With the global economy taking off without us and foreign interest rates already on the rise, the Fed is desperate to look bullish while acting bearish.

Anybody that has ever tried to prove the existence of Santa Clause or the Tooth Fairy to a six year old knows what Bernanke is trying to do. At this point, he’ll do anything to change the subject and focus the attention on something else.

With all of this talk about an increasingly deadly carry trade bubble, it is beyond obvious that American interest rates need to rise. If it doesn’t happen, soon enough all of America’s money will be invested in some high rise in China’s Guandong province… or Saudi oil.

But we all know Bernanke would commit career suicide by lifting a headliner like short-term rates even by a quarter of a percent. The blame for any upcoming financial downturn will be squarely on his shoulders.

For the youngsters in the room, he’ll be blamed for outing Santa Clause.

So what’s the guy to do? He’s already doing it.

The Fed is unraveling its plans to buy a whopping $1.25 trillion worth of mortgage-backed securities and $200 billion worth of other mortgage-related notes.

By March, the Fed’s massive buying spree will be over, once again letting the markets deal with a massive amount of very “un-transparent” securities. The same lion that brought the bull down is once again about to be un-caged, hungrier than ever.

If you thought the market had a hard time swallowing so many mortgage defaults, wait until $1.45 trillion dollars runs straight into 10% unemployment and a real estate market worth a fraction of what it was even a year ago.

And here’s the kicker, just by refraining from hitting the “buy” button, Bernanke effectively raises mortgage rates by as much as 100 basis points.

Let’s see… 10% unemployment, a weakened currency, deflating home prices and inflating borrowing costs. It’s a recipe for disaster.

At least Bernanke gets to keep his job and he gets the keen realization that he would not be in this bind if he never would have meddled with the markets in the first place.

We all knew the day would come when the Fed had to clean up its mess. That day has come.

***As if the markets have not shown enough contempt for government intervention, Uncle Sam is once again trying to throw sand into the gears and cogs of American business.

This time they want us to pay workers for not showing up to the job.

Thanks to a representative from California (there’s a surprise), legislation is working its way through Capitol Hill that would force employers to pay an employee for up to five days worth of sick leave if the worker is diagnosed with ANY infectious disease.

The rational side of my brain says there is absolutely no way this is going to make it the White House. The harm it would do to production is simply too immense to deny, even by politicians.

But the irrational side of me can already imagine the last-minute phone calls. “Sorry boss. I can’t flip burgers today. Got herpes. See you on Friday to get paid.”

Gotta love where we are headed.

Treasury Secretary Timothy Geithner is once again traveling abroad to assure foreign nations that their investments in the United States are safe But this time it’s not China he’s trying to assure; it’s another large supporter of the dollar: Saudi Arabia.

While inflation has held steady in the face of increasing budget deficits, the purpose of Geithner’s multinational tour will be to repeat assurances that such deficits will not trigger a strong bout of inflation and in turn sink the value of the dollar and foreign holdings. Last month, Geithner was in China – the largest holder of U.S. treasuries – to make the same assurances.

Geithner reiterated the Obama administration’s commitment to protecting the value of the dollar and maintaining investor confidence in the U.S. financial system in an interview broadcast on CNN’s“Freed Zakaria GPS.”

“A strong dollar is in the interest of the United States. Of course, I deeply believe that,” Geithner said. “Our commitment … to the world and of course, the American people, is to make sure we’ll put in place the policies that can sustain confidence in this economy and this financial system.”

While rising unemployment – well beyond what the Obama administration expected – is prompting talk of a second stimulus package, Geither said it’s too soon for that. Only 11% of the $308 billion stimulus funds allocated to discretionary programs will be spent in the current fiscal year, and only half by the end of fiscal 2010,Money Morning reported last week.

“I don’t think that’s [deciding on a second stimulus is] a judgment we need to make now,” Geithner said Sunday on the CNN program. “We can’t really make it prudently or responsibly.”

Assurances from the man in charge of the world’s largest economy are important to those whom have invested in it, but several economists believe the Obama administration needs to do more to address worries about U.S. deficits.

“We have a fiscal policy that will ultimately undermine the value of their holdings and that has got foreign investors nervous,” said Mark Zandi, chief economist at Moody’s Economy.com told The Associated Press. “They are seeking assurances that the U.S. is committed to dealing with its long-term deficit problems.”

