Doooo SOMETHING… ANYTHING!! Even if it is wrong

The U.S. Commodities and Futures Trading Commission ("CFTC") just announced that an investigation into Oil futures price rigging has been ongoing for the past 6 months.

This, in spite of CFTC chief economist testifying before Congress:

"Jeffrey Harris, chief economist at the CFTC, which regulates commodity markets, countered Masters' attack by telling lawmakers that "fundamental economic forces and the laws of supply and demand" are pushing prices higher, not fund positions.  Associated Press

So why the investigation? Simple.  It is an election year, and the politicians want to appear like they are DOING SOMETHING.  So, rather than tell American's the truth - that we are in the beginning stages of the greatest challenge to Western Civilization in history - they blame "Speculators".  

Folks, here is the deal.  Oil exporting countries SUBSIDIZE gasoline costs for their citizens.  Saudi Arabia, Iran, and Venezuela citizens, for example, all pay less than 50 cents for a gallon of gasoline.  Even some IMPORTING nations, like China and India, subsidize the costs of gasoline for their citizens.  In other words, rising prices are felt much greater, and their effects will be much greater, in importing countries with low gasoline sales taxes - i.e. the U.S.A.  All of the speculative manipulation in the WORLD would not add up to spit when compared to these subsidies.

One of the FEW things we could do to bring down the price of Oil, and it would only be a temporary fix unless we took many, huge steps to retool the American transportation infrastructure and living arrangements (mass transit and a moratorium on all suburban development in favor of high density development) would be to enact the MOTHER OF ALL SALES TAXES ON GASOLINE (give me sec... I am an anti-big government, anti-tax, right to bear arms, separation of church and state, decriminalize just about everything WHACKO libertarian) to "encourage" (force) Americans into less profligate energy lifestyles.

A $7 per gallon gasoline tax enacted over the next 2 years would do far more than all the investigations and public executions of speculators could ever do. We could make it revenue neutral by ABOLISHING THE SOCIAL SECURITY AND MEDICARE TAX.

There is NAFC that any of that is going to happen.  What IS going to happen is this:

Each year, the number of miles you drive is going to decline by, my best guess, better than 5% per year, (no matter how much hydrogen-ethanol-windmill-nukes those arrogant, yuppie c--- sucker environmentalist, trust fund-limousine liberal, slapped ass jerks come up with) until sometime around 2025 - 2030 you will have more need of a space helmet than a driver's license.

ANY QUESTIONS?

Now me, I'm in it for the money.  What about you?  

The demand from 6.4 billion people trying to live like the other, rich 300 million on our planet's FINITE resources, oil, steel, silver, corn, etc...  is going to stick hyper inflation "where the sun don't shine".  You can benefit from this certainty, or you can lose everything you have worked for to the inflation thief.

If you are in the "I want to lose" everything camp, just keep digging your hole.  For those of you smart enough to notice you are in a hole, stop digging right now.  If you think you are in a hole and you CAN'T climb out of it - just walk away.  You would be amazed.  This is going to come at us so fast now as to be surreal.  The U.S. economy is going to "sh-t the bed" over the next several years because it simply cannot survive $150 - $200 per barrel oil and declining availability.  Worse, the investments that widows and orphans thought were safe are going to prove far more toxic than a sub-prime mortgage pool.  This is no time to be a widow or an orphan.

And do not listen to those guys on Wall Street!  They are as close to being superfluous as your appendix.  They can't do a lick of good for you, but they sure as hell can kill you!  Now that is a risk/reward ratio even a politician would recognize to be unfavorable.  Not that he wouldn't vote for it - he would, if he thought it would help him maintain his position - but at least he'd know it.

Anyway, inflation is baked in the cake.  The western nations are increasing their money supply at the time the physical world (read: Oil) ran into serious limits.  More dollars chasing stagnant or declining supplies leads to inflation fast, many more dollars leads to HYPER inflation.

"We have met the enemy... and he is us".

Yours for a better world,

Mentatt (at) yahoo (dot) com

Another One Bites The Dust

Silverjet, a U.K. business class airline, has shut down operations.

While small, this latest casualty of the Permanent Energy Crisis is just one more example of why you should get your house in order. It is all up to you.

Yesterday's commodity market bed sh--ting is giving you an opportunity, IMHO. Use it wisely. "When you should buy, you won't want to."

The money in money market and savings accounts is the highest in history. This money is going to go SOMEWHERE eventually. Rather than guessing exactly where that money will go, I will have to follow the crowd for the moment. Brave of me, huh? Still, with the likes of Merril Lynch getting the Peak Oil bug, could really move the energy and precious metals markets, and, while I cannot give specific advice, the thinist market might be the biggest mover (hint, hint).


Mentatt (at) yahoo (d0t) com

BIG Wall Street Firm says "Peak Oil Here or Near"

Yesterday morning I had CNBC on in the background (I was having too good a day so I needed some aggravation) when I heard that energy investment banker Matt Simmons was on next. I stopped what I was doing and listened to the CNBC air heads ask all of the wrong questions, and was happily amused that Matt was finally having a little fun at the interviewer's expense.

No surprises from Matt: "Oil was cheap and going much higher..."

After Matt was the Vice-Chairman of Merrill Lynch saying "Peak Oil is here or near." That got my attention. Merrill has an ARMY of brokers/salesmen, and over 1 $TRILLION of client assets under management. This is a firm that can truly move markets. It is one thing when a small firm gets behind something, but with Goldman Sachs and Merril Lynch getting behind "Peak Oil"... things are going to happen much faster in the markets - UP and DOWN.

On another note...

For the past several years China, India, and other Asian nations have been able to export their cheap labor to the U.S. With oil well over a $100 per barrel, that is coming to an end. When oil breaks the $200 per barrel barrier and remains there, there will be little opportunity to arbitrage China/U.S. labor because of the cost of shipping. This will be of necessity on another front. The U.S. trade deficit for oil will be so great that there will be no room for trade deficits for other goods and services.

Give that some thought before you go head long into some investment in China. This is not to say that the Yuan could not appreciate greatly, it certainly could, but there is much to consider here before I would be willing to extend myself here.

Meanwhile, back at the ranch...

Oil has given up all of its gains since Goldman's call for an average price of $141 for the second half. Oil will be much higher in 2 years, but establishing positions here will likely be frustrating (at least it is for me; I bought a little long dated yesterday after the inventory report and immediately got killed). Have a plan, and keep this in mind:

Would you rather be long U.S. $'s, or indispensable commodities?

Good Luck!

Mentatt (at) yahoo (d0t) com

"Production Trumps Speculation"

Every once in a while someone lays one on me good. A brief, succinct, lucid and usually in retrospect obvious, explanation for the simple truth that your own eyes are seeing.

