A Crude 10 Year Perspective: The DJIA, Oil and Gold

Recently the DJIA passed through 10,000 once again. It was definitely more fun on the way up than it was on the way down. Achieving the 10k milestone again was interesting for a number of reasons, not least of which were comparisons based on when the DJIA first crossed 10,000 in March of 1999 ten years ago. That is a long enough time to draw some long term conclusions. Let’s compare the DJIA index, oil and gold indicators then and now:

Ten Year Comparison of the DJIA, Oil, and Gold

Indicator	March 29, 1999	October 14, 2009	Change
DJIA	10,000	10,000	0%
Oil	$16.44	$74	450%
Gold	$280	$1060	379%

Of course I’ll be accused by nay-sayers for cherry picking data, but I cannot think of a more simple chart to bring home what should be obvious to the American people and government: we are in an oil crisis of very, very serious proportions. In fact, as I have stated before, I believe that oil has become the world’s new reserve currency of choice (replacing the U.S. dollar). Oil has even outperformed gold. That is not surprising since cars and trucks cannot run on gold. That is, oil is a more strategic commodity than is gold. This is why we have oil wars and not gold wars.

Although many today think oil is cheap at $75/barrel, and I suppose that is true with respect to the $145/barrel high in 2008, one only has to look at the $16.44 price of a barrel of oil in 1999 to know that the only way oil is cheap today is from a psychological perspective. Five years ago, $75/barrel oil would have been thought an outrageous price. After 2008, we’ve been conditioned to think it’s now cheap. Well, it ain’t.

Let’s look at the U.S. oil import numbers for the last three months (EIA data):

U.S Foreign Oil Import Data (Last 3 months)

Month	Foreign Oil Imports (barrels)	Cost*	% Dependence on Foreign Oil
July 2009	374,000,000	$24,000,000,000	65%
August 2009	355,000,000	$25,200,000,000	65%
September 2009	357,000,000	$24,700,000,000	63%

*Cost- yes, that is Billions with a “B”. For those interested in a tick-by-tick assessment, this means the U.S. is sending over half a million dollars a minute to foreign countries for oil.

Now I’m an engineer, not an economist. However, my common sense tells me that this is not only an economic problem of disastrous proportions, but also a huge national security issue. I would add that the cost of supporting the pentagon/petroleum relationship (i.e. the military expenditures required to secure oil shipping and future supply) are not even taken into account here. Should we be surprised that a nation that imports 65% of its oil has seen its main investment benchmark (the DJIA) go nowhere over the past decade as oil is up by almost a factor of 5? At one point in 2008, it was up over 700%. We should not be surprised at the resulting economic crisis we are experiencing today. At least I am not. Economic crisis will now be the norm, not the exception. As long as we remain addicted to foreign oil, each subsequent oil shock will happen more quickly and be more economically devastating for the good ole U.S. of A. as Archie Bunker called America.

If we annualize the $24 billion a month the U.S. spent over the last 3 months on oil imports, we come up with $288 billion. Again, I’m not an economist but let’s have some fun with the figures. Let’s say a “decent job” pays $100,000 a year. How many “decent jobs” would $288 billion provide? Answer: 2,880,000. Wow, that’s a lot of jobs man. This is a very simplistic analysis, but in today’s economy, even if that number were off by a factor of 2, that’s still a lot of desperately needed jobs. And if those jobs were created in the U.S., instead of enriching foreign countries (many of whom are very antagonistic toward the U.S.) these salaries would be further recycled through the American economy via consumer spending on cars, trucks, and oh yeah, maybe even houses. So, tangentially, that is even more jobs. But alas, the Bush and Obama administrations and Congress are content to send these dollars overseas. Minute by minute, day after day, month after month, year after year.

Despite the obvious long-term sickness of the DJIA and the U.S. economy as a result of its addiction to foreign oil, the U.S. government and major U.S. based business publications (Barron’s, The Wall Street Journal, Business Week, etc. etc.), both of which should be staffed by many professionally trained economists, continue to ignore the oil crisis. They continue to ignore the solution as well: a strategic long-term comprehensive energy policy centered on using American produced natural gas to power its transportation sector. Such an energy policy can be found here.

Instead, American policymakers (and business media) continue to support the dual wrong-headed policies first turbo-charged by George Bush: deficit spending and currency devaluation. Certainly deficits existed prior to George Bush, but his ridiculous tax policy combined with the administration’s loose grip on spending (to put it mildly) doubled the total U.S. deficit in a mere 8 years - a feat not accomplished since Bush senior and Reagan’s last term. And this doesn’t even count the cost of the war in Iraq, because for some reason that is “off ledger”. Of course now Obama is continuing and even expanding the deficit and devaluation policies (“d”-day times 2). Boy do I wish I had my vote back for Ron Paul! In the double-speak so common in America today, it’s very amusing to see such partisan economic hacks as CNBC’s Joe Kernen and Larry Kudlow moan about deficit spending and continue to ask for more tax cuts! Where were these Republican “deficit hawks” when Bush was in office? Well, of course they supported every Bush administration policy for lower tax rates and huge deficit spending while at the same time poo-pooing the need for an energy policy based on anything but “coal and oil”. Apparently alternative energy just isn’t “manly” enough for America. Today, it is readily apparent they have learned nothing even though the policies they supported were not only wrong, but proved disastrous both to the economy and to investors. But wait, isn’t CNBC supposed to be the nation’s leading financial network? Ha. No wonder the rest of the world looks at the U.S. and just scratches their head in wonder. What has happened to this once great nation? When did we stop thinking?

Obama, like Bush, often says “a strong dollar is in the best interest of the United States”. Then he goes off and spends money like a drunken sailor and allows the Fed and Treasury to turn on the printing presses. They have the media convinced this is good for American exports as though devaluing the currency actually has a chance of closing the yawning trade deficit and fixing all of America’s problems. Of course the fallacy is that the biggest component of the trade deficit is imported oil! So, they devalue the dollar, China pegs the yuan to it, and the net effect is that exports go up a little bit, but oil goes up a lot more and is the biggest component of the trade deficit! How can this end in anything but complete disaster for a country that imports 65% of its oil and is competing against China for future oil reserves in an era when worldwide oil supply won’t keep up with worldwide oil demand? It is worth noting that, from a historical perspective, no country has ever devalued their currency as a way to long-term economic success. In fact, just the opposite is true.

So, what should American investors do? Well, as someone said the other day, as long as President Obama and Congress are asleep at the wheel, Americans are in a situation where they would be better off investing in gold than in American companies (and thus we get the first chart above). If you must invest in stocks, invest in oil stocks like Exxon Mobil (XOM), Chevron (CVX), Conoco Philips (COP) and BP. These companies all pay nice dividends (well, Exxon being the exception…grrrrrr). Foreign oil companies may be even more compelling due to the currency issue. In this case, go with Petrobras (PBR) and StatOil (STO). Oil is going to skyrocket sooner rather than later. Oh, and they'll need those big Caterpillars to mine the gold and haul the oil sands and coal, so buy some CAT.

I hate to be a pessimist, but don’t be surprised if 10 years from now the DJIA is still below 10,000. Heck the DJIA itself may even become a non-existent relic of the past. If America doesn’t address the oil crisis head on, it too will become a relic of the past. At least it will not be recognizable to the America we live in today. There was a reason the U.S. was such a power after WWII – we were in large part self-sufficient when it came to oil. Why won’t the U.S. government and media acknowledge this fact and take corrective action? I have my own theories on this, but that’s for another time and another place. Meantime, good luck investing. If the charts above are any indication, you’ll likely need it!

