Must be Time to Short the Market

[bill]

Re: Must be Time to Short the Market

http://www.bloomberg.com/apps/news?p...gVajg&refer=us


The People's Bank of China, which has the world's largest foreign-exchange reserves totaling $1.2 trillion, has said it will boost investments in bonds other than Treasuries. Japan, the biggest foreign holder of U.S. government debt, with $612 billion, has cut the investments this year from $623 billion.

http://www.bloomberg.com/apps/news?p...Q&refer=europe

June 25 (Bloomberg) -- Central banks will need to continue raising interest rates to quell inflation as the ``golden age'' of global economic expansion continues, the Bank for International Settlements said.

[Guest]

Re: Must be Time to Short the Market

JK - Very decent of you offer me any acknowledgement, considering I've probably made myself the biggest pain in the ass on these forums in a while.

Please allow me also to offer best regards to all those with whom I've disagreed in recent days here just to clear the air - this is a great community with some very probing ideas.

Fred - (gracious administrator with impeccable democratic method), Finster (the acerbic, highly acute currency sleuth and permanent skeptic), Bart (only by inference as I never exchanged a post with him - keeping everyone's theories grounded - Finster's alter-ego!) Bart and Finster - a fearsome duo to tangle with on the data - more intimidating than Cerberus guarding the gates of Hades!, DemonD (Mr. all-around cordiality, and partisan of non-politically correct stocks like Altria - lives just up the street from me), Tet (my hometown guy - the leading maverick and cynic of Western Civilization on these pages), you JK (coolest avatar with laid-back posts in Thelonious Monk's own spirit), Ostap (who patiently watched in silence as I gummed up his forum thread with polemics), Spartacus (to me - one of the best-informed all-around - and most succinct), Moe Gamble (we are definitely in the same camp), BlackVoid (we are also definitely in the same camp), Jim Nickerson (most all-around decent guy here), Hoodoo (who sent me a nice email in moral support).

Plus all of the senior guys here I've never spoken to but who I also think are superb - Aaron Krowne and Sapiens (makes my head hurt reading his dissertations - but I'm soaking it all up!) just for starters, and all the many other highly intelligent contributors here whom I've not mentioned because my acquaintance has been too brief.

Then there's Mega - probably the most quixotic, maverick and extroverted recent member of these forums to arrive from off the beaten path - this guy's all over the place!

You people are all outstanding. The fact I disagree with many here on what's happening in the energy and resource markets is a small issue indeed compared to all the large issues I-Tulip attempts to puzzle out.

I've been critical and in everybody's face, so I must offer full apology and modesty in balance.

Greets to you all - you are a great community. Lots of very smart people here. My apologies for any discord I've caused. Whatever is in store in the energy markets - among the other time-bombs out there, we'll all survive it together, or get hosed together !!

If we all wind up getting flattened by imploding currencies, demented central bankers (wankers) and the disappearance of the cheap energy that's made our global economy grow, it's a great comfort knowing every last one of you will be going down the crapper with me!

Seriously - my full respects to you all ...

I keep having this nightmare that Finster's going to show up at my door, floating on one of those (patent pending) orange I-Tulip nimbus clouds and holding a shiny razor-sharp Samurai sword to lop off my head and serve it to me on a platter (gulp!). But that's not all - before the terrible deed he insists on reading me the entire BP statistical review of global energy resources - 2007 !! That part would be unbearable!

[Tet]

Re: Must be Time to Short the Market

Please allow me also to offer best regards to all those with whom I've disagreed in recent days here just to clear the air - this is a great community with some very probing ideas.

Bro, I'm thinking it's decision time for the market, do we bounce off of the 50-day moving average or do we break below? I'm betting bounce, you're betting break below, that's the only reason we have a market is there's disagreement. Best of luck, I certainly understand that being correct this time means absolutely nothing about being correct the next time.

I don't believe sell in May and go away is the formula to be holding this year. Odd because 90% of the time that's the formula to have. I've been wrong before, but we have reached the point where we find out pretty soon. Up or Down? Good Luck.

[Jim Nickerson]

Re: Must be Time to Short the Market

JK - Very decent of you offer me any acknowledgement, considering I've probably made myself the biggest pain in the ass on these forums in a while.

Lukester, as long as Finster continues to hang around, you have a long way to go before you become the biggest pain in the ass on these fora. to Finster--indubitably a good man.

The fact I disagree with many here on what's happening in the energy and resource markets is a small issue indeed compared to all the large issues I-Tulip attempts to puzzle out.

I've been critical and in everybody's face, so I must offer full apology and modesty in balance.

