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By Keith Fitz-Gerald
Investment Director
Money Morning/The Money Map Report
Commodities may be down, but they're not out – and they shouldn't be out of your portfolio, either.
As the investment director for Money Morning, I'm invited to a large number of speaking engagements each year. It's something I enjoy, and it's quite useful, too, for the questions that I get tell me a great deal about investor sentiment and the general tenor of the financial markets. The same is true for the questions I receive daily from our readers.
Lately, the most intriguing questions have dealt with the price of oil and other key commodities. It's a topic that's clearly on a lot of people's minds so I thought I'd share some of them with you today.
Q: With crude oil prices down more than 75% from their record high set in July, do I really need to worry about "peak oil."
A: Let me be blunt. Producers are operating near maximum capacity every day with 89.5 million barrels per day. We're using 89 million barrels per day. That means there is essentially no excess capacity anywhere – period. If you factor in war, routine maintenance of pipelines or refining facilities, and diminishing supplies, we're probably already running at a deficit even though current data does not yet reflect that. There is a very high probability that in the near future demand will outrun supply – and by that I mean permanently outrun supply.
I don't think this is "just" peak oil. But I do think it's the investing opportunity of our lifetime.
Q: That sounds alarmist. What about other commodities?
A: There's a difference between being alarmist and being prepared – and, in this case, we're talking about the latter especially when it comes to potential profits.
We are in the initial stages of a fight to the death for energy supplies and many other commodities – most notably potable water.
As I've noted for years, and as Money Morning detailed yet again in an analysis just last month, China, among other countries, is using its huge currency reserves – and the financial weakness of rivaling other global players – to lock up long-term supplies of commodities. By any stretch of the imagination, I don't think this is the last we'll see of this kind of thing.
The bottom line is that the outcome of this battle will affect every nation on earth. Absent truly fungible substitutes, it's reasonable to expect to see oil nationalized at some level within our lifetime, and the first armed conflicts over water somewhere on the planet possibly as soon as 10 years from now. Certainly there is going to be economic conflict over those two things and on a level that is presently unimaginable. Depletion is happening at a far faster rate than most people realize.
Q: But oil's still cheap.
A: It's always been cheap – cheaper, in fact, than a cold soda or bottled water. But at a time when market forces are inevitably diminishing the supply, even as demand continues to grow, we're looking at a one-way trip over time.
The average American uses two times the amount of oil used by each European, four times the amount used by each Japanese consumer, 12 times their counterpart in China, and 30 times the amount used by the typical consumer in India. And that's at a point in time when nearly 4 billion people live in complete poverty without the stuff we take for granted…like oil and water.
Supplies are destined to shrink. And until we can find replacements, we're stuck with what we've got – there's no more of it.
Q: Isn't the world working on substitutes as fast as they can – having been shocked by record prices of $150 a barrel?
A: Yes. And they're making good progress. However, even if substitutes were found tomorrow, we still have to replace trillions of dollars worth of manufacturing and infrastructure processes that have to be changed completely. Some studies I've seen suggest that oil is used in more than 60,000 manufacturing processes and it's much the same with water, in particular.
Even the most wildly optimistic estimates suggest that changing to new technology may take another 30 to 50 years to work through. In the meantime, oil is set to run out 35 years from now using the highest-reserve-level calculations available – and that assumes no demand growth and no population change. It's even worse when it comes to water. Some predictions suggest that by 2050 nearly 7 billion people will live nearly waterless lives.
Q: That's pretty forceful thinking.
A: I've always operated under the philosophy: "If not now, then when? If not you, then who?"
As the investment director of Money Morning, my job isn't to "force" anybody to think a certain way, or to take a certain action. It's to analyze the best data available to me, to make the appropriate recommendations, and to provide you with the insights you'll get nowhere else.
I think we have the opportunity to invest in a group of "real assets" (which I define as oil and other key commodities) at a point when supplies are declining as demand is escalating. That combination suggests very rapid appreciation as demand eventually overwhelms production in the next few years. It's a rare combination, and that's why I say it may be the "profit opportunity of a lifetime."
