That’s because “bets on the future price of oil have no impact on the current price of oil if the current demand equals the current supply, meaning there is no net change in inventories of oil.”

So why does Washington continue to point the finger at oil ’speculators’ (who in reality are energy traders)? Because it’s politically expedient, says Resource Trader Alert editor Kevin Kerr. In fact, so-called speculators usually keep prices lower and the markets more efficient. More from Kevin below…

To say we are in a crisis is a massive understatement. It’s like saying there was a little fire on the Hindenburg. As oil prices surge and the ebb and flow of trading begins to catch up with the world’s growing population, we can expect to see these prices continue to climb — maybe exponentially.

Meanwhile, the fools in Washington, and those political candidates hoping to get into that asylum, continue to talk the same smack they have for years. Essentially, they’ll say whatever they need to in order to get elected. What else is new?

The problem this time, however, is that the situation is simply too dire. We should not waste time trying to find scapegoats. That won’t solve the problem. It will just distract attention while politicians hope for answers.

But let’s face it. The blame game works. The politicians have an easy target in speculators. After all, the average American imagines Gordon Gekko-type characters slashing and burning their way through Wall Street and making the everyday man’s life more expensive while they water-ski behind their yachts.

So for senators and other politicians, it’s not a tough putt to get the general public to latch on and want to lynch every speculator out there.

But Gordon Gekko was not a speculator. He was a manipulator. He used information he should not have had to do things he should not have done.

That does not matter to the politicians, however. They want to paint every speculator with a broad brush. To the politicians, every legitimate speculator is an unlawful manipulator.

The problem is this: If the politicians restrict legitimate speculation, they will cripple the free market and actually cause prices to surge even higher. Politicians have confused things pretty badly.

Speculation shapes the margins of the markets. Many markets cannot function correctly without some element of speculation at the margins. Few politicians seem to understand that. Or they do, but won’t acknowledge it. Either way, it’s a critical mistake to be focusing on witch-hunts, rather than real answers.

Liquidity, Liquidity, Liquidity

In real estate, it’s location, location, location. In trading, it’s liquidity, liquidity, liquidity.

