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The
BIG Picture Transcript
JIM: Well, Merry Christmas everyone and welcome to our year-end program on the Financial Sense Newshour. This is going to be a special edition as we take a look at the last year and try to put it all together: what were the key stories, what moved the market, and the real big stories for not only 2005, but will they flow over into 2006. We’ll be addressing that in this special edition of the Financial Sense Newshour. Also joining me on the program this week will be Ike Iossif for Ahead of the Trends. Our guest will be Mark Leibovit, rated by Timer Digest as the number one timer in the US. You won’t want to miss that. But John, what else?
Commodity prices really took off on copper, aluminum, platinum, palladium, silver, gold, oil, natural gas, cattle, even lean hogs. There is something obviously going on hear. Another fact is despite 13 rate hikes and higher energy prices, the economy hasn't fallen off a cliff. And finally, if you listen to those people who were arguing against inflation all during the year, we don’t hear a thing. They’re silent. It’s obvious to everyone that there really is inflation.
JOHN: And if we look at all of these issue, it seems that energy, or the lack of energy, and energy prices have really dominated the headlines all throughout the year. Whether it was the crisis following Katrina and Rita – the two hurricanes – $70 oil spikes or today’s high natural gas prices, the energy story has been with us throughout the year. So, why don’t we begin with a look at the energy situation, which I think we both agree is probably the year’s big story?
JIM: Yes. And to better understand that issue, I think we have to look at energy fundamentals. Because John, fundamentals are what drive every bull market. The bull markets in the '80s and '90s were driven by fundamentals. And even though commodities and energy prices have risen, why did they rise and how did they get to be this high? Well, it gets down to basic economics, which are supply and demand issues -- something Jim Rogers pointed out when we talked to him earlier this year. [4:33]
There’s been only one lead mine opened in the world in over 25 years. The last lead smelter built in America was built in 1969. There’s been no great oil discovery in the world in over 35 years. Alaskan oil production is in decline now; Mexican oil production is in decline; England, which has been one of the great oil exporters in the world for the last 25 years, is now in decline – England will be importing oil within the decade – you know, the North Sea is in decline. So, as supplies dwindle, at the same time, Jim, you know what has happened in Asia, demand has grown – in America, Europe and everywhere. So when you have demand growing and supply dwindling, that’s a bull market. And it’s always happened. And as I said, it has happened throughout history. It’s not simple, but it’s pretty basic economics and basic history. John, these supply and demand imbalances also take time to correct and that’s the thing I think people really don’t understand. This is something that doesn’t happen overnight. Even if they were to go out and make one of the biggest oil field discoveries in the world tomorrow, it may take 2 to 4 years before you bring that oil supply online. If we were to get our act together and get rid of all the partisan bickering and all the funny business that’s going on in Congress right now, and get rid of laws that prevent us from building a refinery, and even if we were to start to build a refinery, John, it may take 5 years to bring a brand new refinery online. If we were to go into mining and discover a new copper mine, a new gold mine, or a new silver mine, it may be 5 to 7 years before that mine comes online. And that’s something that I think, once again as Rogers points out, that these things don’t happen overnight. JIM ROGERS: You’re exactly right. I mean, if suddenly somebody finds a huge oil discovery in Berlin, or in downtown New York or Tokyo, it would be a wonderful, wonderful thing for the price of oil. But so far, no one has done it. Maybe there’s huge amounts of oil left in the world, but we don’t know where it is. And even if we start finding it, it takes a long time to bring it to market. In the meantime, Jim, other oil fields continue to decline. As I said, the North Sea is in serious decline. So, unless we find it very quickly and find it very conveniently, the price of oil and energy has to stay high. The surprise is going to be how high it stays and how high it goes. You know, Rogers is bringing up a key point there, which is we're not finding a lot of new oil, a point, John, that people like Matt Simmons and geologists like Ken Deffeyes have brought out on this show. Wall Street and Washington just assume, for example, that oil will be there as prices rise. The economists look at that and say, “Well gosh, at $50 oil, we ought to get more oil out of the ground. And if it gets to $60, we’ll get even more oil. There’s a problem with this kind of thinking and Matt Simmons looked at this problem, which led him to his thesis in Twilight in the Desert:
