| Cheap Oil Like Jonestown Kool-Aid
Vancouver, British Columbia
Thursday, July 26, 2007
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*** Reality negotiates for Americans...a world
without a cheap Wal-Mart...
*** An argumentum that turns “ought” into
“will”...illegal immigrants flock from peak oil...
*** Resource traders have only two choices...making
dangerous, backward countries work for you...and more!
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“Americans are delusional,” began James Howard
Kunstler, speaking to the investment conference we are attending here in
Vancouver.
“They think they can continue living the way they’ve
been living for the last 50 years. They think the key to it is to find a
way to keep getting fuel. And Vice President Cheney summed up this line
of thinking when he said, ‘the American way of life is non-negotiable.’
The trouble is, Americans may not be willing to negotiate. But if they
don’t, they are going to find that someone else is negotiating for them.
And that someone else is called reality.”
Kunstler is a good speaker. His vision of the
world...and the future...has a certain power and authority to it. He
imagines that higher fuel prices will change everything - the suburbs
will become unlivable and undesirable...Wal-Mart will be unable to
continue stocking its shelves with cheap imports...food will have to be
produced locally, not shipped half-way around the world...and people
will have to find ways to manufacture locally too.
“Globalization is not a permanent trend,” he cautions.
“It is a consequence of two transient and unstable trends. Currently,
the world’s governments are favorable to it...they provide the political
stability necessary. And the price of the fuel that transports all this
stuff is unsustainably low. Both those trends are going to change.”
Kuntsler is the author of The Long Emergency. What is
the long emergency? We’re not sure. We think it is the fact that energy
is going up in price...making a lot of arrangements - the aforementioned
suburbs, for example - untenable. But, listening to him, we got the
impression that he hated big cars and parking lots long before he
discovered peak oil. The man has a vision of the way things “ought to
be” in America. The rising cost of gasoline is probably just a prop - an
argumentum that turns “ought” into “will”. Since the era of cheap oil is
coming to a close, he says, Americans will have to stop living in ugly,
soul-destroying suburbs; they will have to stop their vulgar
consumerism; the moron masses won’t be able to keep driving their
commuter tanks either. They’ll have to change, whether they like it or
not.
This will come as a rude shock to most people. They’ve
come to depend on cheap fuel the way Jonestown depended on Kool-Aid.
But the days of cheap gas are over. Our friend, Byron
King, made the same point. North Sea oil went into a decline in 1999.
Mexico’s Cantarell field peaked out in 2006. Alaska’s Prudhoe Bay is
producing less and less oil every year. But that is happening all over
the world. Oil fields are peaking out...and going into double digit
declines.
“We’re using it up fast,” says Byron. “In fact, we’ve
used up most of America’s oil already. I hope you enjoyed it...I know I
did.”
Mexico’s national government gets an incredible 40% of
its budget from the Cantarell field. “You think we have a problem with
illegal immigration now,” Byron continued. “Just wait until the budget
gets cut in half as revenues from oil go down.”
Read the rest of Byron’s predictions of what lies
ahead in the volatile oil market here:
The Open Oil War of 2007
http://www1.youreletters.com/t/1300280/1466280/822094/280/
More news:
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Chris Gaffney, reporting from the EverBank world
currency trading desk in St. Louis...
“The rebound in the U.S. dollar versus the euro and
pound was a normal reaction in a market that had been going one
direction for too long…this dollar rally had all the signs of normal
profit taking.”
For the rest of this story, and for more market
insights, read today's issue of
The Daily Pfennig
http://www.dailyreckoning.com/Writers/Butler/Articles/072607.html
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And more thoughts from Vancouver...
*** For the oil consumer, the news from around the
world is not good. Oil fields are depleted. Few are promising new
discoveries. The Chinese are muscling into Canada’s Tar Sands. And most
importantly, the price is up seven times in the last ten years.
But wait.
“The resource business is not a cyclical industry. It
is an extremely cyclical business. More cyclical than you can imagine,”
says our old friend, Rick Rule.