In case a number of U.S. senators don’t know, one of the most important elements in a free market is a provision of liquidity. It is possible to discover an “active price” only when the market is free and open. This is the job that speculators perform. Without speculators, there cannot be free market capitalism.

~~~~~~~~~~~Special~~~~~~~~~~~

Far From Over

A few stimulus checks may have made everything seem okay for a few weeks, but there is still blood in the water and more financial danger right around the corner.

If you’re starting to think things are going to get better, think again. The worst of this financial crisis is still to come.

Read about the next five financial shocks here…

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Yet even in the face of clear evidence that speculators perform this vital service, all we hear about is how speculators are causing the run-up in energy prices. And then we hear how speculators need to be more “regulated.” It’s absurd and dangerous.

As Richard Rahn of the Cato Institute writes in a great article for The Washington Times, “Many members of Congress make up ‘solutions’ to things they do not understand and cause problems where there are none or make real problems worse, which explains the current run-up in gasoline prices.”

Amen.

If You’re Not Part of the Solution, You’re Part of the Problem

You may be reading this and saying, “Of course you’re saying this. You’re a speculator!”

Very true, but I am also a consumer who has to buy gasoline and heating oil, just as you do. I also know the risks of assuming any position in these volatile markets. And that risk is calculated each time I trade. There are no guarantees. (How I wish there WERE some guarantees when I lay my cash on the line!)

The other very important factor here is to realize that speculators are not beholden to one side of the market. They are married to movement, not direction.

As far as my trading portfolio goes, I couldn’t care less if oil were moving higher or lower. As long as there is movement, we have trading opportunities.

The problem with blaming speculators is the damage done to the free market can be irreversible.

Richard Rahn goes on to say, “Speculators are not the problem; they are part of the solution, by reducing the risk for producers, refiners and other oil market participants. This risk reduction results in more production of oil, other fuel, food and metals where futures markets exist.”

Once again, he has hit the nail on the head. Reducing the number of speculators in the free market actually has the reverse impact. It drives prices much, much higher.

Can’t We All Just Get Along?

Let me just say that I am one of the biggest advocates of free, open, transparent markets. So are almost all speculators. The integrity of any market is only as good as its participants. And in some cases, I can see the need for more regulation. But the best regulator of the commodity market is usually the market itself. Markets punish unwarranted excesses.

Did you notice that back in July — when oil prices slipped from record highs and even had their biggest one-week drop in history — nobody was calling for speculators’ heads? There were no congressional hearings into the matter, just silence.

The fact of the matter is that speculators were just as active on the way down as they were on the way up, providing the service they do. With or without speculators, prices will continue to climb. The solutions, however, will be much harder to come by without speculators. The speculators are the ones who add liquidity and discover the best free market prices every day.

We must set aside all of the election-year rhetoric and demand better from our politicians, energy producers and even ourselves. We all have to take some responsibility if we hope to find solutions. Simply blaming one group of people is not going to work. The challenges of Peak Oil — if not Peak Everything — remain. Banning speculation means just losing a critical piece of the early warning system.

Source: The Trendy Pick

Soybeans have been extremely volatile to say the least, says commodities expert Kevin Kerr in Whiskey and Gunpowder.

The problem, says Kevin, is that all the rosy crop reports won’t come to fruition once harvest time rolls around. He says they’re just a lot of wishful thinking…

Jeff Caldwell, in a great article for Agriculture Online, hits the nail on the head:

“The USDA’s June acreage report didn’t tell the whole truth. Data were taken before flooding washed the productivity away from thousands of acres in Iowa, Illinois, Indiana, Minnesota, Missouri and Wisconsin.

“While another USDA report later this month will aim to get a better idea of what those acres will raise, University of Illinois economists are looking to trim some of the uncertainty from the ‘08 crop year forecast by applying weather models and historical data.

“‘Corn and soybean yield prospects are always uncertain, and that uncertainty is magnified this year due to much of the crop being planted later than usual, extensive flood damage and extensive replanting in some areas,’ according to a report by University of Illinois economists Scott Irwin, Darrel Good and Mike Tannura.”

Bottom line is nobody knows what lies in store for crops from now until harvest, and there are a lot of hot, dry days ahead. My feeling is that this pullback in beans is an incredible opportunity, but one that could still see further pullbacks, so options are the best way to go.

One thing I always stress with everything I do is to work a good defense as well as an offense. Let’s face it, no football team ever won the Super Bowl just because they had a great offense; they had to have good protection for their star quarterback, too. Using risk management in every portfolio is vital, not only a trading portfolio but an investment portfolio too.

It’s very important to understand the difference between an Investor and a Trader. I happen to have both an investment portfolio and my trading portfolios, two very different animals. I treat them differently, allocate risk differently and have different goals for each.

Source: It’s a Wild World

Kevin says this is a major paradigm shift – $140 oil, $1,000 gold, $8 corn are the new reality. He says there’s no going back.

Are the markets telling us a different story? US stocks rallied yesterday. The Dow saw its best two-day advance in six years. Crude oil prices have slipped below $131 a barrel. Gold prices are also off their week highs.

2008 has been an incredible year for commodities. While this drastic shift in focus to our finite global resources may seem immediate to the vast majority of Earth’s inhabitants, it’s actually been coming for a very long time.

Many of us out there who have been involved in commodities trading and analysis have been warning, watching and waiting for the last two-three decades. So it comes as little shock to us that we are in this “crisis” now.

One of my favorite writers and lecturers (and Byron’s, too) is James Howard Kunstler. The Long Emergency is the title of one of Kunstler’s books, as well as one of his catchphrases, and, boy, is it dead on.

This commodities frenzy, and the related dash by nations to snatch up and secure all sorts of resources, has been a long time coming. It certainly didn’t happen overnight. I can safely say that for the vast majority of my career, commodities have been the poor red-headed stepchildren of the investment world. Two decades ago, when I walked onto the trading floor of the New York Cotton Exchange at the old World Trade Center, the climate was very different from today’s.

Back then, most “mainstream” investment houses looked at the commodity markets as a subculture. Commodities were, basically, another branch of Las Vegas, just without the free buffets, dancing girls and booze. Actually, maybe some of that stuff was available on a daily basis, but it was a lot different then.

I compare it to how Times Square was back in the 1970s and early ’80s. If you ever visited the Big Apple back then, you know that Times Square was the worst of all things. It was a seedy, grimy, crime center filled with many colorful characters. Let’s just say Times Square was not a place tourists went, unless, of course, they were sex tourists.

Beneath it all, though, was an unpolished gem. The same is true with the resources market.

Fast-forward to today.

Imagine you’re Rip Van Winkle and you go to sleep on 42nd Street back in, say, 1975 (let’s call you “Rip Van Wino”). You wake up in 2008 and see all the porno houses gone, bars shut down, strip clubs a distant memory… and then, suddenly, you are escorted to a homeless shelter because of New York policies on street people near 42nd Street…

Welcome to the new world.

In some ways, this is true of the commodity markets, too. When I got involved with commodities in 1988, the exchanges were the low men on the totem pole. The members held all the exchanges privately, and none were traded on the stock exchange. It was a secretive world, and the only way to get a job on the floor was to know somebody. I got my job because my best friend’s brothers owned seats on the floor and gave me a job as a clerk.