Geithner will also discuss with officials from Saudi Arabia and the United Arab Emirates the lack of stability of oil prices, which rallied about 115% to $73 a barrel after falling below $34 a barrel in February. The Commodity Futures Trading Commission (CFTC) last week said it will hold a series of hearings this month and in August to determine whether or not it should place new limits on energy futures contracts.

There’s a good chance that the United States and other economies will start growing again, Geithner said in a Reuters interview.

“In my view there are significant risks and challenges ahead,” he said. “We have a very powerful set of policies in place, coming on stream. I think there is a very good chance we will see the U.S. economy and the world economy get back to recovery, get growing again, over the next few quarters.”

Source: Geithner Takes Dollar Assurances to Mideast ]]> http://www.contrarianprofits.com/articles/geithner-takes-dollar-assurances-to-mideast/19081/feed 0 http://www.contrarianprofits.com/articles/whos-foolin-who/17624 http://www.contrarianprofits.com/articles/whos-foolin-who/17624#comments Mon, 08 Jun 2009 17:12:30 +0000 Chuck Butler http://www.contrarianprofits.com/?p=17624 Jobs Jamboree gets a lift…  The real numbers…  The dollar comes back with vengeance!  RBNZ to meet this week…
And Now… Today’s Pfennig!

Good day… And a Marvelous Monday to you! You know the Jobs Jamboree data that printed on Friday, and created some HUGE euphoria among the media types that love to just “read the news” and not actually do the research to report it? Yes… It was a very good number, on the outside… Not that losing 345,000 jobs in a month is a good thing, but it is far better than the near 700,000 jobs lost a couple of months ago.

So… I’ve got that to talk about today… And the rebound by the dollar that has taken the euro to the 1.38…

His logic is simple. Thanks to record high oil prices, sheiks and regulators will look to “fix” the oil market. This fix, while probably reducing prices, will actually help oil producers better determine true supply and demand.

This from Taipan:

Ride OPEC’s outrage to 70% gains

“I am shocked – SHOCKED – to discover that there is gambling going on here.”
– Captain Renault (Claude Raines, Casablanca, 1942)

That just might be my all-time favorite movie line. Bogart aficionados know it was exclaimed by Claude Rains’ jolly Nazi collaborator, as he simultaneously collected his ill-got gambling gains and closed down Rick Blaine’s casino.

The reason I love it is that it so well captures this sort of hypocrisy. The line is so perfect it’s downright archetypal. Take most any week’s news and you will read some dolt somewhere echo its sentiments.

The Fly in OPEC’s Ointment

For example, just yesterday, the secretary-general of the Organization of Petroleum Exporting Countries, one Abdalla El-Badri, called upon the regulators of the world’s futures markets to do something about all the rampant speculation on his client’s precious crude oil.

Prior to attending this week’s big confab in Davos, Switzerland, El-Badri opined via e-mail that “OPEC has repeatedly called for the need to reduce the role of excessive speculative activity in the market. Today, it is impossible to know who is actually buying and selling oil futures.”

In case you somehow missed it, allow me to sketch out a brief history of the events that have El-Badri so hot and bothered.

Some Is Good…

Oil had been making overall advances in price for most all the seven years that the folks in the Oil Patch held the White House (and perhaps more importantly, the Old Executive Office Building, from where Vice President Cheney appears to have been determining most of our energy policy). But even that steady creep didn’t hold a candle to the excesses of volatility we experienced in 2008.

The first half of the year saw crude oil surge some 46%, an incredible increase in view of the fact that there were no material events genuinely impacting supply or demand in that time. Sure there were the usual storms, strikes and minor military skirmishes that encumber most any trading season. But in the end, none of this actually impacted supply in any serious fashion.

Meanwhile, on the demand side, we now know that the U.S. economy was already well ensconced in recession. And yet, prices at the wellhead and gas pump continued to skyrocket.

But Too Much Stinks

If you want to find the mysterious driving force for this first-half-2008 spike, you need look no further than the trading floor of the New York Mercantile Exchange. By March of last year, speculators had racked up some 115,145 net-long crude future positions (as per those fine folks at the CFTC, who supposedly regulate this market).

Now, one would imagine those other fine folks at OPEC would enjoy seeing prices climb that high. $147 per barrel will buy you one heck of a new marble-and-gold palace, or perhaps even forestall a revolution amongst your eternally beleaguered poor another year or two.