Nothing wrong with arguing. Without it too much BS passes without dispute. Perhaps I've missed it, but at last glance, it seems you stopped arguing your points about energy and resources, which is okay, I just hope it doesn't mean you've been whipped.

Greets to you all - you are a great community. Lots of very smart people here. My apologies for any discord I've caused.

Stop that: apologizing, Nothing wrong with serious arguments, just as long as it does not become ad hominem.

I keep having this nightmare that Finster's going to show up at my door, floating on one of those (patent pending) orange I-Tulip nimbus clouds and holding a shiny razor-sharp Samurai sword to lop off my head and serve it to me on a platter (gulp!). But that's not all - before the terrible deed he insists on reading me the entire BP statistical review of global energy resources - 2007 !! That part would be unbearable!

What you note as a nightmare may not be. You will note Finster has been absent these pages for a few days now. Last I heard he was carousing around San Diego trying to identify exactly who you are. He has been know to chop off a head now and then. Be careful out there.

[Tet]

Re: Must be Time to Short the Market

That you note as a nightmare may not be. You will note Finster has been absent these pages for a few days now. Last I heard he was carousing around San Diego trying to identify exactly who you are. He has been know to chop off a head now and then. Be careful out there.

Damn, had the three of us gotten together we could have owned this town. Come on, profits are made working as a team.

[Jim Nickerson]

Re: Must be Time to Short the Market

I have given up on my short positions and am going long - sure sign the markets going down.

RickBishop,

Are you still alive? So far your timing on a contrarian basis has been exquisite, though certainly four market days barely indicate a trend.

I perused a lot of charts tonight, and there are certainly a lot of things that seem headed south for the moment.

It might be good for the community if you will keep us aware of how you are betting.

[Guest]

Re: Must be Time to Short the Market

Jim - OK I promise I will never again indulge in any maudlin apologies for anything on these web pages. If questioned, I'll just say "Jim Knickerson told me not to apologise for anything here" .

On the topic of long or short the market this summer, here's a bulletin from Stephen Leeb, of The Complete Investor - this guy can be a bit disconcerting, as in sometimes saying really astonishing things like "inflation is still low" - but when you've followed him for ten years as I have, damn but does he ever provide timely and actionable advice!

He called for "boomflation" as the overarching near future theme six years ago when everyone was in abject terror about the ongoing NASDAQ implosion. Look around today - sure looks familiar. Today he's saying extreme bears are underestimating the extent the industrialising world is pulling away from the US and rapidly diminishing it's total influence. If the US implodes the world will convulse, but perhaps not nearly as much as it would have five years ago ...

Leeb's longer term forecast is really ugly however, brutally ugly - just read his book "The Coming Economic Collapse". Very few people in the I-Tulip community will buy his thesis however, because the trigger of that collapse for Leeb is all about energy, so most members here will simply dismiss it. I believe we dismiss this guy's forecast of that issue at our peril.

But otherwise his investment newsletter is conservative to the point of being almost institutionally stodgy. This is a very conservative guy! He likes to recommend stocks like GE. He is absolutely not given to many alarmist calls. That makes his book that much more chilling. Despite the severe gloom of his book, he is remarkably cold-blooded assessing the markets during moments of turmoil. This guy does not get shaken out easily.

Look at now for instance - everyone is crying dire mortal peril for the markets - but this guy is pointing out some issues that don't point that way quite so inevitably. There is a deceptively pedestrian quality in Leeb's commentary - it may seem stodgy fare indeed for some of the consummately educated contributors to these pages. But in fact, I've found Leeb's market calls to be pure gold. Very, very reliable.

Going by Mr. Leeb's call, Rick Bishop's instinctive decision to go long may be an instinct he should trust after all, but right now it's admittedly looking really ugly and the correct outcome could come after some really nasty little convolution in mid-summer. Looks like Tet's instinct to stay long the market through this summer by the same token is searching out this same theme. I'm staying long too, but I can't say as I've got a lot of peace of mind about it.

Notice Mr. Leeb is acknowledging we are only looking at "one last thrust upward" in the markets. So he acknowledges a bigger downturn remains ahead. This is typical Leeb - he sticks around to collect lots of plum market returns when everyone else is bailing, but then he goes right back to being "Mr. Prudence and Conservatism". The guy definitely has a bit of the pirate in him.