This reminds me of a conversation that I had with my colleague Jim Rogers, not too long ago, when the legendary investor observed that "real assets represent real wealth."
I agree. And you will, too.
[Editor's Note: The ongoing financial crisis has changed the investing game forever, making uncertainty the norm while simultaneously creating a whole set of new rules that will help determine who wins and who loses. Investors who ignore this "New Reality" will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive.
As his short essay on long-term profit plays today illustrates, Money Morning Investment Director Keith Fitz-Gerald is constantly on the lookout for ways to turn these seeming negatives into positives that can create market-beating profits. In his new service, the Time Trader Pro, Fitz-Gerald details investment recommendations based on a proven quantitative system of analysis that was previously only available to the so-called "uber-rich." The strategy allows him to recommend positions that simultaneously reduce an investor's risks, as well as his purchase-price points – all of which boosts the investor's returns.
While most investors lament the damage the financial crisis has wrought, Fitz-Gerald says that his research into "chaos theory" and his on-the-ground analysis of investment plays in fast-growing China has made him realize that we stand on the precipice of "The Golden Age of Wealth Creation." And the strategy that he's deploying is perfectly suited to the kind of whipsaw market we're facing today. Check out our latest report on these new rules, and this new market environment.]
News and Related Story Links:
- Wikipedia:
Peak Oil. - Money Morning Market Analysis:
What Companies Are Profiting From China's Commodities Crusade? - Energy Bulletin:
Why does fungibility matter (and where did it go)? - Google Definitions:
Potable Water. - Investopedia:
Real Assets.
- Money Morning Exclusive Jim Rogers Interview From Vancouver (Part I):
Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years. - Money Morning Exclusive Jim Rogers Interview From Vancouver (Part II):
Exclusive Interview: Jim Rogers Continues to View China as the World's Best Long-Term Profit Play. - Money Morning Exclusive Jim Rogers Interview From Singapore (Part I):
Jim Rogers: More Pain for the Greenback, and the Failure of the Federal Reserve. - Money Morning Exclusive Interview From Singapore (Part II):
Jim Rogers: China's Economic Advance is All But Unstoppable - Products:
Keith Fitz-Gerald – Time Trader Pro
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.
Keith I think you are one of very few who realize the situation the United States and the world is in while the rest of the world has selective memory. A big part of the reason the price of oil and the consumption of oil has been reduced lately is much in part to the fact of the "chicken little syndrome" where one area is doing bad and therefore there is a reaction from another industry. In other words reactionary decisions causing short term decisions and problems.
If OPEC continues to reduce the output of oil and as the world economies get back on track (which they will) we will be in a deficit position on oil. And the price unfortunately will sky rocket again.
I think you are right on the money with this prediction of oil and commend you for coming forth and sharing your opinion.
Hey Keith,
How do you see uranium falling in to the mix. It's taken quite a beating as well, but not too long ago everyone was screaming about China and India needing power plants, and uranium to make them go….what's your forecast there?
Does that means PETROBRAS could be a chance in a lifetime ?
In my opinion is very cheap these days……..
Regards
Dear Carl:
Thanks very much for taking the time to comment. One of the things we really like about Money Morning's readership is, in fact, how well read and well-informed they are as a group.
As the editor of Money Morning, I'm very familiar with Keith's market call on oil and wanted to respond to your posting by making a couple of points. First, you are correct that he said that his analytics pointed toward an oil price of $187 — a figure he actually later boosted to $212. But I'd like to take a moment to make a couple of points that I think provide important context.
First, Keith made this projection when oil was trading at about $88 a barrel back in the latter part of 2007, when virtually no one was anticipating the kind of volatility or escalation in energy and commodity prices that subsequently occurred. Oil peaked at $147 a barrel in July. I have to say, knowing the "backstory" as I do, that's a pretty remarkable call. It's even more noteworthy because it was made "on the record," meaning it was made for publication (so many folks claim they "called" an event, but it's often a claim they make well after the fact).
