Will Nat Gas save the day? (from CWEI by "fromthesideline")
investorvillage.com
Northbeach's positions in Canadian energy and gold as hedges against the US dollar resulting from a myriad of self-inflicted problems has much to recommend it, and, for good reasons, many astute readers who recommend his infrequent but excellent posts.
At the risk of sounding out of tune with the chorus, I'd like to present a few comments for consideration:
1. Those that see commodity inflation as the direct and inevitable result of dollar depreciation fail to explain why not all commodities have risen in unison with the dollar's decline. Those that see generalized inflation overlook deflation in many goods and services. I point this out on an energy board for one simple reason: imo, much if not most energy inflation is due to decades of underinvestment, public sector energy mismanagement (Mexico, etc.), and geology. How else to explain why US Natural Gas production has grown powerfully when, around the globe, state-"managed" energy sectors remain unable to respond to higher prices?
2. The Art of War is unambiguous: war is inflationary and impoverishes many. A perpetual and exceedingly costly war in Iraq, still seeking a known causus belli, is the road to economic ruin. Fortunately, the American public understand this and are voting to leave. An end to the financial and human bloodletting of this needless war will benefit the US dollar.
3. The US consumer is indeed hanging by a thread and has no credit line to catch him, which is why every additional dollar spent on energy reduces other expenditures. I fail to see how this is inflationary, though, of course, we are indeed witnessing the spread of higher energy price thru other sectors.
4. If I read and understand this fine board correctly, the US has enormous amounts of natural gas that can now be economically exploited. It is way to early to think of the US as (again) an energy powerhouse, but events in the various shales suggest we are seeing the first pitch of a multi-decade game in which many many Ts of domestic gas are found and developed. To me, this is a major plus for the US dollar.
5. I agree with Northbeach that the US economy is now in "stall mode," and I agree there is a lot more pain to face: regional banks, major banks, commercial real estate, and even the collapse of major companies, such as, say, GM dragged down by GMAC and decades of incompetence.
6. At the risk of sounding like Kudlow (ughhh), it may be a time to think about US-dollar based opportunities in a world which is energy-short on a long-term basis.
7. As to the wisdom of gold in an economy whose drag greatly exceed its lift, I have my doubts.
8. It may be wise to think in terms of high or higher energy prices regardless of what happens to the US dollar if only because the Saudi shoe has yet to drop.
9. We may face the possibility of a world in which energy zooms north(beach)ward, in which case Northbeach's Canadian energy thrives, but inflation gives way to generalized deflation (ex energy) caused by strapped consumers and a failing financial system.
10. We can start to make our own luck by exiting our failed war and investing in long-term opportunities, such as North American natural gas, that are every bit as enticing as the Canadian oil sands Northbeach embraces.
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