Peak everything

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Dear reader, the surging oil price certainly has been the talk of the week.
Oil is on a new record price.

Fears of a shortage within five years propelled long-term oil futures prices to almost $140 a barrel on Tuesday, further stoking inflationary pressures in the global economy.

Investors rushed to buy oil futures contracts as far forward as December 2016, pushing their prices as high as $139.50 a barrel, up more than $9.50 on the day. The spot price hit a record $129.60 a barrel

Global stock markets got rattled this week as the price of crude soared to $135 per barrel. This should not come as a surprise to you dear reader, as I have been warning about “Peak oil” and higher oil prices to come for quite some time. Of course there are still people who blame the hedge funds or the evil oil producing countries to be the responsible for the high prices. The truth is that global supply peaked at 85.5 million barrels per day in the summer of 2005 and demand is still growing at 87 million barrels per day. At present, the deficit is being met by utilizing the strategic reserves but how long will this last? In order to level production with demand, the demand should come down to 85 million barrels per day. I have my serious doubts that that will happen not even with a very high oil price which certainly will lower demand somehow but in my opinion not sufficiently. The price of oil has gone up strongly in the last days. Of course corrections can always happen. However, in the next 4-5 years, unless we get a severe global recession, we most probably will see the price of oil considerably above the USD 200 per barrel. Is this a wild guess? Looking at the supply demand situation it seems more a reality. Although there are some new fields found here and there, there is simply not enough found to replace what we extract every day from mother earth. I doubt that we will find soon a new mega elephant oil field (like the al Ghawar from Saudi Arabia). Finding such a mega oil field would help us after some years to level out the supply demand. If such an mega oil field exists, we certainly would have found it already unless it is in a place where production or extraction will not be possible at all. According to data available, we will see global supply drop to 77-78 million barrels per day. Imagine, dear reader, what will happen to the price of oil and the global economy when that occurs! Peak Oil, is in my opinion the most important event happening right now and the broad public is still not aware at all. Well dear reader, Peak Oil will mean a lot of changes to all of us. From an investment point of view, it is in my opinion a clear opportunity to make some nice and substantial profits over the next couple of years. Therefore I think it is a good idea to have an important part of the bankable assets invested in the sector or to have direct investments in energy in general terms. My target is to have 25% of my bankable assets invested in the energy / oil & gas sector. On the other hand, looking from an investor point of view, I think one should evaluate its investment in the sense if the existing holdings will do well with high oil prices. For example countries that did well so far (Indian stock market for example) might not do so well with high oil prices. Countries that depend heavily on oil imports might feel the higher costs. On the other side, countries like Brazil and Russia, which are rich in natural resources should do well.

High oil prices even led to bizarre situations such like the following one.

WASHINGTON (Reuters) - The U.S. House of Representatives overwhelmingly approved legislation Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.

The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.

The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

(...)

"This bill guarantees that oil prices will reflect supply and demand economic rules -- instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.
This may sound mostly pointless and silly, but it is also a stunning display of weakness by the US political class, which would rather remain in denial about the reality of the energy world, and look for scapegoats, than address problems, and it is also a pretty strong sign that they are followed in this respect by their electorate, which is all too willing to take such posturing seriously (or at least tolerate it) instead of seeing it as a sign of utmost contempt for it: Americans are not willing to face reality, US politicians pander to that, and nothing gets done.

More on oil

To you remember Hirsch? Have you heart about Hirsch? Well Hirsch and a group of analysts studied approximately 3 years ago the oil markets and especially what has to be done in order to prepare for Peak Oil. The famous Hirsch report stated that it would take at least 20 years to prepare ourselves (infrastructure etc) for the situation of less oil coming onto the market. The cost would be huge. Following a comment from Hirsch from this week
Hirsch on CNBC: Peak oil problem "as massive as one can possibly imagine"
CNBC via The Oil Drum
Robert Hirsch, author of Peaking of World Oil Production: Impacts, Mitigation, and Risk Management (a.k.a the Hirsch Report http://en.wikipedia.org/wiki/Hirsch_report), appeared on CNBC this morning. He said flat out that new technologies and new drilling won't solve the peak oil problem, and that we should expect $12-15/gallon gasoline followed by rationing. 