Disclosures: the author owns COP, STO, PBR and gold.

Comments

[longoil:]

The stock market was artificially inflated in the late 1990's thanks to the internet boom. Normally stock market indexes appreciate anywhere from 10 to 12% per year on average. In the short period of 1995-2000 we saw the DJIA shoot up 150% and NASDAQ go up 500%. Anything over 15% gain per year is unsustainable over the long term. The current DJIA = 10000 is actually the value it should have grown to since 1995.

Although gold is a good hedge. I can live without gold.

I cannot live without oil, which is used in thousands of applications (besides transportation). I think my money will appreciate the most over the long run invested in oil and gas.

The 95% of the world's energy mix (according to the BP statistical survey and the EIA) comes from oil, gas, coal & nuclear. Oil and Gas will be the key energy sources from the next 40 years. Alternative energy is still in its infancy. Solar and wind account for only 1% of the world's energy mix. Natural gas would be a good transitory solution, since existing cars can be modified to run on it for only a few thousands dollars. This is a much cheaper alternative than hybrid, hydrogen or electric cars.

Oct 18 09:56 AM

[Faisal Humayun:]

When Asset Bubbles go bust, they usually take a long time to come back to their previous highs...The same is the case with the U.S. stock markets...

Oil and Gold on the other hand had been in a bear market since 1980...Only post 2000, did the precious metals and commodities come back into the investment radar...So there is still a long way to go on the upside for Oil and Gold...

The long term weakness of the Dollar will also be precious metals and Commodity price supportive...This coupled with the demand for industrial commodities from 3.6 billion Asians will keep the bull run for commodities going...

Oct 18 10:15 AM

[pockyclips ...:]

Fitz:
Stop confusing me with facts. Reliability = simplicity = 1/versatillity.
I'd like to see the price of beans use in price comparisons.
10 years ago the price was 20 to 25 cents/can, now 75 cents.

I agree we're buying the rope, on credit, to hang ourselves.
Our collapse will be much more spectacular the the Evil Empire's!

Oct 18 10:18 AM

[junkyarddog:]

This article is awesome!! I just have one suggestion: since 1999 the dollar has lost at least 30% of its value; just compare it to the Euro if one wants to make it really simple. Then add inflation on top of it and the adjusted price of oil in 1999 would not present as large of a gap (hey: I know it's still large! :-)).

The author's main point still stands, I'm just making this suggestion to make the comparison more realistic.

One last point: oil can still be refined from tar sands and coal. Sweet crude is the only economical option for now, but there are plenty of more expensive "non-sweet" reserves. Again, I'm not trying to say we're not in an energy crisis, all I'm saying we still have time to fix this.

Best wishes,

Roger

Oct 18 10:38 AM

[koolsool:]

What people do not seem to understand is we are in a CHEAP energy crisis. There is plenty of expensive oil. When the price of oil goes up to meet the cost of producing it from deep water reserves & the costly, dirty process of converting oil tar sands to oil, there will be a serious economic shock. Our American economy is based on cheap energy, when cheap energy is not available anymore, there will be trouble. America will always use a lot of oil because it is used to make so many products in manufacturing. But we can reduce the amount of expensive oil we use by taking advantage of our huge supply of cheap American natural gas. New drilling technologies have changed the nat gas supply future. We have 100 years worth & it can stay cheap even if demand increases. Nat gas is cheap & clean. It will have to be utilized for transportation & energy.

Oct 18 11:27 AM

[fireball:]

hey fitz
looks like we'll meet up in the libertarian/constituti... camp yet.

Oct 18 12:14 PM

[Dave Wrixon:]

What price oil when the rest of humanity is consuming at the same rate that the 5% that make up the US seem to consider their God given right?

Oct 18 12:47 PM

[Michael Fit...:]

faisal: you are correct to point out the bear market in oil from 1980-2000. this was due to a combination of factors: OPEC pumping lights out after the first oil crisis as well as alaskan and north sea production. since 2000, we've had some significant long-term game changing events in the oil arena:

1) the emergence of serious chinese demand and growth in demand for oil, and from other emerging markets as well
2) the oil war in iraq placing a new geopolitical risk premium on oil prices
3) and for the U.S., serious depletion rate realities in alaska, the north sea, and in mexico (but also in almost all mature oil fields)
4) new reserve discoveries are increasingly coming from very deep offshore plays which will be more expensive to drill, pump, and deliver compared to past plays.

so, yeah, i agree with you that the bull market in oil has a long way to run. since oil is priced in U.S. dollars, and we think we know what will happen there, gold will certainly tag along for the ride. however, oil is "the prize" as yergin put it, and it is the driving force behind the world economy and most strategic geopolitical action (imho).

junkyarddog: yup, you're correct that the simplistic chart i posted does not take into account currency and inflation adjustments. however, these factors also influence the DJIA and would show it to have a substantially negative return over the past 10 years other than the 0% shown in the chart. i chose not to add currency and inflation aspects in this article as i wanted to focus on what i consider america's biggest problem: addiction to foreign oil. the comparison of the indicators, even without the currency and inflation issues, do show and are valid for a U.S. investor who would have placed bets on one of the 3 investments. that is, it is clear that folks would have been much better off investing in oil and gold than in the DJIA (or S&P500).

koolsool: well, i suppose i would disagree that there is plenty of expensive oil. i think worldwide oil supply will have difficulty keeping pace with worldwide oil demand (as we saw the margin in 2008 shrink precipitiously. will the ability to lift oil from the deep offshore fields be able to keep pace with the inconvenient truth of depletion rates? time will tell, but i know where i'd place my bet. that said, why even play dice with this issue when we have abundant, cheap, and cleaner natural gas? it simply doesn't make sense from economic, environmental, or national security perspectives and in truth, if inaction remains the "policy" of congress and current and future presidents, will likely be the root cause of the end of the great american capitalistic democratic experiment. i also disgree that America uses alot of oil in manufacturing. 71% of oil is used in the transportation sector. even more oil is used to make distillates for home heating. i believe the industrial sector is around 20% of oil consumption, but this is falling as the U.S. deindustrializes. it is clear, if we want to do something about oil consumption, the first and easiest place to attack in order to *substantially* reduce foreign oil imports is the transportation sector and there we totally agree with each other: the U.S. needs to utilitze its abundant natural gas reserves to power cars and trucks. it's so clear to me, but then again i am not a nobel prize winning physicists like energy secretary chu - although i did once prove in college that a mouse could run through a pile of sand without one particle of the mouse touching one particle of sand. the key being the mouse would have to be travelling near the speed of light and the probability of no collisions was still very very small indeed :)

fireball: i hear ya buddy!! i tell you what, i think the 50 states should ban together right now and call for a constitutional convention. i don't see any other way out. the two party system and congress is quite simply completely broken and unable to address any problem and actually fix it. add to that helicopter ben (who thought his idea was to drop all the dollars on the richest instead of the middle class??), and the bribery by industry over elected officials and we are gonna get our asses kicked (already have?) by the much more engineering led chinese. we have simply forgotten how to *think* in this country, and the TV, radio, newspaper, and magazine people get paid gobs to insure we continue not to *think*, at least about anything relevant.

dave wrixon: i would answer your comment by saying instead of the rest of humanity consuming oil at the rate U.S. consumers are, the opposite will happen: the U.S. consumer will drastically reduce his ability to pay for and obtain oil in the future. this will have dramatic impact on the standard of living and quality of life for americans should we not have a natural gas transportation infrastructure in place. unfortunately, the "change" we were supposed to see from obama (and energy secretary chu) is a mirage. more bad news is that the environmentalist and media are being placated by the illusions that electric cars and wind/solar renewables can substantially fix the problem over the next 5-10 years. they cannot. it's amazing to me with people like robert hefner (who has access to the inner circle in obama's administration) and boone pickens pounding the table on this issue every day that the U.S. government, media, and citizens just don't get it. it's damn near criminal neglect on the part of the government.