And yet, this sudden largesse was making the folks at OPEC increasingly nervous. You see, they had been down this road a time or two before, and had learned a critical lesson along the way.

Waking Up Dead

Have you ever boiled a lobster? (Stick with me here: it’s germane. Really!) If you dump the wrigglers into boiling water, they thrash about and panic, supposedly spoiling their delicate flavor. (Not that anyone can really tell under all that butter.)

No, the trick is to place the live lobster into a pot of cold water, and then slowly raise the temperature. Little fella doesn’t even notice until he wakes up dead, as it were.

The same is true of crude oil consumers. Crank up prices an average of four bits a year for the better part of a decade, and no one says boo. Spike prices 50% in one season, however, and suddenly folks are looking to change their habits.

Change for the Better?

Last year, that’s exactly what happened. Miles driven were cut back to levels unseen since the 1940s. Thermostats were dialed back, electric lights turned off, and massive SUVs sat languishing on auto sales lots.

By mid-July, the folks at the NYMEX were forced to switch trading direction, with floor contracts showing a net short position for the first time in decades. By November, the CFTC showed 52,984 contracts speculating on further price drops.

And drop it did. By December, we were seeing crude futures in the high $30s – an astounding fall of nearly 75%. As anyone in any capital-intensive biz will tell you, this is no way to run a railroad.

Or a Turn for the Worst?

This whole affair drives the oil types nuts for a myriad of reasons. First of all, it makes it darned hard to plan. Exploration and development take years and billions to work out. A field that seems reasonably worth exploiting at $60 a barrel may be a windfall at $120/barrel, a tax shelter at $50 and a bankrupting boondoggle at $30.

But you know what I think really bothers the sheiks, et al.? It’s a fair guess that the trading floor was an exclusive insiders’ preserve for decades. Now guys like El-Badri complain that wild-eyed speculators are raiding their private cellars: “Today, it is impossible to know who is actually buying and selling oil futures.”

When El-Badri and his cronies ask for “more transparency,” what they really want is more exclusivity and control. And seeing as how Washington is somewhat inclined toward “centralized command and control” these days (that was a joke, albeit a grim one), I do believe that they will most probably conspire with the sheiks and oil companies to shut the speculators out of the market.

I’ll Take My Winnings Now, Rick

Seeing as how we can’t stop this juggernaut, I suggest we ride it instead. A smoothly operating oil patch will most probably benefit all the usual suspects, so let’s start by picking up shares of the biggest, meanest fellow about. That would be ExxonMobil (XOM: NYSE). Or, if you would care to leverage a bit, you might do as we suggested to WaveStrength Options Weekly readers and purchase mid-dated, at-the-money calls against the same, looking for some 60% to 70% over the next month or two

Call me cynical, or just a pragmatist like our dear Captain Renault. I’ll take my winnings now, thank you.

Source: A Transparent Call for Control Over Oil Futures

Global oil demand is not going to “plummet.”  And for the FT to say so is just plain silly, if not irresponsible.  OK, I know.  There’s an old saying that they teach in journalism schools.  “You have to sell newspapers.”  But this declaration by the FT highlights the perils of letting a headline-writer do your thinking for you.  It’s what I call “arguing a screaming conclusion.”  And a wrong conclusion at that.

Oil Demand – Down, Then Up

But let’s move past the headlines.  The Financial Times article explains that the World Bank has just issued a new study.  The World Bank believes that the world is entering into the toughest economic times “since the Great Depression.”  Thus overall world oil demand may fall by about half a million barrels per day in 2009.  That’s what the World Bank states in its report.

Only half a million barrels?  Heck, the total world demand for oil in the past year was about 87 million barrels per day (a fact that the FT article fails to note).  By comparison, the Saudi oil tanker that was hijacked off the coast of Somalia held two million barrels of crude oil.  And despite this act of piracy oil prices still fell over the next couple of weeks, even without that tanker plying its route across the deep blue seas.

So if the world experiences the next “Great Depression” (Release 2.0, I guess), a reduction in overall oil demand of half a million barrels per day is down in the statistical noise.  And what the World Bank is saying about the grim future of the world economy is not the equivalent of “plummeting” demand.  At least, not half a million barrels of lower usage.

How Bad Is It?

How bad is it out there?  Well, according to this week’s MasterCard Spending-Pulse data, U.S. retail gasoline demand is back to about the same levels it showed earlier in 2008.  That is, high gas prices hurt demand over the summer and into the fall.  (I drove less.  Didn’t you?)  But the current low fuel prices have evidently allowed demand to recover.  People are driving more.  It’s basic Economics 101.

