Thursday, August 16, 2007

Email to my broker on March 3, 2007

Hello Jeff,

It seems I can never pull the trigger the way I would really like too. I had this same feeling back in the dot com bubble as I could not figure out how AOL was going to make money. A few players did survive and have come back, but the survivors are those that have been proficient at directing clients where they want to go or where they think they want to go or ones attached to bricks and mortar operations.

Having said that I feel the market is in the same condition as I cannot see what the future holds very well and all choices are fraught with danger. There appears to be too many tipping points to be in this market safely.

My primary concern is the discrepancy between those that that forecast energy supplies and the actual production of energy resources. The oil fields of Mexico and England are crashing and it is suspected that the Saudi fields are in decline. If this is the case, then the foundation of the continued growth of the capital markets is suspect. The rise in energy prices are already causing demand destruction in Zimbabwe and our energy policy is causing corn and grain prices to increase in third world countries. The only way my energy play work is if there is a "slow squeeze", which seems possible in the current environment, but unlikely. Currently the only way to deal with the situation is for the Saudi's to come clean on production or the world creates demand destruction in a manner to prevent continued expansion of petroleum and gas resources. The only way to do this is to go to war or have a recession. We currently have housing under pressure and the oil producing regions under pressure. It just seems tenuous and it appears unlikely that the US can continue its lifestyle while China and India strive for a first world existence. It seems the age of oil will end poorly and the best approach is to economize, localize and produce.

With those concepts in mind I think it would be best to be out of the market until at a minimum of August. By August, barring no precipitous demand drop, the Saudi production should become clear or Bush will have created demand destruction through war. It appears I should be one of the first out the door. If peak oil does become mainstream, we will see gold go up and maybe some running to alternative energy. I do not see that as being sustainable in the short term until an adult response comes into being.

Therefore, I would like to be 1/3 energy, 1/3 gold (bullion not producers) and bonds where most people flee when they are afraid. I would also like to know long it would take to liquidate my account if my scenario plays out. If it does play out, I want hit the exit as quick as possible and invest in my local essential business area (if I can figure that out).

Let me know what you think even if you think I should be committed.

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D. Greene said...

Brief point of information: Zimbabwe's problems are directly caused by Robert Mugabe's government mandated price controls and fiscal policies that have led to hyperinflation. Zimbabwe is a case study in cronyism and mismanagement.

Greg Hunter said...

Hey Mr. Green,

While the practices of Mugabe's policies have exacerbated the problems, it still does not mean the demand destruction is not occurring and that people will die as a result.

This is a similar argument to those that say global warming is occurring, but it is not man made. Well the point is that it the earth is still warming and we are going t o have to move people from the coasts.

D. Greene said...

What do you mean by demand destruction?

Sorry, your analogy to global warming denial doesn't hold water and isn't a decent criticism to begin with.

Greg Hunter said...

Mr. Greene,

If you read my sins of omission post and follow the link to the Peak Oil Hits the Third World you would be informed about Demand Destruction.

In oil it occurs when countries that could afford oil at $40.00 dollars a barrel can no longer afford $75.00. We may pay more to fill up the SUV, but they cannot turn on the lights.

As a "survival of the fittest" species that is ok, but I set a higher standard than that for the human species.