Oct 18 01:28 PM

[chap08:]

"no country has ever devalued their currency as a way to long-term economic success"

This is often repeated, but is of course, completely wrong. It has happened throughout history. If you want a current example, just look at China.

Oct 18 01:51 PM

[Advill:]

Michael:

First time i read your blog...first time i disagree...

1. It is not the first time we face as civilization a energy "crisis", the most documented is the european switch from wood to carbon specially in Italy, and Mediterranean countries in late Middle Age.
Not to mention Japan or other countries where energy in one way or other was drastically exhausted.

2. There are MANY different alternatives to oil....if the right incentives are provide (what TRUCK do you use to go to Wal Mart for milk?), there are MANY different energy use policies which are right now 30 years ahead of US, Italy, Spain, Germany or Japan ..even Australia are much more efficient and rational using oil and energy without "risking civilization".

3. In the future there are A LOT of different alternatives for oil many of them based in electricity ( which will be the future if we know how to produce it without risking the planet):

Nuclear 3.0 and 4.0
Nuclear batteries
Smart grids storing energy
Low energy hydrolysis
Self produce electricity
Biofuels base in algae
Use of CO2 as a valuable raw material
etc....

Obviously we are not talking of 7000 pounds trucks going to Target for Corn Flakes.....

This approach is neurasthenic and with not scientific and historic base, the important point is........" there are 6 billion people who has the right to live better, how do we produce the energy for them in a sustainable way for the next 100 years?"...that my friend is the question, civilization is safe out of USA...

Oct 18 03:48 PM

[Jimbo:]

The "Watermelons" (green on the outside and red on the inside) believe if we can just starve the economy (no domestic drilling) that alternative fuels will arrive by magic (pixie dust?). In the meantime actual unemployment hovers around 15% and climbing. We are bankrupting ourselves by buying oil from our enemies with dying dollars. Alternative energy may be big some day but that may be two decades down the road, if then. 1. Exploit natural gas 2. drill domestically 3. import tax on oil from anyplace BUT Canada, Mexico, and Colombia 4. use the import tax EXCLUSIVELY to develop alternative energy sources.

Oct 18 05:01 PM

[longoil:]

Fitz,

I have the highest respect for both Hefner and Boone, but both have their personal agendas.

1) I read Hefner book (the GET) and I find he is a bit too chummy with CEO Aubrey McClendon of Chesapeake that he glosses over all the serious issues associated with non-conventional gas. While the book is the most comprehensive I have read on natural gas, he is far from neutral.

2) T. Boone Pickens wants the federal government to pay for the cost transmission line infrastructure to his wind farms.

Oct 18 06:42 PM

[Hihoze:]

Obama just gave George Soros and the Brazilian government's Petrobras $3,000,000,000. to help them drill for oil 200 miles off the coast of Brazil....OFFSHORE DRILLING....it's okay for Obama to give our money to Soros and Brazil to drill in the ocean but its NOT OKAY TO DRILL OFF OUR OWN COASTLINES!!!

There is Oil off the coast of NJ, DE, MD, VA, NC, SC, GA, FL and CA.

The Oil Field in Brazil is the SIZE OF ITALY!!!!! We need to start drilling for American Oil for America. That will save the dollar and our economy.

BTW....there are two heavy metals to invest in when a currency crashes....GOLD & LEAD. Gold in Bars and Lead in Bullets. It will be hell in the cities when civil society breaks down in a currency collapse. I will be watching from Galt's Gultch with my gold and bullets.

Oct 18 08:42 PM

[Michael Fit...:]

chap08: good point on china, as they are obviously keeping their currency low. but now, name another country that has prospered by devaluing their currency because i can give you a long list of countries that printed themselves into the poorhouse....i mean, if all a country needed to prosper was a printing press and some ink, any country could do it, right? besides, china can damn near do anything they want these days as they are sitting on trillions of U.S. dollars. they are in the catbird seat, and you can bet they will spend most of that money on, you guessed it, OIL.

advill: you're giving me a headache. when did i ever say this was the first energy crisis "civilization" has ever had? i read daniel yergin's the prize, and i am well aware of the wood/coal transition that took place in england. please don't make me debate things i never wrote. i also never said there weren't many different alternatives to oil. i *have* said that most of them won't work, and that natural gas is the *best* alternative to gasoline (oil) powered transportation. as for the rest of your comment, i don't even know what point you are trying to make and what you seem to disagree with so much in my article.

Jimbo: you won't have to worry about taxing mexican crude anyway....from what i am reading, mexico will become an oil *importer* very soon if they don't change their ways. btw, i think that is one big reason bush hit iraq...

longoil: well, certainly hefner is far from neutral, he's spent his entire professional life drilling and producing natural gas! same with pickens and of course he has his CLNE company and wind farms. i mean it's quite obvious these are natural gas folks and that is why we should listen to their expertise in that field. i mean the US energy officials listen to saudi arabian energy "experts" rather than hefner, explain that to me!? all that said, it really bothers me when people diss natural gas policies proposed by AMERICANS and instead prefer to keep buying oil from FOREIGNERS! what sense does that make?? who cares if pickens and/or hefner make money on natural gas transportation if, overall, americans keep billions, ah trillions, of dollars of wealth inside the country creating good jobs and prosperity for the entire country? for people to prefer sending money overseas to foreigners and watch the country go down the tubes just to keep americans like pickens and hefner (not to mention all the american farmers and landowners who would receive nat gas royalty payments) from making a little money is not only illogical and idiotic, but frankly unpatriotic as well.

HiHoze: gait's gulch??

Oct 19 12:30 AM

[Slvrizgold:]

I think GOLD will outperform oil for this simple reason: if the price of oil became monstrously high, everyday people will not be able to use it. However, the people who can buy the most gold are BILLIONAIRES and these people CAN afford to keep buying gold at $2000,3000,4000, etc. Oil at $300/bbl and $10 gasoline means that several million cars don't drive very often. Gold doesn't have "demand destruction" except in the sense that Indian peasants won't be able to buy much. The richest most powerful people have VERY deep pockets.

Oct 19 01:51 AM

[chap08:]

Michael

I can give you lots of examples of countries that have prospered by devaluing their currency. There are a number of examples from the era of the gold standard. That makes it easy to see the deliberate devaluation and chart the consequences. The Great Depression is particularly interesting. Those countries that devalued quickly (e.g. Britain) suffered least and those that held out (e.g. France) suffered most. We were somewhere in the middle of those 2, but it is easy to see the improvement in the economy following our devaluation in 33/34. Unfortunately, we shot ourselves in the foot by reversing policy again in 37.

