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OK - this is a marketing piece, and Dr. Leeb's prose frankly has nowhere near the style of EJ's wit and wisdom, which periodically ventures into dry and trenchant commentary that keeps us coming back thirstily for more.
"However" if you can get past the occasional glib sounding manufactured phrase, Dr. Leeb. even at his most commercial, offers up a view of our near future that has both feet planted firmly on the ground. Some of you with young kids may want to think seriously of encouraging them to go into geology, petroleum engineering, nanotech, resource sciences, alt-energy (of course), nuclear engineering, marine biology, atmospheric sciences, agricultural sciences.
What this "doomertainer" describes, is commonly called "OVERCROWDING", along with that ingenuous corollary, "RESOURCE DEPLETION". We're supposed to be on track to piling on 2 billion more people within 25 more years, AND we are running low on ready fuel and commodities?
What will happen to the customary "cyclicality of business and credit cycles" then? "Sorry, we haven't got enough resources to go round for all of you squalling brats - and some of you are simply going to have to "go elsewhere"? One can imagine the trick to enjoying this voyage might be to avoid becoming one of the "elsewhered" ones. How is our credit cycle going to mitigate "resource depletion", with 8 billion rabid "me first, and the devil take the hindmost" consumers marching into our near future? Will previous history's "long Kondratieff cycle" take an extended leave, or merely go into "TILT" mode? How will we get another commodities glut in that world at the "other end" of this development? With tight money? 15 years from now, and relative to today's standard of affordability, the soaring cost of food, fuel, commodities, etc. suggests a very different world. What will that feel like? How about a sensation reminiscent of sitting in a frying pan, getting crispy-fried by a skyrocketing cost of living? $13 USD = 1 Gallon of Milk? How much $400.00 a barrel diesel fuel does it take to make a gallon of milk for an urban dweller? "Lots and lots", you say? Sounds like an overcrowded, fretful, stressful new world.
As Dean Martin used to say (in a much kinder world than we are staring at) - "Aint that a kick in the head?"
Here's what looks like the main consideration though. This does not appear something which is primarily a financial event. It's not apparently about the money. It appears rather to be about "how much of the stuff we need is left to go around when there are very many more of us". Sounds very "different" but it appears logical to expect, because "2 billion more consumers" will turn global commodities consumption into a giant hoover. Therefore it might be useful in such a world to get a handle on the extent to which those commodities have overtaken our financial system, rather than the other way around.
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Final Curtain for the Industrial Age
Dr. Stephen Leeb
Dr. Stephen Leeb
As 3 billion Asians become new capitalists, many of the Earth's last remaining resources will rapidly vanish. Get ready for an era of oil shocks, gas gaps, sugar rushes, corn crunches and spiraling inflation...
Most stocks will be scorned and shredded. But commodities of every type from sugar to siver...from corn to copper... will be coveted and hoarded like Pharaoh's gold... We knew they wouldn't last forever. What we didn't know, is how quickly they might vanish...
In the early ‘70s, we were drenched in what seemed an endless supply of vital commodities. Oil was $1.65 a barrel. Silver was $1.39 per ounce. Copper was just $48 per ton. But back then there was only a mere 1.1 billion players on the industrial stage. Our energy needs were a mere fraction of what they are today. Industry was generating just a few trillion dollars for its 1.1 billion customers.Today, is a very different picture... one, few foresaw back then...
No one imagined that in little more than a generation, a population explosion, the collapse of communism and the rise of the Internet would change everything. No one imagined that these events would bring unfettered success to the Great American Experiment, that they would help the vast developing world leapfrog into the modern age, that capitalism would spread and dominate so far, so wide and so quickly...but that it would also bring great pains to the global economy...
Now we have 6 billion players all vying for the same relatively fixed supply of commodities. And within a single generation we'll have another two. While we've begun to develop alternatives to these dirty industrial addictions, we should've started decades ago. But we never did. Why bother, when the Earth was awash with resources? And now global industry is about to plunge headlong into its last great natural resource binge.
The Industrial Age's Grand Finale
In the next 15 years, we will gobble up more of the Earth's last remaining natural resources, than we did in any period in the past. This great natural resource binge will turn Wall Street on its head.