Watch the video
http://www.cnbc.com/id/15840232?video=747947551

or read the transcript below the fold.

... HOST: ... What do you say to those people? [peak oil skeptics]

HIRSCH: They're incorrect, and the reason that they're incorrect is that they don't understand the magnitude of the problem and how long it's going to take to bring substitute liquid fuels on and to introduce energy efficiency on a massive scale. That's something that we analyzed and it takes decades. And the reason, simply, is that the magnitude of the problem is enormous.

[McTeer says we should drill more.]

HOST: Dr. Hirsch, what do you say to that--the idea that we should be drilling in places like ANWR and drilling offshore. Would that solve this problem of a plateau in oil production?

HIRSCH: There's no single thing that's going to solve this problem because it's as massive as one can possibly imagine. And the prices that we're paying at the pump today I think are going to be the good old days because others who watch this very closely forecast that we are going to be hitting $12 and $15 per gallon. And then, after that, when world oil production goes into decline, we're going to talk about rationing. In other words, not only are we going to be paying high prices and have considerable economic problems, in addition to that, we're not going to be able to get the fuel when we want it.

Some more about oil or peak oil

The Even Bigger Picture
Following the thoughts from Jeffery about the situation globally.
"Global production peaked in 2005, and we're now into the third year of decline. And the critical point to keep in mind is, our model and case histories show that the decline rate accelerates, year by year. Using the Lower 48 in the United States as an example, you can see the annual declines going 2%, 3%, 5%, 7%, 10%, 15%, 20, on and on. So it's an accelerating decline rate."
Underscoring Brown's concerns:

On April 15, 2008 the Russians, the world's second largest oil exporter, announced that their oil production appeared to have peaked, with production in the first quarter of this year declining for the first time in a decade. If they have indeed peaked then, based on the ELM, the world could lose Russia's current ~7 million barrels a day in exports within 6 to 9 years.


Echoing the baseline premise of the ELM, Herman Franssen, president of International Energy Associates, projects that Iran, the world's fifth largest exporter, may consume an amount equal to their exports by 2015. A prominent oil analyst, the late Dr. Ali Samsam Bakhtiari, estimated that Iran is either at or near peak.


Most concerning, this April Saudi Arabia's King Abdullah announced they were not going to raise oil production above 12.5 million barrels a day. Commenting on the news, Tom Petrie, vice president of Merrill Lynch, said

"King Abdullah's quote speaks to the fast-emerging reality of what I call 'practical peak oil.' The Saudis and other exporters are placing a new emphasis on elongating the petroleum exploitation and depletion cycle. This stems from a growing awareness of the challenges of conventional resource maturity, as well as rising resource nationalism. This is likely to result in an earlier occurrence of global peak oil output than many consumers yet recognize."
Summing it up, Brown told me that "The reality is that this thing is coming so much faster and so much harder than even most pessimists were expecting."


Another Peak: Peak Food
Well dear reader I have already mused about the food problem several times. Food production seems to me to be at Peak too. The green revolution from the 60ies up to the 90ies helped to increase food production and to feed the increasing population. However since the early 90ies food production did not increase anymore while the world population almost exploded. The result we see today is that there is not sufficient food for everybody. You dear reader know already that there are many people suffering hunger. Many living with less than a dollar a day. This is not sufficient to pay for higher food prices. So dear reader, we have the situation that there is less and less arable land, arable land that produces less, less and less sufficient water resources and severe weather conditions, which lead to a lower production of food. On the other side we have a food production that depends heavily on energy, namely oil and gas. That means that costs for fertilizer, diesel and so on have gone up considerably. These costs have to be paid by somebody. Guess who pays.

Yes food production is an important issue. Higher prices is a problem.

