Oil/Gold - Euro/Dollar - Equity Bubbles & cycles...
A must read article on the relationship of Oil/Gold & the Euro:
gold-eagle.com
<< ""In the mid 1970's, the finance ministers of both Kuwait and Saudi Arabia stressed that their needs were only to provide for the welfare of their citizens, and that oil in the ground is better than paper money…. So in 1971, while the Texas price of oil was $3.45, OPEC re-priced their Middle Eastern oil up from $1.80 to $2.20 only to see the market price due to demand in 1973 overtake the official posted price, at which point OPEC saw the writing on the wall, and in October raised the price per barrel to $5.12 while curbing production. By December, the Shah of Iran called a press conference to announce the official price would now be $11.65…. And so began the First Oil Crisis of the 1970's." Understanding the Mid-eastern strong affinity to gold and not dollars is critical. As long as they could get gold with dollars from their oil, they were content. Later, when the size of paper gold loans increased such that 14K metric tons were sold forward, serious thoughts of contract default changed the nature of the paper gold market.
The SA oil generated huge profits for the SA and Kuwait and other cheap oil producers. They used these profits to buy infrastructure, weapons, and aircraft. The magnitude of the profits also netted a continual and huge net profit above and beyond the systems capacity to absorb these petro-dollars. These profits were largely placed into gold. From 1973 until 1980, these dollars largely bid for gold on the open market and resulted in an increase in the price of gold from $174 to $852 per ounce. This open bid for gold by oil caused a near failure of the dollar, it caused gas shortages at pumps across America, it caused the highest interest rates, set by the Volker Fed, and the largest run on commodities and real estate in the later half of the 20th Century...">>
- anyone remember OPEC's comments recently about wishing to price Oil in Euro's & no longer in US Dollars ? - anyone still have doubts that OPEC must hedge the ultimate simultaneous implosion on their Oil Receiveables of a correcting US Dollar & declining prices for Oil ? - they won't just hedge via Gold, they must hedge via Gold.
======================================================
Concerning my thoughts on another spike in Crude prices prior to the US Presidential Election - I guess I'm not the only one... per Tomas's excellent post - here's a brief quote from WorldOil.com:
<<"To the casual American observer, this may sound wildly convoluted, but there is sufficient evidence to consider. For example, we asked our contributing editor for the Middle East, Dr. A. F. Alhajji, about such a scheme, and he said that he, too, had heard such rumors - and from generally reliable sources. Additionally, the rhetoric coming out of a majority of Arabic media is white-hot with anger and displeasure over Gore's selection of Lieberman. For example, the Al-Thawra newspaper out of Damascus, Syria, called the choice of Lieberman "an inappropriate option that will reconsider the U.S. role in the peace process." It said that Lieberman "has not come to (the presidential campaign) as an American but rather as a Zionist in a U.S. cloak, and for a defined aim, which is to achieve the Israeli policy targets......... To those folks who believe the Arabic OPEC producers cannot make such a plan to punish Gore work, this editor would simply remind them that nobody believed in March 1999 that the member-countries could adhere to the output reduction pact reached that month, either. Indeed, as this column was being written (mid-August), world oil price was again bouncing around the politically sensitive $30/bbl mark after a short-lived decline in July and early August.">>
... the Middle East is at a flash-point that few are seeing imho. This is NOT a question of being "anti-semetic" as George Cole stated earlier (Glad to see you back George !)- but, it is a painfully politically incorrect subject to discuss - but; this article in WorldOil.com shows that it "IS" being discussed openly in very emotional & heated terms all thru the Middle East and it is an Arab vs Zionist issue in the strongest polticial sense, of still yet unfathomed consequence here in the USA in my personal opinion.
Do you think the Arabs having just seen Clinton impeached & escaping removal from office by a whisker; realize that Gore could face a similar situation concerning the raising of campagin funds form the White House, "Monk-gate" etc... in reality in the Arab World; Lieberman is perhaps closer than a "heart-beat" away from the Oval Office; he's merely a "Clinton-Closet" issue away...
============================================================
Remember when CNBC & the Kudlowites used to keep citing Gold Prices as a sign that there could NOT possible by any inflationary pressure from Oil in this new "productivity" paradigm era ? - they also kept pointing to the Australian Currency given their commodity driven economy as yet another sign that their could not possible be inflation etc... well; for all those who realize the ESF helped the bail out the Derivative players/Banks from last Septembers Gold Spike breakout - the Australian Gold Stocks & commodity prices have totally disconnected from the "manipulated" Australian currency per this Bloomberg post. This confirms a significant turning point imho - that being when the manipulation of the currency no longer matters & traders continue to buy Australian Gold Mining Companies & commodity prices continue to rise into the face of a fundamentally disconnected/manipulated Australian currency !