Second, Keith very clearly stated that his timeline was three to five years — although he qualified it by noting that there could be big spikes in the near term if there were short-term shortages, or some sort of a potential supply interruption (or even the fear of one), or if there were some sort of "event" (such as a terrorist incident, or an accident), that could spark this same sort of fear. He also said that prices would be volatile….that we could see a big upswing…and then just as big a drop — but that ultimately the long-term trend is for much higher oil and energy prices.
Keith's been quite candid in conceding that prices have fallen more than he expected…but he still believes the long-term trend is for much-steeper oil-and-energy prices.
Third, as I noted, oil prices did make a big move….and it was only after this move was underway that we saw the "mainstream" experts join in and climb on the energy bandwagon.
I also happen to know that Keith's a LONG-time energy bull….he called for $100-a-barrel oil back when the "black gold" was trading at roughly $30 a barrel. At the time he made that projection, he gave it 10 years….as it turned out, oil reached the $100 a barrel level in a much shorter time frame.
That's the overall story concerning his call on oil….which he still stands by, I should mention.
As far as the comments he made in the above missive, I think it's important to remember that this isn't a market prediction, analysis or even a commentary. This was an essay he crafted after receiving many of the same questions over and over again at his many speaking engagements. And I think it goes to the high level of service he tries to provide his readers. After receiving the same queries over and over again, Keith essentially thought to himself, "These issues are clearly on the minds of a lot of folks…by doing an essay on them I could probably answer the questions a lot of people." So that's what he did.
As far as being "behind the curve," I think it's important to understand here that these aren't newfound views….these are things he's been saying for a long time (I know for a fact that his analysis of looming shortages is a stance he's literally held for years). But since these views buttressed the points he was making in his article, he thought it well worth mentioning them again. Being someone who's new to Keith's work, that's not something you could have known, so the points you made in your commentary here are perfectly undersandable.
I appreciate your time, here, Carl. Keith does a really great job as investment director here and works very hard to give our readers his very best. I just wanted to make sure he got a fair shake, here. But again, thanks for taking the time to comment. The fact that you were familiar with his earlier forecast, and closely follow the events in the market, underscores that you're one of those readers, too.
Respectfully;
William Patalon III
Executive Editor
Anyone talking about peak oil or finite resources should watch this video:
http://www.youtube.com/watch?v=F-QA2rkpBSY
It is a real eye opener about the nature of growth in the presense of finite resources.
When someone embellishes his writing while forgetting his past mistakes then upon what else can we base reliability? Perhaps sounding good or who one knows? I do respect the authors keep mind but wish the act would get cleaned up a bit going forward.
Thanks.
Keith not long ago you predicted $180 barrel oil in Dec. Clearly the far future will present the problem of oil, water and other commodities. However, how can I believe all your short term forecasts until you address your incorrect call on oil and some other things and talk about how you were so far off.
For now it seems except for an article like this which is obvious you are predicting mostly after the wave has occurred. That is not impressive.
I agree with you on future oil pricing. What I don't understand, is why is is so low right now?
Assuming OPEC continues to cut produciton, and China & India continue to use more ivery year, uou would think the speculators wold be back in the market now.
Can you give an answer to this?
I agree with Carl, if you make an incorrect prediction man up before you go onto the next. You'll get more credibility.
Also, don't scare readers or just exaggerate with blurbs like
"nearly 4 billion live in complete poverty". That's 59% of the planet's 6.8 billion people. Actual is somewhere between 1-2
billion. Please don't embellish to get your point across.
Kudo's to Keith!
I read the mention of missed targets and analysts reports.
If you wish to mention missed targets and analyst reports, you only need to listen to the news for the last year.
If you had only listened to Keith's comments and traded accordingly you would be more than enjoying the rewards it has produced.
This last report was my favourite as I jus this past week weighted heavily in the oil sector.
I'll just sit back now and enjoy the ride once again.
Thank you
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