Our resident mad scientist, Dr. Lalani, hit me with that one last night as I was trying hard to remain awake (it was a long day). "Production trumps speculation"! WHAT a concept!
In other words, not matter HOW MUCH MONEY SPECULATORS poor into a commodity, if production exceeds demand the speculators are toast. Perfect examples, for those who follow commodity markets would be Sugar and Meat (pork bellies, feeder calfs, etc...). What could be hotter than sugar? Sugar is, at the moment THE energy efficient way to produce ethanol. So why is the price sooooo low? Using Lalani's law #234 1/2, too much sugar production overwhelmed the speculator's money.

Next time someone tells you Oil is a speculative bubble remember:

"Production Trumps Speculation".

Yours for a better world,

Mentatt (at) yahoo (d0t) com

"The Oil Bubble"

About a week ago I wrote a post to remind folks that NO market moves in a straight line - there are rallies and corrections along the way, enough to make you sick.

The absolute worst place to get your investment advice is CNBC.  Folks, they are in the ENTERTAINMENT business, not the investment business.  As "journalists" (give me a break - Woodward and Bernstein are journalists, Joe Kernan's a pompous jackass) they feel the need to present the many sides of a story.  I would like to point out that there is only 1 RIGHT side, the winning side, of any trade.  For every trade, you have a buyer and a seller.  The commodity market is a "zero sum game", for every winner there is an equal and opposite loser.

When you should be buying, you won't want to .  When you should be selling, you won't want to.  Trading is a contact sport.

On another note, the data keeps coming in regarding economic contraction caused by declining fuel availability.  Read this from Bloomberg re the number of commercial flights.  Remember, the jerks in the media keep telling you it is because of the PRICE.  They are truly intellectually challenged, or intellectually lazy; price is merely a symptom, a means of bringing demand down to meet the decrease in supply.  The U.S. economy is using ALL of the petroleum products it produces and imports, unfortunately that aggregate volume is falling and there is nothing ANYONE can do about it.

There is much that you can do to better your personal situation, better your investments, and improve the chances for success in your business.  I wrote this post 2 1/2 years ago about the never ending battle with distance we would all be facing in the future.  Everything will be measured in "how far" and "how much energy" from now on.  Be the first to take this into consideration among your competitors and you will enjoy a significant advantage.  Ignore it, and they will be passing you by as you head for disaster.

The price of Oil will fluctuate HARD.  There will be times when the "bubble headed bleach blondes" tell you that the bubble is over, go back to your SUV and your 6000 square foot house (for a family of four).  That will be the bottom in that energy correction.

Be young, have fun. Ride a bike.

Yours for a better world, 

Mentatt (at) yahoo (d0t) com

This is what the beginning of the FINAL energy crisis would look like

According to the U.S. Department of Transportation, total Vehicle Miles Traveled ("VMT") declined 4.3% in March 2008 from March 2007.

Unfortunately, the U.S. Department of Energy says that year over year commercial petroleum inventories for February 2007 to February 2008 fell from 976,899,000 to 963,073,000.

Well, folks if your total miles travel fell by 4.3% and the oil left over in the system after uses was down 1%, and the price of oil DOUBLED...  what else would the beginning of the FINAL energy crisis look like?   It would look just like this.  (For those lacking an uncanny grasp of the obvious...)

General Motor's stock price hit a 27 year low today,  Ford Motor Company is cutting back production,  American Airlines is cutting back flights... These events have NOTHING to do with the PRICE of oil, and everything to do with the AVAILABILITY of oil.  Price is just a symptom of the decline in availability.  Total VMT =  total vehicles x average gas milage x aggregate fuel availability.  Simple as that.

This data does not support a bottom in residential real estate any time soon.  Nor does it support the Federal Reserve's and the Department of Treasury's position that the economy continues to experience REAL (as opposed to nominal (read inflation)) growth.  

I must warn you:  The Markets are not as dumb as our political representatives.  They are going to pick up on this, and they are going to react.  If you take a "wait and see" approach, or should I say a "lay and pray" strategy, which will wind up with you in the "plead and bleed" position. (That is - holding your losers and praying for a come back.  Professional traders, including yours truly, know this one well. It is to be avoided at all costs.) Don't do this to yourself.

Time is of the essence...

Mentatt (at) yahoo (d0t) com

"Nothing's Permanent like Temporary"

This week I am packing and moving from my home of 8 years.  I had moved here "temporarily" in 2000 when I got divorced, and I ended up living here longer than any other home in my adult life.  The house was too small, and a little old, but it was literally 1 block from my office and a little more than 1/2 mile to the beach, and close to my son's school.  At the time I was really into surfing, I could walk to EVERYTHING, and I hated to commute, so... (as an aside, the house was so close to my office that I did not use the office building bathrooms, and I ate lunch for the most part at home.  The TIME you gain in your life from not having to commute is worth every other compromise) here I am/was.

In relating this all to my sister, she replied: "Nothing's permanent like temporary".

BONG! GONG!  What a line!  

Every time you hear that America's energy problems are just temporary - that ethanol, hydrogen, bio-diesel, Wind, Solar, Nuclear technologies are JUST AROUND THE CORNER - I hope you will remember that line.

"Nothing's permanent like temporary."

Yours for a better world,

Mentatt (at) yahoo (d0t) com

“Just give me a one-armed economist.” President Harry S. Truman

President Truman was referring to the infuriating way in which economists would hedge themselves about their economic recommendations and prognostications.  Classical economic theory is PERFECT for reviewing the data and telling you what HAPPENED AFTER THE FACT.  A lot of good THAT does you...

The bigger problem is that every economist the public hears from is one that is being compensated to "talk his book", or that of his employer.  You are not hearing an independent analysis ANYWHERE in the mainstream media.

I am referring to the "surprise" housing numbers.  Who was surprised?  Until housing prices go low enough to clear the current inventory and restore a balance between buyers and sellers this will be the crisis de jour (de anno?) for many years to come.

I live in Boca Raton, Florida, a wealthy enclave of New York and environs transplanted nouveau riche.  In the last couple of months downtown Boca Raton has become a ghost town.  Empty stores, failed restaurants, no trouble finding a parking space - in one of the most appealing places to live in the most appealing country to live in in the world.

South Florida is a second home and travel and leisure destination - and its economy and housing market are doomed.  You heard it here first:

Traffic in to South Florida's Fort Lauderdale, West Palm Beach, and Miami Airports will be down 20% in 2010 from 2006, 50% by 2015.  Florida will have no choice but to cut government services to the bone while increasing the sales tax to 8 or 9%.  The property value implosion here will be like nothing ever considered, irrespective of how much the currency is devalued and how much hyper-inflation the Fed can arrange.  And if you think things are bad in South Florida, Orlando is in much deeper s--t.  

