“Jokers to the left of me, Jokers to the right, here I am. Stuck in the middle…”

Several days ago I wrote about (CNBC) the Cheerleaders, Inc.’s own Larry Kudlow and his call that oil was a short and that as a contrarian he would go long (own) the bank stocks. If I was dismayed then, I am incredulous now.

Here we are, on the cusp of the greatest challenge to civilization since the advent of the squalid criminals of the Third Reich (though the dirt bags don’t deserve the capital letters), an energy crisis of mythic proportion, and all the captains of industry (titanic) can say is to advocate that you invest your hard earned assets into a doomed sector. Me thinks they need some suckers to unload their positions on. Don’t fall for it.

Just look at the banking stocks – they are cratering. We could see $150 to $350 billion in write offs, and no new business coming in. Many of these banks might have to raise capital by issuing more stock, but don’t worry… the Fed is going to be right there for these guys and will print an ADDITIONAL ½ TRILLION dollars to bail them out and destroy the value of your savings.

People thought the housing crisis was bad 4 months ago… Ha! That was sooooooooo August of 2007. Things are so bad right now it is impossible to assess where exactly we are or what anything is worth, which is why the bank stocks like Washington Mutual and Citi look like incoming mortars, and the hits keep coming. As it is impossible for ALL of us, or even a significant percentage, to sell our suburban homes and move to small farms or walkable cities (after all, who would we all sell to?), by mathematical necessity, the investments we have made into these car centric assets (liabilities, actually) will contract so significantly as to be surreal. We are months, not years, from the point where the future consequences of Peak Oil/Peak Oil Imports will become common, man on the street, knowledge. As that wave crests, the rush of folks to the other side of the boat will be more than a little disorienting.

If you think you can avoid risk by going to cash, I got a bridge to sell you and some swampland, too. Same with bonds.

On another note, don’t be taken in with the “oil is at $100 and the global economy has not collapsed” argument.

Of course the GLOBAL economy will not collapse based on oil prices. After all, commodity trading, including international trade, is a zero sum game – for every winner there is a loser. It is not the PRICE that is the problem for the GLOBAL economy (I want to make very clear that the GLOBAL economy and the U.S. economy are not one and the same anymore), the problem is the aggregate supply of oil, and that my friends, is not going anywhere but down. And while the GLOBAL economy can withstand higher energy prices, the importing nations, particularly the U.S., will feel the ill effects, as the price of oil goes up faster than imports come down our deficit widens. Can you imagine if we were able to import significant liquified natural gas? For better or worse, the oil portion of our trade deficit issue will crest as the aggregate value of imported oil declines with aggregate volumes. What happens on the other side of THAT is worth considering and I shall do so in another post.

"I do not concern myself with why. Sometimes I think in terms of where, other times when... and always how much." 6 days of the Condor.


Mentat (at) yahoo (dot) com