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Gold/Mining/Energy : Newmont Mining(NEM) & Newmont Gold(NGC) -- Ignore unavailable to you. Want to Upgrade?

To: The Barracuda™ who wrote (143)	5/9/1999 4:55:00 PM
From: ahhaha	Read Replies (2) \| Respond to of 587

In 1980 McKinley attended a large conference of institutional money managers and oil executives at the Fairmont Hotel in SF. During the question and answer period of one of the keynote speeches I stood up and shocked 500 people attending by stating that the oil industry was about to crash and enter a 15 year long nasty bear market. This was heresy because the price of crude had just been deregulated at the wellhead, so the industry was now free to profit where previously they had been constrained by the stupidity of the American people through the ideal of fixing price in a market to protect consumers. The problem was that this needed to be done in the liberated late '60s. Using the mass of cash garnered from fiat super pricing the Arabs expanded their ability to produce substantially during the '70s. By the time incentives were in place to encourage the finding of oil domestically, the swing producers could undercut those efforts. At the same time high interest rates caused by a FED fixing the price of money during the '70s just like they are doing now, slowed the demand for oil. At that conference rates were 20% so it was no great breakthrough on my part to conclude things were going to slow down and it didn't matter whether finding oil would be a little more profitable. The funny thing is that deregulation was and still is essentially a fraud. I think the benefit was something on the order of 20% so that instead of say, from $20/bbl, the going world rate, you got $8/bb; instead of the previous $6, the rest going to noble causes like the tribute paid to worship at the UN. Thank you, free market America. You can imagine that I was treated like a pariah for going against the great truth. One exec though thought it very important to quiz why I held such heresy. I told him that the hiked price would surely encourage worldwide supply. He said, that geophysicists had projected there was no more oil to be found elsewhere. I told him the geophysicists were wrong and their continual adjusting upward of projected world potential at an arbitrary fixed price to recover was rising more rapidly than that which was being found. I also told him that geophysicists have an environmental ax to grind, so you could expect they would shade the figures to make sure that plenty of wind farms would be built. McKinley's $80 projection was made broadly public. But don't be too quick to belittle it now else you'll be doing the same thing the oil industry did long ago. In 1965 oil was say $2/bbl. By 1980 it was say $20/bbl. Texaco always made a great call about the $15 long term expectation, but that is relative as Don Patinkin would say. Between 1965 and 1980 the price of oil rose 10 times and the prices of just about everything did the same. This is Patinkin's argument. Since 1980 prices across the board have doubled, but oil dropped to as low as to 1/2 or 1/3 in comparison. If things are 20 times more expensive, gasoline which went for $.25/gal in 1965 should be $5.00/gal now, but it is 1/4 of that which is commensurate to 1/4 of the 1980 effective $20/bbl rate for crude. Crude should be priced at $40/bbl and gasoline at $5/gal which would not cause the prices of everything else to race to multiply higher prices. Oil is just depressed. It will take the fool Arabs a while to figure out that they are being cheated by fool Americans. They have already realized this and have cut supply. This was a very poor choice of options for them. They should have just fiat unilaterally raised the price. Cutting the supply will cause price to overshoot and create instability inducing aftershocks in a world in which demand for oil is now again rising. When you want to encourage demand, you lower the price. The Arabs didn't do this in the '80s like they should. Instead they sat on the fat price which induced the rest of the world to go refute the geophysicists out-of-hand by finding all that oil which wasn't supposed to be there. Raising the price now by fiat doesn't encourage anyone to go find the marginal barrel. The market is price elastic. The right action was for OPEC to raise price to $30. This protects their interest. Instead they get Harvard inspired expertism: cut supply. Price doesn't remain elastic when the swing producer goes out and cuts supply. Suddenly the market is price inelastic and so crude could easily overshoot and run to $30 or $40/bbl. Would the world's producers release a mass of oil onto the market if that occurred? No. They couldn't use the money! They couldn't use the money because they couldn't factor it into non-inflating investments rapidly enough. The only non-inflated investment now is gold which could be purchased adroitly, discretely, and appropriately, because gold is the true storehouse of value. Don't ever believe the Sweiss, der Englander, or das IMF about gold being a mere commodity. Regardless of factoring the consequences of cutting supply means leveraged reaction by oil price and so the world gets an unstable price-supply disequilibrium state. By simply raising the price, supply demand equilibrium is not subjected to exogenous shock and elasticity is pulled out to a more balanced position that provides enough production incentive without financial chaos. Price increase also reverses a politically explosive situation for swing producers and a deteriorating return which usually ends up in more draconian measures being applied. Price increase also wouldn't encourage much more output from alternative producers. In contrast cutting supply threatens $40/bbl oil so alternative producers may see that that price is transient and try to rush in and grab it by opening the oil flood gates. Smart move OPEC, just as smart as your previous Harvard mediated '80s move to sit on price. I hope OPEC comes to town soon and gives an oil conference.