The Telegraph gives us the recipe: you simply mix clay with salt and vegetable fat and lay it out in the sun to cook – like mud pies. Then, you call them “biscuits.”

Last time we looked, mud was not one of the main food groups recommended by dieticians. But all over the world, poor people have to make do with what they can find. Rice is the staple food in Haiti, and it’s trebled in price in the last year, says the Telegraph . Other grains are not far behind. Since January of 2007, wheat has gone up 200% and corn 150%.
Well dear reader there are already 34 countries this year, where desperate poor have rioted. Will the number increase? Which countries will it be?

Well dear reader, like with oil, the countries that produce and export food will do better than countries that have to import them. Maybe this issue will even become more important than the oil issue. So countries that have to import heavily oil and food might be the losers over the next years, while countries with oil production and important food production should do fairly well (e.g. Canada)

As I started this week with information about commodities, we will go on with some more


Uranium
Uranium has done very well a couple of months ago. After a strong correction and some months staying more or less at the same level, it seems to me that Uranium could start to go up in price again. It seems that the actual level is an interesting level to enter a position. From the fundamental situation point of view there has nothing changed over the last months. Physical stockpiles are still low and demand is high. The only thing we saw happen is that Uranium has been in the investors spotlight for some month and therefore prices made a parabolic move up but as soon as some investors started to take profits, the price correction brought the price down to the actual levels. Might investors look at uranium again. To me it seems possible. Anyway it seems that actual prices are OK and having a small position should be a good diversification.


Gold
Higher Gold prices needed
Gold prices must rise to as much as $1,500 an ounce to ensure that metal producers survive as costs continue increasing, said John Hathaway, a fund manager at Tocqueville Asset Management LP.
Inflation has pushed the average cash cost of production to about $700 an ounce, before companies factor in taxes and royalties, said Hathaway, who helps manage more than $1 billion. The metal needs to trade between $1,000 and $1,500 an ounce to compensate, he said Monday in an interview in New York.

Producers, meanwhile, have seen their profit margins eroded by surging wages for professional engineers and geologists, record oil prices and higher costs for steel and mining equipment.

Hathaway said he favors Denver- based Newmont Mining Corp. and Johannesburg, South Africa-based Gold Fields Ltd., the world's third- and fourth-largest bullion producers. (on this dear reader I do not agree at all. I would only invest in unhedged companies)

Both have new management teams, with Newmont's Richard O'Brien in his position since July and Gold Fields' Nick Holland taking up his post May 1.



Credits
Lehman
Last year, the investment banks, including Lehman, adopted a new Financial Accounting Standards Board rule called "FAS 157." This new accounting rule segregates balance sheet assets according to their liquidity and marketability. "Level I Assets" have readily available market prices. "Level II Assets" can be valued by comparing them to prices of similar assets. But "Level III Assets" lack any observable market price or price inputs. They are "marked to model" - not "marked to market."
So how many Lehman assets are Level II and III? According to its latest 10-Q, Lehman categorized $60.5 billion and $23.8 billion of its mortgage securities as Level II and III assets, respectively. This adds up to $84.3 billion – or more than four times tangible equity per share! Therefore, if just 12% of Lehman's $153 per share in Level II and III mortgage assets were written off - a reasonable assumption - such losses would eat through half of Lehman's tangible equity.
The odd thing about Level III assets, also know as "mark-to-model" assets, is that the owner of them gets to decide how much they're worth. Lehman management determines for itself the value of the Level III it owns. Therefore, no one can really know what the true value might be. There's no way to know, for example, what models management uses to value its Level III assets. Hopefully, they are not using the same badly flawed models that predicted smooth sailing for subprime mortgage-backed securities.

This lack of pricing transparency (or pricing reality) can be management's strongest ally…for a while. But eventually, the truth will out. Eventually, the Level III assets will make their way from the dark recesses of Lehman's balance sheet into the unforgiving light of real-world pricing. Eventually, living and breathing buyers will determine the value of these assets, not some mainframe computer in the Lehman back office. And as these real-world transactions occur, Lehman might face billions of dollars of additional write-downs and losses.