Britain provides a more recent example too. They were on the European fixed exchange rate mechanism (ERM) when, in 1992, poor economic circumstances forced them to devalue. What followed was an escape from a downturn and a record boom, which lasted until last year.

If you want more examples, this paper looks at twenty-seven countries and sixty devaluation episodes:

findarticles.com/p/art...;col1

The paper analyses a number of cases of devaluation and the impact on trade, and concludes that:

"a nominal devaluation changes relative prices and affects the trade balance positively and significantly. In over 80 percent of the cases, devaluation causes a long-run net improvement (ceteris paribus) in the trade balance in both the fixed-rate period and the recent past."

Don't get hung up on the Weimar Republic and Zimbabwe. They are not typical. Look instead at people who know how to devalue successfully. As I said before, China shows how this is more important than ever in today's globalized world.

On Oct 19 12:30 AM Michael Fitzsimmons wrote:

> chap08: good point on china, as they are obviously keeping their
> currency low. but now, name another country that has prospered by
> devaluing their currency because i can give you a long list of countries
> that printed themselves into the poorhouse...

Oct 19 06:54 AM

[Formyx:]

A have a solution for you. Let the Chinese and Saudis "freely" invest in the USA their trillions instead of buying T-bills. That will create jobs. No more Unocal fiascos.

Oct 19 09:10 AM

[William Dav...:]

Re CAT recommendation, I think you will find some of the Oil sands etc uses Terex equipment, like the TEREX O&K Excavators. Even the Wind power needs there cranes and crushers to install them.

ABB makes the Smart grid equipment to connect up the Wind power to population centres. Both ABB and Siemens are do HVDC but I suspect ABB is the purer play here. Grid companies like National grid should benefit and are fairly defensive with good dividends.

In the 1970's the oil service companies did far better than the majors, one I particularity like is Lamprell Plc (LON:LAM) based in middle east and still valued at under half it was before the crash.

Oct 19 09:25 AM

[Michael Fit...:]

chap08: interesting that you cite britain. britain's currency was the previous world reserve currency of choice, like the U.S. today. when britain's economy weakened, and they devalued the currency, investment in britain left the country very fast and this accelerated the change of the guard in world currency to the U.S. currency. today, we have a very similar situation. the U.S. is devaluing, and capital investment (real industrial investment) is fleeing. this will accelerate the move to a "one world currency" for which china, russia, brazil, india and even france and germany are pounding the table for (because they see how irresponsible american economic and fiscal policy is, not to mention rampant fraud in the US system going unpunished). as soon as the world moves off the dollar, we will no longer be able to float the huge debt offerings the US is now doing on a daily basis. and of course, underneath all this paper pushing is the real problem: US addiction to foreign oil. i haven't read the paper, but hopefully it address countries in south america that tried the devaluation strategy and what happened to them. again i say, if all a country needed to prosper was to own a printing press and some ink, every country would be prosperous. this simply isn't the way, and it won't work for the U.S. either. the only thing that will work for the US is solving it's oil problem and fixing its broken political and financial systems. pretty big things to fix.....

WilliamD: Cat is up $1.57 as i write this (2.9%) and their earnings are due soon. i don't know anything about TEREX so cannot comment.

Oct 19 10:25 AM

[diogeron:]

Fact: When Obama was sworn in, the deficit was 1.2 trillion. It is now 1.7 trillion

Opinion: Most economists believe that we need government spending when the consumer is not spending to keep the economy from sliding backwards into a depression. Government spending, assuming it is done wisely (yeah, I know) is a good thing in the middle of a recession and an necessary evil. Whether or not the Obama administration continues deficit spending if and when the economy turns around is a matter of speculation. He says he won't. His critics say he will. We don't know what will actually happen, even if the economy will turn around or not in his four years. We hope so. The good sign is that he is not trying to fund the wars in Iraq and Afghanistan "off budget" with supplementals as Bush did with both wars and the Medicare prescription drug program. The costs of both are in the budget and add to the deficit but at least he's not hiding the numbers. The bad sign is that he allowed the House Democrats to throw things in the stimulus bill that were questionable insofar as their potential to actually stimulate the economy. Unless one is a partisan on one side or the other, I think it's too soon to pretend to Know (captital "K") just what he will do over the next four years.

Oct 19 10:45 AM

[ripskii:]

You should add the dollar vs. a basket of other currencies to your table for comparison. I suspect it would reflect a % value decline similar to oil and gold. I note that all U.S. politicians say a strong dollar is good for the country and then promptly vote for policies that weaken it. The theory behind devaluation of one's currency is that it will lead to greater exports due to their lower cost and reduced imports because of higher costs, thus improving the trade balance. Unfortunately our need for oil doesn't fit into this model very well and other than agriculture products what are we exporting?. Oil and gold will continue to thrive as long as we pursue our present path.

We need to immediately ramp of our use of domestic gas for transport fuel as you suggest to reduce our trade deficit and improve our energy security. We also should immediately push forward on advanced fast nuclear power generation to provide base load electrical capacity and also solve our long term nuclear waste storage problem. Other counties are working on this technology (Japan, Russia, China etc.) so we won't be a leader in this for export either if we don't move forward soon. More good paying U.S. high tech jobs are at stake too.

Oct 19 11:24 AM

[toobad41:]

Very interesting article. Your views parallel mine. Having been in the oil business for over 40 years I have witnessed a lot but nothing like what is happening today. I am curious about what you might think about the next ten years in terms of oil pricing. Based on your prior 10 year increases we should expect oil to be at the very least $400 a barrel in the next 10 years and gold over $5000.

Oct 19 11:33 AM

[Mike Kayes,...:]

This is really old news. Just when it seems like a no-brainer to predict that oil or gold will continue to outpace stocks, based on the relative performance over the last ten years, is the time that the reversion to the mean begins to take hold. How many people predict stocks will out pace gold and oil over the next ten years? Not many, I suspect, which is why it just might be the time to over weight stocks relative to oil and gold.
willingdonwealth.com

Oct 19 11:47 AM

[chap08:]

Michael

I guess we're not going to agree on that one, but just to say I strongly agree with your agenda on oil and energy policy. Even given the current level of awareness, the importance of this issue is still under estimated by the public. Voices like yours need to be heard (just not on currency issues!).


On Oct 19 10:25 AM Michael Fitzsimmons wrote:

> chap08: interesting that you cite britain. britain's currency was
> the previous world reserve currency of choice ...

Oct 19 11:53 AM

[Mike Kane:]

stocks can gain all they want and the shrills on CNBC can go crazy, but if they are outpaced by inflationary assets like gold and oil (and even tips) then whats the point in investing in them?

Oct 19 01:20 PM

[jerrydd:]

Obama is trying to get us off imported oil as are most dems. It's the repubs and oil, coal state dems that are stopping it.

While NG is great for semi's, trucks, it's not so good for cars because of space, fear and tunnels they can't go through. By far the best way for NG to power cars is in a NG cogen power plant charging EV's, PHEV's. They will go 3-6x's as far on a given amount of NG. That is exactly what Obama is doing.

But it will take a while. First there is congress then making enough of them, EV's to make a difference. Semi's can be converted cheaply now even without subsidies very profitably. Present NG is about $.50-.60/gal which in long distance semi's is I think the only way to go.

