Silent Archimedes

Posts Tagged ‘oil’

The need for greed. And they all fall. What Arod, recession and global warming have in common.

Posted by silentarchimedes on February 7, 2009

Alex Rodriguez

Alex Rodriguez

What is going on with the world today? Many of the institutions and systems we grew up with and believed in have crumbled faster than a crumb cake in front of Santa Claus. This morning sports fans were shockingly (or not) met with news that one of the few remaining baseball superstars to not be tainted by the steroids scandal, Alex Rodriguez, failed an MLB steroids test in 2003. Considering that this news was corroborated by four independent sources, and based on past evidence of such news, this story likely has meat behind it. As the Barry Bonds’, baseball’s all-time home run king, steroids perjury trial heads to court, we wonder if there is anything sacred anymore in sportsmanship and fair play. The list now includes Bonds, Arod, Marc McGwire, Sammy Sosa, Roger Clemens and Raphael Palmeiro. All were heroes and idols to millions and millions of kids and sports fans.

Bear Stearns

Bear Stearns

Sports is nothing, however, compared to the deepening economic crisis affecting the country. But, then again we need to ask ourselves how did this country fall into such a dire situation in the first place? With news of unemployment reaching 7.6%, worst since 1982, most Americans are sensing a pessimism in the country and its leadership they have never felt before. Corporations that have long been stalwarts have wilted after years of trustworthy service. Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers and AIG, just to name a few. Even General Electric has fallen on tough times due to untrustworthy leadership expectations and financial exposure. Then there are the frauds of individuals, such Bernie Madoff, and corporations, such as Enron and Global Crossing.

Polar bear cub

Polar bear cub

Then there is the global warming and energy crises. Due to the  irresponsible and rampant use of oil and other natural resources, and the irresponsible output of chemicals into the air, river and ground, the natural balance of Earth has come under question. Dire predictions of sea levels, global temperatures, forestation, glacial coverage, droughts and diseases have left us wondering is there any hope left? Will there exist a viable Earth in 100 to 200 years?

It is truly amazing that all three of these problems have one major thing in common. Greed. Greed. Greed. What is most disturbing is that the situations did not become problems until the ultimate greed kicked in. Arod was already a once in a generation baseball player back in high school. It is fair to say that he did not do steroids as a teenager as his body structure was simply too small. Bonds was a skinny player with the Pirates but was already a five tool player on the path to the Hall of Fame. McGwire  was an amazingly talented rookie with the Oakland Athletics. Why did they feel the need to use steroids and become even better than they already were? Why risk already amazing career trajectories with such greed?

Similarly, the financial companies that have gone bankrupt or bought up were very viable and successful companies (some for over a hundred years) before the ARMs and hedge funds became en vogue. Why the greed to do such risky investments in order to raise the bottom line and stock price?  Was it all due to increasing stock compensation packages of executives? Was it all worth it? To dupe millions of unknowing citizens just for more personal money? What about Madoff? An already well-respected and wealthy investor; what caused him to risk everyone’s money (including hundreds of other wealthy individuals and companies), just to make more money for his firm?

Finally, the earth has remained relatively stable ever since the existence of man. However, since the Industrial Revolution and especially since the widespread use of combustible engines, there has been this disregard for the side effects of using such resources. Coupled with research in biochemistry and synthetic compounds, the effects of pesticides, mercury, lead and carbons have led to a precarious global balance. Millions of animal species extinct or on the brink of survival.

Progress?

Progress?

Are humans, the supposedly most “intelligent” species with opposable thumbs, in fact, the dumbest species ever? Just imagine outsiders writing about the history of man and what they would write about, especially the past 150 years. Just imagine what they would write about western civilization. Just imagine what they would say about the population numbers. Or about technology and medical research? Is this the final goal of evolution? We have reached the ultimate in special survival… our only enemy is ourselves? The whole purpose of natural selection is the survival of the strong. However, part of natural selection is natural balance. A species never wants to become too powerful because then their food sources and natural enemies would disappear. Humans have, in essence, overcome both these natural laws. Through natural selection (our brains and opposable thumbs) we are far and beyond the most powerful species. In a relatively short time, our population and power increased beyond control. Humans have no more natural enemies. The machines we have created are unmatched and only destructible amongst ourselves. So what does this all mean?

