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The oil-to-natural gas ratio is spiking up once again and is reinforcing a long-term trend breakout which first began in 2008.
Oil to Natural Gas Ratio
The ratio's average since 1995 is approximately 9. Today, with oil at $83 and natural gas at $4, the ratio is over 20.

This is due, of course, to the fundamental supply/demand realities of the two commodities. The world is simply awash in natural gas, and cheap oil is becoming very hard to find, unless one uses its military to "discover" it in Iraq (is Iran next?).

As I have written on Seeking Alpha many times, this ratio will continue to go higher in the coming years as China, India, and other Asian emerging economies increase their oil consumption, while the world produces more and more abundant natural gas. We've already seen a game changer in shale natural gas production rates in the US. This is pushing Middle East LNG investments and production which are searching for other markets - principally Europe; this pushes Russian natural gas supply looking for new consumers - principally China. However, I predict that China will soon discover massive shale natural gas reserves as well. Once that happens, the entire world will have cheap, clean, and readily available natural gas. If the world was smart enough to utilize natural gas in the transportation and power generation sectors, we could usher in an era of clean prosperity few can even imagine given today's economic contraction and very expensive oil.

The historical oil to natural gas ratio has been fundamentally altered forever. I predict its chart will look alot like gold's chart in the coming decades.

So, how ridiculous is it that the US continues to consume 25% of the world's oil production while sitting on massive amounts of cheap and clean natural gas? As Boone Pickens has said, the US will be remembered as the dumbest country in history for not adopting natural gas transportation. Why aren't more Americans wondering why they are not able to refuel their car or truck in the garage with domestically produced natural gas for $10 and instead filling up with foreign oil for $38? (These are today's actual prices based on my vehicle and my local energy prices.) Since more Americans aren't aware (or simply don't care), the biggest transfer of wealth (from America to foreign oil producers) continues. As a result, American stock and bond markets will continue to underperform.

What is the US government's response to this new energy reality? They simply don't "get it". Congressional legislation like HR1835 has seemingly been mothballed. US Energy Secretary Chu is "agnostic" about natural gas transportation (Chu should be fired). President Obama has been suckered into believing that "clean coal" is actually possible and is apparently basing his strategy on reducing foreign oil imports on electric cars recharged by coal (it isn't working). And how ironic is it that US economic policymakers, dominated by pro-Israeli bureaucrats from the Federal Reserve (Bernanke), the National Economic Council (Summers), and on down to the Chief Economist and Economic Advisor to the President (Bernstein) continue to ignore the fact that current US oil centric energy policy is enriching Israel's oil producing Arab enemies beyond belief. This "strategy" is based on the belief that rationalizing US military forces in the Middle East to obtain oil will protect Israel in the long run. The flaw in this "strategy", of course, is that the US is going broke funding its military expansion and its foreign oil addiction, is having to print money out of thin air to keep the economy afloat, and will eventually bring Israel's sole protector (the US) to its knees if something doesn't change soon. The US is not only awash in natural gas - it is awash in debt and fiat currency as well.

The oil to natural gas ratio is simply more evidence that natural gas is the only domestic fuel that can be scaled up to solve the critical economic, environmental, and national security problems facing America as a result of its 60% addiction to foreign oil.

From an investment standpoint, I continue to pound the table for oil stocks. Conoco Philips (NYSE:COP) recently raised its dividend again and is yielding over 4%. BP (NYSE:BP) is yielding around 6% and is a strong buy at current levels. StatOil (NYSE:STO) sports a nice dividend and is a good buy here at $23/share. Petrobras (NYSE:PBR) has the best production growth profile of any major oil company. Chevron (NYSE:CVX) and Exxon Mobile (NYSE:XOM) should also be part of a portfolio that is structured to take advantage of the next huge spike in oil prices.

This spike is coming sooner than most think. Some analysts believe it will take 2 years to work off the current glut of oil supplies. However, today oil is at $83 despite this glut. Why? Where is an investor to invest these days? With the U.S. printing money like crazy while simultaneously keeping interest rates at 0 (way below inflation levels) does one really want to invest in bonds? The S&P 500? No, my friends, oil is the new world reserve currency, and it will continue to be the fundamental force driving world economic activity until more countries follow leaders like Brazil and move their transportation away from oil and toward natural gas. Since that isn't happening, invest in oil. If the U.S. invades Iran, you'll see new highs in oil prices over night (that means oil north of $150/barrel). Oil stocks will jump, and the broad S&P 500 will sink (again).

Disclosure: Author long COP, BP, STO and PBR