I was talking with an economist for the American Petroleum Institute about two weeks ago.  He told me that overall gasoline demand in October was down 3%, year-to-year.  But diesel fuel usage was up by the same amount.  Overall U.S. oil demand is down about 8%, but that reflects the slowing use of oil in industry.  Out on the road, people are still driving and trucks are still hauling.

For all the sound and fury about the run-up in oil and fuel prices through July, and then the fall in prices after that, the aggregate demand for oil is only changing at the margins.

Built-In Oil Demand

In both the developed and developing worlds, there’s a lot of oil demand built into the economic and social energy system.   That’s what modern development is all about.  That’s how the system was built over the past 100 years or so.  Yes, you can wish that the system were different.  You can even try to change the system – and risk collapsing it in the process.

Whatever you do, you can’t change the system very fast.  To paraphrase a former Secretary of Defense, “You live in the world with the energy system you have.  Not the energy system you might wish you had.”

So at best, if you want to change things you are looking at a generational shift.  If you have a generation.  Do we have a generation?

What Will OPEC Do?

Let’s try looking at some different numbers.  How about 7 million barrels of oil per day?  That’s the amount of output that OPEC might have to shut-in if it wants to get prices headed back upwards in to the range of $75 per barrel or so.  At least, that’s according to Philip Verleger, a long-time industry player as quoted recently in Platt’s industry newsletter The Barrel.

Current daily oil output from OPEC is about 32 million barrels per day.  Verleger thinks that OPEC’s output ought to be more like 25 million barrels per day.  There’s the 7 million barrel shift.  Easy, right?  It would be as if Iran, Iraq and Qatar simply stopped exporting oil.  How likely is that to happen?  Umm… yes.  Clearly, Verleger has a radical take on things.

One way or another, can OPEC cut production significantly?  Does OPEC have the discipline to manage its own affairs to cut 2 million barrels, or 4 million, let alone 7 million barrels per day?   The issue is that numerous OPEC nations cheat on their production quotas.  Hey, they need the money.  Thus they lift the oil and sell it.  Really, cheating on OPEC quotas is not a problem.  It’s a tradition.

What of the Future?

Looking ahead by more than about two years, world oil demand is certainly going to grow.  It almost does not matter what we do in the U.S. or Europe.  When you look at the numbers of young people who are already born and living and growing up in the developing world, the demand will be there.  Many of these young people already have a cell phone and a laptop computer.  When they finish school, they will want an apartment and a car.

And at the rate things are going, the energy industry is still under-investing in the necessary systems of the future.  Depletion is still ongoing.  It gets back to the very basic point that every barrel you lift from the ground leaves one less barrel down there.  And the overall global depletion rate is 6% at best.  Maybe it’s 8%.  It might be 10%.  To replace that depletion, the general trend is for the energy industry to go further away, to deeper waters or more remote sites, to drill deeper wells, with hotter temperatures and higher pressures.  Those little hydrocarbon molecules are just plain tough to catch.

And keep in mind that nobody can produce oil that has not been discovered.  Or developed.  Or for which there are no handling facilities.  That takes investment, and lots of it.  Which requires money and finance, which is in rather short supply just now.  So there are just a few years in which the world can reorder the way it does oil, let alone the big picture on energy.  And there are a lot of moving parts in all of this.

The Moving Parts of Oil Production

One of our fellow (sister, actually) readers is deeply involved in monitoring the world oil situation.  The other day she sent me a thoughtful list of “ifs” that have to happen just to begin to get future oil production on firm ground.  Here it is:

• IF oil price rises above the marginal cost of new non-OPEC supply in time to get new production back on track;
• IF oil-producing countries and China stop subsidizing prices to their own populations;
• IF OPEC gives international oil companies (IOCs) like Exxon, Shell, Chevron, etc. access to explore and develop their reserves;
• IF the trillions in exploration and infrastructure capital are invested;
• IF OPEC invests seriously in increasing their own capacity;
• IF enhanced oil recovery (EOR) processes can really increase the recovery rate as much as hoped;
• IF the reported reserves are really there;
• IF the U.S. Geological Survey predictions of “yet-to-find” oil in the Arctic, offshore and elsewhere are correct;
• IF the Saudis can are capable of reaching and sustaining 15 million barrels per day of output;

IF, IF, IF …

“And,” adds my correspondent, “virtually all of these are outside the control of any policies that might be set by the oil-importing nations of the West.”