The human world does not have a checks and balance system. Nature and other species have always acted as the equalizers. The closest thing that comes to that is the United Nations, and everyone knows how ineffective it is. Additionally, idealistic political systems such as communism and socialism have proven futile. Even checks and balance systems, such as the one in the United States, has a limited efficacy, as witnessed by the politics, lobbyism and other issues. Nature is having a difficult time balancing the effects of human greed and power. Diseases and natural disasters are becoming minimal in damage due to medical research and better disaster predictions. Without any natural enemies, we are left to govern ourselves and our future. As exciting of a possibility that is, the track record of that has been phenomenally pathetic.

Advertisements

Posted in Economics, Ethics, Health and Fitness, Opinion, Politics, Science and Math, Sports, Technology | Tagged: , , , , , , , , , , , , , , , , , , , , , | 6 Comments »

A Letter to America

Posted by silentarchimedes on November 3, 2008

Dear Fellow Americans,

The land of the free and the home of the brave...

The land of the free and the home of the brave...

Tomorrow is one of the most important days in recent American history. It is a day that will affect the short term prospects of America and the standing of America in the world for the next century. The events and actions of the past eight years have accelerated the damaging path the country has embarked on for the past thirty years. The irresponsible actions have left America crippled economically, politically, morally and psychologically. Both parties have been hijacked by the special interests of corporations, ideological groups and personal interests. The values in which America was founded on have been distorted. The decision made by America tomorrow will go a long way in determining if we continue this egregious path of self-destruction.

The debt at the national, local and consumer levels are not only due to the actions of the past eight years. The decision by the Supreme Court in 1978 (Marquette National Bank of Minneapolis vs. First of Omaha Service Corp.) to deregulate interest rate caps at the state level was the precursor to the inundation of credit cards and the mortgaging of personal futures for the present. Although Reaganomics has been credited with bringing the country out of the vitriolic stagflation of the late 1970s, it has had a long term effect that has eaten away at the fiscal responsibility of the federal government. At the core of Reaganomics was reducing tax rates by reducing government spending which in turn was achieved by reducing costs associated with regulation and social programs. However,  unexpected costs from the burgeoning Cold War resulted in large trade and federal budget deficits. In order to cover such deficits, the government began borrowing heavily both domestically and abroad. This decision to mortgage the future of the country for the present instilled a belief that debt is good, even to other countries, such as China, Japan and India. America became a borrower nation instead of a loaner nation, which it had been for decades during its prominence.

The deregulation of these two critical issues are the main causes of the current economic problems. It instilled bad habits at all levels of society. Although quality of life continued to increase the past thirty years, it was mostly at the cost of the future. Both politicians and individuals began feeling entitled to such luxuries and expected it to last forever. However, as analyzed by Pulitzer Prize winner Jared Diamond (Collapse: How Societies Choose to Fail or Succeed), it is this infectious mindset that causes great societies to fail. This country is at that critical juncture. Do we reinstate the values, sacrifices and hard work that made this country great or do we continue down this destructive path?

In addition to the present economic and ideological problems that endanger the quality of life of America, there are many massive elephants in the near future that can derail any sense of comfort in the nation. A fundamental restructuring of social programs like Social Security, Medicare and Medicaid is required in the next one or two presidencies before the effects of the baby boomer population cripple the flow of aid from the system. The high quality of life has left Americans lazy, fat and indifferent, and the medical costs associated with treating related diseases and health issues threaten to destroy the already broken health-care system. The super-highway system that supported the rise of American power is also the bane of the country’s dependence on foreign oil and its lavish automobile lifestyle. Furthermore, the infrastructure of America is crumbling and poses a danger to the lifeblood of a large country like America. A massive government infrastructure initiative is required within the next twenty years. The only question will be where does all the money come from? As globalization continues to redistribute the wealth and power of the world, the education system and America’s ability to compete are also being tested. American children  continue to fall behind other countries at all levels of education, from middle school to college to graduate school. This country has been able to sustain its technological competitiveness partly through the immigration of top-level students from countries such as China and India. However, the current backlash on immigration coupled with the increasing prestige of other countries’ higher education systems, begs the question of how America will sustain its technological edge? Corporations and special interest groups as super-humans continue to eat away at the fabric of America. Their selfish narrow-minded view of profit and ideology permeate all levels of society, from individuals to the government. Ideology has especially polarized the country into two hardened stances, secularity versus ideology. The effects of this has left the country fearful and suspicious of each other. Finally, the effects of the internet and other entertainment-related technologies cannot be understated. Although they have created luxuries beyond anyone’s belief and increased the free flow of information, they have also created a schizophrenic society of 24 hour media frenzy and questionable freedoms of morality. The neutrality of journalism and the mental well-being  of society are at stake. Coupled with the constraints of global warming and moral responsibility, the above problems must be faced responsibly.