Of course, this is only if we are lucky.  If we get unlucky, and take a direct hit from a major storm... you better have the means to permanently relocate, because it is lights out.

"An ounce of prevention (preparation) is worth a pound of the cure".

Mentatt (at) yahoo (d0t) com

"Survivalist"?

This article was FRONT PAGE LEAD STORY on msnbc.com yesterday.

I was less than impressed.  As I first started to read the article I thought, wow, brave journalist. By the time I finished the article I had the impression that the author was only slightly mocking these "survivalists".  Just using the perjorative "survivalist", meaning some nut living in a "bunker" in the woods with stores of rice, beans, and ammunition,  was meant to belittle these folks.  Still, the sad fact is there are now thousands of thoughtful (and some not so thoughtful) people across American that have begun to take responsibility for providing for themselves.

Can you imagine the politically correct backlash if the author were to treat the Amish or Mennonite communities as whack job "survivalists"?  After all, these folks shun most (but not all) of America's petroleum based convenience technology.  They grow their own food, make their own clothes, pay their bills, provide for their children, and refuse welfare, social security, food stamps.  What a bunch of whackos, huh?

We should all be so whacky,

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Bank Failure 2009

The disaster in the U.S. banking system is just getting going, and while I have been venting about it for nearly 2 years (it seems I am ALWAYS a little early), the press has finally picked up on it.   

Read this story from the front page of marketwatch.com.

Although I would call the story "Bank Failure Lite", you get the idea.  It takes TIME for our journalists and politicians to warm up to a coming disaster.  They prefer to wait until the blood is already on the walls, the floor, and is seeping down the hallway.  Just take a look at Hurricane Katrina.

I refer to the FDIC view as "Bank Failure Lite" because they are not taking into account the economic contraction coming as a result of decreasing oil supplies, and increasing number of U.S. $.  Some very smart folks believe that the Fed and the Treasury can INFLATE the U.S. (and destroy the value of your life savings in the process) housing market, and hence the banking system, back to health.  I sincerely doubt this (actually I think there is NAFC, but only Wall Street analysts are dumb enough to take a position and then refuse to waiver no matter HOW MUCH DATA is presented that refutes their assertions), and I think you are seeing it in the price of the banking and brokerage stocks.

Lehman Brothers down nearly 19% for the week.  Goldman Sachs down 9 days in a row (first time that has happened since they went public).  The index, as measured by XLF, is closing in on its previous low, despite the Fed's aggressive rate cuts.  With the Fed Funds target now 2%, the Fed is running out of room.  Still, I think .5% is at least a 50/50 probability.  

If you took action and moved out of fixed income and CD's and financial stocks and other instruments of financial suicide, I commend you.  If you have not, there is still time - until there isn't.  I give the probability of a full scale monetary crisis involving the US$ at 100% by 2015, and 75% by 2011, 50% by year end 2009.  Nothing scientific about those estimations, BTW, just my back of the napkin, wet my finger and stick it up in the air kind of trader's quick calculation. But I AM putting my money where my mouth is, unlike those jerk off sell side Wall Street analysts.

(BTW, when you hear me railing against Wall Street's analysts, my ire is directed at the sell-side guys working for the brokerage firms.  These guys never met a stock or bond they didn't like.  90%+ of all recommendations are "Buy", "Strong Buy", "Double Secret Pooh-Ba Buy", or "Hold" or some silly description like "Speculative Appeal" which, along with the glowing verbiage accompanying that silly rating means "Buy".)

Sorry, that one got away from me.  I am back.

Occasionally someone smart says something in the Financial Press and you should pay them some attention.  Guys that made millions or billions running money (Soros, Rogers, Buffet, Pickens come to mind.  Just remember, these guys have losing trades, too) always get my respect.  Paid shill economists for the major investment banks do not.

So let me be more specific:

 New York City residential real estate - Yuck!

Farm land in the rain belt - Hurray!

The U.S. Dollar - Yuck!

Precious Metals - Hurray!

Financial Companies - Yuck!

Oi, Gas, and Precious Metals Producers - Hurry!

Auto Manufactures - Yuck!

Train, Bicycle, comfortable walking shoe manufacturers - Hurray!

Retailers - Yuck! Puke! Yuck!

Here is the deal: In a contracting economic environment it will be VERY difficult for you to replace any and/or all of your accumulated wealth lost in a monetary crisis.  And in this "brave, new world" instead of the rich getting richer, it will be the rich get poorer, faster, than you may believe possible.  And if you don't think you are rich now, when you look back from the future you will have a new appreciation for your current circumstances.  

Take action!  Or it is soon to be, "woulda, coulda, shoulda..."

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Inflation is Baked in the Cake

"Its Number(s) Time!!" is the name of my 15 month old son's favorite TV show, so, in solidarity with my toddler let us work a few numbers:

Oil for delivery out in future years is now HIGHER in price than the spot and "front month" oil, and the front month is $135 per barrel (give or take a $), all the way out to 2016. So, for our puposes here, let us assume that:

the $135 price extends out to 2018, an additional 2 years, and;

that the U.S. is (somehow) able to continue to import 13 million net barrels of oil per day.

$135 x 13,000,000 x 365 days = $640,575,000,000

At today's price the annual trade deficit for oil would be $640.6 BILLION!!!!! JUST FOR OIL!! Multiply that by 10 years = $6.4 TRILLION in accumulated trade defict JUST FOR OIL!!

Look, maybe you are a philosophical or spiritual sort and you "believe" all things are possible... and maybe the above scenaria IS possible (though I would be willing to stake certain important anatomical parts of my body that this WILL NEVER HAPPEN)... but only if the U.S. issues that much, plus interest, in IOU's (that the U.S. will never make good on) in ADDITION to the deficits we run with China, Japan, etc...

This is the proverbial rock and a hard place. If the U.S. were able to get the imported oil we would demolish our currency through an over supply of (worthless) dollars created to pay for it, and; if we are unable to get the imported oil our economy tanks and takes the U.S. $ down with it.

There are some things that COULD be done to amelierate these outcomes, and at some point, a time that is far too late, these things will be forced upon us. Don't think for 1 SECOND that it matters who is in the White House. Whoever it is, their presidency is doomed. You should root for whoever you like the least, in my humble opinion.

Oh, and BTW, maybe you don't like my math. Next time pug $200 or $ 300 oil in and see how it works out. Or better yet, remove the imported oil from the equation, and work through the myriad implications of that. That, good people, is where we are.

This does not mean that Oil could not sell down to $100 - it certianly could. It does mean that for my money, Oil has become a "buy the dips", and the $ and bonds and stocks have become a "sell the rallies", strategy.

The adjustments will be painful, but the effect on the U.S. economy over the next decade is certain to be catastrophic. Still, there is much you can do to prosper as this unfolds - but insisting that this is all a bad dream and everything will be made right just as soon as (fill in the blank) stops/starts (fill in the blank) is not conducive to said prospering.