“In natural resources you only have two choices,” he
continues. “You can be a contrarian or you can be a victim. And yet,
many people still buy resource companies after they have been run-up.
They still sell them when they get disgusted after they have fallen
down. That is no way to make money.”
So...does that mean it is time to sell oil? Maybe.
Rick says there are three rules to buying resource
stocks.
First, you have to be contrarian. You have to buy them
when others don’t want them.
Second, you have to buy the good ones. Most resource
companies are run by incompetents, he says, or worse - “people who would
normally wear a mask when they go to the 7-11.” The 80-20 rule applies
here as elsewhere. Only 20% of the companies will make 80% of the
profits. And the 80-20 rule applies to the 20% too. So only 20% of the
20% of companies will make 80% of 80% of the profits. You have to do
some serious research and analysis to figure out which those companies
are.
“I look for serial and sequential winners,” says Rick.
“I look for the people who have proven that they can produce profits.
Finally, Rick says you need to look for projects in
places where most people don’t want to go. Political risk is always a
problem for resource companies. But the political risk is not what most
people think. Most investors judge the risk high in the Congo, or in
Mayanmar, and low in California. “Actually, the opposite is true,” Rick
explains. “California is so rich that it can afford to treat mining
projects badly. But these poor, basket-case countries need them. They
are much more respectful to miners.
“What you want is a place where people have misjudged
the political risk, as they did in Thailand after the general’s coup
d’etat last year. So when you see those scary stories on TV - those
places that look dangerous and too backward to want to visit - that’s
where I’ll be.”
Unfortunately, we are running low on space (and time)
and can’t give you Rick’s speech in its entirety – but you don’t have to
completely miss out just because you couldn’t join us in Vancouver this
year. We have been audio recording the speeches this year and are
offering them (and a special report) at a very low price – but only
until our roving reporter, Monica Day’s duties are over on Tuesday.
After Tuesday, the price of this CD set will go up from $99 to $149. Get
them here:
2007 Agora Financial Symposium Highlights
http://www1.youreletters.com/t/1300280/1466280/826736/3925/
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The Daily Reckoning PRESENTS: Do you sometimes feel as
if Wall Street is not giving you all the facts? Well, that might not be
too far from the truth. Greg Guenthner explores this idea through the
story of one man and his guidelines for investing...or lack there of.
Read on...
DON’T WITHHOLD THE DON’TS by Greg Guenthner
I’m sure you’ve heard people say that Wall Street
never gives you the whole story. That it’s not in the Street’s best
interests to tell you about the market’s biggest opportunities. That it
keeps you in the dark about all the money over-the-counter and bulletin
board stocks can deliver.
It might sound cliché...but I’ve found tangible proof
that there’s some truth to those stories. At least one of Wall Street’s
most trusted companies is pulling the wool over your eyes. It’s
everything short of a deliberate attempt to steer you away from the
stocks it doesn’t approve of.
I’ll explain in a second. But first, a little
background is in order.
The story starts with a man named Philip Fisher.
A stock analyst who survived the market crash of 1929,
Fisher made his mark with a landmark book, Common Stocks and Uncommon
Profits. In fact, it was the first investment book ever to make The New
York Times best-seller list. And while most people like to associate
Warren Buffett’s investment style with Benjamin Graham’s, the Oracle of
Omaha admits that Fisher inspired him, as well.
That’s partially because Fisher was a strong advocate
of buying and holding. He once said the best time to sell was “almost
never.” Of course, he didn’t mean you should blindly hold onto losing
stocks...he meant that if you did your research right before you bought
- and paid attention thereafter - you’d never have to worry about
selling.
So it’s pretty amazing when you realize that Fisher
was primarily a growth investor. He didn’t care about a company’s
fundamentals...he cared about its business. He loved companies that were
“highly speculative and beneath the notice of conservative investors or
big institutions.” In fact, he famously bought Texas Instruments and
Motorola long before they were household names - and even held Motorola
until his death.