These problems will definitely be difficult to face and resolve. Most of these have been simmering for years, but have been effectively ignored. However, what has always made America great has been its ability to come together as a country and sacrifice for the greater good of the country and the world. The sacrifices by this country during the Civil War and World War II for the greater good cannot be forgotten. Although society was simpler and less polarized then, the country must come together once again to face the unprecedented wave of issues that threaten to send America down the road of self-destruction.

Tomorrow begins that choice. Tomorrow the country decides which path to take, one of sacrifice for the greater good or one of continued wantonness. Tomorrow begins the day where America can begin reinstating the values that made this country so great. A country of uniqueness not found anywhere else in the world. A melting pot that protects individual rights and helps others at times of need. A constitution so strong that the thought of a revolution is unfathomable. The land of opportunity and openness. A land of thousands of parks and natural resources. The separation of church and state and the freedom of religion. The land of the best medical care and higher education system. A land of tolerance and hope. And the land of the free and the home of the brave…

Whomever you vote for tomorrow, please think openly and clearly. Without any bias of age, race, religion, and fear, think who will be better for America. Who will lead America towards a path of redemption and strength. A path that requires sacrifice but cherishes American freedoms. A candidate that realizes that what America needs now is a problem solver with pragmatism and humility, and not one fixated on idealism, intolerance and fear mongering. Look closely at your choice, and know that when you go home afterwards, there will be a better America tomorrow. A better America for yourself and your family, and also for its great citizens of today and tomorrow.

America’s tomorrow begins now…

Thank you.

Silent Archimedes

Posted in Economics, Ethics, Observations, Opinion, Politics, Science and Math, Technology | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a Comment »

Commentary: What’s next for gold, the Dollar, U.S. economy and inflation?

Posted by silentarchimedes on October 28, 2008

Gold, Gold, Gold

Gold, Gold, Gold

The economic turmoil the past two months has sent some very mixed signals to people who do not fully understand the commodities market cycles and global economic forces. The global economic train is now in the midst of a long and dark recession tunnel. The actions taken by the large economies of the world, such as the United States, and European countries, the past two months have made the average investor skittish and scared. They see stalwart financial companies like AIG, Wachovia, Washington Mutual and General Electric either crash and burn or bought out by other companies or halved in price.  Their 401Ks, Roth IRAs and other investment accounts tumbled. To make matters worse, they see high crude oil prices that had peaked above $140/barrel go on a crash dive to barely above $60. Wasn’t the global demand of oil, especially from China, India and other emerging markets suppose to keep gas prices above $4.00 for good? Now they are back well below $3.00. Other commodity prices, such as silver, copper and platinum followed suit. All tanked from multi-year highs just reached not long ago this year.

However, contradicting this gloomy wave of news was the ‘strengthening’ of the U.S. dollar and the 30%-plus drop of gold prices. Gold was supposed to be seen as the safe haven when things go bad.  Well, now things are really bad so why is gold also dropping? And why is the dollar strengthening when the U.S. economy is tanking? How can this be? In the simplest explanation, although quite wrong and unsubstantiated, was that the commodity bubble had bursted. Gold dropped because the demand for commodities was over. Many people began believing this and even some gold bugs were confounded by what was going on.

Their is a very simple explanation for it, and all the reasons for the dollar strengthening and gold prices crashing are all temporary. As a matter of fact, it provides the best opportunity to buy gold in several years. The recession is in much deeper quicker than anyone thought. Many investors are being forced to sell even their safest haven assets in order to cover for their losses on the risky side, such as stocks, houses, hedging, etc. This includes the liquidation of gold. They do not want to do this but are forced to. This is a major factor in the instability on the down side of gold. Second, the safest non-gold haven for money is U.S. Treasuries. They are one of the only things that guarantee still a net positive return, albeit a small interest rate, at this juncture in the economy. Countries have no choice but to buy more Treasuries because the faith in other fiat currencies is still not strong enough since this is a global recession. This temporary strength in the dollar against other fiat currencies also has a downward push on gold prices and other commodity prices since they are all priced in the dollar. That means $100 now buys more gold than before.

