PARIS – “Another bad day for oil,” says Investor’s Business Daily.
U.S. crude oil fell below $37 a barrel. The Dow fell 116 points.
Neither of these events is significant. We report them merely to warm up.
It is the last day of 2015; we look for a good way to “wrap up” the fast-departing year.
“What if we’re wrong?” we’ve been asking.
As we proved yesterday, we err as much as anyone. But we spend more time than most trying to understand the “big picture.” And we hope to be slightly more right than wrong at least about that.
But even this could be a trap. What if there is no “big picture”? What if it is just something we imagine… a vision created in our own brain… a myth, not a reality?
Some of the world’s most successful investors maintain that trying to see the big picture is a waste of time.
Peter Lynch, for instance. Lynch ran Fidelity’s Magellan Fund for 13 years and made returns of 2,639% over that time. He liked to say that if you spent 13 minutes a year on economics, you wasted 10 minutes.
“We can never know what is going on” goes the argument. So, we’re better off investing our energy into researching individual stocks.
But pity the poor Japanese investor in 1989, his head down, adding the numbers carefully: “Don’t bother me with this big picture stuff,” he says to his customers. “I’m doing stock analysis.”
Here we are, 26 years later, and he’s still analyzing… and waiting to get even.
Or imagine the Jewish shoemaker in Hamburg in 1935.
“A cobbler sticks to his last,” he might have said, hunching over a pair of riding boots.
Or imagine the white farmer in Rhodesia after it became Zimbabwe.
“We’re not going anywhere,” he might have said to his family.
There are times when it pays to raise your head and look around.
Right or wrong, we believe this is one of those times. And when we open our eyes, we see some weird, wonderful, and worrying things.
Take the oil industry, for example.
There are two main ways to compete in the business world – on price or quality. If you are in the oil business, you have limited choice. You compete on price, because the quality – after refining – is much the same.
The world’s low-cost producer of oil is Saudi Arabia. It aims to sell as much oil as possible, largely because it has little else going for it. Nobody buys a Saudi perfume. Nobody drives a Saudi automobile. Nobody goes to Riyadh for world-class financial services.
The Saudi product is oil. Its strategic goal is to protect its market share. It does so by occasionally flooding the world with cheap crude to squeeze its competitors’ profit margins.
According to the news reports, that is what it has tried to do recently – aiming to keep U.S.-fracked oil off the global market.
The problem, from a big picture perspective, is that the world’s low-cost energy producer ran into the world’s low-cost money producer.
Ah… there, we have the makings of trouble.
The Fed’s cheap money regime financed the U.S. oil industry. With low-cost, readily available funding, frackers were able to greatly increase U.S. output. Now, they pose a substantial challenge to the Saudis.
But wait… now coming into focus is an even bigger picture…
For half a century, cheap oil – abundantly and conveniently under the dry ground – has made the Saudi elite rich.
They sold it all over the world… using the proceeds to build their wealth overseas and reinforce their power at home. They paid off political leaders, raised armies to protect themselves from foreigners, and hired police to torture their opponents at home.
Cheap credit – gushing up like an overflowing septic system – has done much the same thing for America’s money elite, too.
The U.S. has the world’s reserve currency; it is the world’s low-cost producer. But the product is not something stamped out in the mills of the Monongahela or honed in the machine shops of Chicago.
The middle class gets no part of this business. Instead, America’s credit pumpers are an elite bunch. They, too, sell their wares all over the globe, using their gains much like the Saudis – to buy politicians, control the flow of wealth and maintain their own power.
Who are the biggest lobbyists in Washington?
The banks, of course.
And what is their strategic goal? To protect their market share.
More to come… in 2016.
Oil may be tanking, but while nobody was watching, natural gas has seen a massive rally.
As you can see from today’s chart, natural gas has rallied 34% over the past seven trading days.
But this move higher comes after an absolute shellacking in 2015. The price of natural gas is still 22% lower today than it was at the start of the year.
And even after the recent rally, prices are still only back to November levels.
The End of Saudi Oil
A rediscovered breakthrough in physics could provide enough fuel to power the entire planet… at a fraction of the cost of oil. And it’s growing so fast that one government official predicts “It could double every two years.”
Genius Investor Who Predicted 2008 Sees Another Crisis Looming
Michael Bury made a personal profit of $100 million by shorting the subprime mortgage bubble. Now, the genius investor (featured in the movie The Big Short) says he sees another debt crisis looming.
2015: The Year in Charts
How many jobs were created this year? How many people dropped out of the labor force? What happened to wages? Who do investors believe will be the Republican presidential nominee? Here’s the state of the union in 10 charts.
Bill isn’t the only one asking “big picture” questions. In today’s mailbag, readers weigh in on the worldwide credit bubble… and what might happen next…
As a newbie to all this financial fretting about I too have been asking the question “Are we wrong?” Of course, Austrian economics tells us for every bull there must be a bear. But . . . are they wrong?
Perhaps the economy of the Information Age will be completely different than what has passed before. As we become more and more like the Jetsons (!) maybe a new economy will emerge to support this radically different lifestyle.
Maybe the Fed, and the IMF and the World Bank will come up with a new system that will allow this credit bubble to inflate without end. Can we even imagine what the benefits and costs will look like?
As a young fan of future-leaning literature (okay, I read a lot of science fiction!) I always liked the idealistic picture of an advanced world ruled by a benevolent government. As an adult I am horrified by the thought of such evil people gaining so much control of my personal life. But who calls them benevolent or malevolent?– Mark S.
As certain as the Equator is warmer than the Polar Regions, you are correct about the coming economic depression.
Very much enjoy your letters, and living vicariously through your adventures and stories.– Dan A.
You said, “Without more credit, the whole system shrivels up like a desiccated slug. But here’s the rub: Debt cannot grow forever.”
Today, you sounded disappointed the world has not collapsed. Not to worry, your predictions like my bad spelling will take place like clock work, but who’s clock are we watching?– Jerry C.
This credit bubble has us all wondering if the logic and the rules don’t apply any more. What’s giving this bubble it’s staying power? Can we effectively apply the old rules to this new creation? Has it become “too big to fail”?
I don’t believe that Bill and team are wrong in their predictions. I do believe that usual groups are busy trying to fool us all into thinking that it’s 10 o’clock and all is well… when it’s 12 o’clock and the Red Coats are coming.– Rowena J.
P.S. If you haven’t read Bill’s full warning about the coming credit collapse, you’re doing yourself a great disservice. It’s an urgent call to sit up and take notice of the damage caused by four decades of EZ credit. Most important… it’s also a guidebook for how the coming credit collapse will unfold – and what you can do to protect yourself. Watch here now.
In 2006, the CIA’s Project Prophecy uncovered warning signs of an impending terrorist attack three days before 24 London-based terrorists planned to blow up 10 passenger jets bound for the U.S. And in 2007, it warned of the looming housing crisis in America.
Now the architect of Project Prophecy is coming forward with a time-sensitive warning about a $100 trillion threat…