So unless a lot of things happen – pretty soon and in the right sequence, and competently — we’re going to be faced with the prospect that there’s not going to be enough oil to go around.  So oil prices are going to head back up.  People and governments are going to get desperate over supplies.  And much of the usual and predictable bad stuff that you’ve heard before is going to happen.  Which gets back to that Financial Times headline.  “Plummeting” demand?  Really.

A Few More Dots to Connect

President-Elect Barack Obama made a major announcement last weekend.  It was along the lines that his administration would work to invest in infrastructure.  Congress loved it because it means that the politicians can appropriate money to spend on concrete and steel.  That’s what I’ve been saying would happen.  But it’s nice to hear it.

The announcement was good in the short term for a couple of the OI stocks, like Alcoa (AA:NYSE), Cemex (CX:NYSE) and General Electric (GE:NYSE).   They all have things to sell into an infrastructure buildout, as do more recent additions like Koppers Holdings (KOP:NYSE) and Allegheny Technologies (ATI:NYSE).

Where will the U.S. government get the money to pay for the infrastructure buildout?  Same place it gets all the money to bail out the banks and Wall Street, I guess.  It’ll borrow it.  And in the process the U.S. borrowing will soak up most of the nation’s “spare” capital, such as it is.  U.S. government borrowing will crowd private borrowing.

The U.S. government can borrow money for the time being.  For some strange reason, people still want to buy U.S. Treasury bills, bonds and notes.  Don’t ask me why.  The interest rates are just about zero (safety sells, I suppose).  And the dollar is strong.

Actually, the dollar is much stronger than it ought to be.  I expect a major dollar-correction in the first quarter of 2009, which will be good for foreign-denominated stocks that trade on the Toronto Exchange.  (Although Canada is having some surprising political issues right now.  I’d appreciate hearing from Canadian readers about their take on what’s going on with Prime Minister Harper.)

In the longer run, the U.S. expenditures will come back as inflation.  That means that you want to look at owning gold and shares in the best-run gold miners.  If I had to pick just one gold miner with the best prospects, it would be Kinross Gold (KGC:NYSE).   It’s well managed.  Kinross just completed a series of mine expansions.  And it’s ramping up production to sell increasing levels of output into a generally rising gold market.

Source: Whither the Oil Markets

Oil rose above $45 on Thursday after the International Energy Agency predicted global growth in oil demand would resume in 2009 and Saudi oil minister said OPEC’s top exporter pumped less oil than expected last month.

World oil demand growth would return in 2009 after shrinking this year for the first time since 1983, the IEA, which advises 28 industrialized nations on energy policy, said in a monthly report. It also cut forecasts for supply outside OPEC next year.

“We knew the bad bits, demand down, but the supply downgrade was supportive,” said Rob Laughlin of MF Global.

U.S. crude was up $2.23 at $45.75 a barrel by 1152 GMT, after surging $1.45 to settle at $43.52 on Wednesday. Brent crude was up $2.55 at $44.95.

The IEA’s view that demand would grow in 2009 contrasts with that of the U.S. government’s Energy Information Administration, which forecast this week that world consumption would decline by 450,000 bpd next year.

The Paris-based IEA also lowered forecasts for supply from outside OPEC in 2009, leading to a 200,000 bpd increase in the amount it said OPEC needs to pump to balance the market.

SAUDI NUMBERS

Oil also rose as Saudi Oil Minister Ali al-Naimi said the world’s largest exporter pumped 8.49 million bpd of oil in November, less than estimated by analysts and in line with its OPEC target.

“We will give you the November number because that’s what everybody is looking for,” Naimi said during a visit to Poznan, Poland. “It’s 8,493,300 barrels per day.”

That would put the kingdom’s output in line with its implied OPEC target of 8.47 million bpd and is 560,000 bpd less than the IEA’s estimate of Saudi November production, published earlier on Thursday, of 9.05 million bpd.

Industry sources told Reuters on Wednesday they expected January shipments to be below Saudi’s existing OPEC target, implying it expects OPEC to agree a further supply cut when the producer group meets in Algeria on Dec. 17.

Russia, which will attend the Algeria meeting as an observer amid calls from some members for Moscow to join in output curbs, said on Wednesday it will present its own proposal at the talks.

