From: Wealth Daily
Date sent 03/15/2011 07:03:16 am
Subject: $200 Oil
Having trouble viewing this issue? Click here.
Refer a Friend to Wealth Daily.
$200 Oil
By Adam Lass | Tuesday, March 15th, 2011
Dear Reader,
I'd like to personally introduce you to Adam Lass, one of the most insightful
analysts I know. Some of you may know him from the Taipan Publishing
Group, where he and I worked together much earlier in our careers.
Today, I'm pleased to tell you he's our newest addition to Angel Publishing and
will be offering weekly guidance in Wealth Daily.
To your wealth,
Brian Hicks
Publisher, Wealth Daily
———————————————
What's a gallon of oil worth to you these days? $2? $3? $5?
Is it worth a year in jail, or maybe a bullet between the eyes?
I could talk to you today about Libyan output shortfalls, or failing Japanese
uptake because of the earthquake, tsunami, and ongoing nuclear disasters.
Stuff like that certainly does matter, at least in the short run.
But in the long run, Japan and Libya are just blips, minor cyclic twitches in
trends that have been in place — or perhaps I should say put in place — years
ago. They are results, not drivers.
I'd much rather point you toward the real driver behind today's headlines, and
the very real threat and opportunity it represents.
Advertisement
Saudi Arabia 2.0
Just a few hours north of the U.S.-Canadian border lies the world's last oil
$200 Oil http://email.angelnexus.com/hostedemail/email.htm?h=5facab5e6034d1...
1 of 6 3/28/2011 11:10 AM
reserve...
And it may also be the biggest.
Holding enough oil to power North America for the next 50 years, the owner of
this resource could become the biggest oil company in history.
Click here for the details.
Four Sloshing Buckets Full of Trouble
If you want to see a genuine economic driver, check out the guy in New
Haven, Connecticut, who risked his life to score some 20 odd gallons of heating
oil. According to the Middletown Press, last week, the local cops caught Trenton
Williams trying to spirit four of those orange handyman buckets full of kerosene
out of someone else's basement.
To be fair, I suppose I should call Williams an alleged thief; as for all we know,
he may have had some kind of arrangement with the home owner. But in my
admittedly rural neck of the woods, where trespassing is handled in a rather
abrupt and permanent fashion, an attempted larceny charge would be the least
of Williams' troubles.
Williams' willingness to risk life and limb for a week's worth of warmth tells us
something that horrifying reports of Libyan atrocities and pictures of destroyed
Japanese cities do not.
Williams has found himself up to his neck in the Black Tide. Fortunately,
understanding the true cause of William's miserable life could easily translate
into double-digit gains for your portfolio.
Too cynical? No, just realistic.
Damned Lies
One of the givens in economics is the intimate connection among supply,
demand, and cost. A moribund economy does less biz, and therefore ought to
use less energy. One might imagine that the price for oil might fall off a bit. A
recovery implies increased activity and demand, therefore, one might expect
energy prices to rise. Econ 101, right?
Wrong! This textbook myth depends entirely on a static standard by which we
can measure the value of an asset. But the dollars that oil is bought and sold in
globally are hardly static.
Rather, they are blatantly manipulated by a central bank bound and
determined to print its way into the history books. TARP. QE1. QE2. QE3. These
dry acronyms are part and parcel of a program that deliberately courts the
destruction of the U.S. dollar a trillion newly-imagined dollars at a time.
For months, Ben Bernanke and his cronies have sworn up, down and sideways
(literally sworn under oath) that there is no inflation to speak of, that the pain
you and I (and Trenton Williams, for that matter) feel every time we go grocery
shopping, buy t-shirts and jeans for the kids, or — Lord help us — sidle up to a
gas pump for a tank full of economy grade is purely imaginary because these
rampant price increases are not systemic, not "core" expenses.
$200 Oil http://email.angelnexus.com/hostedemail/email.htm?h=5facab5e6034d1...
2 of 6 3/28/2011 11:10 AM
Black Tide Rising
Here are the charts for the U.S. Dollar Index and crude oil futures over the
past year or so, clearly demonstrating their conjoined angles of attack and
decline. Note that I have factored out such short-term, news-driven events like
Europe's PIIGS crisis and the recent unrest in the Middle East. Not that these
incidents don't impinge on price. But they're clearly NOT the prime movers
here.
Simply put: Oil and the dollar are Siamese twins, folks. Every time the Fed
imagines another billion into existence so as to buy up increasingly worthless
U.S. Treasury bills (just ask PIMCO's Bill Gross about THAT), you can just
watch the Black Tide crawl higher.
And every time oil puts on another systemic high, most everything that rides
petroleum from creation to end user climbs another notch as well — be it
cotton for clothing, food for hungry mouths, or gasoline for your daily
commute.
Racing to the Choke Point
Now it's a footrace between the economic boom purchased by trillions of
imagined dollars and the Black Tide that will eventually choke it off. We are told
$200 Oil http://email.angelnexus.com/hostedemail/email.htm?h=5facab5e6034d1...
3 of 6 3/28/2011 11:10 AM
by the bean counters at the Fed that our personal net worth is growing like a
weed, with gains of 2.6% and 3.8% over the past two quarters. But somehow
folks are not feeling particularly cheered by this news...
The latest report out of Thompson Reuters and the University of Michigan has
their index of consumer sentiment falling off to a five-month low at 68.2.
Strangely enough, most of the economists polled by Bloomberg somehow
missed this drop entirely. Their guesstimates ranged from a moderate drop to
74 to a hardy boom slated to reach a whopping 80.
Speaking of Bloomberg polls, their investigation into national "attitudes" noted
that only one in seven Americans had any faith whatsoever that some kind of
lasting recovery is underway.
Here's what you and I know that Washington's pet economists are somehow
missing: Oil is bleeding us dry.
According to the U.S. Energy Information Agency, each American pays some
$700 more dollars for gasoline in 2011 than we did in 2010.
This estimate depends entirely on gas rising no higher than $3.71 this summer.
I should point out that I paid nearly that much when I gassed up this morning
at a discount station in rural Maryland. I am told that they are already paying
more than $4 a gallon in California, and I've heard estimates of $5 a gallon
tossed about by some fairly reasonable prognosticators.
Follow the Tide of Cash
Now broaden your viewpoint for a moment: As a general rule, every $10
increase in the price of oil at the wellhead reduces the growth of gross
domestic product by half a percentage point within two years. If you want to
look at it from the other end of things, each penny increase at the gas pump
robs American consumers of roughly $1 billion a year.
The question at hand is not whether or not the Black Tide will eventually snuff
out the boom in the exact same fashion as it did in 2000 and 2007. Rather, it's
what you plan on doing about it.
The trick is to ride that massive flow of cash as it moves from sector to sector.
There are, of course, the obvious opportunities in oil and energy production —
opportunities that are only improved by the crises in the Middle East and Japan.
However, if you are willing to hold your nose and take advantage of other folks'
pain, you can make cash on almost all sides of this action.
Over the next few weeks, I will explore at length the businesses that will suffer
the most from the Black Tide — beginning with one company that enjoyed a
16% price spike when it announced a dramatic 4.1% increase in unit sales
over the past 12 months.
What management failed to mention was just how much its bottom line will
suffer when its primary cost doubles over that same period. A well-placed put
option against this industry stands to double over the next few months as the
Black Tide washes ashore.
Sincerely yours,