Good luck.

Yours for a better world,


mentatt (at) yahoo (d0t) com

Let me Repeat: Markets Zig and Zag, They Don't Zig and Zig

Oil is on the tip of everyone's tongue.  It is the most recent "can't miss" investment.  I have been a long term bull on Oil, but as I always said - "market's zig and zag, they don't zig and zig".  Also, the rally in oil has had profound effects on other markets, and any correction in oil will have profound effects as well.  Figuring out these derivations might do wonders for your portfolio.

There are always unknown and/or unintended consequences to events like this.  What might they be?  How can you benefit?  What is the risk/reward ratio?  

Investing is more  like chess than anything else I, personally, can think of.  You must think several, perhaps many, steps ahead.

I always like to play a game I call: If - Then

If Oil continues up... then perhaps the U.S. equity market heads down further, inflation gains momentum, the U.S. trade deficit worsens, the $ is pressured further, which has effects A, B, and C on commodities 1, 2, and 3.

If Oil corrects...

You got to have a plan, and a plan B. 

Mentatt (at) yahoo (d0t) com

Inflation "Contained"?

Dr. Salani, our resident mad scientist casually remarked to me today that with Oil going into contango (meaning the latter delivery months are priced higher than the front month delivery contract) will the Federal Reserve Chairman Ben Bernake and the U.S. Treasury Secretary Henry Paulson continue to try and make the case that inflation is, what is their favorite word? Contained?

To me, his words were like a punch in the mouth. Inflation has built up like water behind a dam, and with Oil prices rising so high and going into contango, that dam has collapsed and our economy, our currency, and our financial markets are all happily going about their business downstream of the coming deluge.

This is no joke, and it is certainly not funny. In 1979, the world's currencies lost 25% of their purchasing power. 2009 could look a lot like 1979, and 2008 might not be much better.

Wall Street fairy tale will be out in full force telling you to "hang in there", "things will turn", the oil thing is all just a bubble... So go home and watch some T.V. interspersed with commercials extoling you to EAT! DRIVE! DIET! - lull yourself into believing their B.S. and when you wake you will feel like you have been sexually violated.

What to do? Let this be your guiding principal. Currencies are no place to store value. Currencies are no place to store value. Currencies are no place to store value. Say it over and over and over again. Take some money out of your pocket, look closely at it. It will have no value at some point in the future. What can you buy with your money - RIGHT NOW - that will be a good store of value? THAT is what to do.


Yours for a better world,

mentatt (at) yahoo (d0t) com

Has the Market lost its Marbles?

I have worked in the U.S. financial services industry for over 2 decades, with over 15 years on the sell side - and I have never seen anything like this.  

The U.S. equity market is either out of its mind, or a brilliant discounter of a glorious future that somehow I fail to see.

In addition to a negative trade balance, the U.S. has a negative balance of capital flows.  For the equity market to continue to rise, this absolutely MUST continue.  By definition, if net capital were to flow out, considering the circumstances, the U.S. equity market would, unequivocally, SHIT THE BED (that is a technical term of art in common usage on Wall Street.  Loosely translated it means the market would averages would head down rather briskly).  Now, in order for foreigners to buy holdings in our markets, they first have to own U.S. $'s.

Hmmmmm....

Seems to me they are taking CURRENCY risk in so doing...  So what would make a currency worth more relative to other currencies?

A Growing Economy    -   Not the U.S.

A Trade Surplus   -  Not the U.S.  (Think Canada... Hmmm... they EXPORT oil, the U.S. IMPORTS OIL)

Improving Productivity  -  Not the U.S. Folks, unless you consider our ability to increase sales of worthless securities, unimaginative pornography, People Magazine (sorry, I am being redundant.  I ALREADY mentioned pornography), and other truly unimportant and unnecessary goods and services (mortgage, stock, and insurance brokering comes mind... and yes, my firm is licensed to do all 3.  Never said I added any true value to the economy, did I?)

A Budget Surplus

OK, so the U.S. possesses none of the circumstances that would support the currency.  So why would foreign investors continue to pour money into the U.S.?  Because the U.S. $ has no ready replacement.  That does not mean, not for a second, that this will all turn out to be a mirage.  No, this is more like the U.S. healthcare system, spending the perponderance of its resources on the last 3 weeks of some poor dying bastards life, but not ONE DIME on keeping him healthy in the first place.  The U.S. $, while terminal and on life support, will gag and cough and twist and grimace and suffer for some time yet.

Be thankful.  This is giving you the opportunity of a lifetime to trade your dollars for something of real value.  

Or you could just write me off as just another merchant of "Doom and Gloom"... but before you do, let me ask you something:

Did you spend more time last year watching reruns of Giligan's Island and American Idol than examining government data (I know the data isn't perfect, but Giligan's Island?) on trade, energy, money supply, and capital flows?  

Look I don't blame you, this is boring, tedious stuff.  Still, trading against the guys that did their homework is EXACTLY the reason investors lose money.  Calling people names won't help you win.  In Bear markets, optimists get killed and their bodies laid out as a warning.  Getting the call RIGHT is what matters.  Long or Short.

Good luck.

Mentatt (at) yahoo (d0t) com

The Next Credit Crisis Will Begin Before This One Ends

The biggest "investment", we are told, that the "average American" (whoever that is) makes is their home. 

Their second biggest investment is their car. 

Got that?  Not their children's education. Not their 401k. Their car.  Alright, forget for a moment our screwy priorities.  Do you think that people would pay for a house they couldn't live in for very long?  NAFC.  Do you think they will continue to make payments on a car they can no longer drive?  NAFC, too.

Somebody will be the last sucker to drive a hunk of worthless metal off a car lot and sign up for 4 or 5 or even 6 years of payments - though there simply won't be enough fuel to drive that vehicle during the entire finance period.  The end of the fuel won't necessarily coincide with the last payment due.  There will be little incentive to make the last payments - no finance company is going to repossess an environmental liability (the vehicle in question) for which there is no longer a market.

So, right now we have the BEGINNING of the foreclosure wave coming from the banks and bank mortgage servicing companies.  We have not even BEGUN to scratch the surface of the CDO/CMO pool's defaulted mortgages. Those folks don't know whether to sh-t or wind their wristwatch.  That will take YEARS to shake out, and long before we are through that process the auto loan/auto lease default wave will visit upon us visions of houses falling into disrepair while hunks of steel lie rotting in the cracking pavement of the suburban driveway.  Not a pretty picture - but a certainty.  The only question is when.  