FWIW to the highly versed market mavens in this community, - Here's Leeb:

Market Forecast
June 26, 2007

Dear Investor, Below is the most recent Market Forecast update. Market Forecast ------------------------------------- In this week’s update … ***** The bear gets stung. ***** Short-term problems that can be solved with a checkbook ***** Long-term problems that can’t. ***** Buy gold and be patient. ------------------------------------- It’s not hard to point a finger at the beast responsible for last week’s 2% decline in most of the major stock averages. It’s big; it’s shaggy; and it had its paw stuck too far into the beehive known as the subprime mortgage market. Bear Stearns is now shelling out $3.2 billion to save two of its hedge funds that were stung by the housing slump. Their near collapse induced a liquidity scare that, for many investors, brings to mind the crises of 1998 and 1987. Here’s what the situation today means for us… ONE MORE REASON THE FED CAN’T TIGHTEN ITS BELT There are two kinds of problems in the financial world: those that can be solved with money and those that can’t. Fortunately, today’s problems in the mortgage industry and the hedge funds that are linked to them – while serious – fall into the former category. At risk of sounding flippant about this, we must point out that monetary crises such as these are often good news for stocks, helping spur a bull market. You see, until now everyone had been expecting the Federal Reserve to begin raising interest rates later this year. But growing liquidity problems make the Fed more likely to put those rate hikes on hold. It will want to save the situation by keeping the money spigots open, which in turn aids stock prices. Certainly, the Fed has taken such a course of action before. In 1997, for example, Greenspan had been overseeing a program of steady rate increases. But when the liquidity crunch came, the Fed made one of the most dramatic about-faces in the history of capitalism and dropped rates very quickly. The result was one of the biggest bull markets in history as the added liquidity found its way into stocks. Granted, the problems today are far less severe. The downfall of Bear Stearns’ hedge funds doesn’t even come close to the 1997 melt-down of Long-Term Capital Management or the East Asian Currency Crisis. Nonetheless, we expect the Fed to remain determined to stave off problems. And that means these hedge fund problems will not be allowed to incite a major stock market tumble. Nonetheless, we would not be surprised if the market posted minor losses over the next week or two. In fact, this could be the pause that will convince the Fed to postpone monetary tightening for a while. If we are wrong and the crisis worsens, you can count on the Fed to not just postpone tightening, but actually switch to loosening. Either way, the next move in stocks will likely be to the upside. It’s just a question of when. We could have a sloppy summer. But as long as liquidity and growth are abundant in this world (which they are) stocks are not likely to suffer for long. THE REAL INFLATION DRIVERS On the other hand, what do worry us are the problems that cannot be solved with money. Chief among these are the supply/demand squeeze in food and energy. There’s no way to deny that these commodities are in long uptrend. The only thing that has kept official inflation figures looking tame is the silly, archaic notion that food and energy price changes are random events that don’t really mean anything. Nothing could be further from the truth today. And as smart investors, we need to get ourselves on the right side of these trends. Your August issue of TCI will cover some of the best food and energy stocks. Already, the market is starting to recognize that many of these stocks have impressive longer-term growth horizons. This is a big deal because it belies the idea that higher food and energy prices are just a temporary phenomenon. It is an acknowledgment that they are a consequence of worldwide economic growth, and certainly count as contributors to inflation. Monty Python once joked about a pair of fictitious criminals who committed a crime so big, “even the police were forced to sit up and take notice.” Well, eventually even the Fed will recognize the importance of commodity prices and will have to confront the problem of real inflation. For the time being, however, the Fed will remain preoccupied with the problem that can be solved by money, and coincidentally propping up the bull market. Our indicators say the market today is healthy. The rank-and-file stocks held up better than the big caps last week, which is not action you typically see before a meltdown. Again, it suggests any downturn will be fairly brief. After that, we continue to expect the bull will have one final sprint left in it. And the best way to play that sprint will be by owning commodity-based stocks – energy, food, and precious metals. About those precious metals, here’s something you need to consider… THIS YEAR’S MOST SURPRISING INVESTMENT? Gold has been a bit of a bystander in the recent market shenanigans, but this is not surprising. Gold marches to its own drummer – a fact which gives it its traditional value as a hedge. Since briefly surpassing $700 an ounce last year, and then correcting, gold has yet to challenge that high. If this crisis gets out of hand, gold might do very well. But for now, gold appears to be caught in summer doldrums. Autumn is usually the best time to own gold. That’s when the yellow metal tends to have big runups. For example, from September last year to Mid-March this year gold made a nice recovery. We expect gold is gearing up for another major surprise on the upside. It’s a question of when, not if. Gold may wait until Autumn; but then again, the move could begin sooner. For this reason, we recommend you continue to hold gold-related investments. They could frustrate you for a little longer, but as long as your investment time frame is at least six to twelve months, gold could be one of the most rewarding investments to make this year. Until next week, Stephen Leeb Editor, The Complete Investor

[rabot10]

Re: Must be Time to Short the Market

RickBishop,

Are you still alive? So far your timing on a contrarian basis has been exquisite, though certainly four market days barely indicate a trend.