What I came up with was finding that there are about 120 oil fields in the world that still produced over 100,000 bpd and that they collectively were 49% of the world’s oil supply. What I also found is that the top 14 fields that still produce over 500,000 bpd each were 20% of the world’s oil supply and on average they were 53 years old. The next thing I found was that in the Middle East you had basically somewhere between 3-5 oil fields in each of the major Middle East oil producers that made up about 90% of their supply – and until I did that, I had just assumed the Middle East had hundreds of oil fields – and all these oil fields were old. And then what I found was – because we made it clear that anyone who wanted a copy could get one, but the caveat was that if you have any better information, let me know – I probably shipped over a thousand of these copies out to people and I had about 5 responses of “Here’s a field you missed, here’s a field you misspelled or here’s a field you said it was producing X, and I believe it’s probably producing Y.” Only about 5 responses out of over a thousand people who got this. What I got from hundreds of people was “This is amazing. I’ve never thought about this before.” And these aren’t just sort of random people. These are people that are all passionate energy analysts. So that gave me the background when I finally had my only trip I’ve ever taken to Saudi Arabia. I knew ahead of time that they had these 5 key fields that must still be producing 90% of their oil. It was that knowledge and data that allowed me to just peer into presentations we were having, so that I came away saying, “You know, I really wonder whether in fact we’re sitting on an illusion that Saudi Arabia has all this vast amount of producible oil.” And I also then had an idea of what issues I should start trying to research. Within months I had discovered this phenomenal database of technical papers at the Society of Petroleum Engineers. I spent all Summer, two years ago in Maine, plowing through them and it was at the end of that exercise that I decided I was going to write a book. JOHN: You know, Jim, it would seem like the debate over this whole issue -- the real problem -- lies in the thinking on the side of economists with the belief that there’s an infinite supply of oil and they assume that if the prices rise, then the oil will be right there to fill the demand. JIM: John, you’re absolutely right. These economists deal with these supply and demand curves and if you increase the price, then the supply will automatically increase with it. The problem is you’re dealing with a commodity that’s really a finite commodity. That’s why a lot of these people have been wrong. Number one, as Simmons has talked about, is that their assumptions are flawed: [13:15] MATTHEW SIMMONS: What’s interesting is that we’ve based all of this assumption on no data. JOHN: It would appear then that the markets are trying to analyze where we are based on old paradigms, or as one person on the program noted, looking in the rear view mirror to figure out where we’re going. And this is really much different from the energy crises of the 1970s, which in reality if we go back and analyze, it was a political crisis. This time it looks more like a geopolitical crisis. That changes how things are going to play out. You know, we’ve heard Cassandras before, but this time I really think the Cassandras, such as Simmons and Kunstler, really have something valid to say:
Now, the point I’m trying to make here – probably in too windy of a way – is that this transition really only happens twice: from wood to coal and from coal to oil. It’s not like it’s something the human race has done thirty times. There isn’t this enormous precedent for overcoming every case of a resource problem. In fact, anybody who’s a reader of Jared Diamond’s book Collapse or Joseph Tainter’s book The Collapse of Complex Civilizations, understands that there have been many societies that ran into trouble with their primary resources and essentially folded up. So, when people say I’m being a Cassandra or crying wolf, and that we will come up with some miracle fuel to replace oil or some combination of alternative systems, I greet that with a lot of skepticism. I think it’s unlikely. JIM: One thing that we’re seeing as a result of this lack of supply and growing demand as well is the energy markets becoming more volatile: gas prices can spike up, they can spike down. Prices seem to rise or fall on any bit of news. It could be an inventory issue. It could be a political issue. The problem, though, is that there is no excess capacity in the system to handle any disruptions, either on the political front such as we saw in Venezuela or Nigeria or in the Sudan, or quite honestly, what we saw this summer on the weather front with the hurricanes. Earlier this year we interviewed an oil geologist, Ken Deffeyes, who’s written a number of books on energy. He pointed out the vulnerability of price spikes, especially weather:
JOHN: You know, Jim, isn’t the real problem here that in reality we are close to approaching peak oil? I know this is what you believe. You’ve been tracking this area for more than a decade, and you wrote about it both in 2001 and 2002 before it was front page news.