Get out a piece of paper.  Draw an X and Y graph.  Plot the benefit of 13 million barrels of imported oil per day for 2007.  Plot the impact of little to NO IMPORTS IN 2020.  Now draw  line between the 2 points.  (Come on, there was a reason you did this stuff in high school, right?)  Now draw vertical lines up from the horizon to plot the impact on any given year on the time line. Take a good guess when the defaults start to pile up... and it ain't 2020.

Still thinking about housing, auto, and/or retail stocks now?  Yea?  Call me!  Have I got a deal (and a bridge) for you!

Yours for a better world,

Mentatt (at) yahoo (d0t) com

There is No Alternative Food

We hear a great deal about "alternative fuels" and "alternative energy".  Just so it is clear: Its all propaganda.  Yes there will be some "alternative energy" inputs; no, they won't amount to much when it comes to transportation fuel - and pray that wind, solar, nuclear, gerbils on treadmills, work for electric power generation in meaningful volumes...

But like 3 card monty, the average jerk now has his eye on the wrong hand.  The Oil situation is BAD.  The FOOD SITUATION IS TERRIBLE.  THERE IS NO "ALTERNATIVE FOOD"!!!!!!!!!

Missed the Oil trade?  I forgive you (actually not really.  Even a blind squirrel finds a nut once in a while.  If you missed that one you likely are a little too good at Bulls--ting yourself. Congrats).  

Miss the food trade/issue/disaster?  UNFORGIVABLE  (on SO many levels).

DRT (Do da Right Thing) or GUE (Go Ugly Early), but its time to make a GOOD decision.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

China

This month National Geographic Magazine has an issue dedicated to the China story.

"Car Crazy" (p. 142) lists some interesting statistics:

Number of cars per capita in China is the equivalent of America circa 1915.

In China, that is 9 per 1000 residents.  Compare that with the U.S. - 450 per 1000 residents.

Year in which China is expected to have more cars than the U.S. - 2025.

Here's a fun one.: Percentage of Chinese car owners that DID NOT KNOW HOW TO DRIVE 3 YEARS AGO - 37%!!

Of course, the Chinese are not very good drivers...  the Chinese death rate per 100,000 vehicles is 4.5 times the U.S.

AND MY PERSONAL FAVORITE:  Percentage of Chinese that paid CASH for their car - 96%!!!

Roughly the opposite of the U.S. where less than 10% pay cash.  How many cars will CHINA DEMAND when they get hooked on American style debt in a addition to an oil car/oil addiction?

For every mile a new Chinese car owner drives, by mathematical necessity 1 fewer miles must be driven by some a driver in the industrial West (read, U.S.).  Oil production has been flat for over  years.  No additional Oil, no additional miles traveled.

So what are we going to do about it?  Invade China?

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Straight Shooting Mad Scientist

My favorite (mad) scientist/mathematician, Dr. Saif Lalani, wrote an article for FinancialSense.com and he sent me a copy by email for inclusion on my blog.


Important Disclosure: I am precluded from making specific recommendations as a registered/licensed securities professional with the SEC and FINRA. Other contributors to this blog are not. Nothing any contributor says should be taken as investment advice or trading strategy. Read at your own risk, and think for yourself. I operate this blog only to vent my spleen and shout into the wind, not to encourage you to do one thing or the other. This ridiculous disclaimer aside, and without further mealy mouthed B.S., here is Dr. Lalani in his own words...




I have always prided myself of being a straight shooter. In all my previous articles I have pulled no punches and did no double talk.

My previous recommendations included
Yamana gold: Up 85%
Transocean and Global Santa Fe: up 150%
Oil: up 150%
Corn: up 20%
Uranium: Down 10% (so guess what I am buying more of?)
Here,
http://www.financialsense.com/fsu/editorials/lalani/2007/1028.html

I suggested staying away from emerging markets as they feel the full brunt of higher oil prices. Both the Indian and Chinese markets are down significantly from that point.
In spite of making calls that most analysts on wall street making 7 figure salaries don't make, I have failed to make my point to a lot of people.

So I am going to try to be a lot clearer.

1) The emerging stock markets are collectively done. It has nothing to do with the credit crunch (although that will continue influence things) and has everything to do with BTU availability.
2) There are people (including Puru Saxena) who think that emerging markets will somehow “emerge”. That is about the stupidest thing since Bernanke's first speech about the sub-prime market problem being “contained”.
3) Within a year shortages of oil are going to make people reconsider buying a car. After all, who would want to buy one when the supply is not guaranteed. GM Auto is going to become GM motorcycles and/or GM bicycles in 3-5 years.
4) Free market oil prices will rise to at least $165 this year, $225 next year and $250 in 2010. Mind you - these are base levels, surprises will be to the upside. Should India insist on building a strategic petroleum reserve, $500 per barrel oil is almost assured. The volatility in oil will make volatility in Google stock look pale in comparison. Hence expect the Joe Kernan’s (of CNBC fame) of the world to have at least one more “oh look, ma, the oil bubble has burst” cries.
5) Indian stock market will dive at least 20% from this point in absolute terms and at least 60% in Gold terms, i.e measured in ounces of gold, in 2 years. Infrastructure stocks will hold up better than other stocks. P/E compression will prove incredibly painful. Unless GDP can grow without increased oil consumption all of this is certain. Emerging markets may collectively limit how much foreign investor’s can sell in any given time frame as all the dumb “hot money” chasing “growth” simultaneously realize the oil GDP conundrum.
6) Nuclear, solar, and wind power generation will gain a lot more traction.
7) Corn prices will go to at least $10 a bushel sparking chaos in Mexico, among other countries.

I have been accused of making bold statements about outcomes way off into the future. To those people I say that I refuse to accept your intellectual laziness as my sin. These outcomes are about as certain as the fate of a wooden house in the eye of a category 5 hurricane.

Dr. Saif K. Lalani




Well, that seemed pretty clear to me...


Yours for a better (and clearer) world,




Mentatt (at) yahoo (d0t) com

One or the Other

Either Oil comes down HARD, or the stock market comes down HARD. (They won't both go up, though both COULD go down.)

If oil heads higher from here, it is my opinion that the U.S. and much of the world's equity markets get CREAMED (that's a technical term).  Smashed. Whacked. Smoooshed.  If oil heads down, say below $100, my bet it stocks would likely rally.

If you are in equities, you have been warned.

 

 

If You Listen Closely, the Markets are Speaking Clearly

The collective wisdom of people who read, think, read some more, think again and then take action (as opposed to the: Ready! Fire! Aim! crowd) is worth paying attention to.  The market is not ALWAYS right, but it is right often enough to listen to it rather than the media, a candidate, or your brother in law...

Last night at a party I got pitched the electric "Volt" from G.M. and the next generation "Prius" from Toyota are going to solve the energy crisis (and oil is controlled by speculators and greedy oil companies and the CIA, etc...).  Oh, G-d, it was painful... 