Australian Commodity Prices Rise to Highest Since December 1997
quote.bloomberg.com
============================================================
Here's an interesting; albeit somewhat extreme view; on the impact of longerterm agricultural cycles and the effect of interest costs & debt expansion in predicting cataclysimic economic collapses:
gold-eagle.com
============================================================
Concerning the Gold Short/Derivative positions of the Major Banks:
gold-eagle.com
<< ..."Contrast that to Deutsche Bank, JP Morgan, and Chase Bank. JP Morgan's gold derivatives have jumped from $18.1 billion to $36.5 billion in one year. While it took Chase Bank 14 years to get to $22 billion, in the first quarter of 2000 that number jumped to over $31 billion. According to the BIS, the gold derivative positions of reporting banks surged in the quarter from $87.6 billion to $95.5 billion, a 36% annualized rate of growth. That number is as great as all the gold in the coffers of all the central banks in the world! ALL OF IT!">>
============================================================
Interesting article on Debt, inflation & gold/commodity prices:
gold-eagle.com
<< "Regarding monetary expansion we are nearly at the same situation as at the beginning of the seventies: The huge upward movement for commodities in 1973 started first with a sharp decline for commodities, sharp increases of money supply and low interest rates and high economic growth. Money growth accelerated as savers were willing to buy securities world-wide in a certain deflationary scenario. We all know what followed: the sharp increase in the oil price and other commodities triggered a spending frenzy, high volatility and high inflation.....Given the difficult scenario, the investment strategy is clear: The high leverage and increasing volatility makes it important to have excellent timing for investment decisions. The best time for investing in gold has been a peak of monetary growth: 1973, 1977,1986 and 1992 have been excellent years for investing in gold. The current monetary growth has already reached a very high level, which suggests the most opportune time for investing in gold, other precious metals and mining companies looms on the horizon. If money supply is limited through devaluation, declining demand for stocks and bonds will ensue. This will be the signal to go into gold and commodities. We are already at the beginning of this trend.
As the monetary peak is so high and comes so late, gold and other commodities have been hard hit. This is just a reflection of its high volatility. Nevertheless, the high monetary peak also makes the case for an almost unprecedented sharp and high recovery for precious metals and commodities.>>
============================================================
The greatest single mistake people make is they view the market in very short capsulized periods & cycles. When one looks at equity market bubbles, debt, inflation-deflation, the US dollar, Oil and Gold in longer cyclical periods and studies their historical relationships & retraces to equilibrium; the coming cataclysmic events in the Global Economies & Gold's coming spike is not a difficult call.
Pigs get Fat & Hogs get Slaughtered....
We may get one last euphoric equity market blow off; that will also signal the bottom for Gold; - start taking Oilpatch profits - rotate those funds to Gold & Gold/PM Mining stocks & if so inclined; short the bubble stocks - that's the "HAT TRICK"...
1. Ride the Black Gold Spike - but; continually take profits atop each new breakout leg & continually rotate $ out of Black Gold's rise into any & all weakness in "Yellow Gold." - the cap for Oil Stocks is a imploding US Equity Market.
2. Buy un-hedged Gold & Silver- PM Mining Stocks - if not the physical.
3. Short the Tech-Bubble upon any late 2000 Tech rally and any return to NAZ 5000ish
============================================================
Merrill see's the potential of an equity collapse !
BINGO ! - the below comments from ML are on the money. This winter heating seasons increased heating & gasoline costs will potentially completely wipe out - virtuall "ALL" discretionary income from the lower 40/50% of American Citizens. Many, many people will be facing added costs of $200-300 per month for winter heating bills, atop another $50-$100 per month in higher gasoline costs and all of this in addition to the rampant surcharges we are seeing passed along by Fed Ex, Airlines, Trucking & Transportation Co's and let alone; what will soon be felt via "bleed-thru" in every niche & corner of the US Economy.
Given all the earnings misses the Street has seen of late & the nearly impossible "comps" most companies face going forward - wait for the cycle of corporate cutbacks in response to their own Energy/Euro related shortfalls & then see what a reduction in consumer confidence over their own jobs does to consumer spending in addition to what the bleed-thru of historically high energy costs does as well.
Should the US then be forced/tempted to lower US Interest Rates in an attempt to either rescue collapsing equity markets, or to keep the US Economy firing on all cylinders - this will cause a flight from the US Dollar and result in a virtually impossible scenario in which the Fed can't win & Gold wins in either a continued white hot economy, or a Fed Cut & lower dollar environment as well.
Merrills comments:
<<There is, however, another interpretation of the high oil price - that it is a symptom of the strong world economy.
Certainly, history suggests as much. Each of the last four oil price rises has occurred at a time when the G7 economies were operating at an above-trend level. And the fact that many metals prices are also rising suggests so as well.
This, however, means the world economy might not be slowing as much as the consensus expects. Certainly, there is evidence for this. Recent surveys of purchasing managers in the services sectors in the US, the euro-zone and UK have all pointed to economic growth remaining strong - and remember that services output is twice as high as manufacturing.
The main message from rising oil prices, therefore, is not that economic activity will slow next year, but that it is so very strong now. This means central banks may have to raise interest rates by more than investors expect, in order to reduce the danger of higher inflation.
This, in turn, will be bad for equities. Above all, however, investors must remember the lesson of the last 25 years - that there is a surprisingly close correlation between oil prices and equities. When oil prices fall, relative to consumer prices generally, equities do well. And when the real oil prices rises, equities do badly - as happened, for example in the late 1970s and in 1989-90. Ignore this at your peril.>>
============================================================
..."ignore this at your peril" - indeed. |