Rising commodity prices will start to bear down on every aspect of our lives...from the costs of our tomatoes to the price we pay to heat and cool our homes...from the value of our blue chips to the income we receive on our CDs...$2,700 gold. $9 gas. Plummeting indices. Soaring inflation. And plenty of bear markets.
But also expect a commodity bull market, the likes of which we have never before seen. It will dwarf every other that has ever come before it. Last century we had three commod ity bull markets. They were from1906-23, 1933-53 and 1968-82. Each one was bigger, and wreaked more havoc, than the one that came before it. This final one promises to outdo them all. By the end of it, many things will be different.
Most paper assets will be shredded. Millions of American retirees will find themselves on the bread line. Vital commodities like oil, gas, uranium, tungsten, cobalt, molybde num will be greatly depleted. But almost all commodities whether abundant or not, will no longer be cheap. In fact, their costs will become so prohibitive, that it will finally force industry to seriously develop new alternatives, like renew able fuels, and new industrial materials made from bio and nanomaterials. But until that time comes, commodities will rule the day.
Commodities will impact almost every area of your life. Whether you want to be invested in them or not, they are going to affect your assets...your lifestyle...your costs of living...the kind of car you drive... what kind of house you live in...your investments. They'll determine the fate and fortunes of companies, countries and individuals everywhere!
Commodities will make you rich. Or they'll make you poor. It's your choice.
Profit From the Deadiest Force in the Economic Universe
Forget your bonds, your CDs and your blue chips. They won't cut it in the danger ous era ahead. They will stumble and fall in the Industrial Age's last days.
The tables on Wall Street have turned. But investors are still playing the old game. They're still buying Microsoft and Google. While the prices of many physical commodities themselves have soared in the past 5 years, commodity stocks are still cheap. Some are trading with single digit P/Es. But the market is pricing commodity stocks as if they're not in a long-term bull market.
What they don't know is that they're in for a nasty surprise. As you'll soon see the new game on Wall Street will be vastly different from any that most investors today will be familiar with. It will be more like the ‘70s, where oil shocks, commodity crunches, and spiraling inflation almost ruptured the very fabric of American society.
You see commodities are the stuff of which the Industrial Age is made. And when commodities go up, most other investments go down. While rising commodity prices might be great for their producers (and those invested in them), it's terrible for the economy, and the broader market. They begin to bear down on corporate profits.
Take oil for instance. Virtually everything you own or consume today has been touched by oil in some fashion - whether it was used in the transport of the goods, or the fertilizer on your foods, or the plastics in your products. Everything from deodorants to dresses...shoes to shower curtains... toothbrushes to trash bags has been touched by oil. When oil prices remain low, it doesn't just keep the price of our gas and our heating down, it also keeps the price of almost everything else down too. That's the inflationary or deflationary power that this black gold holds.
Now when the price of oil and many other commodities start to ratchet up they will spill over into every part of the economy. Industries and businesses dependent on them for their profits will wheeze. The costs of many of our goods and services will rise. Soaring commodity costs, led by oil, will be the fire that will fuel a new inflationary era. And inflation is the deadliest force in the economic universe. Nothing can destroy investments like inflation. Not recessions. Not depressions. Not stock market crashes. Nor wars or environmental disasters.
The 70's - on Steroids!
Few investors - even on Wall Street today know this, but the commodity-shocked and inflation-afflicted period from 1967 - 82 was the worst period for stocks in economic history. Even worse than the Great Depression!
We had five bear markets. Oil and commodity prices began their great rise. Inflation started to spin out of control. Investors became irrational. They punished even the era's greatest growth stocks. The P/E ratio of the S&P crashed from 16 to less than 8. Retail stores, cosmetics, beverages, food stocks all plummeted, with cosmetics leading the way, losing over 45%. Pepsi, Avon, Gillette, Kellogg's, Hershey, Wal-Mart, Ford, GM, Dow Chemical, DuPont all watched their stock prices crash 10-90%. Little was spared.
But commodities (and those invested intelligently in them) soared to the stratosphere. Gold went up 23-fold. Oil went up 11 fold. Sugar went up 47-fold. Oil stocks, gold stocks, copper, palladium, zinc, silver were not far behind.