The thing is these two actions are only temporary. These actions are only to save the global recession from a global depression right now. These are short-term reactions to a longer term problem. These actions are known as deleveraging. It is allowing the new economic state to take root. It is a finite process and will soon come to an end. Why? The federal reserve continues to pump lots of new unbacked dollars into the economy. And the $700 billion dollar bailout begins this week. The Feds announced that they will give the initial $125 billion dollars to nine banks. What does this all mean? INFLATION! And soon, HYPER-INFLATION. U.S. Treasuries will have no choice but to increase their interest rates in order for countries to continue buying them. Mortgage rates will rise, as they already are, even though recession takes root. The dollar will reverse trend and weaken due to inflationary pressures. More dollars will come home to roost from other countries. What does all this mean? Gold will rise, rise, rise.

Update 6:15pm: So the Dow Jones goes up 890 points (10.88%) today, with the NASDAQ and S&P500 posting similar percentage increases today. The two main reasons for such a historic rise (second largest point increase of Dow Jones ever) is due to bargain hunters and an expected interest rate cut by the Federal Reserve. Although the cut might help in the credit and liquidity crisis, this is another long-term inflationary signal. If Treasuries have lower interest rates, who will buy them? More Dollars will come back to America, which means a weaker dollar. Although this might help the current local minimum (credit and liquidity), the entire graph continues to head towards a weaker dollar and a continuation of the commodities bull market and a rise in gold prices.

Disclaimer: This is a commentary by an amateur investor and is not meant to be taken as professional advice.

Posted in Economics, Opinion | Tagged: , , , , , , , , , , , , , , , , , , , , | 2 Comments »

The beauty of Dubai. Oil funding a true oasis, or is it?

Posted by silentarchimedes on August 18, 2008

The beauty of Dubai. Oil funding a true oasis, or is it?

Before the year 2000, I heard of Dubai (left, courtesy of Wikipedia) maybe once in my life. Now, every few weeks, there is some big financial news about Dubai. All of which are big in magnitude and some beyond the scope of reality. Why this sudden change in fortune in just a few years? Due to its location in the Middle East, the quickest reaction is to proclaim its wealth as a result of revenue from sky-high oil prices. However, that is not the case. Although it is true that oil provided much needed funds and backdrop when Dubai gained independence from the United Kingdom in 1971, today it only accounts for 6% of it’s US$37 billion GDP. This is an amazing statistic and it speaks strongly of how a Middle Eastern country that promotes free trade, diversity, tourism, relatively diverse media, and relative equality can be wealthy without oil revenues.

RECENT HISTORY

The United Arab Emirates was formed in 1971 when Dubai and five other emirates came together. In general, an emirate designates a political territory that is ruled by a dynastic Arab Monarch styled emir. The only other independent emirates in existence are Kuwait and Qatar. 1971 is of significance because that is when the United Kingdom ceased protector status of Dubai.

In 1979, the Jebel Ali Free Zone was created. It was created as a free economic zone, which offered corporations generous tax incentives to develop in the area, and allowed foreign companies unrestricted access, both in import of labor and export of capital. The Jebel Ali port (right, courtesy of Wikipedia) is now the 9th most active port in the world, in terms of container traffic. This was probably the most influential move in Dubai’s history that set the stage for present wealth. Since Dubai (and the UAE) is so small, the revenues from such an economic zone are tremendous.

The success of the Jebel Ali Free Zone has led to other free economic zones in Dubai. The Dubai Internet City houses corporations targeting emerging markets. The restrictions for foreign corporations are minimal. For example, companies may retain their 100% foreign ownership in the zone. This has led major corporations, such as Microsoft, IBM, Oracle, Sun, Cisco, Siemens, and Nokia to set up operations. However, internet restrictions do exist, such as website access to alcohol and gambling. Although they can be legally bypassed by accessing corporate VPNs in internet-free countries. Other free zones include the Dubai Media City and the Dubai Maritime City.