NO END IN SIGHT TO MARKET WOES SAY TRICHET, BUFFETT:
MAY 19, 2008
LONDON/FRANKFURT (Reuters) - The end to the credit crunch is still not in sight, European Central Bank President, Jean-Claude Trichet and Warren Buffett, the world's most famous stock market investor, warned on Monday.
"These are demanding times, challenging times... It is an ongoing, very significant market correction," Trichet told BBC radio in Britain.
Buffett, whose years of shrewd investing have earnt him a fortune estimated at $62 billion by Forbes magazine and the nickname "the sage of Omaha," struck a similar tone at a news conference in Frankfurt.
"I'll talk about the United States. I don't think the effects of the credit crunch are far from over at all. I think there will be rippling secondary, tertiary effects."
Trichet and Buffett's comments come after U.S. Federal Reserve Chairman Ben Bernanke said last week the healing process from the credit crisis would take some time.
Deutsche Bank's Chief Executive Josef Ackermann was more upbeat however in an interview over the weekend.
"I think that we are getting closer to the end of the financial crisis," Ackermann told the Swiss Sunday newspaper Sonntagsblick. "It is not fully over yet, but the signs from the United States are encouraging."
With market turbulence persisting, Trichet added governments and financial decision makers needed to keep an iron grip on oil and food price fuelled inflation.
"We have this accumulation of the oil shock, the food and agro-products shock... Price stability and credibility in price stability in the medium term is the best way to have a high level of sustainable (economic) growth and sustainable job creation."
More about credits
The credit crisis will extend well into 2009,” opines Oppenheimer analyst Meredith Whitney, “and perhaps beyond.”
Whitney became somewhat of a contrarian demigod last year when she brazenly forecast Citigroup’s massive write-downs before the crisis dominated headlines. Her report yesterday had “investors” racing for the exits.
"Multitrillion dollars of loans were underwritten,” writes Whitney characterizing the root of the problem, “with the false assumption that home prices would go up in perpetuity on a national basis.”
Unfortunately for many… the assumption was false.
“We see no near- or medium-term comeback,” she says of the firm’s outlook. “We believe losses will only accelerate further and be far worse than even the most draconian estimates. Due to continued deterioration in consumer liquidity, we are raising our loss expectations significantly for the group and lowering our earnings estimates significantly."

Following dear reader another excellent piece by Adrian Ash from the Bullion Vault.
Inflate Away Debt? Three Lessons From History

Adrian Ash
BullionVault
16 May, 2008

Inflate Away Debt? Three Lessons From History
"...Might the scam work? Can the United States really settle its debt with devalued dollars, free of all historical fall-out...?"

"WE CAN PAY ANYBODY by running a printing press," said Thomas Gale Moore, one of Ronald Reagan's economic advisors, when the United States became a net debtor to its foreign investors in 1986.
"Frankly, it's not clear to me how bad [being a net debtor] is," he added. And for the next two decades or so, owning fewer assets overseas than foreigners laid claim to inside the United States didn't seem so bad at all.
The long boom delivered by a steady inflow of foreign credit and cash delivered the greatest stock market gains ever enjoyed by US investors. When they topped out, the party switched straight into real estate – adding more than one-third to America's household wealth on the Federal Reserve's metrics.
So what if non-US claims on that surging wealth rose faster still? Now the party's over, inflating away the value of America's debt will worked just as beautifully as it always before. Right?
"In my view," says John H.Makin – a visiting scholar at the American Enterprise Institute writing in the Wall Street Journal – "the least bad option [in fixing the financial crisis] is for the Federal Reserve to print money to help stabilize housing prices and financial markets."
"America is a country that owes money," agrees Philippa Malmgren, a former Bush advisor and now head of a risk consultancy in London. "It is natural when you are a debtor that you lean in the direction of inflation, because it makes paying it back so much easier."
The logic is simple: inflate the number of Dollars in issue, and you'll shrink the real value of each outstanding Dollar you owe. But if escaping your debts really could prove that easy, how come history is littered with the mischief that inflation causes instead...?