JIM: John, I not only believe that we're getting close to peak oil, but I also believe we aren’t prepared for it. You and I have had discussions on the air and off the air about this. Despite all of the difficulties, the price spikes, the shortages, and the hurricanes that showed all the vulnerabilities, (we’ve had a lot of debate on this issue) we’ve done nothing to resolve it. We’re not building refineries. We’re not opening up the West Coast or around areas of Florida for exploration. We’re not doing anything to bring on wind or solar power. And the real problem – as Matt Simmons talks about – is what do you do when one day all of a sudden we just simply have hit peak oil? We can’t produce any more. The peak oil people are the ones who have made a more compelling argument for this case, because we’ve had both sides on the program. But let’s listen to a number of them from Ken Deffeyes and Matt Simmons to Michael Klare and James Kunstler as they talk about this issue peak oil. KENNETH DEFFEYES: Well, one thing they’re not likely to tell you, but Exxon-Mobil has come around to counting how much oil had been found in new oil fields each year. And they and I both have 1986 as the year when we ceased finding as much new oil as we were burning up. Well, Mathew Simmons was here this past weekend for a conference and he said it’s this year. We’re there now as far as the peak is concerned. But part of the reason I tell people I pay attention to Matt Simmons is that I’m an academic. He’s a banker. I’m a native Okie. He grew up in Utah. I grew up Presbyterian. He grew up Mormon. He doesn’t use Hubbert’s data, he doesn’t use Hubbert’s mathematical methods, and somebody told me he had 5 private jets and I drive a Ford pickup, but we get the same answer. MATTHEW SIMMONS: I decided that this book was going to be so controversial that I really tried my darnedest to avoid a bunch of very specific conclusions that people could shoot holes in them, like “how would you know that?” But I’ve had enough time now to reflect on everything I wrote about, and also feedback from lots of technical people that said, “you know what, what you triggered in the memory of what was going on in the 70s”, and etc, etc. I think it’s highly likely that they’ve actually exceeded sustainable peak production already. And I think at the current rates they are producing these old fields, each of the fields risks entering into a rapid production collapse.[9:03] JIM: If this is indeed the case then by assumption, we have to assume global peak is at hand then. MATTHEW SIMMONS: Absolutely. Once it’s clear that Saudi Arabia cannot sustain increases in its production on a sustained basis, then in my opinion with a certainty of 99.9%, the world has actually passed sustainable peak production. Because one of the reasons all of these supply models always have Saudi Arabia producing 25 million bpd by 2025 is that there isn’t another country on earth that has the potential to raise their production more than 1 or 2 million bpd at best. JAMES KUNSTLER: Well, it’s not a religion. It’s a pretty simple idea. And yes, I believe it. I do not believe that the earth has a creamy nougat center of petroleum. I believe that the models that have been devised to show how much oil was out there and how much we’ve been able to get are pretty accurate. And with the numbers, especially the production figures and the sales figures – we know how much oil is being consumed on a daily, weekly basis – it’s very clear. It’s a little bit less clear how much oil is out there in reserve, but we have a pretty clear picture from most of the producers. It’s only a few producers like Saudi Arabia that we’re not quite sure about and that picture is beginning to resolve too. So, yes, I believe in peak oil and I believe we’re probably closer to it than the group that thinks we’re closer rather than further away. We’re in the zone.
JOHN: Alright, Jim, there you have it, a passel of experts telling us that peak oil is here or at least we’re getting very, very close. Now the question that I would ask is, isn’t one of the problems that we have accepting this fact is that you hear stories that OPEC, or Saudi Arabia, have increased their oil reserves, and these reserves are bigger today than they were during the last decade, and yet the increase in reserves isn’t based on new oil discoveries? They’re sort of paper barrels changing the figures as Matt Simmons contends: MATTHEW SIMMONS: They jumped from 110 to 160 from 1979-1980 and then at the end of '87, starting with the number they reported in '88, the 160 became 260. They were called 'paper barrels' at the time. [43:42] They all got into arguing that they should have production quotas based on the number of proven reserves. And so Kuwait, and Iraq, and the UAE went from 30 billion each to 90 billion. And actually, to give Saudi Arabia credit, they were the last to fall in line of the Middle East producers and also triple their reserves. But why anyone ever believed it is what I find so amazing. Any time you see a static number for twenty years, people should obviously start saying, “That obviously isn’t a real number.” JIM: “Static number for 20 years.” That’s the surprising thing about the comment. Something that Matt brings up in his book, John, is that, for example, Saudi Arabia has pumped out about 45 bpd barrels of oil, and yet their oil reserves have remained constant. Well, anybody who looks at the production decline curve of an oil well knows that you can’t keep producing more oil each year and have your reserves always stay the same. I think Simmons brings up a point right there that nobody