Everyone on the trading floor was either related to or knew someone in the biz; it was a very incestuous market. The basic reason was that there was so much money to be made in the market nobody wanted outsiders coming in. It was a shortsighted approach, but it was the rule of law down there. The problem was that the markets stayed small and took only a small percentage of the global investment pie.

As the early 1990s set in, commodities, basically, fell and/or stayed stagnant for much of the decade, except for during the occasional war, such as we had in 1990 and 1991 (oil went wild when Saddam Hussein invaded Kuwait).

The general public focused on stocks and still pooh-poohed commodities. Nobody talked about corn or soybeans at any cocktail parties I went to in 1991. Now it’s different. I must get 15 calls a week inviting me to speak about corn and soybeans at events or on TV. It’s been a paradigm shift from 1989 to 2009.

Question: If a bubble pops on Wall Street and all the traders are in the Hamptons, does it make a sound?

The most common question I have gotten on a weekly basis for the last 18 months is “When will the bubble pop?”

My answer is pretty standard: “There is no bubble!”

I am not usually invited back to those cocktail parties, as it scares the guests. The truth is we are not in a bubble. We are in an upward correction propelled by years of denial, stupidity, underinvestment and neglect. The blame falls squarely on several parties.

Wall Street is guilty for not embracing the commodity markets earlier. Wall Street should have allowed commodity prices to reflect the true nature of pent-up demand by making those markets available to its clients. Instead, Wall Street discounted commodities as some form of gambling.

The commodities exchanges and traders are also to blame for not making their markets more transparent, and for also projecting an image of secrecy and mystery.

And both Byron and I could tell you stories about the underinvestment in basic production over the past couple of decades. Really, what were people thinking? That prices were low, and would stay low forever? Did it ever occur to anyone that all those babies born in the 1970s and 1980s might some day grow up and want food, energy and manufactured goods?

No, this is not a bubble. It’s a coming of age, a big, hard reality check that has been decades in the making. I have seen more activity by Wall Street in the resource markets in the last three years than in the previous 17. And I do not expect that it will ever go back to the way it was. I also don’t expect to see 42nd Street filled with porno and hookers again, either.

Change is often hard to accept. $140 oil, $1,000 gold, $8 corn… this is all the new reality. None of these new price trends are a figment of some rogue speculator’s imagination or the products of evil activity. This is a wake-up call that our growing world is hungry for the limited resources it still has.

The most important thing to remember is that markets, even parabolic bull markets, always correct. Those corrections can be painful if one is overextended or married to one side of the market – in this case, the bull market.

So ride the wave of change, of course. Be flexible, buy on the corrections, sell for profits on the overdone rallies and vice versa. Go short when clear tops have been made (although I grant it can be hard to determine the exact top).

There is no trail of breadcrumbs to follow on Wall Street, but that’s why you have Byron and me to help guide you. As long as grains don’t go up too much more, we should be able to supply you with a good trail to follow for many years to come, whether commodities are in rally mode or consolidation.

Source: Shock to the System

Renewed Midwest rains has corn and soybean prices through the roof, reports AP. Corn prices and soybean prices hit all-time highs following more heavy rains in Midwestern states, which left replanted crops once again under water.

Widespread belief that the Fed has failed to keep inflation in check is further supporting high corn prices, reports Bloomberg.

Rising Food Costs

By Kevin Kerr

We’ve been hearing for some time now about the rising costs of food in this country. The reason for these high costs are not as simple as some people think. Not only are we seeing record prices for grains and other crops, but also the high cost of fuel is making the harvesting of the crops in particular, as well as the simple shipping of the food across the country very expensive. Some prices are already out of hand and could still have a ways to go.

Making Tough Choices

I know what is going on inside the heads of the farmers. This spring, I went to visit farms in the Midwest, as I do every year.

It was a Saturday in mid-April when I pulled up to the Miller Armstrong Building in the sleepy farm town of Waseca, Minn. Waseca is also home to a federal penitentiary and Jeff Skilling, former Enron CEO and allegedly one of the “smartest guys in the room.” Now he is a convicted felon, serving time.

I drove into town and watched the cattle grazing outside the prison. I wondered for a moment if those cows knew they had a famous neighbor. They didn’t seem to care. The cows seemed more concerned about where to find some food. It was certainly foreshadowing what I was about to hear from the farmers.

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What No One Will Tell You About Options

Look, I’m not oblivious to the fact that lots of people talk about options. Many of them, I’m sure, have talked about options to you. But few of them tell you what I’m about to tell you now.

Even fewer are willing to teach you — as I am — how to follow only the best possible options out there. See, here’s the very simple truth: Some options traders really do take big risks…much too big for the average individual investor.

So, I beg you, give me a chance and you won’t regret it. Click here for more…

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The High Price of Ignorance

I was greeted by my friend and Outstanding Investments subscriber Geb Singlestad. Geb escorted me to a casual meeting at the Armstrong hall building. Charlie Nedoss of Peak Trading and about 15 other farmers accompanied me. One reporter showed up. Everyone introduced themselves, and we all grabbed some coffee. I spoke with the reporter for a few minutes, and the meeting began.

The thing about small-town America is everyone is friendly, but cautious. Geb invited all these farmers to the meeting. Later on, we learned that most of them thought we were there to sell them something… We were not.

Most of the farmers showed up out of respect for Geb, because he is a sort of patriarch in the community. He had just had knee surgery and was already getting around just fine. Amazing, don’t you think? The meeting was scheduled to last about 45 minutes, but once it got going, we covered so much ground and there were so many questions that we ended up being there for two and a half hours.

The questions came fast and furious. One farmer asked, “Do these people in Washington or in the cities know how much we are paying for our input costs? Do they have any clue how much the farmer is being squeezed?”

The best question of all, in my opinion, was asked a few times. “What will it take? How high will prices have to go to get people to change?”

I said that I think prices will have to go much, much higher before urbanites even consider switching off American Idol and protesting in the street. The farmers realize that most people in the country have no idea about either the process or the cost of what it takes to get their dinner from field to fork.

One farmer belted out, “As long as they have groceries on the shelves, lights on, the ATMs working and their jobs, then all is well. They don’t have a clue.”

Ethanol Rolls Along

There has always been a line between city and suburb dwellers and their rural counterparts. Most people in urban areas have little understanding of how much work goes into generating our food supply and then transporting it to each and every city.

Just the volume of diesel fuel usage to grow the crops is astounding. Agriculture is a very fuel-intensive undertaking. With diesel prices topping $5 and rising, the costs continue to climb at the grocery store.

After our meeting with the farmers, Geb took Charlie and me to see the newest ethanol plant being built in Janesville, Minn. This new structure is a 110-million-gallon ethanol plant. It has several rail lines being built to run directly into the plant. The outside of the building itself is huge. The towering cranes were working full tilt while we were there, and the parking lot was full of workers’ cars. The one thing that neither Charlie nor I saw was a water supply. An ethanol plant uses a huge amount of water, so where will it come from?