AN EMERGING OASIS

One simple look at  Dubai in 1990 and in 2003 shows what has changed:

Dubai in 1990

Dubai in 1990

Dubai in 2003

Dubai in 2003

The pictures above are courtesy of Essential Architecture. Look at their webpage with lots of pictures of what Dubai has become! It is utterly amazing!!

Essential Architecture of Dubai

Posted in Economics, Technology | Tagged: , , , , , , , , | Leave a Comment »

Two Ways to Solve the Oil Problem. Conservation vs. Expansion. Obama vs. McCain. Who’s Right?

Posted by silentarchimedes on August 5, 2008

Two Ways to Solve the Oil Problem. Conservation vs. Expansion. Obama vs. McCain. Who’s Right?

Solving the oil crisis and our dependency on foreign countries for our energy needs have boiled down to two ideas. One is the conservation of existing energy supplies. The other is of increasing our national oil supplies by expanding our offshore drilling. These two methods have also defined the presidential race. Obama is for conserving our supplies while McCain is for expanding offshore drilling. Both sides agree that investment in alternative energy is important nonetheless. However, there is one major difference between these two solutions. The first solution requires a big commitment on every individual in the country and lowers our quality of life for the better of our future. The second solution maintains our current high quality of life with no true regard for our long-term viability. It also has a higher risk of damaging the environment and does not fully address short-term and mid-term prospects. In essence, it sounds good, but doesn’t have much fluff.

Obama suggests that if every American fulfills some basic driving techniques to improve gas mileage, we would in essence get more bang for our buck for all the oil Americans use per day. Such techniques include filling your tire pressure to the recommended PSI. McCain’s camp jumped on this “energy solution” as saying it doesn’t even match up to the benefits of expanded offshore drilling. However, McCain’s camp is reacting at the gut, and not really with facts. Since many Americans drive on underinflated tires, studies have shown that if everyone did drive on properly inflated tires, it would increase gas mileage by 3 to 4%. A Dept. of Energy study in 2005 estimated that U.S. motorists wasted 1.2 billion gallons of gasoline a year from driving on underinflated tires — roughly 61 million barrels of oil! By comparison, the U.S. Department of Interior says there are 17.9 billion barrels of oil available off-shore in areas under the federal drilling ban. Due to a shortage of equipment and legal hurdles, experts estimate that if the ban was lifted, it would take at least five years to produce an additional drop of oil from those areas. The U.S. Energy Information Administration said last year that new off-shore drilling could add about 200,000 barrels of oil per day to U.S. output — not enough to have “a significant impact on domestic crude oil and natural gas production or prices before 2030.” These are studies done by the government’s own departments.

Expanding offshore drilling is the most political and useless solution ever proposed for solving the oil problem. Most citizens have no idea how many barrels of oil America consumes a day, and how much offshore drilling will help us. Not to mention the environmental impacts it could have. However, logical conservation steps are guaranteed to have an impact…today! McCain’s naive response to Obama’s tire pressure suggestion is equivalent to saying each individual’s vote doesn’t count in an election, or that each person’s recycling doesn’t make a difference.

The days of high standards of living are coming to a close in America. There will be hardship involved as Peak Oil occurs at some point in the future. Just because oil has dropped from a high of $145/barrel to under $119/barrel does not mean the problem is solved. After all, it wasn’t long ago that people were debating if oil would cross $100/barrel. And at $119, it is still 600% higher than what it was in the late 1990s. Oil is not recyclable. Once it is used, it is gone forever. We should be taking care of the Earth’s limited supply by getting the most mileage per drop of oil…

Posted in Economics, Opinion, Politics | Tagged: , , , , , , , | 1 Comment »

Book Review: Hot Commodities

Posted by silentarchimedes on June 17, 2008

Book Review: Hot Commodities

How Anyone Can Invest Profitably in the World’s Best Market

Author: Jim Rogers

WHY I READ THIS BOOK

This is my second book review on the precarious economic situation in global economics, specifically in America. The first one was The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel, by Stephen Leeb. Now, under the assumption that America is on the cusp of a long recession or some sort of economic crisis, I decided to read a book about a neglected investment area that already is in the midst of a long bull market, commodities. Commodities are the raw materials, natural resources and hard assets that prop up everything in our quality of life, from food such as corn, sugar, and pork, to infrastructure such as copper and rubber, to energy such as oil and natural gas. Without commodities, and a speculative market for it, we would be seeing drastic regional and daily price differences of everything, ranging from televisions to groceries to jewelry.