My fellow "Americans capable of abstract thought": IF these technologies were the answer the market cap of G.M. and Toyota would be many, many MULTIPLES of Exxon, or GE, or, MicroSoft...  Millions of smart, educated, experienced, thoughtful folks with BOATLOADS of money are LOOKING for the company with the solution.  It will be no secret when it is found.  Money will pour into it like RAIN.  Not words... MONEY.  Whoever solves this will not need advertising agencies or public relations firms to manipulate the public.  They will be keeping everything CLOSE TO THE CHEST until they get their patent, after which they will trumpet the solution louder than the SECOND COMING.

Quietly, the market is slowly figuring out that the answer will be decidedly low tech - using less energy.  Just take a look at ethanol stocks if you want to see where the other alternative stocks will be in a year or 2 - flat on their backs.

Yet the bicycle biz seems to be doing well in all of this.

I ride a bike to work.  Want to know what the trick is?  Live really, really close to where you work and biking is a viable alternative, irrespective of the climate.  Don't live close to your work?  You have 2 options:  Move your work close to where you live, or move your home close to where you work.  Pretty simple, really.  You say it that that is impossible for you?  HA!   The market is going to force that solution down your throat much sooner than you could possibly imagine.  It reminds me of investors that "don't want to take a loss" on an investment.  So they hold a loser that invariably gets worse, selling only after they have been completely decimated. 

Take action while YOU are in control, rather than have action FORCED upon  you.  

Your first loss is your BEST loss.

Mentatt (at) yahoo (d0T) com

The Sickening Pandering Continues...

U.S. politicians are an absolute embarrassment.  Hillary's "Gas Holiday", is nothing next to the moronic Senator from Michigan, "The Honorable" Debbie Stabebnow.  Stabenow's bullshitting and grand standing have taken the political pandering and economic communism to a WHOLE NEW LEVEL.

Well, what else would expect from a Senator from Michigan?  Pandering to the folks that make their living selling 6,ooo lbs personal transportation vehicles should be no surprise.  Greedy speculators?  What comes to my mind are greedy, irresponsible, incompetent, arrogant, self serving, fat, drunk and stupid, full of shit people working in the U.S. auto industry.  Your SUV centric business model (and in the case of the State of Michigan, tax model) is irretrievably broken. Sunk.  Glug.  Kaput.  (Oh, and buy the way, smoking and being overweight is bad for you.)

It would certainly appear that all U.S. politicians Republican or Democrat, Liberal or Conservative, are willing to say ANYTHING other than the truth - the simple truth  that each and every one of us is going to have to make SERIOUS adjustments in our lives and lifestyles, that it is no one individual's or group's FAULT and that no amount of wind, solar, little green men.. whatever, is going to change that very HARD fact.

But don't blame the politicians - they are merely the mirror image of ourselves.  We don't want to know, and we cast anybody that attempts any intelligent analysis on the subject as a prophet of "doom and gloom".  We've become a nation of fairy tale "optimists" and "positive energy" jerk offs.  Folks, California's flaky yoga culture, which got exported to the rest of the Nation inside of Hollywood's films, just isn't going to substitute for the laws of math and physics.  Not in this life, or the next.  Not even in the movies.

I despair the American Body Politic.  Good people, before they got into office, are reduced to whoring and deception by the temptations and trappings of power.  Well, I got news for the political hacks running the train set:  You can't get a little bit pregnant.

(Frankly, I was impressed with Barak Obama's unwillingness to join in the pandering, but he, and the other presidential candidates, along with our Congressional "Leadership" (what a JOKE) are a long way from where they need to be:  LEADING.)

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Things you wouldn't think about...

I don't think I have to pound in the "I told you so's"...

The beginning of the LAST U.S. energy crisis is here - and when I say last I mean to say that this one will last the remainder of the life of anyone reading this - so for the next couple of posts I am going to point out the impacts of this on some things folks just don't think about.

Let's talk MAINTENANCE:

My personal favorite is landscape maintenance.  I live in the wealthy enclave of Boca Raton, much of it is former swampland claimed for development from the Everglades.  Most of the "Country Club" type communities a few miles west of the beach fall into that description.  The folks living there are not the types to cut their own lawn and trim their own shrubs, trees, and bushes.  Boca Ratonians have local companies employing illegal immigrants and other unfortunates to perform that dirty work in the hot Florida sun (I DO cut my own grass and purposely have very little of it and much to my neighbor's chagrin I do not water it to retard its growth).

In an extreme liquid fuels shortage the fuel required to maintain landscaping will lose the demand competition to fire trucks and ambulances.  Transporting crews of people around Florida for this purpose will be EXTREMELY expensive, not to mention the fuel needed to aggregate the crews in the first place.  The workers will simply not be able to afford the increase energy costs in their own lives without SUBSTANTIALLY increasing the fees for their services.  Since the effects of high energy costs will be compounded in everyones lives, the ability of many of the formally wealthy homeowners to continue to pay for all of these costs at a time of contracting GDP will likely decline precipitously, and that presupposes that the fuel is even available for the dubious benefit of lawn care.

As I like to say - there are 2 sides to an "equals sign" ("=").  So what is on the right side of the = ?  Florida has a 52 week growing season.  A significant fuel crisis means that the Everglades would reclaim much of what we took in a VERY short period of time.  Did I mention the effect that alligators in your living room and snakes under the couch would have on the value of your home (and what that means to mortgage banking system).  Between the Everglades and the hurricanes Florida will be the backwater it used to be - and quickly.

As a matter of fact, the folks living along the beaches and inter-coastal in Florida have their own maintenance issue: SALT.  Salt water, salt in the mist and in the wind, salt, salt, salt... corrodes everything.  Ever notice how cars up North are always rusting out from the bottom?  That's from the rock salt used to melt ice on the roads.  Well, salt on a northerners car and salt on a South Florida home has the same outcome.  

Getting things maintained is going to be a CHALLENGE, and expensive, high maintenance stuff is a poor investment in an energy constrained world.

Check back, and we will work over something else.

Mentatt (at) yahoo (d0t) com

The U.S. Oil Import Crisis is Beginning to Sink In

The average U.S. motorist drove less in 2007 than they did in 2006 - about 1 % less.  Still, that was not enough to stop oil prices from DOUBLING since last year.  Preliminary data indicate that Q1 2008 vehicle miles traveled declined when compared to Q1 2007.  

This is no coincidence.

The TOTAL availability of liquid fuel BTU's has fallen in the U.S., and this trend will likely accelerate for the next several years.  Less liquid fuels = less vehicle miles traveled ("VMT"). Simple like that.