~~~~~~~~~~~~~Special~~~~~~~~~~~~~

The Greatest Hoax in 30 Years…

This will have worse effects on the U.S. economy than 9/11…and it’s only a hoax…

The U.S. has been lied to for decades and the government is just now figuring it out…and there hasn’t been a public announcement because it will cause hiatus on Wall Street… We know the hoax and how you can make killer profits off of it…

To find out what Bush was informed behind closed doors and how to make a fortune from it… Click here for more info…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

It seems with ethanol, as with so many things, the answer from the government often comes after a major project is already well under way. For the last eight years, the Bush administration has seemed to be more likely to do first and fix later. What’s the old saying? “Better to ask for forgiveness than permission.”

Anyway, the ethanol plant has provided many good jobs in the area and is slated to produce a real boom for the local economy. That’s all well and good, but is it sustainable?

The High Price of Low Living

With egg prices surging 26 percent and milk prices near record levels, consumers are making very difficult choices. My own aunt leaned into me at dinner recently and said, “Ya know, I bought a container of whipping cream and it was $7. That’s crazy.” Yes, it is crazy, and the even more insane thing is that prices may well have much further to go.

The farmers I met with are struggling with some of the highest input costs they have ever faced, and for some, it means that with all the massive expenses of running a farm, their margins are shrinking fast. Most of the farmers wondered what I think would happen if food stopped showing up on shelves in the city and the power went out and the ATMs shut down. You know what would happen? Panic.

The divide between the food source and the end-users is wide. As costs continue to skyrocket, we better begin to appreciate and support our farmers, because the long emergency is here and time is running out.

As I said my goodbyes to the farmers, Scott walked with me on his farm and showed me all his new farm equipment. One tractor, a John Deere, looked brand-new. He told me that Deere (NYSE: DE) simply has no equipment in stock, because sales are so red-hot. He said it’s much the same for Caterpillar (NYSE: CAT) and others. So even as the farmers complain about higher input costs and consumers in the cities complain about higher food costs, the beat goes on.

The solutions are not at all clear, but it is obvious that we need to begin to think locally. Food sources will need to be closer to the final consumers. The old way is simply not sustainable anymore.

In the brave new world, we will all likely have to become “locavores.” A locavore is someone who eats food grown locally. That would be a major shift difficult for most of us to fathom. But like it or not, it’s a change that is not going to be a choice. It will happen regardless of how much we fight it. Really, the question is how high of prices are we willing to pay in the meantime.

Regards,
Kevin Kerr

P.S.: Of course, we wouldn’t all be forced to consume only locally grown food if the price for fuel wasn’t so astronomically high. Until we can figure out a way to produce more oil domestically, we’ll be forced to depend on imports from overseas. In most industries that isn’t such a big deal, but with oil it can be a tricky situation. We’re not really dealing with the most savory characters. Click here to read the full story of why the oil we’re importing is so expensive and how things will get worse before they get better…

Source: Rising Food Costs

Five years ago, almost no one believed that oil prices would soar past $30 per barrel. $50 seemed utterly unthinkable. As oil prices continued climbing, so did disbelief. The skeptics never abandoned their misguided notion that oil was “overpriced.” So when crude retreated from $75 to $50 early last year, the prospect of $100 oil seemed like a ridiculous prediction

Due of Peak Oil, the prices of agricultural commodities are going much higher…

Most of the agricultural markets have had a big move already, but these markets could easily suffer a big correction from current levels. The long-term investor will want to buy these markets on weakness, not sell them.

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627% Profit in Four Years and Rising!

The New York Times and USA Today called it a “bonanza” for everyone involved…

There’s an energy revolution about to reemerge and impact the entire nation…and it’s neither oil nor ethanol…

You’ll be surprised what this revolution is…

Click here to read more…

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A hundred years ago, the average American spent about 45% of annual income on food. Today, that figure is down to about 15%. So we’ve been taking cheap food for granted and have spent our “extra” cash on plasma TVs and leased BMWs.

We don’t worry about food costs or whether it will be readily available tomorrow. But the agricultural markets may have some major surprises in store for complacent Americans…and unprepared investors:

While shortages of key industrial and energy commodities are frightening, no sector will threaten global stability more than agriculture…

In 2007, we saw stark glimpses of just how bad this situation will get. The “Tortilla Crisis” in Mexico, the “Pasta Protest” in Italy, the riots and crushing of one supermarket shopper in China over cooking oil… We have seen dairy, meat, and bread prices skyrocket.

It’s ironic that as global population is reaching an all-time high, we are turning a huge percentage of our crops into ethanol or biofuel…

This questionable, if not idiotic, alternative produces little, if any, short-term benefit and considerable long-term harm — both to the quality of farmland and to the integrity and stability of the global agriculture markets. In other words, using food as fuel can make a big mess out of the global food supply…and the prices that we all pay for that supply.

***********************************

The Greatest Hoax in 30 Years…

This will have worse effects on the U.S. economy than 9/11…and it’s only a hoax…

The U.S. has been lied to for decades and the government is just now figuring it out…and there hasn’t been a public announcement because it will cause hiatus on Wall Street… We know the hoax and how you can make killer profits off of it…

To find out what Bush was informed behind closed doors and how to make a fortune from it… Click here for more info…

***********************************

From sea to shining sea, the U.S. has croplands as far as the eye can see. For years, its bounty has been a supermarket for the world. Now it’s a fuel station, too.