As oil will be back to $4-5/gal late next yr whether laws, taxes are passed or not, oil use will decrease as between Ng, EV drives, biofuels are all less costly than that.

Small, light, aero EV's using old forklift tech with 100mile range and 80mph can be built for under $12k in mass production and get 100-500mpg equivalent. I drive mine every day as do many others. Sadly we had to build our own.

RE is now cost effective once in real mass production. Especially home units where both low costs and high savings make it cost effective, profitable. Wind is now $2k/kw including inverter. Or $1k/kw to directly charge an EV or home battery.

Solar CSP can be made for under $3k/kw. It's just a 5hp steam/heat motor, a 200sq' collector and 3kw alternator. This gives about 9-20kwhrs/day in electric and 20-60kwhrs/day in heat.

PV in wind farms is now $1k/kw and soon to be under $1.5-2k/kw in home size units.

There is no lack of energy, just a lack of equipment to catch, make and use it.

And the above will both happen because they are the low cost energy sources of the future, the price of oil rise and will ,as soon as enough of them are produced, curb the price of oil in 5-8 yrs. So don't go too long on oil.

Oct 19 01:26 PM

[Michael Fit...:]

ripski: this week's barron's answered your question: a dollar today is worth $0.75 as compared to its value the first time the DJIA crossed 10,000 (march 1999). this brings up a great point: those who think oil's rise is soley (or in large part) due to the falling dollar are mistaken. that is, the dollar is down 25% since 1999, but oil is up 455%. clearly, something else is going on here (i would say it's supply/demand fundamentals, the geopolitical risk premium, china, and more costly oil discoveries).

mike kayes: you could be right, time will tell. i think oil supply/demand fundamentals are the key. unless oil consumption falls dramatically, or, cheap huge oil discoveries are made, within the next 2-3 years, i'd still place my bet on higher oil prices. since the U.S. imports 65% of its oil, and is already bankrupt, i'd go further to say this oil problem will continue to pressure the US dollar, and therefore gold will go higher as well. time will tell. as far as the article being old news, i'm not sure the table showing just how much the US spends on oil every month is old news for alot of people. if it was, perhaps we'd do something about it? i like to put those facts in bold print hoping that maybe, someday, people will stop ignoring the oil crisis like the US gov. and media are doing. if not, we'll all go over the cliff together...

chap08: glad you agree on the energy policies, that's most important. as far as currencies policy goes, it's nice to see the front page of barron's this week agrees with my viewpoint.

mike kane: i don't believe obama is trying to get us off oil (!). his energy policy seems to be centered on the myth (and oxymoron) of "clean coal", spewing millions of dollars to small electric car companies, and some decent policies on wind and solar and grid. however, he has never once even uttered the words "natural gas transportation" and he hired (and did not fire, as i suggested) energy secretary chu who is "agnostic" about natural gas transportation. since domestic natural gas powered transportation is the only way we can significantly reduce foreign oil imports over the next 5 years, and obama is against it, logically, obama is NOT trying to get us off foreign oil addiction. sure, he reduced gasoline demand by taking some older high mgp "clunker cars" off the road, but the new cars sold all run on *gasoline*. big mistake, bad policy.
natural gas isn't good for cars? tell that to the folks in brazil, italy, iran, oklahoma, and utah who are paying less than half of gasoline prices. tunnels?? hey, i'm all for natural gas power generation and electric cars, but where are the EVs? where are the raw materials to make the huge battery packs for 100% electric cars? the best car (see my energy policy blog) is a natural gas /electric hybrid - but the obama adminstration won't support it so toyota won't make it!! that technology is available now (and, we don't have the time you speak of...just look at the monthly oil import chart above). electric cars, at this point in the renewable initiative, will simply be very expensive lil coal generators on the highway spewing out CO2 and toxic particulates from obama and chu's wrong headed "clean coal" policy. it's bad economics, bad environmentalism, and terrible national security. all just like george bush. very sad, and very dissapointing. i wish i had voted for ron paul! at least we would have been working on the monetary and fiscal initiatives. with obama, we've got more bush: no good energy policies AND no good fiscal and monetary policies. the combination have oil back at near $80 and gold over $1050. as far as going long on oil, well, did you see what the stocks i recommended in this article did today? all up 2-3 times the market, except for XOM. BP, CVX, COP, STO, PBR, all up. china is not selling EVs, they are selling gasoline ICEs because they don't have the natural gas pipelines that we do, and they know EVs arent ready and are too expensive. so, china is scouring the world for *OIL*, and are going head-to-head with XOM in ghana. nope, i'll stick with my oil. nothing obama is doing is going to make any appreciable dent in supply/demand fundamentals over the next 5 years, and oil is going to skyrocket (again).

Oct 19 09:52 PM

[Michael Fit...:]

oops, i missed a couple:

toobad41: oil prices over the next 10 years? at the rate china is selling cars (and buying up oil resources, which will continue), considering mature field depletion rates, and the cost of deep offshore production, and the outlook for the US dollar, i think $500/barrel is easy. i wouldn't be surprised to see $200 in the next 5 years, especially if the US hits iran. now, that said, the thing that could change this is natural gas transportation in the US. american consumption could be reduced by 6-7 million barrels a DAY simply by converting half its car and truck fleet over to natural gas. that is a huge amount of oil, and would definitely be a game-changer. that said, obama and chu don't have a clue, and aren't supporting nat gas transportation, so, i'll stick with my $500 10 year projection. plz get back to me in 10 years and tell me if i am an idiot (or not).

mike kane: well, as long as you invest in oil and precious metal stocks, you might turn out ok. i think you need some exposure to stocks (oil and gold for instance) to really keep up with inflation. the oil stocks pay dividends, and gold bullion does not. that said, i am hearing more and more people who say just buy gold and get out of anything paper. scary. who would have thought 10 years ago the american pysche would have changed so dramatically? we'll be paying for the "C" student president for decades into the future....

Oct 19 10:02 PM

[jarco:]

An exhaustingly long dissertation followed by equally long responses. Too many theories gentlemen; too little discussion relative to infrastructure required to do much different than what the US has done for decades.

Aside from the necessary and at times interesting speculation about China, Oil, Gold, and Obama . . . the lack of any semblance of an energy policy renders it all for naught.

NG, LNG, Tar Sands, Health problems from pollution, Global Warming, Oil import deficits, and the list goes on and on. No focused energy plan, no solution. Save your breath reminding investors how smart we are. Start demanding solutions.

Oct 19 10:38 PM

[anarchist:]

That's all well and good but who the hell is listening? It looks to me like big oil has put more money in the campaign pockets of Congress than gas companies thus have more access to them and how the political winds blow. Individuals like you and me (and Boone) can write letters , send emails till the cows come home and nothing will happen unless the rascals are swamped with letters from their constituents demanding natural gas be used at least to satisfy Piken's plan. We have the leadership we deserve as I would venture to say most of the public is too lazy to get away from the TV and write or email plus if they did they haven't a clue as to what the problem is or how to solve it. Oil will go higher, no doubt in my mind but gold?, not so sure about that.