So how can the economy resume its growth pattern if little Suzie can't cruise to the mall and drop a hundred bucks on future love handles and saddle bags along with some worthless chachkas?  If we drive 1% less don't we consume 1% less tire rubber, roadside food, and healthcare for car accidents?  Care to guess what the decline in VMT will be for 2008 over 2007?  I will bet closer to 2% - and then it gets REALLY interesting.  Just think what the economy will look like in 2010 with a drop in VMT of 10% compared to 2006.  Life will go on, as long as you are not a financial or real estate professional.

Look out a little further and electricity rationing comes firmly into view.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

The "Happy Folks" New Lie

2 years ago, ethanol was going to save the world's motorists. 

In 2006, President Bush, when asked if ethanol was the answer to the U.S. energy problem retorted:  "It better be".

Pretty straight shot, for a politician.  And now we know that ethanol is NOT going to save America's car dependent economy.  So here comes the new pitch:

Electric cars!  (Does any thinking person really believe that we can fill all those traffic jams with electric vehicles?)

Folks, there are going to be electric cars, hydrogen cars, fuel cell vehicles, ethanol motor cycles, etc... but here's the deal.

America's car owners now drive an average of 14,000 miles per year or so in 2006.  My back of the envelope calculations tells me that in 2020 American car owner's will be down to 4,000 to 6,000 miles per year and, get this - much less in 2030.  (If you have Retail Shopping Mall or Auto stocks in your retirement portfolio it is time to "think a new".)  Oh, and by the way, the miles you do drive will be INFINITELY less comfortable and cramped, and if it is in an electric car it will be without heat or air conditioning.  I live in South Florida.  The thought of sitting in glass box in 95 degree heat with the sun beating down in a traffic jam (there won't BE traffic jams but work with me for the effect) leaves me less than enthused about car transportation in the future.

Here is another fund fact to know:

If you buy a new car this year, you better lease it.  The vast majority of 2008 model year vehicles will OUT LIVE THEIR FUEL SUPPLY, becoming just another hunk of metal that rusts in the rain sitting in your driveway.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

My Cure for the "Housing Crisis"

The "Housing Crisis" has been brewing since roughly 1970, and it only blew its top in 2006.  We are now entering the long corrective phase.  

I could cure the "Housing Crisis" in the amount of time it takes close a residential real estate transaction.  Snap!  1, 2, 3!

Ready?

Every mortgaged homeowner in America walks away from their mortgage, or, in the case of folks with too much equity, sells their home to and purchases the home of their next door neighbor for 50% or less of what anybody even remotely thinks it is worth.  Got it?  Everybody does this simultaneously.  Now everybody's mortgage has been cut in half, their property tax assessment has been substantially lowered lowering that tax bite, insurance premiums will fall...  And not one person's life style will be lowered!  Banks will fail, the markets will drop like a rock, and the $ would plummet... but Zero Savings John Q. Public, Average Joe, Joe Ham & Eggs, Joe Meat & Potatoes, etc... will be FAR better off.

WE DON'T HAVE A HOUSING CRISIS!!!!!!  WE HAVE A HOUSING FINANCE CRISIS!!!!

HOMES BECAME FAR TOO EXPENSIVE RELATIVE TO THE MEDIAN FAMILY INCOME!!!!  

NO AMOUNT OF JAWBONING, POLITICAL MASSAGING, LAWSUITS, PRAYERS, THREATS, OR BEGGING IS GOING TO CHANGE THE COMING CORRECTIVE ACTION OF THE MARKET!!!!!

If you are an average zero savings working Joe this is GOOD for you!  PRAY for a 50% decline in home prices over a 1 year period.  That would be the best thing to happen to poor folks since sliced bread and spam.  The reason you hear the governments and the politicos gnashing their teeth is that this is VERY BAD for (political contributors) the establishment!!  Inflation is GREAT for the guys who already own everything - it is a disaster for those trying to break into the middle (or upper) class.

Think about it:  I love inflation!!  I own land, and bullion, and commodities... and best of all... I am leveraged!!  Inflation improves the debt/equity ratio of my assets.  Think about it:

Say I own land worth 100k and owe 50k in a mortgage for a debt to equity ratio of 50/100. Now factor in 5% asset price inflation and... Viola!!  debt to equity of 50/105!  Compound that for 2 more years and... Viola 50/116 (or so).  Now look at the other side of the "equals sign".  If you are working and saving to buy that property and it takes you 3 years to do so... well, it ain't 100k anymore, its 115k.  See how this works?  Pretty good deal for the "haves".  So when you hear all this "Save Our Homes" and the "Home Hope Initiative" Bulls--t, you will know they ain't doing you any favors.   

Guys like me HATE price asset price deflation, because our debt/equity ratio can turn us upside down in our assets.

Now take a young person from a lower middle class/working class family.  They have ZERO assets.  They will have to save and sweat for several years or more before taking on a lifetime of indentured servitude debt to buy a home.  While they are saving and sweating inflation is destroying the value of the cash they are saving while improving the value of the assets of people that already own them.

If you are a "have" you LOVE inflation.  If you are a "have not" inflation is doing its level best to keep you there.  Our entire economic system is built on the premise of perpetual 2.5 - 5 % inflation, though our Federal Reserve talks like inflation is the enemy.  SInce 1913, the year the Fed was created to "contain inflation" the U.S. $ has lost over 97% of its purchasing power due to  inflation.  Does that sound like the Fed has been fighting inflation?   AND I HAVE TO TELL YOU THIS???!!!  UGGGGHHHHHH!!!!!!!!

Look, I am an unrepentant capitalist.  This creeping socialist crap disgusts me and helps no one. But I am not fooled by these dirt bag CEO's and politicos extolling the virtues of the American free market system.  As soon as one of their Fiefdoms is in trouble they suddenly join the "socialist workers party" looking for a bailout at taxpayer expense.  The senior executives at Bear Stearns should have left with NOTHING (maybe some grey pajamas and a stenciled number on their jumpsuit lapel) - not ten's of millions of tax payer money.

Yours for better world (without indentured servants)

Mentatt (at) yahoo (d0t) com

A report out this morning from Goldman Sachs states that their analysts think oil will "likely" trade between $150 and $200 in the next 6 to 24 months.

My favorite quote from the report:

``Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.''

(Well, common sense won't do a bit of good.  Someone is going to have to hang for higher oil prices, and it sure isn't going to be one of our "Leaders", so I expect to see a couple of speculators arrested and charged before long...)

KUDOS!!!! to Goldman.  Unlike the other "Wirehouse" or big retail firms, Goldman's clients are the most well informed (and wealthiest) folks on the planet (G-d, its good to be King!), so Goldman's business is not predicated on misinforming their client base, as a UBS, or Merril, or Smith Barney is (not that they wouldn't if they could, it just  wouldn't work for them).  Publishing "Wishcasting" (as opposed to well reasoned "Forecasting"), like the retail firms do will not work for someone like Goldman Sachs, and it won't be long before the other firms roll over dead and follow suit.  At that time Oil will be close to a "sell" and if you follow the advice of the retail firms you will get your bottom reddened in front of the class.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Wishing does not work

For the past 3 years every time the price of oil has dropped, the media ran with pieces like:

"The price of Oil fell today. Has the oil bubble popped?"