China, which has hundreds of millions more hungry mouths than we have, has far less arable farmland. And worse, China has far fewer controls in place to regulate farming methods.

Trends like these strongly suggest that the agricultural markets will imitate the price action of the energy markets. As investors, we must look at this situation as an opportunity…

We should be looking to buy stocks of some of the key agricultural companies that help support the industry: those dealing with equipment makers, fertilizer, irrigation, and transport.

In my own portfolios, I have exposure to soybeans, wheat, and corn. I also think the soft commodities are much undervalued: coffee, cocoa, sugar, and cotton. These markets are also poised to move much higher…

The planet is not running out of food, but it might be running out of cheap food. So stock up your pantry and start shopping for the kinds of investments that will prosper during the coming agriculture boom.

Regards,
Kevin Kerr

P.S.: Agriculture is a profitable market and safe bet for several years…but there’s another market out there that’s a lot more lucrative, a lot less obvious. We’ll give you a sneak peak to find out how to make easy millions. To find out what his hot market it… Click here…

Source: A Grainy Picture

Despite that fact, the debates rage over Peak Oil, Peak Food and peak everything else. It’s about as sensible as rearranging deck chairs on the Titanic. So the “experts” continue to debate whether or not resources are running low. But the evidence is pretty clear, at least to this trader.

In the past year, we have seen the oil and agriculture markets explode. And this could be just the beginning of the rally, not the end, as some would have you believe. Personally, I think we are about halfway to the new top for many commodities. That means $200 oil (easily) and gold at $1,500-2,000. The agriculture markets have even further to go, in my opinion.

Key commodities are becoming more and more scarce. So we can expect to see more suffering in the poorest countries first. Then the economic impact will work its way up the food chain (no pun intended).

The facts are fairly grim if we look at them closely. There is going to be less of everything. Yet there will be more people who want those things. Let’s face it – wars have been fought over far less.

In her famous book, On Death and Dying , Elisabeth Kubler-Ross describes the stages of grief:

· Denial: “It can’t be happening”
· Anger: “Why me? It’s not fair”
· Bargaining: “Just let me live to see my children graduate”
· Depression: “I’m so sad, why bother with anything?”
· Acceptance: “It’s going to be OK.”

In my opinion, the American public is going through the stages of grief right now. Rising prices are just a market-based signal that we are losing our economic and resource abundance. As the American dream fades away, it’s like a death in the family.

Right now, I think we are between the stages of denial and anger. Ask yourself these questions: What do you think when you pull up to the fuel pump and have to pay $4 for a gallon of regular gas, or nearly $5 for a gallon of diesel? Or how about when you go to the supermarket and have to pay $4 for a gallon of “store brand” milk, or the same price for a loaf of “store brand” bread? Are your emotions between disbelief and anger? Are you saying to yourself, “Hey, what the heck is going on?” (I’m cleaning it up a bit because this is a family-friendly publication.)

I think folks mistakenly thought prosperity would go on forever.

Dinner is always fun until the waiter brings the check. Or as my colleague Byron King once said, “It’s easy to look rich as long as you don’t ever pay the bills.”

No sector has recently hit Americans in the wallet harder than energy. But even with those dramatic price increases, major changes are still not happening. We have seen a very small decrease in gasoline usage – only about 1% or so.

But while some travel may be down as costs have gone up, the numbers are not really dramatic. No, I am not pointing fingers. I live here too. If I looked at my own lifestyle, I couldn’t say that I am making radical adjustments, either.

We still like to drive our big SUVs. We still drive alone to work. Most people rarely take public transportation (if there is any). And we love to run our air conditioners full blast while watching the documentaries on global warming and dying polar bears on our 62-inch plasma TVs.

Yes, we like to grumble when we fill up those big SUVs, mostly because it’s easier to complain than make the tough changes that are needed. We feel entitled to keep living as we do. Hey, after all, we’ve earned it. Right?

Rather than make difficult choices, we are in that denial stage and buy the line from the government and media that all is well.

The facts and the fiction often get mixed up when discussing the issue of “Peak Everything.” Take the surging price of crude oil. Some people (including a lot of politicians) want to blame the traders and speculators. Other people blame farmers and corn-based ethanol. A lot of people blame OPEC. The list of culprits goes on ad infinitum.

The fact remains that it’s not just one reason or another that we are in this energy disaster; it’s actually all of these reasons and others. It’s a culmination of many years of poor energy policy, shortsighted planning (if you can even call it planning) and an overdose of arrogance that only superpowers can have.

It’s like a football team saying, “We’re No. 1 and will always be that way.” So the team stops training hard. Players quit working out and coming to practice. The coaches just relax and forget about recruiting or developing new talent. Nobody designs new plays or bothers to scout the opponents to see what they are up to. And then the team expects to go out into the world and bring home the trophy every year. “Hey, we deserve it. Right?”

Or go back to the analogy of the Titanic. The ship was state-of-the art. It was not “supposed” to be able to sink. But now as the water rushes in and the ship is dropping lower and lower into the sea, the cold water is hitting us all in the face. Now our lawmakers are scrambling to plug the holes, and it’s not working. The smart people (or maybe they were just lucky) are already in the lifeboats.

Only time will tell if the United States can actually move into the acceptance stage. But in the meantime, commodities will continue to dwindle.

