Greg's Note: Americans these days are growing concerned and angry over the rising price of oil. While there are many understandable reasons for this emotion, one of them is quite clear. We simply aren't used to oil being expensive. It sounds strange when you consider how many American fortunes were made in the oil business. But if you just look back 20 years ago, oil was cheap and we thought it would be that way forever. Outstanding Investments' Byron King takes a look at why oil is no longer a cheap commodity, and why it may never be that way again. Do you remember thinking oil would be cheap forever? Share your stories with greg@whiskeyandgunpowder.com. Whiskey & Gunpowder
Oil has become the "anti-dollar" of modern times. Oil is now serving as the source of global monetary discipline that gold used to perform. Oil is the energy life-blood of all modern economies. So when a nation debauches its currency, the oil markets react instantly. And oil will not accept monetary malpractice, certainly not by the U.S. Federal Reserve. If traders perceive that the dollar is declining, this perception lights the fuse for oil prices to rise. There is an old saying that "You can't fight the Fed." But oil is fighting the Fed. In fact, oil is scoring a knockout, like Muhammad Ali over Sonny Liston. Oil is floating like a butterfly and stinging like a bee — landing body blows and pinning the Fed against the ropes. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ How Much Oil Is There Really? We've heard some whoppers before, but this one might take the cake. We've been told by oil producing countries in the Middle East so pretty gaudy numbers when it comes to oil production. But what if those countries can't produce that much oil? Well the answer is shocking and should alarm every investor out there. Click here to find out for yourself… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The Fed can no longer cheat with the money supply and get away with it. There is a new gold standard and it's called "oil." This may not be a monetary "fact" that central bankers would acknowledge publicly. But it is a monetary fact of life out in the trading pits. Even the President himself is powerless to alter this new fact of life. He cannot simply fortify the dollar's supremacy by seizing the world's oil at $20.67 a barrel, like Franklin Roosevelt seized America's privately held gold for $20.67 an ounce in 1933. And even if the President could confiscate the world's oil at below-market prices, he might not understand how such a confiscation would influence the dollar's value. The "oil connection" to monetary policy is a new and poorly understood development. It's not what people expect. It's not how we all grew up. It sure did not used to be this way. For the past 149 years, it has been a fairly safe bet that the world's oil supply would grow. The only truly difficult period for oil was between 1979 and 1981, when the Iranian oil industry collapsed in the wake of revolution. The world supply-chain lost nearly five million barrels per day of output. And that loss helped produce the worst recession in the U.S. since the 1930s. But even back in the early 1980s, new oil sources were coming online. Everybody could see it. The fields of Alaska, the North Sea, Mexico, Angola and other places were just kicking into gear. So the price of oil could not go "too high" because there was a clear indication in the marketplace that there would be more oil coming down the pipes. And that's exactly what happened. By the mid-1980s, oil was selling for less than $15 per barrel. Cheap energy made a lot of things look easy, from growing the economy to winning the Cold War. There was a dark side to cheap oil, however. It produced and nurtured the illusion that oil would be cheap forever…or at least for a very long time. But looking ahead from today, it is crystal clear that it will be more difficult to grow the worldwide oil supply than in the past. We may be at Peak Oil right now, but we won't know that for a while. Oil-producing areas like Alaska, the North Sea and Mexico, are in decline. Meanwhile, as worldwide oil demand grows quickly, oil output is at a measurable plateau. There is almost no "spare" capacity anywhere outside of Saudi Arabia, and the Saudi margin is smaller than most people think. At the same time, net oil exports are decreasing from most oil-producing nations. Internal demand is rising in almost all oil-producing states. So there is simply less oil to go around. And unlike in the early 1980s, there's no relief in sight. Oil supplies are severely constrained. Dollar supplies aren't. Perhaps these related facts are what inspired Alexey Miller, the CEO of Russia's oil giant, Gazprom to predict that oil would rise to $250 a barrel in "the foreseeable future." The Fed can "talk" a strong dollar all it wants, but as long as the supply of dollars and dollar-denominated credit continues to grow, the oil price will continue to climb. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ An Invitation to Wealth… I'll pay you $6,503 if you immediately cancel your Agora Financial subscription. No questions asked... There's more than $6 grand staring right at you. All you have to do is decide whether or not you want it. But don't worry if you decide you do — this won't be the last time Agora Financial will line your pockets with dough... Click here to cash your $6,503 check… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ In the era of Bretton Woods, the global monetary system followed the golden rule: "He who has the gold makes the rules." But today, the "rule of crude" dominates. Thus we are left to ask, what is the meaning of crude oil at $137? It means that the reign of the dollar is coming to a close. The dollar has reached the end of its post-Second World War period of dominance as the world's reserve currency. That's why today's oil buyers, like the late French President Charles de Gaulle, are so eager to exchange their dollars for a tangible asset. De Gaulle shipped France's dollar reserves across the Atlantic in exchange for gold bars from the vaults of Fort Knox. Today oil traders are shipping their excess dollars to the New York Mercantile Exchange in exchange for barrels of oil. The motives are identical. Only the underlying monetary asset has changed. So what of the U.S. dollar? Well, a man named Lazarus once rose from his deathbed. But Lazarus had some help. Could the dollar be as fortunate as Lazarus? These words come to mind, from the Book of Luke at 17:37: "Wheresoever the body is, thither will the eagles be gathered together." Until we meet again… P.S.: The economic principles behind what you've just read are really quite simple. Oil is gaining in value while the dollar is losing, and it all comes down to one word: scarcity. Oil is becoming scarce while the dollar is increasingly more abundant. Savvy investors realize this when investing in commodity markets, especially the energy sector. And that's the main focus behind my investment research service, Energy & Scarcity Investor. Click here to take a look at what I've been working on and how you can profit from it… |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to lemmetry@gmail.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