That's the kind of LEADING instead of reporting you have been getting... and they have led you the wrong way.  Where was the media for the Tech Bubble and the Housing Bubble? Those "bubbles" were in the media's and Wall Street's best interests - higher energy prices are not.

The media was out in force last week with this nonsense, and the ink on those articles is not even dry and now they have to eat the paper it was written on.

BTW oil for delivery in 2009 and 2010 is now at a new record, and percentage "backwardation" has declined substantially. It wouldn't take much to put the Oil curve into "contango".

Mentatt (at) yahoo (d0t) com

"Oil is Expensive Because Oil is Scarce"

I find it amusing that the neo-classical economists (Michael Lynch and Dan Yergin come to mind) cannot seem to grasp this simple concept.  After all, it is one of their founding precepts.  Ah yes, "no man can understand that which his salary requires he not understand".  

Politics and Oil have gone hand in hand for well over a century - certainly back to the original Anti-Trust regulations of the early 20th century (I wonder how many Americans can define a "Trust" as was understood at the time...).  The first Anti-Trust legislation was directed at the only "Big Oil" we had:  Rockefeller's Standard Oil Co.  

Listening to the pandering of the 3 presidential candidates to the masses on gasoline prices is an ongoing lesson on the state of our capacity to think - approaching "E" on the fuel gauge(s).

But ponder this for a moment:

Iran just called the U.S.'s bluff.  The fact that we are so close to a military confrontation with the country whose shores line the highway that nearly HALF of the world's exported oil travel's through seems to be lost on the financial markets, not to mention the folks running and depending on the myriad supply chains for goods and services in the U.S.

Let us play a little "What If..." shall we?

What if the U.S. means it when it says that Iran will not be permitted to gain nuclear capabilities?  Since the Iranians do not appear to be dissuaded by words, and there is NO shot of a trade embargo against them considering how much the world needs the oil exports...  The only option left is military engagement.  

Iran is not a small country.  Over 65 million people live in the country, and Iran is not a "gray" zone like the U.S., Japan and Western Europe.  The vast majority of the population is young, and Iran has 5 % per more men then women.  In other words, Iran has the "perfect" demographic for a war of attrition, and Iran possesses a vast intelligence and spy network that might wreak havoc on the West's transportation system (just think how favorably an American administration would be viewed by the American people if a couple of passenger jets were brought down by Iranian saboteurs).  But that is all chump change when compared to the really big issue.

Oil tankers are not military vessels. They are owned by for profit corporations, operated by for profit corporations, and insured by for profit corporations.  These tankers are, for the most part, not American.  If the U.S. and Iran engage militarily, these tankers will not operate in the Persian Gulf, and cannot be ordered to do so by an American administration.  Within hours of hostilities, the flow of oil out of the Gulf will cease altogether, and U.S. service stations will be emptied by American drivers attempting to fill up their vehicles (240 million vehicles with an average 1/2 tank trying to go to a full tank = 10 gallons per vehicle, not including trucks and aircraft, 2.4 billion gallons/42 gallons to a barrel = just over 57 million barrels = more than the U.S. holds in "bulk storage", and this does not take hoarding into account.), within several more hours the same might also be true of American grocery stores, certainly no more than a few days.

You see, in an Iranian engagement and with no oil coming out of the Gulf, the export patterns of the unaffected exporters would be significantly disrupted, to say the least, in order to extort as much as possible under the new circumstances.  Within weeks, surreal shortages of oil would hit the U.S., and the effect on trucking and "just in time" inventory management would mean that the National Guard would be involved in the distribution of food and heating oil, with heating oil likely being, for the most part, unavailable.

In the absence of heating fuels, considerable damage would occur to U.S. housing and commercial buildings as pipes freeze and burst, leaving these heating and plumbing systems inoperable even IF fuels should become available.

Lest you think that the U.S. could use electric heat or Natural Gas to substitute for the missing oil:  The 7% or so of American electrical generation coming from Oil would cease to exist, and with the absence of transportation fuels maintenance of equipment and infrastructure would be severely curtailed.  Damage from lightening strikes, storms, tornados, hurricanes, etc... would not be repaired (South Florida and other hurricane vulnerable areas should give that some thought).

Food production, processing and distribution would be SEVERELY affected, as would sanitation (you know, the ability to flush your waste away), healthcare, law enforcement and security, education... you get the idea.

I am no political scientist, but it would seem that the probability of an American/Iranian military showdown over nukes is (much) greater than ZERO, which means all of the issues above have a (much) greater than ZERO probability, too.

By the way, for importing countries that have little to no domestic oil production (Israel, Germany, Japan come to mind) things will be infinitely worse.

Still, all of the above would be far better than a WWIII nuclear exchange initiated in the Persian Gulf.  

Talk about a rock and a hard place.

Yours for a better world,

Mentatt (at) yahoo (d0t) com

Saudi Arabia's Positive Feedback Loop is the West's Negative Feedback Loop

Credit Suisse, one of the world's largest investment banks says Saudi Arabia is entering a "Golden Era". How true. Unfortunately for the West, the series of events leading up to the Saudi Golden Era will lead directly to the unwinding of the Western Hemisphere's industrial revolution in my life time.

Am I being dramatic? I think not. At this pace, Saudi Arabi might well be unable to export a single barrel of oil in less than 2 decades, right about the time I am supposed to start collecting on my Social Security fortune (well, I paid in a fortune) - what a laugh. How will the U.S. economy of 2028 support 100 million retirees with very, very, very little oil to run the train set? Windmills? HAHAHAHAHAHAHAHAHAHAHAHAHAHHAHA!!!!!!!!!!!!!!!!!!!!

Saudi Arabia is going too build 5 new cities... HMMM, think maybe they figured out it is better to bring the people to the oil than the oil to the people?? Are any of the new Saudi cities going to use Windmill power? Are the folks living there going to commute by donkey and cook over a dung fire? No? You mean they are going to consume Saudi (our) oil? Guess that means you will be commuting by donkey and cooking over a dung fire...

Sorry. That got away from me. As the importing world sends more and more money to the oil exporting nations to pay for ever increasingly higher priced oil, this feed back loop is only going to get worse. MUCH WORSE. And at some point, the PEOPLE living in the exporting nations are going to demand that their "leaders" stop selling oil at any price, and that date is much, much, much sooner than 2028.

Enjoy your retirement!


Yours for a better world,


Mentatt (at) yahoo (d0t) com