I perused a lot of charts tonight, and there are certainly a lot of things that seem headed south for the moment.

It might be good for the community if you will keep us aware of how you are betting.

Jim,
fficeffice" />
Yes I am alive and ready to lose more money lol. Maybe I should setup a Blind Trust with someone like U directing the trades, just do the opposite of what I think is going to happen. The markets are funny aren’t they, they just don’t do what U know they should do based on the information at hand.

RB

[Jim Nickerson]

Re: Must be Time to Short the Market

Jim, Yes I am alive and ready to lose more money lol. Maybe I should setup a Blind Trust with someone like U directing the trades, just do the opposite of what I think is going to happen. The markets are funny aren’t they, they just don’t do what U know they should do based on the information at hand.
RB

I, and I am sure many others, know the feeling of whatever is decided, despite the reasons, it doesn't work out. I think everyone feels that way from time to time. Just hopefully we will be correct more often than not.

[Guest]

Re: Must be Time to Short the Market

Ty Andros has posted a IV update on 'crackup boom' with specific focus on this summer's market.

http://www.safehaven.com/article-7855.htm

It is an informative article for those wishing to re-examine which specific sectors they may be invested in going forward. I personally would not want to be within a country mile of any stock outside of the most premium selected commodities / PM's, with plenty of emphasis on taking actual custody of PM's.

Why mess around with huge stock market volatility at a major junction in long rates, out of the mere habit of being in equities, when you can get a 10% - 30% annual return over the next five years from Gold and Silver? (pays no interest though!) What if it's only a measly 5% real return a year? Will we feel cheated? - not at all - that 5% appreciation over inflation comes with a huge safety relative to other asset classes!

It's beginning to dawn on me that possibly a majority of readers of these pages are too sophisticated to place much faith in a five year bet on Gold today with more than token amounts of their investable assets. They'll be looking fearfully at historic analyses of deflationary periods which deflated gold's purchasing power in past eras and not recognizing the remoteness of that possibility due to what the real story is going forward - energy depletion. Of course, if you don't buy energy depletion and think it's a crock of loopy nonsense, a major signpost for where to invest securely for the ten year time horizon is then removed. Tough on you.

At a certain point, too much sophistication on this topic may lose us in a "hall of mirrors" speculation on this asset class. When gold and silver jump from today's oversold levels, they will not provide us with the luxury of picking an entry point or lowest-risk price. Smart money stealthily buys these when everyone is concluding they look really ugly on their price-action.

As I've suggested elsewhere (to considerable jeers): Oil is dirt cheap compared to the fundamentals developing in the energy markets - but this simple notion is regarded here as preposterous by way too many. Consequent to oil's threat to further jack up the cost of all goods by orders of magnitude in the next half dozen years, gold and silver are coiled springs and look cheap too. The last thing I'd buy is any proxy for the S&P, although that is likely to get pushed up too if you go by Mr. Andros' comments.

No I can relax and enjoy watching all the rotten vegetables thrown at this idea by those deriding the 'peaksters'. When you have your investing signposts clearly mapped out according to these quite evident developments, you can find some safe berths in investments for the long haul and forget about trading a darn thing.

[Guest]

Re: Must be Time to Short the Market

Ty Andros has posted a IV update on 'crackup boom' with specific focus on this summer's market.

http://www.safehaven.com/article-7855.htm

It is an informative article for those wishing to re-examine which specific sectors they may be invested in going forward. I personally would not want to be within a country mile of any stock outside of the most premium selected commodities / PM's, with plenty of emphasis on taking actual custody of PM's.

Why mess around with huge stock market volatility at a major junction in long rates, out of the mere habit of being in equities, when you can get a 10% - 30% annual return over the next five years from Gold and Silver? (pays no interest though!) What if it's only a measly 5% real return a year? Will we feel cheated? - not at all - that 5% appreciation over inflation comes with a huge safety relative to other asset classes!

It's beginning to dawn on me that possibly a majority of readers of these pages are too sophisticated to place much faith in a five year bet on Gold today with more than token amounts of their investable assets. They'll be looking fearfully at historic analyses of deflationary periods which deflated gold's purchasing power in past eras and not recognizing the remoteness of that possibility due to what the real story is going forward - energy depletion. Of course, if you don't buy energy depletion and think it's a crock of loopy nonsense, a major signpost for where to invest securely for the ten year time horizon is then removed. Tough on you.