Now we find ourselves in the midst of the fourth major commod ity bull market in over a century. And it'll prove to be the greatest of all. It'll be like the ‘70s. But in the ‘70s, rising oil prices were engineered due to sanctions put on OPEC, and commodity crunches occurred not because we were running out of supplies, but more-so because industry couldn't keep up with soaring demand. But this time, we are facing genuine shortages in a number of vital commodities. And demand is spiraling out of control.
What happens when companies like GE can't get the raw materials to build their wind mills or their jet engines, when Boeing and Airbus can't get the titanium for their fuselages, when Caterpillar can't get the iron and rubber for its earth-moving mega-machines, when Toll Brothers and DR Horton can't get the timber to build new homes, when Michelin and Good Year can't get the rubber for their tires?
Crunch Time for Capitaism
In the short years to come, industry will face some of its toughest challenges ever. Supplies of inelastic commodities like copper, oil, gas, uranium, silver, titanium, lead, zinc, silicon will be stretched and pulled...
Get ready for:
The Mother of all Crises: the Global Energy Crisis! The seriousness of the delicate gap between our oil demand and supply situation will become painfully clear. During the ‘90s we used to have an average of 12 million spare barrels of oil per day. Now we're down to just a million. A terrorist attack...a super storm...or a geopolitical disaster will be more than enough to send oil prices off the Richter scale. Even the slightest disruption in the oil-supply chain will result in super-spikes in the price. These super-spikes will rattle the markets and send indices on a perpetual roller-coaster ride. But oil companies with vast reserves stand to make obscene profits.
The Great Gas Saga
it'll be America's first major natural gas crisis. And it'll wreak even more damage than our oil shocks, and it's upon us now. Few are aware of it, but natural gas is our worst industrial addiction yet. Our wells are depleting rapidly, and we're just not finding enough new supplies to keep up with demand. And crunch time has arrived. Get ready for rolling black outs, super-spikes in the price of gas, and terrible times for gas-dependent industries ahead. And there's little we can do about it. But American gas giants with mammoth reserves stand to make a killing.
World Food Shortages
We're rapidly running out of arable land in order to grow all the crops we need to feed the growing global population. In the past five years, for the first time in recorded history, the world has consumed more food than it has produced. And super storms, droughts, violent weather, environmental catastrophes, popula tion explosions, global warning and rising energy costs promise to only worsen the situation. A calamitous short-fall in the world's food supply is right round the corner. And it will send the prices of many agricultural com modities like maize, sugar, soy beans, wheat, oats, bran and bar ley to the sky. While food inflation will quickly spiral out of control, and while many industries and individuals will suffer, a clutch of players stand to win big.
Cobalt and Copper Crunches...Zinc and Rubber Gaps...Sugar, Silver and Silicon Squeezes. The infrastructure in place to get many of these vital commodities out of the Earth is woefully inadequate...and a shortage of skilled workers in the sector is worsening the situation. The industry simply can't keep up with soaring global demand... And this is just a hint of the arduous era ahead of us. An era, that was largely the result of a number of profound economic events that were set in motion many years ago now...
3 Billion New Capitalists - They'll Make You or Break You
Two events occurred toward the end of last century, which at the time were seen as global triumphs. Problem was, as with nearly all pos itive changes, they often come with a price. These events were the col lapse of communism and the rise of the Internet.
Suddenly, within the blinking of an eye, these events allowed 3 bil lion new players to leap onto the industrial stage. Communist and socialist cultures, that were once almost completely isolated from the global trading game, became an integral part of it virtually overnight. The information revolu tion melted the iron curtain and opened up the world's last major trading and communications channels.
Together these two events changed the shape, redistributed the power, and greatly expanded the scale and complexity of global com merce in a way never dreamed possible...
And now these new capitalists are hungry to taste of all the fruits that the grand American Experiment can bring. But this is placing enormous strains on an already stressed system. Largely we are facing a colossal commodity crunch - everything from oil shocks to gas gaps...from copper crunches to sugar squeezes.
The Oddest Commodity Crunch of them All!
But it's not just natural resources we're in desperate need of. We are also in need of two other unusual (but critical) commodities that are in very short supply. And unfortu nately, these precious commodities, affect nearly every other vital metal, mineral and ore that needs to come out of the ground. These com modities are human capital and time. We simply don't have enough workers, engineers, geologists, miners, scientists, chemists and archi tects to build the enormous infra structure needed to keep the global engine running.
