2, 1999. On August 4, 1991, Bush convened his top advisors at Camp David and decided to take military action to defend the Saudi kingdom against possible Iraqi attack. Secretary of Defense Dick Cheney went to Riyadh, Saudi Arabia, and got permission to place U.S. ground forces in that country and to use Saudi bases for air strikes against Iraq.
Following the Persian Gulf War Osama bin Laden focused his efforts on two stated objectives: expulsion of U.S. military forces from Saudi Arabia and overthrow of the Saudi regime. "Both of these goals put bin Laden in direct conflict with the United
States. It is this reality, more than any other, that explains the terrorist strikes on U.S. military personnel and facilities in the Middle East, and key symbols of American power in New York and Washington" (Klare, 2001). The current "War on Terror" did not begin with the September 2001 attacks on the United States. The first attack on the World
Trade Center in 1993 marks the beginning of the current struggle. Subsequent attacks in Saudi Arabia, Kenya, Tanzania and Yemen in the period 1995–1998 were part of a plan by bin Laden to destroy the U.S.-Saudi alliance begun in 1945. Neither President
George W. Bush nor Osama bin Laden will directly reference the present conflict to this decade-long dynamic. Make no mistake, however, that current events in Afghanistan and Iraq have far more to do with maintaining American supplies of oil from the Middle East and protecting the Saudi regime from overthrow than they do with the events of September, 2001. Consider the devastating economic effects of the four-day hiatus
in petroleum usage following the September 11 attacks. Imagine the far greater impact of an extended interruption in petroleum supply on the U.S. economy. Every American president knows this: if petroleum supply is interrupted, the American economy
will crater; whatever other issues may seem important in a given election, they will all disappear if there is not enough petroleum to keep the economy running at the break-neck level that we all assume is normal.
The U.S. occupation of Iraq and Afghanistan is part of a 60-year old policy to ensure oil supplies from the Middle East and to protect the Saudi regime from overthrow or civil war that might interrupt that supply. The war that our enemy is fighting is to make the West go away; it is, in effect, a fantasy ideology (Harris, 2004). Somewhere, however, embedded in the Al-Qaeda strategy is overthrow of the current regime in Saudi Arabia and disruption of the U.S.-Saudi alliance; that is the point of convergence that we must recognize if we want to understand this war. As geoscientists we should understand better than most the geo-politics of oil. e know that in the United States we cannot
begin to supply ourselves with enough oil to fuel our needs even if we open ANWR and find a Prudhoe Bay-sized accumulation (more on that next month!).
We are irrevocably dependent on the Middle East for oil and there is no way that is going to change. Whether we agree with the specifics of decisions taken on Iraq, Afghanistan, Israel or any other topic in the Middle East we must view them in terms of a long-term strategy and policy that center on maintaining oil supply to the United States. We must also realize that, whatever our political leanings, an interruption in oil supply would make all of us wish we had done something more deliberate and forceful to prevent it. In the hindsight of a U.S. economy without adequate petroleum supply the niceties of international law and the United Nations, self-determination of sovereign nations, human rights and weapons of mass destruction would seem weak excuses for allowing ourselves to miss the point of what has always been the focus in the Middle East since at least 1945: petroleum. ?
References
• Cole, Carleton, 1999, The home forum: Christian Science Publishing
Society.
• Klare, Michael T., 2001,The geopolitics of war (United States petroleum
interests in Saudi Arabia and Osama bin Laden): The Nation, Nov. 5, 2001, v. 273, no. 14, p. 11.
• Harris, Lee, 2004, Civilization and its enemies: the next stage of history:
Free Press, New York, 232 p.