On Oct 19 10:38 PM jarco wrote:

> An exhaustingly long dissertation followed by equally long responses.
> Too many theories gentlemen; too little discussion relative to infrastructure
> required to do much different than what the US has done for decades.
>
>
> Aside from the necessary and at times interesting speculation about
> China, Oil, Gold, and Obama . . . the lack of any semblance of
> an energy policy renders it all for naught.
>
> NG, LNG, Tar Sands, Health problems from pollution, Global Warming,
> Oil import deficits, and the list goes on and on. No focused energy
> plan, no solution. Save your breath reminding investors how smart
> we are. Start demanding solutions.

Oct 19 11:04 PM

[anarchist:]

That's all well and good but who is listening? It looks to me like big oil has put more money in the campaign pockets of Congress than gas companies thus have more access to them and how the political winds blow. Individuals like you and me (and Boone) can write letters , send emails till the cows come home and nothing will happen unless the rascals are swamped with letters from their constituents demanding natural gas be used at least to satisfy Piken's plan. We have the leadership we deserve as I would venture to say most of the public is too lazy to get away from the TV and write or email plus if they did they haven't a clue as to what the problem is or how to solve it. Oil will go higher, no doubt in my mind but gold?, not so sure about that.


On Oct 19 10:38 PM jarco wrote:

> An exhaustingly long dissertation followed by equally long responses.
> Too many theories gentlemen; too little discussion relative to infrastructure
> required to do much different than what the US has done for decades.
>
>
> Aside from the necessary and at times interesting speculation about
> China, Oil, Gold, and Obama . . . the lack of any semblance of
> an energy policy renders it all for naught.
>
> NG, LNG, Tar Sands, Health problems from pollution, Global Warming,
> Oil import deficits, and the list goes on and on. No focused energy
> plan, no solution. Save your breath reminding investors how smart
> we are. Start demanding solutions.

Oct 19 11:05 PM

[Advill:]

Michael:
C´mon is not a matter of aspirines, it´s simpler than it looks....DIESEL, NUCLEAR, NATURAL GAS. it´s the formula Germany and others are using, and as you say, what has been happening in US needs explanation...a rational one.
As this was the first time i read you i saw your profile my comment about civilization comes from there.


Regards


On Oct 19 12:30 AM Michael Fitzsimmons wrote:

> chap08: good point on china, as they are obviously keeping their
> currency low. but now, name another country that has prospered by
> devaluing their currency because i can give you a long list of countries
> that printed themselves into the poorhouse....i mean, if all a country
> needed to prosper was a printing press and some ink, any country
> could do it, right? besides, china can damn near do anything they
> want these days as they are sitting on trillions of U.S. dollars.
> they are in the catbird seat, and you can bet they will spend most
> of that money on, you guessed it, OIL.
>
> advill: you're giving me a headache. when did i ever say this was
> the first energy crisis "civilization" has ever had? i read daniel
> yergin's the prize, and i am well aware of the wood/coal transition
> that took place in england. please don't make me debate things i
> never wrote. i also never said there weren't many different alternatives
> to oil. i *have* said that most of them won't work, and that natural
> gas is the *best* alternative to gasoline (oil) powered transportation.
> as for the rest of your comment, i don't even know what point you
> are trying to make and what you seem to disagree with so much in
> my article.
>
> Jimbo: you won't have to worry about taxing mexican crude anyway....from
> what i am reading, mexico will become an oil *importer* very soon
> if they don't change their ways. btw, i think that is one big reason
> bush hit iraq...
>
> longoil: well, certainly hefner is far from neutral, he's spent his
> entire professional life drilling and producing natural gas! same
> with pickens and of course he has his CLNE company and wind farms.
> i mean it's quite obvious these are natural gas folks and that is
> why we should listen to their expertise in that field. i mean the
> US energy officials listen to saudi arabian energy "experts" rather
> than hefner, explain that to me!? all that said, it really bothers
> me when people diss natural gas policies proposed by AMERICANS and
> instead prefer to keep buying oil from FOREIGNERS! what sense does
> that make?? who cares if pickens and/or hefner make money on natural
> gas transportation if, overall, americans keep billions, ah trillions,
> of dollars of wealth inside the country creating good jobs and prosperity
> for the entire country? for people to prefer sending money overseas
> to foreigners and watch the country go down the tubes just to keep
> americans like pickens and hefner (not to mention all the american
> farmers and landowners who would receive nat gas royalty payments)
> from making a little money is not only illogical and idiotic, but
> frankly unpatriotic as well.
>
> HiHoze: gait's gulch??

Oct 19 11:26 PM

[realold:]

Why does this seem so obvious to us and so ignored by our elected representatives? Surely, they cannot believe their own hype?


On Oct 18 09:56 AM longoil wrote:

> The stock market was artificially inflated in the late 1990's thanks
> to the internet boom. Normally stock market indexes appreciate anywhere
> from 10 to 12% per year on average. In the short period of 1995-2000
> we saw the DJIA shoot up 150% and NASDAQ go up 500%. Anything over
> 15% gain per year is unsustainable over the long term. The current
> DJIA = 10000 is actually the value it should have grown to since
> 1995.
>
> Although gold is a good hedge. I can live without gold.
>
> I cannot live without oil, which is used in thousands of applications
> (besides transportation). I think my money will appreciate the most
> over the long run invested in oil and gas.
>
> The 95% of the world's energy mix (according to the BP statistical
> survey and the EIA) comes from oil, gas, coal & nuclear. Oil
> and Gas will be the key energy sources from the next 40 years. Alternative
> energy is still in its infancy. Solar and wind account for only 1%
> of the world's energy mix. Natural gas would be a good transitory
> solution, since existing cars can be modified to run on it for only
> a few thousands dollars. This is a much cheaper alternative than
> hybrid, hydrogen or electric cars.

Oct 19 11:53 PM

[realold:]

And, you believe that the health care "overhaul", which is plainly another welfare program, will save money as advertised by Mr. Obama. Talk about head in the sand.


On Oct 19 10:45 AM diogeron wrote:

> Fact: When Obama was sworn in, the deficit was 1.2 trillion. It is
> now 1.7 trillion
>
> Opinion: Most economists believe that we need government spending
> when the consumer is not spending to keep the economy from sliding
> backwards into a depression. Government spending, assuming it is
> done wisely (yeah, I know) is a good thing in the middle of a recession
> and an necessary evil. Whether or not the Obama administration continues
> deficit spending if and when the economy turns around is a matter
> of speculation. He says he won't. His critics say he will. We don't
> know what will actually happen, even if the economy will turn around
> or not in his four years. We hope so. The good sign is that he is
> not trying to fund the wars in Iraq and Afghanistan "off budget"
> with supplementals as Bush did with both wars and the Medicare prescription
> drug program. The costs of both are in the budget and add to the
> deficit but at least he's not hiding the numbers. The bad sign is
> that he allowed the House Democrats to throw things in the stimulus
> bill that were questionable insofar as their potential to actually
> stimulate the economy. Unless one is a partisan on one side or the
> other, I think it's too soon to pretend to Know (captital "K") just
> what he will do over the next four years.

Oct 19 11:58 PM

[jarco:]

An exhaustingly long dissertation followed by equally long responses. Too many theories gentlemen; too little discussion relative to infrastructure required to do much different than what the US has done for decades.

Aside from the necessary and at times interesting speculation about China, Oil, Gold, and Obama . . . the lack of any semblance of an energy policy renders it all for naught.