At a certain point, too much sophistication on this topic may lose us in a "hall of mirrors" speculation on this asset class. When gold and silver jump from today's oversold levels, they will not provide us with the luxury of picking an entry point or lowest-risk price. Smart money stealthily buys these when everyone is concluding they look really ugly on their price-action.

As I've suggested elsewhere (to considerable jeers): Oil is dirt cheap compared to the fundamentals developing in the energy markets - but this simple notion is regarded here as preposterous by way too many. Consequent to oil's threat to further jack up the cost of all goods by orders of magnitude in the next half dozen years, gold and silver are coiled springs and look cheap too. The last thing I'd buy is any proxy for the S&P, although that is likely to get pushed up too if you go by Mr. Andros' comments.

Now I can relax and enjoy watching all the rotten vegetables thrown at this idea by those deriding the 'peaksters'. When you have your investing signposts clearly mapped out according to these quite evident developments, you can find some safe berths in investments for the long haul and forget about trading a darn thing.

[Guest]

Re: Must be Time to Short the Market

A PRIMER ON IMMINENT OIL DEPLETION WITH PRICE TARGETS, BY CHARLEY MAXWELL OF WEEDEN & CO.


Oct 16, 2006 (Dow Jones Newswiresfrom Barron's)


Interview with Charles Maxwell Senior oil analyst, Weeden & Co.
You want an independent and informed appraisal of the outlook for energy? Then Charley Maxwell's your man.

For almost 50 years, Maxwell in one way or another has been involved in the oil and gas industry: from when he started working for Mobil in 1957 to when he moved to Wall Street in 1968 and was routinely lauded as the No. 1 oil analyst throughout the 'Seventies and 'Eighties.

For more than 20 years, he's belonged to an elite group of industry executives and OPEC members that meets at Oxford University twice a year to assess trends. We dialed him up last week at Weeden & Co., the institutional trading company in Greenwich, Conn., that he's called home since 1999. Here are Maxwell's thoughts on the current energy scene.



Barron's: Did somebody say energy crisis?

Maxwell: We often say there are not a lot of advantages to getting old except that we have seen it all before. After a big move upward, there is always some counterreaction. We saw it during the 1973-74 crisis, in the '79 to '86 crisis and then in the two wars with Iraq. These crises were manipulations of the oil market by human beings. War, economic problems, but particularly military considerations, were creating, as they say, facts on the ground that worked into shortages that were real, but they were shortages created by the actions of man not nature. It is terribly important to differentiate between past periods and now.

Q: How is that?

A: There are four huge impediments to expanding production in a world in which we need to do this. Hubbert's Peak, the theory that says oil production will peak on a global basis, is a natural impediment. It is not yet the predominant factor but as these crises continue it is the one growing exponentially and by, say, 2015 or 2020 I expect it will dominate the outlook.

Q: What then is the biggest problem now?

A: About three-quarters of the world's production of oil today is lifted by national oil companies. Companies like Saudi Aramco, Petrobras, the Iran national oil company, the Iraq national oil company, the national companies that operate in Algeria and Libya, produce conservatively 75% of the world supply. Most of them were nationalized in the '70s and early '80s and they have real structural problems today. They bring in a lot of money but most of it goes to support the national Treasuries and the various political constituencies that are in favor in the various countries, whether it's the army or a host of other bureaucratic ministries. In the end, in the political battle for budgetary support the national oil companies tend to be a constituency with little or no political influence. All in all, the national oil companies have been shortchanged and held on a poverty diet for a long time.

Q: What are the other structural challenges they face?

A: What came out of the 1986-1987 collapse in prices was a huge overcapacity of about 20% in the world's oil production system. The international oil companies began to adjust their capital spending quickly to adapt to that and they more or less serviced a 1% increase in demand each year. The capacity surplus began to come down naturally. We have now had 20 years and taken that surplus down to about 2% to 3%. For efficiency in the energy industry, given the weather factors and political factors and so on, we need something in the 7% to 8% range of excess capacity in order to cover the mountains and the plains of demand and weather and political events. But when the surplus got down to those levels between 1997 and 2000, the companies didn't add to capacity at a fast enough rate.

Q: Bring this back to your point about the national oil companies.