Election Issues in the Context of Petroleum and History
Art Berman, Editor, Houston Geological Society, October 2004
Key topics for the upcoming presidential debate and election directly relate to petroleum: the war in Iraq and the economy. As the situation in Iraq becomes increasingly complex and uncertain, the issues and the debate become more diffuse. I do not mean to diminish the importance or urgency of the current civil war in that country or differing views of our conduct there. As earth scientists, however, we surely must understand that petroleum
supply is and has always been the basis for everything we do in the Middle East since at least the end of World War II. The economy, likewise, is a complicated subject that consists of a tangle of important and inter-dependent issues that can obscure or over-shadow what cannot be disputed: American dependence on imported oil is an unavoidable aspect of the economy in this country and that is nothing new either. The fact that the price of oil is presently at its highest sustained level in decades is not disputed nor is its affect on the cost of doing business in America. As earth scientists we
understand that the need to import oil is unavoidably related to well-established and painfully clear statistical tendencies about basin and province maturity, and is not something that can be fixed by some change in domestic energy policy. This month I will focus on the first of these subjects, namely the war in Iraq and Afghanistan though not from a political but, rather, a geological and historical perspective. To fully understand current events in Iraq and the Middle East it is first necessary to view the roots of the conflict in a broader context than simply as part of the aftermath of the September 11,
2001 attacks on New York and Washington. As World War II drew to a close President Franklin Roosevelt recognized that the United States would play the major role in the Middle East as a warweakened and empire-weary United Kingdom, France and
Germany abdicated positions they had held for nearly 150 years in foreign affairs. Roosevelt appointed State Department economic advisor Herbert Feis to head a study on American strategic policy in a post-war world. Feis’s study concluded that U.S. access to oil was the primary reason for victory over German and Japanese forces in World War
II. Oil had powered the vast network of tanks, ships, aircraft and personnel carriers that gave allied forces the competitive edge over their adversaries who lacked sufficient access to petroleum. Germany and Japan had, quite simply, run out of enough oil to continue the war effectively. It had been, ironically, access to petroleum that lead to Japan’s attack on Pearl Harbor in December 1941. By the late 1930s the Japanese Empire had largely accomplished its territorial objectives but wanted to take Indonesia for its oil and rubber, both critical parts of a military empire that ran on petroleum-powered ships, planes and land vehicles. Indonesia was a Dutch colony and Japan’s leaders worried
that the United States’ treaties with the Netherlands might bring the United States into a war against Japan if Indonesia were attacked. In an odd quirk of logic, Japan decided to make a pre-emptive strike on U.S. forces at Pearl Harbor to prevent war with the United States. Feis and his colleagues recognized that the Kingdom of Saudi Arabia held the world’s most plentiful source of petroleum. They also recognized the political instability of the Kingdom and concluded that the United States must assume responsibility for
the support and defense of Saudi Arabia in return for a guarantee of oil supplies. On his return from the Yalta Conference in February 1945 Roosevelt met with King Abd al-Aziz Ibn Saud, the founder of the modern Saudi regime, on a U.S. warship in the Suez Canal. Roosevelt gave the King a promise of U.S. protection in return for privileged American
access to Saudi oil, an arrangement that remains in full effect today and constitutes the core of the U.S.-Saudi relationship and American policy in the Middle East. Fast-forward to 1979 when a series of events raised the U.S.-Saudi relationship to a new level of strategic importance. In 1979 the Soviet Union invaded Afghanistan, the Shah of Iran was overthrown by anti-government forces, and Islamic militants staged a short-lived rebellion in Mecca in Saudi Arabia. President Carter stated that the United States would view any action that threatened supplies of oil from the Middle East, and especially from
the Persian Gulf, as a threat to U.S. strategic interests with military force as a possible consequence. Carter established the Rapid Deployment Force that later evolved
into the U.S. Central Command in order to provide combat forces to the Persian Gulf Region if necessary. Carter authorized covert U.S. actions to undermine the Soviet presence in Afghanistan. The Saudi government was deeply involved in both of these initiatives and was responsible for providing both funds and manpower for the anti-Soviet effort. It was during this period that Osama bin Laden went to Afghanistan to fight with
the mujahedin rebels against the Soviet occupying forces. The United States and Saudi Arabia spent more than $3 billion under Carter and Reagan in arms and support to the anti-Soviet insurgents in Afghanistan (Klare, 2001). The main aim of the first Persian Gulf War under George H.W. Bush was to protect Saudi Arabia from threats of attack by
Saddam Hussein. Kuwait was the catalyst but really a secondary cause for the invasion of Iraq. In fact, there are tape recordings of an interview on July 25, 1991, between U.S. ambassador April Glaspie and Saddam Hussein in which she gave him diplomatic
permission to invade Kuwait. "We have no opinion on your Arab-Arab conflicts," the recorded transcript reports Glaspie saying, "such as your dispute with Kuwait. Secretary [of State James] Baker has directed me to emphasize the instruction … that Kuwait is not associated with America" (Cole, 1999). Some argue that Hussein was baited into attacking Kuwait to justify armed action against Iraq for the protection of Saudi Arabia.