Restoration England, 1668
Charles II – still playing his "divine right" as king some 20 years after Parliament cut off his father's head – steps up the issue of new bonds. Then called "stocks", they let the King raise cash for yet another losing war against the Dutch.
Charles side-steps Parliamentary approval for these new debts, and starts selling stocks against the promise of future tax receipts (the same wheeze adopted by governments worldwide today, of course). Come 1671, however, all the new money raised went straight to paying interest on the outstanding loans. So Charles opted to default, wiping out 11 of London's 14 biggest goldsmiths – those early banks who'd first lent the Crown money – and destroying his credit with England's loyal subjects.
The upshot? The King strikes a secret deal with France, promising to stay out of its war against the Dutch in return for regular cash pay-offs. But the deal – uncovered amid a rash of anti-Catholic panics in London – undermines all support for the Stuart royal family. Fifteen years later, and with the English crown bankrupt once more, his brother James II is overthrown in a popular and (pretty much) bloodless coup.
He's replaced by William of Orange...head of the Dutch Republic!

Revolutionary America, 1775
Lacking a mandate to tax its population while fighting a war, the second Continental Congress authorizes the "limited" issue of paper money. The new notes, known as Continentals, are backed by neither Gold nor silver, but by the expectation of future tax receipts.
Effectively acting as tradable bonds – but exchangeable for goods and services amongst the Patriots, rather than hard currency – the Continentals will only be redeemed when the Colonies win their independence from Great Britain. But long before that happy day, they race towards zero, becoming progressively worth less as their supply increases.
During the first six months, the supply of Continentals goes from $2 million to $6m. By 1779, the total supply reaches $242m on one estimate – more than twenty times the volume of gold & silver money in circulation before the war began.
"A wagonload of currency will hardly purchase a wagonload of provisions," complains George Washington. In March 1780, Congress announces a plan to redeem the Continentals at one-fortieth of their face value, effectively stuffing the American people and taxing the new citizenry more aggressively than George III ever did.
"So much for Congress's honor," notes Thomas E.Woods for Mises.org today. But for once, at least, these un-backed and over-inflated notes don't end with political or military defeat. Other than for the Patriots' cry for lower taxation, that is.