A: The national oil companies didn't react at all. At least the big international oil companies were producing the 1% to 2% each year that was required, but the national oil companies just tooled along on the backs of the surplus while it got smaller and smaller. The big international oil companies saw all this and didn't prepare for possible future tightening. One reason the NOCs, as the national oil companies are called, didn't respond was lack of money. Also, the NOCs, because of political patronage, have a shortage of skilled workers and experienced managers. Only Saudi Aramco is quite efficient and they are doubling and redoubling their efforts to find oil in the peninsula. They've gone from 10 rigs to 100 rigs and are headed to 125 rigs. They are modern and up to date. They've got a core of around 3,000 expatriates that are well paid and doing a helluva job. But this is unusual.

Q: Where does this lead?

A: I don't know how we get around the problem of the NOCs. They control so much of the world's production and they are bloody helpless. They don't have enough money and they don't have prestige and they don't have professionalism. These are big factors, any one of which would have been a strike against them and with all three it is a difficult situation.
The multinationals have the money but they haven't been that willing to spend it.

That's another big issue: the problem for the oil companies is coming to grips with the size of the production problem.

Q: Can you elaborate on that.

A: The oil companies, as a group, seem to believe the future production potential of the world is very large, very wide open and yet their production numbers don't indicate this is so. ExxonMobil (ticker: XOM) took out an advertisement earlier this year saying oil is not peaking, nor is there any peak visible that's going to impinge on production in the next 20 to 30 years and claims there is no practical limit to the oil it can find and there are new supplies that are developable. They are not alone in this thinking, though Dave O'Reilly [Chairman and CEO] of Chevron (CVX) has come around. But John Browne [CEO] of BP [INTV-ANS](BP)[INTV-ANS] is in the Exxon camp as is industry consultant Cambridge Energy Research Associates.

Q: The technology-will-save-the-day camp.

A: I'm not downplaying technology at all. But technology will save General Motors, too, if you believe that. Technology can't do everything. I'll give you an example of the vision of the oil companies.

Q: Go for it.

A: As we understand it, Exxon is not taking on any leases for deep-water drilling after 2008. They haven't leased anything. If you think deep-water leases are going to be very important, and the recent big discovery in the Gulf of Mexico suggests they will be, you would have contracted for the future use of rigs. But if you think the deep-water leases aren't going to be important because the oil found will be more expensive than the common garden-variety Texas oil from 6,000 foot down, and that you will have lots of oil coming from sources like that then you don't need these high-cost leases down the road. On the other hand, many major oil companies have taken these rigs to 2010 and 2012 and 2014 and are pre-empting Exxon's ability to get these rigs. Exxon is putting itself at a huge disadvantage if there should be a need for this type of deep oil. I find that remarkable.

Q: What's the gamble there?

A: The gamble is they won't need the deep-water leases because there will be big and lush supplies of oil spilling around at $30 a barrel and people will relinquish the rig contracts they've signed. Then Exxon would have the choice of picking up some of these contracts at 50 cents on the dollar, or maybe they won't need to pick them up at all. I think they are dead wrong.

Exxon has gone out of its way to take out advertising and make speeches saying there'll be plenty of future supplies. It verges on the irresponsible because it says to the government there is no problem. It says to the media there is no problem. It says to the public there is no problem. So we are now likely to march with fife and drum, banners flying, into the maw of destruction without so much as a sideways glance because Exxon tells us that the problem is resolved.

Q: It has been suggested they benefit from talking down the price of oil.

A: There is all kind of speculation on that. Another obvious thought would be if they wanted to buy, say, Yukos, which they had hopes of two years ago, they certainly wouldn't want to indicate they thought that the price of oil was going to go much higher down the road because of shortages. Some people think Exxon is cynical. I don't. I really think they believe what they say. It's a lack of vision. Last year, they spent more money on share repurchases and dividends than they did on exploring and developing oil reserves. Most big oil companies tend to be backward looking. They were slow, for instance, in seeing that sulfur standards for gasoline and diesel would be required in this country and getting their refineries set up to meet them. That's why we've had these advances in gasoline prices in the summers of 2005 and 2006 -- fear that the refining system in America and in Europe would be unable to handle these new standards. Oil companies will find it difficult to solve a tightening oil production problem if they don't recognize that it is tightening around their necks.

Q: That's the third impediment of four. What's left?

A: We as Americans think that because we want more oil these other countries should produce more oil. But there are increasing issues, brought on not just by President Bush and his policies, but also by a feeling that the developed world is imperialistic by nature and is intent on leaving the undeveloped world without resources. All these claims are greatly overdone, but nevertheless, it is a fact that if you live in Iraq you believe the oil companies, or the Americans, are there to get the oil. My point is the people in the Middle East are sophisticated enough to understand this could be Bedouin-to-Bedouin in Saudi Arabia in five generations.

Q: What do you mean by that?