NG, LNG, Tar Sands, Health problems from pollution, Global Warming, Oil import deficits, and the list goes on and on. No focused energy plan, no solution. Save your breath reminding investors how smart we are. Start demanding solutions

Oct 20 12:43 AM

[Chancer:]

In the long run, I favor much more transportation from plug in electrics and hybrids more fuel efficient than those sold today.

However, in the short run, we need to "drill baby, drill" going after all the offshore oil we can. The environmental policy is just plain stupid. We don't drill off Florida; but the Chinese do. We also gave money to Brasil for their offshore drilling. Feds need to open all coasts to offshore drilling regardless of what states want.

We also need to eliminate enemy states from our suppliers. There exists a speculating risk premium in the oil price that it is all based upon nations unfriendly to the USA cutting off supplies to the USA. If we do not get oil from them, that risk premium goes away. This is a national security issue.

Oct 20 03:09 PM

[Edvishnu:]

Fitz,
Your observations and commentary are enlightened as always. Dont get dragged down by all the bull. When I was in college, I travelled across Europe and wound up in the University in Poland where Copernicus studied. He got in deep ship for insisting the sun was the center of the universe.
Your observations have equally the same importance.
Keep up the good work.

Oct 20 06:13 PM

[Michael Fit...:]

chap08: i've been thinking about your comment on china devaluing their currency. the big difference between china's devaluation and the U.S.'s is that china is devaluing its currency merely because they have pegged it to the U.S. dollar (to keep its export market strong). the U.S. is devaluing its currency by printing gobs of more paper dollars. this is a critical difference in my opinion. in addition, china has huge mounds of foreign reserves. this is another difference. so, i don't believe china should be used to support your thesis that currency devaluation is a means to a successful future.

jarco: there was a link to the energy policy in the article which you apparently did not follow. here it is again:

thefitzman.blogspot.co...

once you read it, if you disagree of have better ideas, i am all ears.

anarchist: i certainly wouldn't put my entire portfolio into gold (but some are), however, follow the link in this article to einhorn's speech recently:
blogs.wsj.com/marketbe...

advill: i agree the solution is simple: natural gas transportation. i don't agree that it is a simple matter to convince the U.S. government, media, and citizenship to make the change. i also think not doing so will have (and already have had) serious negative impacts on our civilization.

Edvishnu: well, i hope you are not comparing my observations with "the sun is the center of the universe" :) perhaps our solar system, but not the universe...

Oct 21 09:50 AM

[anarchist:]

Fitz,
I agree with most of what Einhorn has to say except his statement that gold collapsed because of Volker's austerity program. Volker's management of interest rates might have been the "camel that...." but the diving force of gold's collapse in the late 70s (IMHO) was the fact that the dramatic rise in gold prices was largely predicated on the fact that US citizens were going to be allowed once again to own gold. When the law came into being Americans were disinterested in gold and there was a selling panic amongst those who had gold. The situation is totally different now and gold seems to be in lock-step with the S&P with a few exceptions.

Oct 21 10:14 AM

[Old Wizard:]

Fitz, The value of the dollar is an interesting issue. No one in the current administration wants a strong dollar. Let's look at what is the real policy. Our monetary policy is to keep the fed rate at 0, ostensibly to spur economic development, lower interest rates and create jobs. We also are insisting that stimulus is necessary and are borrowing record amounts from anyone who will lend it to us. At the same time, the treasury secretary and others are urging the public to save more. Let's look at the real policy. Banks are giving their depositors around 1% for their savings, while buying treasuries at 3.5 to 4 % and lending it to qualified home buyers at 5 to 6% and to others at higher rates. Meanwhile the Gov. piublishes reports that the underlying inflation rate is near zero or even negative. Of course this figure excludes food and energy, both of which everyone must use to live. When we look at the cost of living, which includes food,energy, increased local sales taxes and hidden taxes like tolls, etc., the real inflation rate to those who save money is 3% or more. The net result is that the savers are paying for getting the banks well and in large part for the Government's spending spree. Meanwhile, our government invests much of this borrowed money in lithium battery technology in the far east, in petrobras[through thr ex-im bank] for oil-drilling off the brazillian coast while limiting investment for new oil drilling off our coasts and keeping our lithium mines closed for environmental reasons. Given that 95% of the supply of lithium for electric car batteries is currently controlled by China our forced march to electric cars is destined to trade dependency on the mid-east to dependency on China for our transportation energy. Allowing our dollar to decrease in value further hurts the savers because their purchasing power decreases and of course allows debts incurred now to be paid back with cheaper dollars. No wonder the smart financial opportuistic people are so quick to take highly leveraged risks, especially with other people's money. For the income redistribution crowd our policy is also consistant, take real money from the savers and give it to those who either can't or won't.save. A real problem-solving energy solution which is in the economic and strategic interests of our citizens is not and, I have come to believe, never was the intent of this administration.

Oct 21 11:34 AM

[bob adamson:]

Mr. Fitzsimmons -

The timing of the devaluation of the UK Pound after WW I is important to the argument you are making. During the 1920s the Bank of England and the UK Government tried heroically to restore the Pound to its pre-war exchange rate in a futile attempt to maintain the position of the Pound as the global reserve currency and London as the world’s financial centre. This was a daunting task in light of the horrendous cost of WW I for British finance. The effect of this high Pound policy was to price UK manufactures out of many global markets and to accelerate the emergence of the US as the leading economic and financial world centre throughout the 1920s. The US$ effectively superseded the Pound as the reserve currency during this period and New York replaced London to a large extent as the premier financial centre despite the many sacrifices of the British people in their effort to restore and then maintain the Pound’s pre-war exchange rate.

When the UK was forced off the gold standard and devalued the Pound in the mid 1930s both its economic performance and London’s position as a financial centre improved! In short, we tend to forget that, unlike the US, the UK had harder times during much of the 1920s and actually experienced some economic improvement during the later 1930s; all attributable to its exchange rate policies at various points throughout the inter-war years.

Arguably an orderly and moderate devaluation over time now of the US dollar as part of a general effort to resolve the debt bubble and improve the US and global economies will succeed, will be welcomed by the trading partners of the US (provided the temptation to engage in competitive devaluations is avoided by all concerned) and will help the US retain its leading role as a financial and economic power. A too strong US$ policy risks a repeat for the US of the UK experience described above. An uncontrolled devaluation will encourage inflation and disruption of trade.

Unfortunately there are no easy options here. I appreciate that some (but not all) of the negative results you describe are entailed in even a moderate devaluation (such a devaluation is currently under way. Witness the depreciation of the US$ value you note.). Arguably moderate devaluation as described above is the least bad option, however.


On Oct 19 10:25 AM Michael Fitzsimmons wrote:

> chap08: interesting that you cite britain. britain's currency was
> the previous world reserve currency of choice, like the U.S. today.
> when britain's economy weakened, and they devalued the currency,
> investment in britain left the country very fast and this accelerated
> the change of the guard in world currency to the U.S. currency. today,
> we have a very similar situation. the U.S. is devaluing, and capital
> investment (real industrial investment) is fleeing. this will accelerate
> the move to a "one world currency" for which china, russia, brazil,
> india and even france and germany are pounding the table for (because
> they see how irresponsible american economic and fiscal policy is,
> not to mention rampant fraud in the US system going unpunished).
> as soon as the world moves off the dollar, we will no longer be able
> to float the huge debt offerings the US is now doing on a daily basis.
> and of course, underneath all this paper pushing is the real problem:
> US addiction to foreign oil. i haven't read the paper, but hopefully
> it address countries in south america that tried the devaluation
> strategy and what happened to them. again i say, if all a country
> needed to prosper was to own a printing press and some ink, every
> country would be prosperous. this simply isn't the way, and it won't
> work for the U.S. either. the only thing that will work for the US
> is solving it's oil problem and fixing its broken political and financial
> systems. pretty big things to fix.....
>
> WilliamD: Cat is up $1.57 as i write this (2.9%) and their earnings
> are due soon. i don't know anything about TEREX so cannot comment.