Weimar Germany, 1920
Besides losing 13% of its territory and 10% of its population under the Versailles Treaty after World War One, Germany also owes "reparations" to the Allied victors worth almost 37,000 tonnes of gold – around one-third of the world's entire above-ground supplies at the time.
Expected to settle the final payment seven decades later, the German government opts instead to pay early by printing money. The volume of Reichsnotes in issue rises 35 billion times over between 1918 and 1924 – and "the young and quick-witted did well," as the German journalist Sebastian Haffner will record, fifteen years later.
Equity prices in Berlin rose some 2,772,164% by the time a loaf of bread cost a wheel barrow-full of banknotes. The value of those Reichsnotes, however, went the other way – sinking from 8.0 per US Dollar to 4.2 billion per Dollar.
The resulting chaos, now regularly blamed for the rise of Hitler during the Great Depression of the early 1930s, saw "wages paid twice a day and promptly and completely spent within the hour," notes Glyn Davis in his History of Money.
"Large sections of society, including the middle classes, became impoverished; food riots were common; there was a complete flight from money, which had clearly become worthless to hold."
A more honorable legacy, perhaps, was the inflation-fighting Bundesbank of the 1970s and '80s. Staffed by bankers and academics who'd lived through both the Weimar inflation and its World War Two replay – which saw worthless coupons issued as money to Nazi citizens, Wehrmacht troops and even concentration camp victims – the West German central bank refused to devalue the Deutsche Mark alongside the Dollar, British Pound and French Franc by setting interest rates low.
The Bundesbank kept inflation far below the double-digit rates suffered by UK and US households as Gold Prices rose 20 times over against the Dollar. It finally bit the bullet with the birth of the Euro in 1999.
The new European Central Bank has since let slip its money-supply growth target of 4.5% per year. At last count, the supply of Euros was expanding by 10.3% per year, just below 2007's three-decade record for Europe monetary inflation.
The Global Banking Crisis, 2008: "US money supply growth is running at a 47-year high," notes Bedlam Asset Management, "as the authorities seek to inflate away the debt bubble and prop up house prices.
"Clearly printing such huge amounts of money is not great for the exchange rate. A weak Dollar has forced the hand of other central banks as they try and keep their currencies competitive with it."
But might the scam work? Not if China, Japan and the big Dollar-holders of the Arab oil kingdoms can help it. Will they really let their own currencies rise...just so the United States stuffs them by paying its debts with devalued Dollars?
Inflation, it's claimed, eases the burden of settling your debts. But for government and private debtors alike, that's only true if your income rises faster than your on-going cost of expenditure. Otherwise, you end up struggling to make ends meet today, only to leave yesterday's debts for repayment tomorrow again.
Middle-class families and savers looking to get ahead of the game – both inside and outside the Federal Reserve's fast-inflating currency zone – might want to consider Buying Gold as defense. Because however this latest attempt to inflate away debt pans out in the long run, it's sure to make history.
And history says – time and again – that solid Gold Bullion holds its value whenever man-made currencies are forced to lose value.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault .
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Well dear reader the following comment about Central Banks certainly hits the nail.
Looting the Vaults at the Central Banks
The way to rob a central bank efficiently is to be a bank executive so skilled in financial engineering that I take my bank to the edge of extinction. I can then swap all my unpriceable, illiquid, engineered credit instruments for good central bank cash and Treasuries. That’s larceny without risk, making the central bank a complicit partner in the looting of its vaults, and earning gratitude and bonuses instead of audits and indictments.

http://www.rgemonitor.com/financemarkets-monitor/252626/looting_the_vaults_at_the_central_banks

and some thought from Enrico Orlandini www.dtanalysis.com
It’s been a while since I’ve talked about the sub-prime issue and I would like to use this time to do just that. Sometimes we think ignoring an issue will make it go away, but it’s my experience that method fails more often than not. As you may recall sub-prime involves packaged debt in the form of derivatives. US financial institutions bundled together what should have been labeled suspect loans, gave them a high credit rating thanks to their friends in Standard & Poor's, and then sold them to the general public as secure investments. Since no market existed for these derivatives, and therefore they couldn’t be priced, these same institutions developed mathematical models capable of calculating prices. So far, so good! When selling questionable investments to the general public, things will go smoothly as long as (a) no one calls into question the quality of the instrument, or (b) wants their money back in any great quantity for whatever reason. Trillions upon trillions of dollars of questionable debt was sold in just this fashion, mostly to pension funds and foreign entities desiring safety and security.

So far no one has been able to provide an answer to the following two questions: How much sub-prime debt exists and how much of that debt is in trouble. I know the answer to both questions is a subjective “substantial” because what was a sound firm like Bear Stearns had to be sold for pennies and Citibank has swallowed US $42 billion in capital “and isn’t done yet”. I’ve seen estimates that put the total sub-prime debt at US $6 trillion and other estimates that say 30% up it will have to be written off. Yesterday I read that banks have written off “close” to US $400 billion meaning that we’ve still got another US $1.4 trillion to go. I don’t think the markets have priced that in.