A: Well two generations ago, many of these people were Bedouins. The majority of people working in the petroleum industry in Saudi Arabia today -- the supervisors and the drillers and so on -- had grandparents who were herding sheep or camels. They fear their great grandchildren could end up doing the same.

Q: Because?

A: Because the oil will be all gone. The image we have in this country of tumbleweeds running down the streets of abandoned Western mining towns is now beginning to stalk the public consciousness in the Middle East. About three months ago, they realized the second largest oil field in the world, Burgan in Kuwait, had peaked. They didn't expect it and they couldn't believe it. The No. 1 field in the world, the Ghawar, is pretty close to peaking if it hasn't already. These are people who have long believed that Allah was bestowing these oil gifts on them in perpetuity and there would be infinite production. The concept of Hubbert's Peak has only penetrated the Middle East in the last five years in the same way that it has only penetrated Europe in the last five years.

The non-OPEC world, 175 countries, of which only 30 produce meaningful amounts of oil, will peak around 2010. Then we become dependent on OPEC for all future growth in barrel needs and that should put us in a pretty difficult situation and the price of oil will begin to rise a little faster.
Q: Are the non-OPEC countries that close to peaking?

A: Eleven of the non-OPEC countries have peaked already, representing 34.3% of non-OPEC production. There are three on the cusp of peaking, and one of them is Mexico which may have already peaked and represents 7.9% of production. China will probably peak this year, or next, or in 2008. But they are at flat production levels now so it doesn't matter and they contribute 8.5%. More than 50% of the non-OPEC production will therefore have peaked. There are all kinds of issues as to when the whole world peaks. I use a range from 2015 to 2020, which depends on when the rest of the world wakes up to the need to conserve, which could delay the peak.

Q: What about a peak in gas production?

A: That's much, much further out. There is a lot of what they call stranded natural gas, big discoveries that are not tied to any local needs, or any local distribution system, and they will be tapped and brought in, in liquefied form to our country and to Europe and to Asia. The peak of natural gas now roughly looks like it will be in 2035 to 2040. There is a finite supply that is being drawn down, but it hasn't been exploited nearly as much as oil. The run-up in natural gas prices in the past year or so was because production in this country has peaked, and natural gas is more expensive and difficult to move from one continent to another, and we don't really have the means to do that yet. We are getting there and the big liquefied natural gas expansion is starting, and soon we are going to have interchangeability between continents. When one continent is short we can move gas there, which will keep prices down.

Q: Where are oil prices headed?

A: We are now getting a reaction to the higher oil prices. It is translating into slower economic growth and, of course, it is allied with a rise in interest rates. Don't think that it is just that rising oil prices equal lower economic growth. It is a question of rising oil prices and less liquidity and higher rates that's a triple threat. The bottom could be in the high 40s, though that wouldn't be sustainable. On a yearly average, we will stay in the 60s, but we'll spend a lot of time in the 50s. Then they'll start up again in 2008-2009 and go up for some time. When we get to 130 or 150 there will be another pullback.

Q: How do you get to those numbers?

A: In 1930 we found 10 billion new barrels of oil in the world and we used 1.5 billion. We reached a peak in 1964 when we found 48 billion barrels and used approximately 12 billion. In 1988, we found 23 billion barrels and used 23 billion barrels. That was the crossover when we started finding less than we were using. In 2005, we found about 5 billion to 6 billion and we used 30 billion. These numbers are just overwhelming.

Q: How are you advising people when it comes to the oil stocks?

A: You want to buy companies that have long- life reserves and are developing them, it's as simple as that. The average oil company, because they are all in the non-OPEC world, will by definition peak around 2010 or thereabouts. I estimate Exxon will peak in 2011. BP will peak in 2012. Total (TOT) in 2012. ConocoPhillips (COP) in 2013. Marathon Oil (MRO) in 2009. Royal Dutch (RDS-B) in 2009 and Hess (HES) in 2010. But a company like Suncor Energy (SU), which operates in the Canadian tar sands, will peak around 2045. It is a completely different world. EnCana (ECA), the big Canadian gas and tar sands producer, will peak around 2020. Canadian Natural Resources (CNQ) is another. I also like Nexen (NXY), another Canadian tar sands producer, and Lukoil (LUKOY) of Russia. The only one I'm recommending at the moment is EnCana because it has a large component of natural gas. The gas market is at a bottom now, whereas I see the oil market bottoming in the spring or summer of 2007, or even early 2008 if we have a recession.

Q: Why Lukoil?