One funny thing I noticed with these books about economic crises is the required two stage title, the what and then the how. The Coming Economic Collapse: How you can thrive when oil costs $200 a barrel. Hot Commodities: How anyone can invest profitably in the world’s best market. Crash Proof: How to profit from the economic collapse. Mobs, Messiahs, and Markets: Surviving the public spectacle in finance and politics. All the titles could’ve done without the second title. It makes it a little juvenile and commercial, but I won’t judge a book by it’s cover.

THE AUTHOR: JIM ROGERS

I had heard of Jim Rogers before, but not much about his past. He came to fame in the 1970s where George Soros and him created the Quantum Fund that far outperformed the S&P in the high-inflation oil-crisis 1970s. The Quantum Fund returned over 4200% in that first ten years while S&P returned only 47%. After retiring in 1980, he went on to travel the world many times over… literally. He set the Guinness Book of World Record in 1992 by motorcycling over 100,000 miles across six continents (he details in his earlier book Investment Biker). He has traveled across China multiple times. Then in 2002 he set another world record by driving through 116 countries and 245,000 kilometers with his wife in a custom-made Mercedes. His current claim to fame is creating the 1998 Rogers International Commodity Index and predicting the current commodities bull market in 1999. This was during the height of the dot com when commodities were at multi-year lows and in a major bear market. He has also been a guest professor of finance at Columbia University, a moderator of finance shows on CBS and FNN. Like Soros, Rogers has also moved his entire family to Singapore because of the belief that Asia is the next financial epicenter and America is due for a major economic crisis.

REVIEW

“Commodities get no respect.” The first line in the book. I’d have to say I agree with him. I’ve been investing for less than 10 years and no one talks about commodities the way they talk about stocks and mutual funds. I guess most people only talk about automobiles like Corvette and Accord (stocks) or General Motors and Honda (mutual Funds). Unless you are a true car enthusiast, you leave the details about engines, suspension and chassis to the experts. However, we know that the materials that make up a car or a company’s products are what makes them run and exist. In short, Rogers pretty much expresses in simple terms that the supply and demand fundamentals of most commodities are way out of whack (his words). Supply is on the short side and demand is increasing.

The flow of this book is very good. He first builds his credentials. Then he talks about the history cycles of commodities, specifically the fundamentals of supply and demand. A step back with a primer on commodities and the exchanges that exist is next. Finally, it’s chapter by chapter of specific commodities that stand to gain in this bull market.

As with all these books, there is always an overt or covert “I told you so” in the writing. It is understandable because the authors are usually taking a contrarian viewpoint and in order to build credibility they have to show that their previous contrarian positions have panned out. Rogers is no exception when he describes the track record of his futures picks. Having the Quantum Fund with Soros as part of your credentials sure doesn’t hurt. What is interesting is that Rogers is at an age where he really doesn’t have to prove anything to anyone. His writing style clearly shows this. It is very relaxed and simplistic. He talks about his past and trips around the world in a casual sense as if everyone can do it. He also refers to his mistakes and weaknesses as humourous because they turned out for the better. His attention to detail and research is remarkable.

The primer on commodities is very useful for those that are beginners in the area. Although some might find it too simplistic, “commodities are equivalent to futures“, I found it a necessary part of the book. Since this book was written in 2004, it was unfortunate that current commodities-related exchange-traded funds (right) are not mentioned. I would have been interested to hear his opinions on the Energy Select Sector SPDR (XLE), the Goldman Sach’s iShares GSCI Commodity-Indexed Trust (GSG) and Market Vectors Gold Miners ETF (GDX), amongst others. He does mention that the GSCI (GS Commodity Index) is weighted incorrectly, and thus the creation of his own commodity index.

In short, the commodities he talks about in detail are mostly nothing new. Everyone knows that China is tilting the balance of supply and demand in many key economic areas, such as oil and steel. However, Rogers has been preaching this since 1999 when oil was $10 a barrel and Asia had just overcome the 1997 financial crisis. The last thing anybody was thinking about was a commodity bull market. One viewpoint that was interesting was his lackluster enthusiasm of gold as a commodity. Although he maintains a small stake in it, he views it as something that doesn’t always follow the fundamentals of supply and demand, and that it’s historical cycles are harder to predict. He’s still bullish on it, but not as bullish as more obvious ones, such as oil and certain other metals. His other interesting viewpoint is on India. His first-hand experience in the country leads him to a different viewpoint than the public majority.