Oct 22 01:35 AM

[Michael Fit...:]

anarchist: i believe gold collapsed in the late 70's due to neither of the reasons you mentioned. gold collapsed because oil prices collapsed due to alaskan and north sea oil coming online. if we fast forward today, there is no "holy grail" oil finds to save us now - they are all deep and very expensive to produce and will still not keep up with mature oil field depletion rates. so, that is why i am so bullish on gold. add in american deficits (as an indirect result of the foreign oil led trade deficit) and the fact that gold is priced in US dollars, and we've got a 1-2 punch that will take gold to dizzying heights (along with oil).

OldWizard: nobody in the previous 8 year administration wanted a strong dollar either....but, well written comment!

bob adamson: i disagree that devaluing the US dollar is a good policy. plz read this article if you have not already.
online.wsj.com/article...
with which i agree 100%. devaluing the currency instead of addressing the real problem (foreign oil imports) is simply a road to disaster and a fiat currency final swan dive that will make previous economic collapses appear as child's play. this collapse will be experienced by the world's most powerful high-tech military. i doubt it will be pretty. but all this currency talk is besides the point: job #1 must be to solve the foreign oil import crisis that will bankrupt us
**** no matter what the value of the dollar is ****.

Oct 22 08:42 PM

[Freya:]

old wizard: not only do you have a serious lack of understanding of the operations of the Banking system:

"Banks are giving their depositors around 1% for their savings, while buying treasuries at 3.5 to 4 % and lending it to qualified home buyers at 5 to 6% and to others at higher rates."

Banks have the Deposits for around 1%, they lend at whatever the going rate is for loans of whatever type. They are making a Bundle on that spread. Where did you get the Idea that they were Buying Treasuries?

But you don't have a clue where the world's Lithium Deposits are:

"Lithium mine production (2008) and reserves in metric tonnes[31] Country Production Reserves Reserve Base
Argentina 3,200 Not Available Not Available
Australia 6,900 170,000 220,000
Bolivia 0 0 5,400,000
Brazil 180 190,000 910,000
Canada 710 180,000 360,000
Chile 12,000 3,000,000 3,000,000
People's Republic of China 3,500 540,000 1,100,000
Portugal 570 Not Available Not Available
United States Withheld 38,000 410,000
Zimbabwe 300 23,000 27,000
World Total 27,400 4,100,000 11,000,000 "

Chile, all by its lonesome, makes China look like a Piker.

But, you used the words "controlled by", so you must have obtained that Info somewhere, Where"

BTW, Lithium is not a Rare Earth Element.

Oct 23 12:16 AM

[anarchist:]

Fitz,
I guess we will have to agree to disagree on the history of the collapse of gold prices in the late 70s. As I recall the event, late 1978 or 1979 all the gold and silver-bug newsletters were talking about the price of gold's imminent explosion to the upside after the first of the year when US citizens could once again legally hold gold. Gold was over 800 and ounce and had been moving up rapidly. New Years came and went, American citizens had no interest in buying gold and overnight gold fell out of bed. The drop was precipitous not the ups and down that are usually associated with gold's relationship to other commodities or currency fluctuations.
It's been a long while back so maybe my memory has failed me.

Oct 23 10:39 AM

[Old Wizard:]

Freya, Is it your position that the larger banking world which now includes integrated financial institutions are not buying any treasuries? I said controlled by, not existing reserves ,for a reason. China and Chile are producers, while Bolivia has reserves but its ability to produce large amounts is still in development. Since China has made resource agreements with some of the other countries which are producing , have have large reserves of their own and relatively no environmental restrictions they are in a strong position. Further, they are a big lithium battery supplier now and are entering the electric car market. Compare that with the US's position. Our mine are shut, we have relatively small reserves, have adopted electric plug-in vehicles as a cog of our future transportation, energy and environmental strategy and will have to import much of the lithium to support the national policy we have adopted. Meanwhile we are borrowing large amounts of money from China, while we try to juice up a domestic battery industry. The 2.5b set of grants announced to facilitate this, was sent to a host of companies, but if one looks at where more than 50% of the money really goes one finds that it went to S. Korean, Chinese and Japanese companies.
The spread between savings account interest and treasuries interest, home mortgages interest to qualified buyers and the more risky loans represents a bonanza for the banks.This bonanza winds up being paid for in part by those folks who put their money in savings accounts and CDs, if th real inflation rate plus the decreasing value of the dollar is more than the 1% the savings accounts are yielding. BTW I don't think my comment stated that lithium was a rare earth element.

Oct 23 12:21 PM

[Freya:]

Old Wiz: stop changing what you said. Your Quote.

"Banks are giving their depositors around 1% for their savings, while buying treasuries at 3.5 to 4 % and lending it to qualified home buyers at 5 to 6% and to others at higher rates."

Banks, not Central Banks. The Fed funds rate is below the discount rate. If a bank needs cash over that provided by their depositors, they will use the Fed Funds window. They will Borrow, not buy.

Is it your contention that Central Banks are loaning money to everyday civilians?

This is Your Quote:
"Given that 95% of the supply of lithium for electric car batteries is currently controlled by China our forced march to electric cars is destined to trade dependency on the mid-east to dependency on China for our transportation energy."

"Given that 95%"......"Is currently controlled"

What part of this did I misunderstand?
Given, an assumption that is taken for granted and Controlled like in its "mine".

You said 95%.

As far as REE's, Of course you didn't say anything, I was giving you an out. Electric cars are also dependent on a Rare Earth Element of which China is Trying to control as much as possible.

Too bad you didn't use it.

Oct 23 04:53 PM

[Old Wizard:]

Freya, I believe the reason the fed was and is buying treasuries is because banks were buying them rather than lending the money to home buyers and businesses. You need to research this yourself. A reference can be found by googling"federal reserves buying treasuries and then clicking on "economic essays Why the Federal Reserve Is Buying Treasuries" The buy was 300b! On the China Control, I was using another SA article as the source and you are probably right that China doesn't control 95% of the supply. I think that article may have used the rare earth supply as important to the battery manufacture of high powered electric cars, but since I can't find the article I'll concede the error. That said I still believe that China will dominate the market and the long term effect will be to keep us dependent on not necessarily friendly countries for our transportation energy and keep our country's current account significantly negative.

Oct 27 01:51 PM

[Freya:]

One more time, this is your Quote:

"Banks are giving their depositors around 1% for their savings, while buying treasuries at 3.5 to 4 % and lending it to qualified home buyers at 5 to 6% and to others at higher rates."

I don't see "Fed", All I see is "Banks".

I'm sorry did I somehow misinterpret "Banks"? I have to Research what myself? there are some 8,000 Banks, are they all buying Treasuries"? Because, That's what you said.

I don't have to research anything, I can just quote you.

Oct 28 01:53 PM