Now comes the scary part. Sub-prime is just the tip of the derivatives iceberg. According to the Bank of International Settlements, there are a total of US $480 trillion in derivatives floating around our planet earth. The estimated value of planet earth is approximately US $56 trillion. In any sane world, US Marshalls would be knocking on the door of the SEC with arrest warrants but sanity fell by the wayside decades ago. Many of these derivatives are quite illiquid and use similar mathematical models to derive their respective prices at the end of every month. Now here’s the real question: if the world and everything in it is worth US $56 trillion, then just who is standing on the other side of the remaining US $424 trillion? Every derivative has two sides, the winner and the loser, and the loser has to pay in the event of a default. Suppose only 10% default; then someone has to come up with US $42 trillion, almost the entire value of planet earth, in order to meet their obligations. I don’t see that happening.
Well Enrico Orlandini describes very well what I have been warning for some time. Be careful.


Well dear reader we have an interesting time ahead, without doubt.
As you know many banks had to make substantial write downs. Some were not hit that much so far. However please keep in mind that all banks are in the system. That means that all banks are exposed to the systemic risk. Furthermore that means if there is going to be a severe problem with one of the big banks, the government has to bail them out. If not the system brakes. Remember that problems at a relative small investment firm (and their counterparties) triggered almost a financial collapse. So trying to park you cash with banks that did well so far does not mean that this is a good decision. Why? Well as mentioned, all financial institutions are exposed to the systemic risk anyway. Secondly, as with investments, last performance is not equal to future performance, meaning if they have done well so far does not mean that the same will be the case looking forward. Maybe it even would make sense to be with the banks that have cleaned their books aggressively and thus have reduced their risk to lower levels than those that did not yet go through the exercise in the same way. Keep in mind that no news does not automatically mean that there are no problems. Choosing the financial institutions with which you like to work, keep in mind that big possibly is safer. As mentioned to big to let fail is an important factor. There are still several financial institutions with Level 3 assets several times their capital basis. So be careful.

Well dear reader in my opinion, what is most important is to hold its cash in the safest currency. Yes you are right I am talking about Gold. If I am sure that my cash is in physical Gold it does not matter what the deposit banks name is. What does matter however is the location. Locations where confiscations did occur should be avoided. It does not make sense to have your cash safe but when it is needed the government has the same opinion about your cash and thus confiscates it.

Currency
I believe that Canada will do well in the coming years. It seems know that finally the Canadian Dollar has completed its consolidation. Furthermore it seems that we are at the early stages of the next upleg within the ongoing bull-market. Accordingly, this may be a good time to buy the CAD. The CAD combined with oil & gas or uranium investments might do well. Important dear readers is not to get fooled. In my opinion the "dollar rebound" theory can only move those who still believe in Santa Klaus. I do not see much future for the USD. My guess is that we will soon find out if I am correct with my believe. The « Fed versus global systemic crisis » saga will probably trigger soon a new stage in the collapse of the US currency."

FED
Following an opinion from a savvy investor found on the net.
"Today, we believe that between June and July 2008, as a result of the trends described here and of the specific psychological state of savers and investors, the Fed will lose its remaining credibility in the US and worldwide as regards to its capacity in understanding the current situation
and influencing the course of events. The outcome will be disastrous for the US economy, the dollar and the global financial system altogether which, until today and despite some loosening, remained tied to its historical American pillar"



Well dear reader I’d like to go ahead with the exercise I started last week. Following some more thoughts;

1. Remesas. It is already a fact that financial transfers between migrant workers and their countries of origin have suddenly diminished. Considering the importance of these transfers, this phenomenon is a very concrete exportation of the US recession towards Central and Latin America. What does that mean dear reader? What influence will a lower inflow of remesas have on the situation of the country you live? Does that mean that consumption will go down? Possibly. Will that affect your company? How about the security situation. Where will the folks that so far got sent money from their relatives get their money from in the future? Many questions. Anyway an important point to muse about.

2. Consumer credits. If your company provides consumer credit to your clients, be careful. Please keep a tight control on payments that overdue. It might be that many who took the credits will not be able to pay them ever.

3. Peak Oil. Well dear reader I mentioned before that Peak Oil will impact our world. Are you and your business positioned to sail safely through stormy waters ahead? Are raw materials you use for the production of the products your company produces affected by Peak Oil. Can you substitute them?