Indicators on the health of the U.S. economy, such as weekly jobless claims due later in the day, could make grim reading for Wall Street and imply a further weakening in demand from the world’s top oil consumer.

Oil has fallen by more than $100 a barrel from a record high of $147.27 reached in the summer, pressured by weakening global demand.

Alex Lawler, Jennifer Tan

LONDON, Dec 11 (Reuters)

For those confused by Bush’s statements today, ANWR (the correct spelling) stands for Arctic National Wildlife Refuge. Bush claimed today that Congress’s refusal to open the reserve for exploration is a major contributor to sky-high oil prices. However, a US Energy Department analysis released today revealed that oil development in ANWR Alsaka would only slightly reduce America’s dependence on imports and would lower oil prices by less than 50 cents a barrel.

According to MSNBC:

The report, issued by the Energy Information Administration … said that if Congress gave the go-ahead to pump oil from Alaska’s Arctic National Wildlife Refuge, the crude could begin flowing by 2013 and reach a peak of 876,000 barrels a day by 2025.

But even at peak production, the EIA analysis said, the United States would still have to import two-thirds of its oil, as opposed to an expected 70 percent if the refuge’s oil remained off the market.

Whether ANWR Alaska is the answer or nor, Bush and Congress better think of an alternative to the US dependence on Middle East oil soon.

Jason Simpkins at Money Morning has startling evidence that the Saudis are lying about their oil capacity.

As investing legend Jim Rogers pointed out in a recent interview with Money Morning Investment Director Keith Fitz-Gerald, Saudi Arabia has claimed to have the same amount of oil it did 20 years ago, but logic seems to run contrary to that assertion.

In December, Money Morning Investment Director Keith Fitz-Gerald publicly forecast that oil prices will reach $187 a barrel within three years. In mid-March, he reiterated this projection.

According to Keith colleague at Money Morning, “Not only has this forecast continued to receive widespread play on energy — and investment– related web sites, we’re starting to see similar ‘me too’ predictions being made by some the energy sector’s heavyweight experts: Literally only days after Money Morning reiterated its forecast, Wall Street giant Goldman Sachs said that crude oil prices would reach $175 a barrel in the next two years.”

To find out ways to profit when oil bubble up over $100 a barrel click here.

Crude price forecasts can’t be accurate without understanding Saudi oil production. And the truth of the matter is that Saudi oil wells are drying up.

“Saudi Arabia has announced for 20 years in a row that they have 260 billion barrels of oil in reserve,” legendary investor Jim Rogers told Money Morning during an interview in Singapore last month. “It’s astonishing. The figure never goes up and it never goes down. They have produced dozens of millions — billions — of dollars of oil in that period of time.

“If you go to Saudi Arabia, you have to wonder: ‘How could this be? How could it be that every year for 20 years in a row, you always have 260 billion barrels of oil in reserve?’ The Saudis say: ‘You either believe us or you don’t.’ And that’s the end of the conversation.”

Consider Basilea, a Swiss drugmaker focused on antibacterial and antifungal remedies. The company’s lead drug, ceftobiprole, is a promising treatment for complicated skin infections. But last month, the FDA issued the company and its Big Pharma partner, Johnson & Johnson, an approvable letter – the regulator’s notorious maybe-yes/maybe-no ruling.

Without pausing to see if the company can satisfy the agency’s concerns, investors dumped the stock. It fell from 187.40 Swiss francs to 148.50 on the day of the ruling. It closed yesterday around 150.

But these dramatic, emotional reactions give us excellent opportunities to profit. Our own Dr. George Huang has developed a proprietary method for trading these approvable letters. It’s a strategy that offers huge upside and very limited downside.

The FDA will issue 55 more rulings in 2008, and we have exact dates for all of them. The next one happens on Tuesday. Dr. George Huang has written a primer explaining his system, and we’re offering the primer and his new trading service at a big discount that ends this Monday. To learn more about Dr. Huang’s S&A FDA Report, click here…

Oil trades for more than $117 per barrel, and for the first time China, India, Russia, and the Middle East will consume more crude than the U.S.

The International Energy Agency estimates the emerging markets will consume 20.67 million barrels a day this year, a 4.4% increase. Meanwhile, U.S. consumption will fall 2% to 20.38 million barrels a day. We doubt oil prices are going anywhere but up.