A: Lukoil isn't owned by the Russian government. They've adopted Western accounting standards because they want to be listed on the New York Stock Exchange and raise capital and become a regular oil company. Lukoil has about 20 billion barrels of reserves and Exxon is No. 1 in the world with 21 billion. But the capitalization of Lukoil is one-sixth that of Exxon. So you are getting a huge advantage in oil barrels per share for a lot less money.

Thanks, Charley.
Copyright (c) 2006 Dow Jones & Company, Inc.

[dbarberic]

Re: Must be Time to Short the Market

As I've suggested elsewhere (to considerable jeers): Oil is dirt cheap compared to the fundamentals developing in the energy markets - but this simple notion is regarded here as preposterous by way too many. Consequent to oil's threat to further jack up the cost of all goods by orders of magnitude in the next half dozen years, gold and silver are coiled springs and look cheap too. The last thing I'd buy is any proxy for the S&P, although that is likely to get pushed up too if you go by Mr. Andros' comments.

Now I can relax and enjoy watching all the rotten vegetables thrown at this idea by those deriding the 'peaksters'. When you have your investing signposts clearly mapped out according to these quite evident developments, you can find some safe berths in investments for the long haul and forget about trading a darn thing.

Hmmm..... Lukester's profile says that he lives in San Diego. Your point of view sounds a lot like someone else that I listen to who also lives in San Diego, owns an investment managemet firm, and hosts a weekly internet radio show. Are you Jim Puplava?

[Guest]

Re: Must be Time to Short the Market

Dbarberic - "Are you Jim Puplava?" - no, I'm Charley Maxwell of Weeden & Co. Wouldn't mind Jim Puplava's crib in La Jolla and his sailboat out in the harbor though ...

[Guest]

Re: Must be Time to Short the Market

Nowhere have I encountered a community of more highly educated, more thoroughly astute and inquiring people than here on the I-Tulip forums. You break new ground everywhere in your inquiries.

It's therefore stupefying to me, to observe the sheer determination with which the majority here choose to not only disbelieve, but to pointedly and artfully ignore the signals coming from the markets, about a very, very large story afoot:

Latest update from Stephen Leeb :

Market Forecast
June 29, 2007

Dear Investor, Below is the most recent Market Forecast update (EXCERPT) ------------------------------------------------------------------ The Federal Reserve’s Open Market Committee, the central bank’s policy making arm, left interest rates unchanged at its meeting this week. In its accompanying policy statement, Bernanke and Co. offered an upbeat assessment of the economy and inflation, but indicated they’re not convinced that inflation has been tamed. And with good reason. The Fed continues to focus on “core” inflation, which is running at just 2.3 percent on a year-over-year basis. But it’s getting harder to ignore the overall rate, which includes food and energy and is running at 2.7 percent year over year and at more than a 5 percent annualized rate so far in 2005. Consumers certainly aren’t ignoring these two areas, which are taking a bigger bite out of household budgets each week. With inflation clearly expanding right now, we suspect consumers are under-estimating the level of inflation they’ll have to contend with a year from now. Moreover, given the current softness in the housing sector, the Fed is likely to keep short-term rates unchanged for longer than they should, allowing inflation to gain even greater purchase in the system. ------------------------------------- Meanwhile - OPEC’s Mixed Message ... Give OPEC some credit; they do a great job of saying two different things at the same time. For some time now they’ve been saying there’s no need for the organization to increase its output, despite a growing chorus from its customers for more oil and prices hovering around or above $70 a barrel. We’ve long contended that, given the political problems in Iraq and Nigeria, OPEC will be hard pressed to meet the world’s insatiable desire for black gold. In a statement this week OPEC, which produces around 40 percent of the world’s oil, said it expected demand for its crude oil in three years will be almost 1 million barrels a day below 2005’s volumes. It cited rising production of natural gas liquids by non-OPEC producers as the reason. The statement runs counter to every forecast we’ve seen. And it suggests the cartel is looking for an excuse to lower its output further, not for a lack of demand but instead due to its inability to produce more oil. The following day, the cartel’s president, Mohamed al-Hamil, announced the cartel’s intention to spend $130 billion in the next five years to meet rising demand for crude oil. An additional $500 billion will be spent by the group through 2020 on capacity expansion and energy infrastructure. To be sure the cartel wants to capture more downstream revenue by exporting refined products. But nearer term the planned heavy investment is likely nothing more than a desperate attempt to merely maintain current production levels. Prices will no doubt fluctuate along the way, but we could well be faced with $80 a barrel oil later this year. And we’re well positioned to profit from that move. Until Next Time, Stephen Leeb TCI Enterprises, LLC 500 5th Ave., 57th Floor New York, NY 10110