4. Peak food: Will peak food have an impact on your business? Is there the risk of riots that will affect your business? If your staff has to work hard using muscle power, will they get enough calories to do their work?

5. Just in time delivery low warehouse stocks. Over the past years business process optimization had the clear target to keep stocks at the lowest level possible or not to keep any stock at all. Production according to demand/order and quick delivery just in time was the target of many processes. As it will be more and more difficult to get the commodities needed for production and as it will become increasingly more difficult to have commodities or parts delivered on time, I believe that the processes and maybe business models have to be adapted to the new reality. Maybe activating and adapting the “old” model used a few years ago might be a solution. A substantial decline in oil production will lead over time to the situation that the whole globalization and the established processes possibly will be put in reverse. With that I mean that there will be again more production locally. Having produced pieces in different parts of the world, sending these parts to another place in order to put them together and ship them to the end users might soon be something of the past. Once again I believe we will see more local production and a distribution network using shorter distances. Especially business that switched from producing a product to importing the same from China because of lower prices, might run into some difficulties. If I would be owner of such a business I would assure that I still would have skilled staff that still knows how to produce my product. I might need this knowledge sooner than later.

6. Investments in Wine yards: Why do I mention wine yards. Well dear reader first of all, whenever there seems to be a trend of people investing in an industry they have no idea about at all, to me it seems that it is the moment to sell. Lately I have heart of many people investing in vineyards. Why are they doing it? Well most of the investors that recently have invested in wine yards have in fact no experience at all, unless you count enjoying good wines and believing that one is a wine connoisseur as experience. So why do they do it? Well precisecly because the mistakenly believe that being a connoisseur means that the business will be successful. But dear reader as with any other product, enjoying the product and believing that one is an expert, does not mean that owning the business will lead automatically to success. If I hear, for example that in New Zealand many doctors and other distinct professionals invested in wine yard just because it is in and if I read in a newspaper in Singapore that the head wealth management of a smaller Swiss bank proudly announces that he too is an investor in a wine yard, I only can draw the conclusion that investing in wine yards is not a good business at least not for the moment being. If they would have had the chance to read the book “Richest Man of
Babylon” from George S. Clason before, they might not have made the investment. The book by the way is an excellent book and should be read by anybody interested in making money and being interested that his/her children learn to do the same. A really great book.

Well dear reader there are certainly many other items that should be considered to discuss the topic mentioned. If you have any more thoughts or ideas please let me know it. I will see how I can include it in my future musings.
Well dear reader I mentioned before that I believe that consumption will go down considerably and this not only in the US but in many countries. So the question is what are the items we really need? If I produce such items, I still will feel the changes lying ahead but I should do better than those producing nice to have products or products that are not needed at all (could be described mybe best as rubbish). So what are items one does not need really? There are many items that make ones live easier. But would we buy or use these items if we would have live with less funds? For example would I use or buy a new washing machine, dishwasher, phone, cellular phone, car, new tires, computers, sports equipment and so on? Will I make more vacations or will I rather stay at home to save costs? Will business travels be cut and instead video conference be used more). Will I use services that I used so far but could replace in some form to reduce costs? Would I use my phone or cellular phone to the same extend? Would I visit a dentist or doctor with more frequency or just when I cannot avoid it? Would I dine out more or would I rather stay at home and eat at home? Would I buy furniture or would use my old ones for more time? Would I go on buying books? If I would have to cut my monthly costs, what would be the products that could be reduced? Is it cosmetics, good wines, and what else? Of course the list is not complete at all. But as you can see there are many items that are not really needed. Therefore if one has to cut costs, these would be items that could be avoided. That means if my business produces any of these products, I would certainly muse about the different possible scenarios and would have some specific plans prepared for each of them. Furthermore I would try to find a sparring partner who would x-ray may plans profoundly and would challenge me whenever he/she/they find something that I have possibly not considered.

As mentioned dear reader, if you have some ideas or thought or comments, please let me know it.