Regards,

Kevin Kerr
for The Daily Reckoning

P.S. As the price of commodities contains to rise, there will be incredible opportunities to profit as investors. These opportunities will abound, as they always do when stupid decisions are being made…and you can bet that Bryon King and myself will alert our Outstanding Investments readers to where this opportunities for profit are hiding. If you aren’t yet a subscriber, there’s never been a better time to discover the world of natural resources. Click here for all the details .

But there’s been a startling change that means resources and assets could be lucrative for investors for a long, long time.

That’s because the world’s population is exploding, meaning we’ll need more roads, more houses, more resources to satisfy this growing population. Now that growing demand runs smack into the question of supply, is there enough energy…enough water…enough food?

It doesn’t seem like it. The number of people on Earth is set to grow by 50% in the next century or so — an unprecedented explosion.

~~~~~~~Only a Few Hours Left ~~~~~~~

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Just consider that the human population reached the billion mark sometime in the 1800s. That was double the number that occupied the planet in 1500.

But then the Industrial Revolution came. And by 1900, the world’s population had increased to over 1.5 billion people. In just 30 years, the world had added half a billion people.

By 1930, the world’s population reached two billion people. Fifty years later, it had doubled again to four billion. And in 2000, there were six billion people on Spaceship Earth. By 2030, there could be over eight billion people — a 300% jump in a century!

Of course, the “optimists” claim there won’t be that many, because war and famine will weed many out. But let’s say we’re not that “lucky” — and that we’ll need to find a way to feed, clothe and house eight billion.

Scientists say that to support projected population increases, the world will have to quadruple its agricultural production and increase its energy output by a factor of eight. Meanwhile, 150 years after the Industrial Revolution began, man is beginning to drink down the Earth’s wellspring of natural resources.

But it’s not just that we have more people in the world — it’s what these people are consuming. Currently, the Western world, with just 20% of the world’s population, uses 80% of the Earth’s water, mineral and petroleum resources. But the rest of the world is itching to catch up.

According to the most recent data from the U.S. Energy Information Administration, oil demand for countries in the Organization for Economic Cooperation and Development — which includes developed nations like Japan, Germany and the United States — has gone up 14% since 1980. Oil demand for the rest of the world, however, has skyrocketed 43%. That’s more than three times as fast!

Unfortunately, there’s no way for supply to keep up.

The Supply Picture

The fact is, the heyday of finding new giant resource supplies is over. There hasn’t been an elephant oil field (more than a billion barrels in reserves) discovered in almost 20 years. You have to go back 30 years to find an elephant outside of the Middle East.

In fact, according to a study by PFC Energy, a petroleum advisory firm, the larger integrated oil companies spent about 24% of their cash on dividends last year, 12% on share buybacks and 12% on paying down debt. Only 46% went into capital spending.

The study goes on to say that as a share of exploration and production expenses, spending on exploration has declined over the last decade or so and now accounts for about 20% of the total, down from 30% in 1991! Meanwhile, oil prices continue to set new highs.

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Minerals are in the same boat. Companies have realized there are fewer resources out there. According to the Metals Economics Group, the total spent on worldwide nonferrous exploration in 1997 was $5.2 billion. In 2004, the total was $3.8 billion — a 27% drop. In the same time frame, gold prices have shot up 21%…and silver is up 48%.

Instead of exploration, what you’re seeing is a wave of mergers and acquisitions throughout the natural resources industry. China’s recent attempt to buy Unocal is just one example. We’ve also seen a lot of mergers in industries like precious metals. In 2004, things got ugly as miners Wheaton River Minerals, IAMGOLD, Coeur d’Alene Mines and Golden Star Resources engaged in a series of hostile takeover bids for each other. It just shows how desperate miners are to increase their reserves through acquisitions.

So why are companies choosing to buy up other companies, rather than spending money to find new reserves? Maybe it’s because they know spending a lot of money searching could be fruitless.

Yours for resource profits,
Kevin Kerr

I am racking up the frequent flyer miles this year. My travels in 2008 have taken me to exotic locales like Singapore, Hong Kong and Dubai, as well as somewhat less exotic locales like the American Midwest. But guess what, the Midwest is the place that’s making the headlines in Singapore, Hong Kong and Dubai. The soaring price of agricultural commodities like wheat, corn and soybeans is one of the biggest news stories on the planet right now.

But ag commodities aren’t just a huge news story, they are also one of the most exciting trading opportunities of 2008 and beyond.

Whether my travels take me to the Middle East or the Midwest of the U.S., the stories are very similar. Most people are concerned about the rising costs of agricultural commodities. And they should be. The commodity boom is real. It is not a bubble, no matter how many folks wish that it were.

In fact, now you have all of these dollar bulls coming out and saying that the worst is over for the dollar and that the commodity bubble will soon burst. They say that the commodities markets are simply speculator-driven. I disagree. Do you remember as a child wishing for something, wishing so hard, yet it didn’t come true? Wishing for something to happen does not mean it will be so. (I never did get that red bike.)

The dollar will probably bounce a little higher, but the same problems that drove the dollar into the basement will persist, and even worsen. The Fed can’t just snap its fingers and wipe away a credit crisis with some stimulus checks. Too many folks are subscribing to the idea that the consumer will somehow come to the rescue and spend our way out of recession. That’s pure fantasy.

