Buy oil stocks when the Saudi currency comes under pressure. Explosion is coming there.
For US investors, Saudi Arabia is one of the most important countries in the
world. It's the largest oil exporter, containing somewhere between 25% and 30%
of the known world oil supply. When Saudi Arabia sneezes, US investment
markets catch pneumonia.
While we cannot be certain, it looks like a big sneeze is just around the corner.
The exact timing is not predictable, but when it happens, investors who are in the
right oil investments [see Crude Oil Strips] will profit enormously. Those who
aren't will be seriously hurt.
Here's the Story
Look at a world map from the last century and you'll find the Arabian
peninsula labeled Arabia, not Saudi Arabia. This seems a small point, but it's the
key to understanding what's happening.
Saudi Arabia is a giant desert: a third the size of the US, but with only 17
million people. (The US has
258 million.) When I flew
over the "Empty Quarter," I
felt as if I were flying over
the surface of the moon.
Most of the Arabian
peninsula is so dry and
worthless that until this
century, few tribes bothered
to draw the boundaries
between their territories.
Until the early Middle
Ages, the peninsula was
inhabited only by a few
nomadic bands. Then it was
divided into numerous states
often at war with each other.
One of these was the Saud
family dynasty, founded in
the 1400s.
In the 1500s, the Turks
gained control of the area
along the Red Sea called the
Hejaz, and in the 1800s, the
British took parts of Hasa
and Oman along the east
coast and Aden in the
southwest tip of the Arabian
peninsula.
The wars among the
tribes continued until the
1930s when ibn-Saud,
backed by the British, finally
conquered the other tribes.
He established the state of Saudi Arabia, roughly within its present boundaries.
Yemen and the other small states of the Arabian peninsula are the lands ruled by
tribes the Saudis did not subdue.
When Saudi Arabia finally does slide into chaos, I will not be surprised to
see the price of oil double in 48 hours. Call this "Scenario #1."
If the crisis includes an invasion by Iraq or Iran, I will expect oil to triple in
48 hours. Call this "Scenario #2."
If it includes an invasion by both, I expect oil to quadruple in 48 hours. Call
this "Scenario #3."
If at the time it happens you have five of the Crude Oil Strips, purchased at
$2,000 each for a total investment of $10,000*, your possible net profits
could be:
Scenario #1 -- $250,000 based on oil @ $38 per barrel
Scenario #2 -- $630,000 based on oil @ $57 per barrel
Scenario #3 -- $1,010,000 based on oil @ $75 per barrel
* Prices are subject to market moves and are constantly changing
No guarantees, but I think there is a 70% chance of something enormous
happening in the Persian Gulf by the end of the decade, and 90% within five
years. In EARLY WARNING REPORT I will continue keeping you informed.
-- Richard Maybury
The risk of loss in futures and options can be substantial, therefore only genuine risk funds
should be used. The risk of loss in buying options on futures can result in the total loss of
the premium paid plus transaction costs. Past profits are not necessarily indicative of future
profits. This estimate was calculated by Investors Publishing Services, Inc. (IPS). The
opinions contained herein do not necessarily reflect the views of any individual or other
organization. Material was gathered from sources believed to be reliable; however, no
guarantee to its accuracy is made.
Why is the Name Saudi Arabia So Important?
It causes the misleading assumption that members of the Saudi family are the
rightful owners of the place and the rightful representatives of the people. It's as if
a Canadian family named Ferguson had conquered Canada and had the gall to
rename it Ferguson Canada, and everyone in the world including the USG (US
Government) now referred to all Canadians as Fergusons. It is one of the most
successful hoaxes in history.
The Saudis are dictators who rule the other tribes with a heavy hand. If they
didn't have all that oil, other cultures would regard them as just one more group of
thugs in the same league as Qadaffi, Assad and Saddam Hussein.
The key point for our investments is that the Saudi royal family is roundly
hated by their subjects. The king and his tribe live in great opulence that provokes
much jealously. Everyone knows the Saudi tribe has no more rightful claim to the
oil money than any other tribe.