Look at the chart below (courtesy of U.S. Global Investors) showing international oil consumption per capita. Every country’s oil consumption exploded following the industrialization of that country… except China. China has not even begun to whet its oil appetite. Wildcatter T. Boone Pickens thinks we’ll see $125 oil, but according to this chart, it could go much higher

Oil consumption per capita, 1900 to present

Ali al-Naimi, Saudi’s oil minister said, “Limited capacity along the entire supply chain is the real source of current global supply tightness and represents the greatest threat to ensuring adequate energy to fuel future economic growth.” Al-Naimi says the world needs more infrastructure investment to find new oil wells. Saudi Arabia is the third major oil-producing nation to warn of shortages. This month, a Russian oil executive announced his country’s oil production has peaked, and Nigeria claimed its output may fall by one-third due to under-investment.

One thing is for sure: Americans are going to see their standard of living fall dramatically as prices for energy continue to rise. And no amount of solar-panel rebates is going to change this harsh fact.

Alberta, Canada, is one area with sufficient energy supplies. Alberta has a patch of land the size of Florida containing more oil than all of the Middle Eastern countries combined. The oil is mixed with dirt, and harder to process. But with oil at $120, it is worth trying to sort the dirt from the oil.

Canadians will invest $22.2 billion over three years on Alberta infrastructure. Most of this investment will relate to natural gas, which is becoming the most important fuel source in the region. Matt Badiali noticed the Alberta trend early and has several recommendations in his S&A Oil Report portfolio with operations in the region. But he recently discovered a little-known Canadian oil patch that may prove to be even more profitable for investors who get in now. To learn more, click here…

Regards,

Porter Stansberry and Dan Ferris

With options expiry in progress, and first day notice for silver delivery next week, the boys are shaking this tree as hard as they can to get all the weak longs and tech funds to cough up their positions so they can cover. This bear raid is totally illegal, of course. It’s like a Mafia/Nazi controlled town…there’s nothing that we can do except sit and watch and mutter obscenities at them under our collective breaths. When will this be over? Don’t know. Are they gunning for the 200-day moving averages? Don’t know that either. Only they know, and they aren’t about to tell us. Note the rise in the US$ yesterday…up a bunch. Funny thing is, that gold is never allowed to rise that much when the dollar heads south.

For Tuesday, gold open interest fell another 3,148 contracts, but once again silver o.i headed in the opposite direction…up 2,636 contracts. Like I said yesterday, don’t look to me for why this is so. Volume was reasonably light on Tuesday, as it was yesterday. If the boys have anything to do with it, all these changes in o.i. that we’ve seen in the last couple of days, won’t be showing up in this week’s COT. As I’ve mentioned several times before, they are great at withholding information when they’re in the middle of one of their classic bear raids.

From The King Report last night: “Bennet Seddaca in The Moral Hazard Club writes, When you add up all the Level II assets by just the eight largest holders in the U.S: JP Morgan, Citibank, Bank of America, Merrill Lynch, Goldman Sachs, Bear, Morgan Stanley and Lehman Brothers , it comes to a staggering $5 trillion – nearly half the size of the economy. Level III assets are nearly $600 billion. Is the Fed big enough to bail out all these assets? My best guess is probably not, and more firms will fail.”

A couple of stories today. The first has to do with Dennis Gartman selling out his gold position. This isn’t the first time that his friends in the Cartel have cut him off at the knees. Probably won’t be the last either. Chris Powell, GATA’s secretary treasurer, who is senior editor at the Journal Enquirer in Manchester, Connecticut has a few choice words of his own about Gartman, and the reporter who wrote the Bloomberg story. Click here.

The other story is from The Wall Street Journal and is an oil story from Saudi Arabia. It’s a ‘good news’…’bad news’ story. Yes, it’s more production, but…..! It’s entitled “Saudis Face Hurdle in New Oil Drilling” and it’s linked here.

I see a Costco store in California has advised its shoppers “to follow their regular rice-buying habits” and have also put restrictions on flour purchases. And the Sam’s Club division of Wal-Mart “is restricting purchases of some types of rice to four bags a visit.” Lastly, Government of Singapore Investment Corp (the country’s sovereign wealth fund) said “the world economy may be headed for its worst recession in three decades.” Just three? How about eight!

The boys were everywhere yesterday…the US$, the Dow, gold, silver…I’m sure there was more. It just goes on and on. I don’t expect today to be any different.