The hope that the commodity bubble will burst is also a fantasy. The fact of the matter is that we are in a new paradigm for commodities and the old-school thinking about how commodities used to be traded has to be changed. And this is true of most commodities – none more so than the agricultural ones. Sure, speculation is a part of this puzzle, but to say it’s all speculators and hedge funds that are causing the run-up is a sad mistake.

As I sit here writing this column, I am watching CNN out of the corner of my eye, and on the air is Jonathan Stevens, a baker from a Massachusetts company called Hungry Ghost Bread. He is starting to grow his own wheat and encouraging his customers to do the same. Not a bad idea. For a 50-pound bag of organic flour, he used to pay $25, but now pays around $60. So in back of the store, the bakers are now growing their own wheat. Now, while farming in your backyard may not seem very practical, it’s becoming part of a new reality: If you want to be sure you have the food you need – absolutely sure – you’ll want to grow it where you live.

Most of the world’s inhabitants already understand this essential reality. America’s are just starting to re-discover it. In fact, we’ve even made up a new word to describe this ancient necessity of growing food where you live. The word is “locavore” and it means someone who eats food grown locally. Wow! Very trendy!

Demand for ag commodities is real and it is worldwide. Meanwhile, supplies are stretched thin. So any “supply shock” has the potential to cause prices to soar even higher. A new supply shock might be developing right under our noses. The planting season here in the U.S. is getting off to a very bad start, as the weather has been awful. Torrential rains have flooded many fields, making planting impossible. The U.S. Department of Agriculture reports that only 10% of the corn crop west of the Mississippi has been planted, compared to a five-year average of 35% for this time of year.

Plantings for soybeans, spring-wheat and rice are also trailing behind their five-year averages.

Therefore, this year’s corn crop could be extremely disappointing. Some of the other crops might also disappoint. In my trading service, Resource Trader Alert , we are betting on much higher prices in soybeans and corn, and we are using option spreads to take advantage of this.

My annual meetings with Midwest farmers are always helpful. But my recent meetings with farmers in Minnesota were particularly helpful. Not only did I gain some insights about this year’s crops, I also learned a great deal about the soaring prices of fertilizers and other farming “inputs.” The long and short of it is that input costs are rising about as fast as commodity prices. So many farmers are getting squeezed.

And these rising input costs are here to stay, which probably means that rising grain prices are also here to stay. Yes, prices will fluctuate dramatically. But the bull market in agricultural commodities is very, very real.

Why deny it? Why not trade it?

Regards,

Kevin Kerr
for The Daily Reckoning

My grandmother, Oget Palm, was just a little girl when my family was scheduled to sail from Europe to New York in 1912. Her parents (my great-grandparents) and her siblings were prepared to make the trip from Gothenburg, Sweden, where they lived. They were scheduled to be in the steerage compartment — as all immigrants were — aboard the newest and “safest” ship on the sea, the RMS Titanic.

It’s funny how fate can change so many lives. Just before the trip from Sweden, my great-grandmother contracted rheumatic fever, or what they used to call consumption. Nobody is really sure why. She was only 33. Sad to say, she died.

But there is another side to the story. The family was delayed from sailing to America as they mourned their loss. Thus, they missed sailing on the Titanic. And everyone knows what happened to the Titanic.

Later on, my grandmother and her family sailed into New York Harbor on a different ship. She remembered gazing at the Statue of Liberty. I returned with her in 1997, and we walked through Ellis Island together. We even found her name in the book they used to categorize everyone who came through, an experience that is truly chilling. Back then, everyone was processed at Ellis Island and made their way to the places where they had relatives. Typically, the Swedes and Norwegians went to Minnesota, and that’s how yours truly ended up being born there.

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A $14,300 Gain Instead of $2,200

On a single $5,000 stake, just holding Occidental Petroleum’s regular “tier one” shares — the kind you hear everyone gabbing about on the financial shows — you might have walked with just $2,200 in profits.

Not so bad, but the “tier two equities” would have given back a hefty $14,300. On the same company, the same trend, and over exactly the same time period.

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Fast-Forward: Doing More with Less

The light that burns twice as bright burns half as long. And America has burned very brightly for a long time. As the resource battles begin to heat up, we are already seeing where some of the major battle lines will be drawn, and it’s not a pretty picture. The simple fact of the matter is the world’s resources — not just oil — are dwindling faster than Britney Spears’ career.

While shortages of key industrial and energy commodities are frightening, no other sector will threaten global stability more than agriculture.

Food Fight

It seems ironic that as global population is reaching an all-time high, we are turning at least half of our crops into ethanol or biofuel. This is a questionable, if not idiotic, alternative that clearly does as much damage as good. While the short-term impact is obvious, the longer-term ramifications for agriculture on a global scale could be devastating.

In 2007, we saw stark glimpses of just how bad this situation will get. The “Tortilla Crisis” in Mexico, the “Pasta Protest” in Milan (I happened to be there for that one), the riots and crushing of one supermarket shopper in China over cooking oil…we have seen dairy, meat and bread prices skyrocket.

The idea of food inflation is new to many Americans, who are used to prices for food being only about 13-16% of income. Back when my grandmother got off the boat in 1912, they were more like 45%.

Bad Choices Beget Bad Choices

In recent years in the U.S., the number of immigrants has swollen. The porous borders continue to attract newcomers as if it were still 1912. Here in the U.S., a lot of people think that America can still absorb a massive influx of immigrants from all over the planet who are poor, tired and hungry. And while that is nice, romantic thinking, the fact of the matter is we cannot.

Now, I would hate for us to change the plaque on Lady Liberty to “Bring us your well-fed and rested, employable and intelligent,” but the truth is maybe we have to.