Each chapter about a commodity is interesting to read. He describes the importance of it in everyday life and markets and the historical cycles of it. The set up is to show why he thinks it is time again for that particular commodity to be a high-flyer.

Although this book was published in 2004, it is well-known that Rogers has been predicting the current commodity bull market since 1999. Let’s look at the performance of some of his suggested commodities since 1999 and 2004.

Light Crude Oil

Approximate price/barrel and return since 1999

1999 price: $15

2004 price: $35…..133%

2008 price: $130…..767%

Although there are signs of a bubble since 2007, high oil prices are clearly here to stay.

.

.

Gold

Approximate price/oz and return since 1999

1999 price: $270

2004 price: $400…..48%

2008 price: $900…..233%

Rogers is not as enthusiastic about gold. Although it has strong returns, it’s not as strong as the other commodities.

.

Platinum

Approximate price/oz and return since 1999

1999 price: $380

2004 price: $800…..111%

2008 price: $2000…..426%

Low supplies with increasing demand makes this commodity a high-flyer.

.

To be fair to him, I will leave the rest of his suggestions to readers. However, in looking at the monthly returns of most commodities, it is quite apparent that Jim Rogers is on the spot. Check out other phenomenal returns here.

VERDICT

The writing style of this book is so laid back it borders on conversational. However, it works for Jim Rogers because he appears to truly enjoy life like a kid. His wild-child trips around the world are not just rich-man-spending-money trips, but a big part of his research. His first-hand experience in living different cultures surely helps his perspectives. He is known for impeccable research, with simple logical explanations. If you believe the commodities bull market is far from over, as Rogers does, I suggest picking up this book.

Rating: 9 out of 10 corn ears

POLL: Have you invested in commodities (not stocks) since 1999?
1) yes
2) yes, but only gold
3) no, but I want to
4) no
View Results

Posted in Books, Economics, Reviews | Tagged: , , , , , , , | Leave a Comment »

Book Review: The Coming Economic Collapse

Posted by silentarchimedes on May 25, 2008

How You Can Thrive When Oil Costs $200 a Barrel

Author: Stephen Leeb, PhD with Glen Strathy

Wow, so where to begin…

When I first saw this book at Barnes and Noble for $5.98 (Bargain Priced) I was very skeptical of its title. Even the three-toned cover art seemed amateur. A quick glance at the Table of Contents and words such as disaster, collapse, collision, blind, madness, dangerous, crisis, havoc, and armageddon are interspersed in the titles! Although I had become an avid follower of the bull markets in gold and commodities, and understood the problems facing America, my first thought was, “This book must be an extreme contrarian’s attempt at scaring the public and consequently helping him profit on the sales.” However, as I was reading this book, with the understanding that the information in there was 2+ years old, I could not help but realize how so many of his predictions have or show strong signs of coming true.

WHY I READ THIS BOOK

As someone who is in his early 30s, I still remember the days of $.80/gallon of gas and the dot com indulgence in the late 1990s when I was in college. Things seemed so perfect. It was my first taste of real life, and boy, was it good. Since then I have seen America slide into a quick descent towards decadence. I won’t say who is to blame, as I think many groups are, but nonetheless, I have seen myself becoming more of a contrarian, more disenamored with our future. I wanted to see how this came to be… I started reading James Turk and his gold escapades, Warren Buffet and his beliefs, and the whole Federal Reserve role in society. I realized I had to start looking out for myself, because I didn’t know how much the government would. That’s when I accidentally came upon this book in Barnes and Noble.

THE AUTHOR: STEPHEN LEEB

I had never heard of Stephen Leeb before I picked up this book, but he did publish an earlier book in 2004, The Oil Factor, that predicted the rise of oil prices due to increasing demand and vague supply. In 2004, crude oil was ~$30/bbl, which in an of itself was not that out of the ordinary. He was obviously not alone in that prediction, but was nonetheless in the minority. Leeb has a PhD in Psychology and that definitely plays a role in his analyses.