In Common Stocks and Uncommon Profits, Fisher spelled
out 15 questions he used to evaluate a company. They were pretty
open-ended and could be subject to interpretation. They were not, as he
put it, “determined by cloistered mathematical calculation.” They were:
1. “Does the company have products or services with
sufficient market potential to make possible a sizable increase in sales
for at least several years?”
2. “Does the management have a determination to continue to develop
products or processes that will further increase total sales potentials
when the growth potentials of currently attractive product lines have
largely been exploited?”
3. “How effective are the company’s research and development efforts in
relation to its size?”
4. “Does the company have an above-average sales organization?”
5. “Does the company have a worthwhile profit margin?”
6. “What is the company doing to maintain or improve profit margins?”
7. “Does the company have outstanding labor and personnel relations?”
8. “Does the company have outstanding executive relations?”
9. “Does the company have depth to its management?”
10. “How good are the company’s cost analysis and accounting controls?”
11. “Are there other aspects of the business, somewhat peculiar to the
industry involved, which will give the investor important clues as to
how outstanding the company may be in relation to its competition?”
12. “Does the company have a short-range or long-range outlook in regard
to profits?”
13. “In the foreseeable future will the growth of the company require
sufficient equity financing so that the larger number of shares then
outstanding will largely cancel the existing stockholder’s benefit from
this anticipated growth?”
14. “Does the management talk freely to investors about its affairs when
things are going well but ‘clam up’ when troubles and disappointments
occur?”
15. “Does the company have a management of unquestionable integrity?”
Now, I’ll admit, there’s nothing groundbreaking here. Fisher’s 15
questions are fairly well known, and you can find them or slight
variations all over the Internet. But I recently discovered that some of
Fisher’s wisdom has been purposefully been withheld from investors. In
fact, one of Wall Street’s most trusted Web sites glosses over some of
what Fisher had to say.
You see, Fisher also listed five “don’ts for
investors”:
1. “Don’t buy into promotional companies.” 2. “Don’t
ignore a good stock just because it is traded ‘over-the-counter.’” 3.
“Don’t buy a stock just because you like the ‘tone’ of its annual
report.” 4. “Don’t assume that the high price at which a stock may be
selling in relation to its earnings is necessarily an indication that
further growth in those earnings has largely been already discounted in
the price.” (Or put simply, price to earnings isn’t everything.) 5.
“Don’t quibble over eighths and quarters.” (That is, don’t stress over a
few cents difference in price.)
Please pay attention to No. 2, in which a man hailed
as one of the greatest investors says there’s nothing wrong with trading
bulletin board and Pink Sheet stocks.
I ask you to pay attention, because the good folks at
Morningstar.com think you shouldn’t know that rule.
It’s true. Its Web site has an Investor Classroom,
which includes a profile of Philip Fisher. The article patiently
explains his love of growth stocks. His 15 points are spelled out in
detail. And then it goes on to paraphrase Fisher’s “don’ts” - all three
of them. Not five...three.
Any bets on which ones are missing? Here’s a hint -
they’re the ones that have nothing to do with fundamental analysis or
exchange-traded stocks. See for yourself at
Morningstar
Now, I know - Morningstar can easily claim it’s doing this for
investors’ own good. That over-the-counter stocks can be risky...and
discounting fundamental analysis may encourage bad research.
But whatever its reasons, one thing is clear -
Morningstar.com is not giving you the whole story on Philip Fisher’s
investment philosophy. Yet if it worked for him, why can’t it work for
anyone else?
Regards,
Greg Guenthner
for The Daily Reckoning
Editor’s Note: Greg Guenthner has dedicated himself
fully to investigating the opportunities available to investors in the
oft-overlooked bulletin board companies. In other words, he looks at the
whole story. It’s telling too, because not one of the companies he has
in his recently released Bulletin Board Elite portfolio is down.
Companies traded in this arena stand to make huge gains when they list
on the major exchanges.
If you’d like to get the full story, follow this link:
Greg Guenthner’s Bulletin Board Elite
http://www1.youreletters.com/t/1300280/1466280/826737/3845/ |
