Michael Fitzsimmons

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

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 ****.

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

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...

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

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....

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

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).

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

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.

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

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??

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

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.