The Saudis have two armies so that if one revolts they can pit the other one
against it.
Their primary means of preventing revolts has been to spread some of the
wealth around in the theory that if the population can be kept in a kind of welfare
stupor like domesticated cattle, few will have the initiative to revolt. So far it's
worked.
They allow no freedom of speech or press. Every non-Saudi knows that if he
gets caught saying something unflattering about a member of the royal family, he
could vanish.
It's a big family. Ibn-Saud had 150 wives, so today a legion of 6,000 Saudi
princes occupy the most important and high-paying jobs and keep the economy in
a chokehold of nepotism.
Political parties are not permitted. Activists are arrested and tortured, including
electric shock and flogging. Judges are influenced by the royal family and they can
be overruled by the king.
No one in the Islamic world ever forgets that the hated Saudi conquerors sit
atop 260 billion barrels of oil and they got there with the help of one of Islam's
oldest enemies, Britain. Worse, the Saudis are trying to stay there with the help of
Britain's ally, the US. This is a time bomb that will go off. Count on it. The
only question is when.
Now that you know about some of the turmoil brewing in the Persian Gulf, I
suggest that when you invest in oil companies you make sure they are well
run firms with little debt, lots of oil or gas in the ground, and little or no
holdings in Chaostan.
I suggest Berry Petroleum (BRY, NYSE), Murphy Oil (MUR, NYSE) and
American Gas Index Fund (1-800-622-1386).
You will find a list of more than three dozen investments expected to profit
from the turmoil in Chaostan in the July 1997 EARLY WARNING
REPORT. Subscribe now.
Tensions Are Rising
Despite the carloads of money earned by all that oil, the Saudis are now
managing to spend it faster than they can make it. Infrastructure is going without
repairs as contractors wait more than six months to be paid. Some neighborhoods
experience frequent water cutoffs. Hospital beds are in short supply. New homes
sit empty for lack of electrical service.
As the Saudi welfare state crumbles, the influence of Islamic rebels is
increasing. Underground faxes written against the royal family are widely read
and discussed. Popular music has become openly antiroyal. A line in one song
says, "Kings when they enter a country despoil it and make the noblest of its
people the lowest."
Middle class Arabs keep mental lists of the rumored prices of each royal
palace.
Jokes depict the king as a witless tyrant. This is very important. The one
weapon no government can stand against is ridicule. Once bureaucrats, police and
troops are embarrassed to be a part of the institution, their morale drops, they quit
doing their jobs, and that's the end of it. (If you really want to fight back against
the Washington power structure, compile a list of jokes about it and pass it
around.)
How Hopeless is the Situation?
Try to imagine: the Saudis have a fourth of all the oil in the world and a
population of only 17 million - the same as Texas - yet they are spending the
money so fast they're broke.
The royal family's connections with Britain and the US discredit them even
further since the US-UN arms embargo of the earlier 1990s in the Balkans led to
the slaughter of thousands of Moslems. Said Saudi Arabia's Al-Yawm newspaper:
"The United Nations bears responsibility for what is happening now in Bosnia."
The royal family's complete dependence on the protection of the West was
demonstrated in the Iraq-Kuwait war. When the ground war began on January 16,
1991, the Saudi troops immediately abandoned their equipment and fled to take
cover behind US lines. A disgusted British officer said, "They bugged out."
"If the world has seemed a messy place since the end of the cold war, it has
lately been getting sharply messier."
THE ECONOMIST, 1/14/95
A Nitroglycerine Combination
As if all those historical and financial problems were not enough, Saudi Arabia
also contains Mecca and Medina. These are Islam's two holiest cities. This means
the shrines that are Islam's most sacred are under control of a regime that is widely
perceived as Islam's most corrupt. A nitro and glycerine combination if there ever
was one. Imagine how Catholics would feel if the Vatican were conquered and
controlled by Al Capone.
