Stick with Gold and the Oil Stocks

Includes: BP, COP, CVX, GLD, SLV, STO, TM, XOM
by: Michael Fitzsimmons

Americans awoke yesterday morning to scenes of G20 protests in London. There was literally blood on the streets. The talking heads on CNBC scoffed at such “anarchy” and discussed the unmitigated audacity of the common man on the streets to protest in such fashion. I don’t support the smashing of windows, destroying of property, or taking of hostages but I can’t say I’d be beyond tossing an egg or tomato at the bond rating folks at Moody’s, S&P, or Fitch. If I saw Joe Kernen on the golf course, I might even aim a 2-iron in his direction. Of course Joe wouldn’t admit it, but look how he supported policies over the last 8 years which resulted in the biggest decline in US capitalism and democracy in the over 200 year history of the US. Yesterday morning, he even gave himself the title of “capitalism enabler”. What a joke. He’s never produced anything worthwhile in his life unless you own a hot-air balloon.

The CNBC celebrity stars acted as though such protests aren’t possible in the US. Certainly over the past 30 years Americans have lost their zest for protesting in spite of the many reasons why they should have. However, as more and more Americans lose their jobs (and their healthcare along with it…) we just may see more public displays of discontent. After all, if you can’t feed your family or keep a roof over your head, what do you have to lose? Desperate times call for desperate (drastic?) measures. More and more Americans are becoming wise to the fact that US policymakers have been funneling huge sums of money to the ultra wealthy while the middle class tax-payer picks up the tab. They are tired of seeing huge deficits rung up while getting nothing tangible in return (no health care, education, or infrastructure for example).

Meanwhile, their tax dollars are paying for schools, hospitals, roads and bridges in Iraq and we’re heading over to Afghanistan to repeat the blunder there. There is no financial regulation in the US – in fact just the opposite: we have financial policies and regulations that are tools of the ultra wealthy. This isn’t capitalism – it's fascism. It won’t take much more to push Americans over the edge. Unfortunately, the outrage should have come years ago as the game has largely already been played. I can make a small mistake on my income tax form and it’s caught. Yet Madoff can move billions around unnoticed? Please, it was noticed – but tolerated.

Americans are also exasperated with the lack of a strategic long-term comprehensive energy policy. The result is not only higher energy bills, but knowing that they are in effect funding both sides of the war on terror. Meanwhile, Obama and Congress haven’t yet figured out that the solution is abundant, clean, and cheap US produced natural gas and natural gas transportation. So instead of paving the way to a reinvigorated and reindustrialized country, the natural gas industry is going through another washout reminiscent of the 1980’s. What a wonderful reward for all their new technology and bringing to market the huge shale energy supplies. This is not only sad, but strategic and economic suicide.

The CNBC “tools” also spent a great deal of time wondering why the Chinese are making statements “to devalue the US dollar”. Hello? Congress, the Federal Reserve, and the Treasury Department are doing a fine job of that on their own! China isn’t trying to devalue the US dollar - they are trying to figure out how to protect their existing and future investments in US dollars. As they see more financial hijinx coming out of Washington, DC with little attention being expended on the US’s real problem (oil), who can blame them? If I were in their shoes, I’d be promoting a world currency based on a basket of Euros, Yen, Sterling, etc as well. Being connected at the hip to the US dollar is the same as being connected at the hip to ignorant US policy makers. Meanwhile, the Chinese use their US dollars to pick up Russian and Brazilian oil and natural gas on the cheap.

Meanwhile, you’d expect gold to be skyrocketing in this environment, but it is not. Of course, it’s pretty hard to find an American Gold Eagle to bid on these days. As I wrote in a previous article, it’s always very interesting to watch or to see what is available in US Mint Gold coins (not much). I am fond of smaller US Gold Eagles (1/4 or ½ oz) pieces. I mean if we are going to the barter system, you better have some small denominations, right? I like Silver Eagles too. For those of you who don’t like burying the coins around the yard (after all, the safe is the first place an armed robber would look), better to stick with the GLD and SLV ETFs. Send me an email the next time any of you see a quarter or half ounce US gold eagle for sale on either of these two websites. Kitco cracks me up - they label which coins are available for shipping “outside the US only”. What a panic.

Inflation in 2008 was driven by demand. Now, I see some supply problems on the horizon. Anybody look at the dry shipping data lately? Man, there is next to nothing on the high seas these days, hey? The next round of inflation will not be due to a falling US dollar (I am still amazed at the strength of the dollar) as it will be due to a lack of supply of dry goods. That said, there certainly are a lot of automobiles available (heh heh), however, they are the wrong kind of automobiles. How I’d love to see one of those huge shipping tankers full of these headed to the US.

Won’t happen though, Toyota (NYSE:TM) won’t build them, and Obama won’t even utter the words “natural gas transportation”. Meanwhile, the gun of peak oil is pointed squarely between the eyes of the US. Talk about supply problems…it’s gonna be interesting a few years from now to see all these gasoline powered cars and trucks sitting idle. Today, people are sinking cars and trucks in lakes and ditching them in deserts because they can’t make their payments and hope the insurance will get them out of the bind. Imagine how many vehicles will become a problem as we get further along the peak oil path. Maybe someday we’ll have a tanker of natural gas conversion kits coming over to the US. Not likely.

So, I continue to recommend most people get out of the S&P500 and stick with oil stocks like COP, CVX, and XOM. Anybody note the dividend yield on StatOil (NYSE:STO) or BP for instance? Just buy them, collect the dividends, and wait for the next peak oil spike. It’s gonna be a doozy.

If you want some comedy while you wait, tune into the CNBC Comedy Channel. They continue to be the funniest act on TV. Meanwhile, you may want to invest in a wood stove, shovel, hoe, and rake and build yourself a garden. Not only will it get you out of your easy chair and outside to enjoy the beautiful spring weather, it will keep you healthy, keep a steady supply of highly nutritious food on your table, and give you a sense of accomplishment. I’d also recommend a chicken coop for fresh eggs but make sure you don’t live in an uppity neighborhood with covenants & restrictions – they frown on that kind of thing. At least for now…

Disclosures: The author owns STO, COP and some gold and silver investments.