What Wall Street doesn't realize is that it takes years to educate and train the workforce required to build this infrastructure. And it takes even longer to build the oil rigs...lay the pipelines...erect the power stations...construct the supertankers and the mega machines...and get the copper, lead and zinc mines online. For example, it can take up to ten years to build a nuclear reactor. Seven to get a zinc mine online. Five to build an oilrig. Six to lay an international pipeline.
Even worse - the engineers and many of the key workers in the natural resource sector are largely baby-boomers, and they're all starting to retire - at the worst possible time.
In the ‘70s, we had a glut of mining engineers, geologists and surveyors. The industrial world was awash with them. They were among the hottest, and most sought after professions, and they helped flood the market with what seemed an endless supply of cheap natural resources.
But as the green organizations, the popular press, and the conserva tionists began sounding the alarms about acid rain, pollution and global warming, these professions became the dirtiest in industry. And as economic booms pur sued in electronics, computers, telecommunications and healthcare, these old economy careers and corporations were the thorn in industry's side.
The amount of undergraduates signing up for programs in the nat ural resource sector began plum meting dramatically. In 1981 we were graduating over 700 mining engineers a year. Today we are graduating a mere hundred. The amount of universities offering mining engineering degrees has dropped from 25 to 15. One school closed in 2001, after graduating only one student.
In the ‘80s, everyone had geared up for an industrial world, but these vital commodities no longer seemed critical to global commerce. The commodity industry had spent billions ramping up production. New mines. New refineries. New mega-machines. New steel mills. Demand had been met, and exceeded. Suddenly, a new technology-driven economy was awash with old resources that it didn't need. But an expensive industrial resource machine was already in place. Powering it down proved financially crippling. Oil companies were forced to merge. Copper, zinc and led mines were forced to shut. Furnaces died. Refineries went offline. And commodities began their great 18-year bear market.
The Monumental Industrial Challenge Ahead
Decades later, we have over six billion people drawing on the finite resources of the planet. And in just a single generation, we'll have another two. It would seem that the tables on Wall Street have turned, and we have come full circle again. But this time, society, commerce, industry is far more complex, and requires far more resources to keep it going. And the infrastructure that once provided an excess only two decades ago, is now dreadfully under-equipped to handle today's demands.
What's more, the pains of the last commodity meltdown, still linger with the sector. And the sec tor is all too well aware of the risks and expenses involved in powering up again, so they're not too keen on fulfilling the monumental industrial challenge required of them. This will cause one of the most colossal commodity crunches the global economy has ever faced.
And with the next great wave of industrialization - bigger than any we've experienced in the past - the situation will become dire. It, cou pled with the global energy crisis, will turn Wall Street on its head. Industries and corporations - once thought immune to such squeezes - will be affected.
Commodity crunches have already begun to bear down on many a player. Rubber shortages are deflating tire companies...copper crunches are impacting construction companies...silver shortages are tar nishing the profits of jewelers...the energy crisis is crippling chemical companies, automakers, manufac turers, food producers, airlines and countless more industries!
Commodity's Final Hour: Get Ready for the Deathly Inflationary Spiral
As global commodity prices con tinue to soar skyward, industry will be forced to pass these extra costs onto the consumer. This will fur ther add to inflationary pressures. Higher energy and commodity costs will force businesses to charge more for goods, which in turn will force workers to demand higher wages, which will further add to the cost of goods.
This will hurl us into the final leg of industry's last great commodity bull market. It's the point at which investors start to realize that they can get a much better deal from hard assets than from stocks and bonds. It is then that the Wall Street crowd will flock en masse into oil, gold, silver, platinum, copper and other commodity invest ments - putting even further upward pressure on commodity prices - sending the price of these investments to dizzying heights - thrusting us into the very same deathly inflationary spiral that almost ruptured the fabric of American society in the '70s.
While this will spell terrible news for the broader market - for commodities (and for those invested intelligently in them) - it will mean riding one of the greatest bull markets history has ever seen. It will make the ‘90s bull market in dotcoms look like the runt of the litter
Stephen Leeb
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