A popular song is titled "Islam vs. Christianity," and Moslems everywhere
wonder which side the Saudi royal family is really on.
In 1981, President Reagan pledged US protection for the Saudi regime against
all enemies, internal as well as external. This means, apparently, that when the
Saudi rulers finally do come under attack by their own people, their dictatorship
will be protected by US troops. I wonder how many US troops realize what
they've signed on for. Do they remember it was the Saudis who led the 1973 oil
embargo against the US?
The End of the Saudi Royal Family
We can never be sure about these things, but the great rebellion in Saudi
Arabia may be near, due to breakthroughs in electronics.
As with all dictatorships, the primary means the Saudis use to control their
people is to control the information the people receive. For several years, Saudi
police have been searching out and destroying satellite TV dishes which receive
uncensored news broadcasts from space. But the dishes are being downsized;
some now are as small as 18" in diameter and can be hidden anywhere. Also,
phone line access to the Internet is fast becoming universal.
So, I believe the new electronics combined with the financial crisis means the
end of the Saudi royal family. My guess is that Iran's secret agents will continue
working to foment revolution, and they'll do it in a way designed to prevent US
intervention. The rebels will claim to be fighting for a more democratic Arabia.
Once they've succeeded and are in power, they will request assistance from Iran to
"stabilize" Arabia. This voluntary invitation to Iran by the new "democratic"
government will be an end run that will deprive the USG of justification to
intervene.
A Puppet of Iran
The new Arabian government will be, in effect, a puppet of Iran, and Iran will
get de facto ownership of all that oil. If Iran can also take the small Persian Gulf
oil states in the process, they will end up controlling half of all the oil in the world.
The USG has little understanding of Saudi Arabia. As in Iran in the 1970s,
US officials deal with the English-speaking elite and get only their view of things.
When the big rebellion happens, today's politicians will probably be as surprised
as their predecessors when the Shah of Iran was overthrown.
Saudi Arabia is the most thoroughly crazy place I've ever visited. A whole list
of descriptions comes to mind. Weird, balmy, psychotic, Alice in Wonderland.
The only thing certain is that it cannot last. Saudi Arabia will go back to being
Arabia, and the bloody transition will cause oil prices to soar. When? We cannot
know, human behavior is difficult to predict. We can say only that with the
financial problems, the decline of the welfare handouts and the new advances in
electronics, the stage is now set.
In all the Islamic world, the only tribe that's despised more than the Saudis is
the Kuwaitis, who also got where they are with the help of the much hated British
and US. I still believe the forecast that makes the most sense is this: Iraq and Iran
will continue working secretly to get the US armed forces hopelessly tangled up in
the Balkans and elsewhere. Then they will foment revolutions in Kuwait and
Saudi Arabia. Iraq will take Kuwait and Iran will take the rest of the Persian Gulf
plus Mecca and Medina.
Eventually - maybe immediately, maybe later - Iraqis and Iranians will fight
among themselves for ownership of the whole prize, and all the Persian Gulf oil
fields will go up in flames as Kuwait's did in 1991.
What to Look For
Generally, when a government gets into the kind of trouble the Saudis have
gotten themselves into, it will try to buy time by printing money. A leading
indicator to watch is the value of the Saudi currency, the riyal. It's reported daily
in the WALL STREET JOURNAL and other major newspapers. If we see the value of
the riyal begin to decline dramatically, I will take this as a sign the big revolt is
near and I should get more deeply into oil investments [see Crude Oil Strips].
The exact timing is impossible to predict, so I keep a certain number of these
investments in my portfolio at all times.
Warn everyone you care about, it looks like the Great Chaos is about to
mushroom.
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Nearly everything on this web site is from regular issues of Richard
Maybury's EARLY WARNING REPORT newsletter (EWR). To get Mr.
Maybury's latest thinking in EWR, subscribe! Copyright c 1998 by
Henry-Madison Research.
U.S. & World Early Warning Report For Investors. Published
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