Hussein invaded Kuwait on August 2, 1999. On August 4, 1991, Bush convened his top advisors at Camp David and decided to take military action to defend the Saudi kingdom against possible Iraqi attack. Secretary of Defense Dick Cheney went to Riyadh, Saudi Arabia, and got permission to place U.S. ground forces in that country and to use Saudi bases for air strikes against Iraq.
Following the Persian Gulf War Osama bin Laden focused his efforts on two stated objectives: expulsion of U.S. military forces from Saudi Arabia and overthrow of the Saudi regime. "Both of these goals put bin Laden in direct conflict with the United
States. It is this reality, more than any other, that explains the terrorist strikes on U.S. military personnel and facilities in the Middle East, and key symbols of American power in New York and Washington" (Klare, 2001). The current "War on Terror" did not begin with the September 2001 attacks on the United States. The first attack on the World
Trade Center in 1993 marks the beginning of the current struggle. Subsequent attacks in Saudi Arabia, Kenya, Tanzania and Yemen in the period 1995–1998 were part of a plan by bin Laden to destroy the U.S.-Saudi alliance begun in 1945. Neither President
George W. Bush nor Osama bin Laden will directly reference the present conflict to this decade-long dynamic. Make no mistake, however, that current events in Afghanistan and Iraq have far more to do with maintaining American supplies of oil from the Middle East and protecting the Saudi regime from overthrow than they do with the events of September, 2001. Consider the devastating economic effects of the four-day hiatus
in petroleum usage following the September 11 attacks. Imagine the far greater impact of an extended interruption in petroleum supply on the U.S. economy. Every American president knows this: if petroleum supply is interrupted, the American economy
will crater; whatever other issues may seem important in a given election, they will all disappear if there is not enough petroleum to keep the economy running at the break-neck level that we all assume is normal.
The U.S. occupation of Iraq and Afghanistan is part of a 60-year old policy to ensure oil supplies from the Middle East and to protect the Saudi regime from overthrow or civil war that might interrupt that supply. The war that our enemy is fighting is to make the West go away; it is, in effect, a fantasy ideology (Harris, 2004). Somewhere, however, embedded in the Al-Qaeda strategy is overthrow of the current regime in Saudi Arabia and disruption of the U.S.-Saudi alliance; that is the point of convergence that we must recognize if we want to understand this war. As geoscientists we should understand better than most the geo-politics of oil. e know that in the United States we cannot
begin to supply ourselves with enough oil to fuel our needs even if we open ANWR and find a Prudhoe Bay-sized accumulation (more on that next month!).
We are irrevocably dependent on the Middle East for oil and there is no way that is going to change. Whether we agree with the specifics of decisions taken on Iraq, Afghanistan, Israel or any other topic in the Middle East we must view them in terms of a long-term strategy and policy that center on maintaining oil supply to the United States. We must also realize that, whatever our political leanings, an interruption in oil supply would make all of us wish we had done something more deliberate and forceful to prevent it. In the hindsight of a U.S. economy without adequate petroleum supply the niceties of international law and the United Nations, self-determination of sovereign nations, human rights and weapons of mass destruction would seem weak excuses for allowing ourselves to miss the point of what has always been the focus in the Middle East since at least 1945: petroleum. ?
References
• Cole, Carleton, 1999, The home forum: Christian Science Publishing
Society.
• Klare, Michael T., 2001,The geopolitics of war (United States petroleum
interests in Saudi Arabia and Osama bin Laden): The Nation, Nov. 5, 2001, v. 273, no. 14, p. 11.
• Harris, Lee, 2004, Civilization and its enemies: the next stage of history:
Free Press, New York, 232 p.
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