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Getting Out of Today's Bear Market

Right now, we're being punished for the collective stupidity of Alan Greenspan, the big banks, and the average American consumer. Before Bernanke took over the Fed tried to avoid recession by pumping the economy full of cheap money.

American consumers were too dumb to realize the simple fact: you can't spend more than you make over a long period of time and come out ahead. And as many homeowners found out, those ARMs they took out in 2002 and 2003 are beating the crap out of them now.

Our economy is in bad shape - consumers are 70% of it, and they're getting hammered. When you have a currency that's barely worth the paper it's printed on and a country that doesn't manufacture anything anymore, it's little wonder why a financial services collapse will obliterate the market.

I can see oil at $165 by year end and the S&P at 850 by February. There are still millions of foreclosures to come.

Why $140/Barrel Crude is Unsustainable

What many oil bears continually fail to realize is that while we may not run out of oil for decades, the new oil that we are finding today is of much lower quality than what we are accustomed to, not to mention that it's tougher to get at. Discoveries in the same vein as the Petrobras Tupi field used to be common. Now, they're exceedingly rare.

Saudi Arabia will peak soon if they haven't already, and the era of abundant light sweet crude will be over for good. Russia has already overtaken the Saudis as the world's number one producer. Once climate change starts to melt that Siberian permafrost and the Arctic Ocean is free of ice for half the year, Russia will become a superpower again. Gazprom already supplies 25% of Europe's gas, its subsidiary Gazprom Neft is sitting on loads of oil, and the company has close ties to the Russian government (Dimitri Medvedev used to be the head of Gazprom).

The US may reduce its demand, but it will be too little, too late. The time to get serious about conservation and a sound dollar policy was years ago, and we now have to live with the consequences of Alan Greenspan's liquidity idiocy. Furthermore, any reductions in US demand will be offset by China and India, which are both unfortunately following in the footsteps of our failed transportation policies and adding thousands of gas-guzzling cars to their roads every day. Gas prices are going to stay high, too - a new refinery is scheduled to be built in South Dakota, but it's the first one in 40 years. Again, too little, too late.

Crude oil is going to be harder to find, it's going to continue to be in the hands of hostile foreign governments (with a resurgent, nationalistic Russia at the forefront), and light sweet crude is going to be replaced by heavier, dirtier stuff.

Oil has nowhere to go but up.