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Get Smart or Get Gone

As investors, we must look at this situation as an opportunity for our portfolio. First of all, I suggest if you have some extra land (condo developers and house flippers, listen closely), grow a vegetable garden, and if you are ambitious, raise some sheep and cows, because they will come in handy. A little more practical and with less bunker mentality is to add stocks of some of the key agricultural companies that help support the industry, like those dealing with equipment making, fertilizer, irrigation and transport.

My grandmother may have missed the Titanic, and figuratively, I hope we all do too. But keep in mind that our ship (the USS America ) is sailing in uncharted waters and we had all better get smart fast. Really, the food supply is stretched and getting stretched thinner and thinner. There are only so many lifeboats, and unfortunately, that’s the new reality. Increasing population and rising demand for scarce resources mean that there is a big iceberg ahead. So man your stations.

Yours for resource profits,
Kevin Kerr

We seem to have a history of identifying a problem and rushing to solution before really taking the necessary steps to find a real fix. Have we set ourselves back when it comes to alternative energy?

It seems that every time you pick up the paper or switch on the TV, someone is talking about a new way to make his car run on biodiesel or ethanol:

“I converted my car to run on old McDonald’s french fry oil, and the mileage is pretty darn good.”

Well, there we have it…energy crisis solved…right? Wrong. You see, for every good idea and every well-thought-out plan that may work on a small scale, there are always problems on a widespread level. Ethanol from corn is a perfect example. We will examine why ethanol has failed in a moment. And why even bother with alternative fuels? Do we really need them?

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Let’s think about some alternative fuels and energy sources. Think of nuclear, solar, hydrogen, geothermal, coal and biodiesel. While we’re at it, let’s think about ideas like recycling, conservation, smaller cars, efficient homes and even walking. Yes, walking. These ideas are no longer just for polite cocktail party talk. These things will now be necessities if the world — and, most certainly, the U.S. — is going to continue to function in the face of dwindling easy-to-get-to sources of oil.

One thing is for sure. The vast petroleum needs of a growing planet are not slowing down. In fact, quite the opposite.

We suddenly have a whole new ballgame, as millions and millions of new drivers hit the road in India and China. The economic boom in those places has spurred a new middle class. These are not the regimented masses of just a few decades ago. The new middle-class citizens of the developing world are not content with meager rations, bare-bones quarters and Mao or Nehru jackets. Instead, they are demanding more luxury items and a far superior standard of living. And you know what? They have the money to pay for these things.

So we have a problem. There are a lot of people competing for the world resource pie. But the pie is not growing very fast. In many ways, the size of the pie is static, and in some respects, it’s actually shrinking. Thus, we get the golden rule of supply and demand, which is that those who have the gold make the rules.

The idea of ethanol from corn or other feedstock is not new. Byron King and I have talked about this in our Outstanding Investments letter many times before. Farmers have used ethanol from corn for years on a local basis, and it has served them well.

I visit many farms every year. One small town in Minnesota is a perfect example of how corn-based ethanol’s evolution went from a simple small-scale solution to a nationwide disaster.

In the small southern Minnesota town of Waseca lives a good friend of mine, Geb. Geb is a lifelong farmer and resident. Geb made his career in farming, and his hands tell the tale of many years of hard work and toil. Geb now enjoys retirement and investing, and his son Scott handles the day-to-day operations of the farm.

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I visited Geb and Scott’s farm about two years ago. As we walked over his farm, Scott was nice enough to show me the incredible advancements in farming technology. Global Positioning Systems (GPS) in the tractors and combines enable the driver to know exactly which parts of the fields he has already sprayed with fertilizer, in order to save money. And this level of technology is just a start. There are many other things that make this not your father’s farm. Different seeds, different irrigation methods, different weather forecasting. I was impressed.

Later that day, the discussion of ethanol turned into more of a history lesson and led me to realize that corn-based ethanol on a nationwide scale was going to be a disaster. (Remember, this was about two years ago.)

Wouldn’t it be great to grow enough of something in your yard and then have a machine turn it into fuel you could put in your car? What could be better than taking a small portion of your corn crop and converting it into ethanol at either your farm or the locally owned farmers’ co-op down the road? You could then use the ethanol to run your farm vehicles. And if you didn’t need all of it, you could sell a little to the local gas station or your neighbor. It makes an incredible amount of sense on that small-scale level, and it worked like that in the Corn Belt for many years. Fast-forward to 2008 and we find a much different story.

The idea was simple at first. We would use ethanol for fuel, just as they do “back on the farm.” But when the time came to scale it up, everything became super complex. Oil prices surged year over year, and the idea emerged that alternative fuels — like ethanol — would start to replace oil, just as they had done in Brazil years earlier. It was a nice idea. However, without any real planning or study, it was doomed to fail. And now we know that it has failed.

Regards,
Kevin Kerr

P.S.: For the past few months, commodities have been getting a lot of press. While we have seen an incredible rise in some key commodities, we are also currently entering a very friendly buyers market. If you’ve been thinking about getting into this game but haven’t pulled the trigger yet, now’s your chance. And to make things even sweeter, I’ll give you three free months of my Resource Trader Alert service. That way you’ll know what to buy and how to take advantage of this market. But hurry, this offer only lasts until Monday. Click here for more…