SHORT SUMMARY

Leeb claims in his book that once global peak oil (when daily global production of oil begins to decrease) occurs, the price of oil will skyrocket and economies around the world, especially the highly oil-dependent United States, will have a very difficult time coping with it. In his worst case scenario, he sees large-scale violence and civil wars that could lead to the collapse of society and the return to self-subsisting 19th century lifestyles. In his best case scenario, governments and industries tackle this massive problem of dwindling energy and dependence on oil by gracefully transitioning society to alternative energies, such as wind, coal, and others. He doesn’t really expound the most likely scenario, but he alludes many times to how it might already be too late, or how dire the situation is. It is apparent that he believes we are closer to the worst case scenario, and it is best for individuals to take actions before it rapidly deteriorates.

REVIEW

The biggest positives about this book is that a lot of what he preaches are coming true. I can’t say how much I would have believed his book if I had read it when it was first published in 2006, although it would have still been an interesting read. As a background, in 2006, crude oil was about $60/bbl, unleaded gas was about $2.00 to $3.00 per gallon. In his 2004 book, he predicted oil would rise from the then $30/bbl to $100/bbl in the next few years. In this book, he predicts $100 oil is now conservative and $200 is likely by the end of the decade! Today, May 25, 2008, light crude oil on NYMEX is over $131/bbl and my local town’s gas just hit $4.00 for unleaded.


Price of light crude oil – [2000-early 2008]

In the first part of the book, he uses his psychology and economics background to show that past civilizations have failed due to exactly the same problem we currently face, decreasing resources coupled with lack of leadership by the government and lack of open-minded thinking by the masses. He uses the word groupthink many times throughout the book. Although this part of the book is hard to disagree with, it is not all that groundbreaking. It is shown many times that the actions of the mass are quite different than the actions of an individual, albeit the difficulty in being a non-conformist. It is also not new to realize that the government and corporation do not act in the best interests of its people and its survival. One can argue that a benevolent leader does not exist.

The second part of the book, lays the oil problem entirely on the table. The high price of oil is here to stay. World supply will reach peak production soon, and demand continues to increase. A lot of good analogies are used to describe the illogical actions of many in society. He compares the U.S. government’s propensity to give Big Oil lots of subsidies as akin to a person stranded in the Arctic in wintertime with only two weeks’ worth of firewood, deciding to burn it all the first night. Then he talks about the repercussions and likely scenarios for a post-oil world. By comparing the current situation with the 1970s oil crisis and the Great Depression, he hopes that we have learned from the past.

In the final part of the book, he offers suggestions on how individuals can capitalize on this increasingly dire situation. This is the part that really seals it in. Although his predictions on oil prices have rung true, the investment ideas he offers greatly supports his hypothesis. For example, he suggests the buying of gold. At the time of his writing, gold was $460/oz. Today, as of May 25, 2008, it is over $925/oz. and breached a high of $1020/oz a few months ago. Then he suggest buying oil service companies, such as Schlumberger (SLB). In 2006, SLB was ~$60/shr. Today it is over $100/shr. There are numerous other investment suggestions he offers, and a quick finance check shows many have rung true. I leave it up to you to read. The only major suggestion that fell hollow was his belief that real estate would remain a viable investment. As we know, the bubble has burst, and real estate has been one of the worst investments the past few years. However, what is interesting is he didn’t think the bubble would burst because he believed the government would chose higher inflation over the more dangerous real estate crisis.

VERDICT

This is a very easy to read book. It offers a lot of historical comparisons, psychological explanations (groupthink, I tell ya!), and blunt analogies to support his hypothesis. It can sometimes feel like he is repeating the same things, and I’m not sure if he is reaching for things to write or if he adamantly wants you to understand the urgency. However, no one can really argue with the facts. The oil crisis is indeed an immense problem facing the world, especially the United States. This book does a good job at laying it all on the table. I recommend picking up this book to read. At best, you become really wealthy…

Rating: 8 out of 10 oil barrels

POLL: How severe do you think the upcoming economic collapse will be?
1) Hah! There won’t be one!
2) Ehh, stop freaking out. It’ll be small.
3) It’ll be a regular recession. Like the early 1990s.
4) This is a long recession, but we’ll be back.
5) Lower quality of life is here to stay.
6) End of society…

View Results

Posted in Books, Economics, Reviews | Tagged: , , , , , , | 1 Comment »