has questioned this. It should raise a lot of questions in the intelligence community and the investment community: “Wait a minute, where do these numbers come from? What stands behind these numbers?” It’s kind of like digging into a balance sheet and looking at the footnotes. Nobody’s looking at the footnotes here. In fact, if we take this discovery process and where we are – why we’ve had fewer oil discoveries each year – Simmons gave a great analogy when I talked to him last time about the oil discovery process, likening it to a chess board. Yet, I think this analogy to some extent explains why oil discovery peaked in the late '70s and why we have continued to discover fewer oil fields each year. And John, those oil fields are not only fewer in number, but they are also smaller in size. As Ken Deffeyes says, Exxon-Mobil is keeping track of this and I think it was 1986 the last year that we failed to replace the amount of oil we were consuming each year. But let’s listen to Simmons’ chess-board analogy: MATTHEW SIMMONS: The French Petroleum Institute did a major study a couple of decades ago about the distribution of oil fields by basin. And what they found was that what seems to happen with phenomenal regularity is that within about 5-7 years of moving into a new area of prospective hydrocarbon, you tend to find the queen first, which is the second largest field you’re going to find. You then calibrate in on the knowledge of how you found that and within a handful of years you find the king. And then over the next decade, you find there too, the next 8-10 lords. And once you’ve found the royal family, the rest of everything you’ll ever find are basically peons in size. JOHN: Basically, what we’re doing here, Jim, is looking at the objections we’ve heard from people over the year as far as peak oil is going. First of all, we hear old figures from OPEC and Saudi Arabia [which are] unaudited – nobody’s verified these – so we have no idea whether these are true or not. There are other issues that have to be looked at. One of these is technology. There’s a widespread optimism out there in the field that no matter what the problem is – in this case declining energy supplies – technology somehow will lead us out of it, and we’ll discover a new source of energy. JIM: I asked Simmons that question about technology and increases in production, because you look at Simmons Intl, they’ve financed the majority of the oil service companies that are around today. This is what he had to say about increased production and technology: MATTHEW SIMMONS: Well, we continue to pull more and more out of the North Sea and then we found deep water, which was a fabulous last shot from the basins. We already had shallow water production. And we took the Middle East oil back up to unsustainably high levels of production. So probably, we’re sweeping the cupboard bare. People looked at the way we were able to do this and thought, “Wow! this is actually easy,” without realizing what we were actually doing was totally non-sustainable. JIM: If I was to use the analogy to advances in technology, were we just using bigger straws, in effect, to get the oil out? MATTHEW SIMMONS: Absolutely. But so many oil experts got giddy. By seeing the return to high flow rates, they started believing that we were actually now finally getting a vastly higher amount more oil out of these fields than we could produce before, and therefore, we were headed to an era of unbelievably plentiful oil at unbelievably low prices. And I’ll tell you, as we speak right now, ironically the same week that Twilight in the Desert began shipping, Cambridge Energy Research Associates, Daniel Yergin, who, I think a lot of people think is one of the more respected – or maybe most respected – oil analysts on Earth, began producing a report saying effectively – and there was a big editorial piece in the Washington Post this Sunday – that the world, between now and 2010 – which is not very long away – is going to add 16.4 million bpd more oil and create a massive oil glut, and collapse the price again. Now, I’ve read carefully through Daniel Yergin’s detailed field-by-field bottom-up report and basically, it is a really flawed piece of analysis in my opinion. But the fact that they obviously believe it’s correct – they’re doing talk shows – shows you the depth of limitation of people that really understand how serious this is. Cambridge Energy Research Associates also, in 2001, were unbelievably pooh-poohing the idea that the United States had now entered a major natural gas crisis. But by 2004 they got the religion. I expect by 2009 they’ll issue a magnificent tome saying, “Gosh! It looks like the world is now past sustainable peak oil supply.” But what’s dangerous is how many of the optimists really believe we won’t ever have any oil problems. I hope I’m actually wrong in my dire predictions, but I hope people actually take them seriously and figure out a way to prepare for them, since if we do that we win either way. [31:10] JOHN: Jim, one issue that we really need to address before we talk about the geopolitical aspects of oil as something that continues to circulate around, and that is the belief that the higher oil prices today are nothing more than a sort of cartel – a big conspiracy – by the large oil companies to artificially make supplies short and thereby to get higher prices out of it. We’ve seen some memoranda supposedly floating around the Internet.
JIM: The easy answer to that is to ask the conspiracy kooks, John, why we experienced declining oil prices for 2 decades [1980s and 1990s]? I have in front of me on my computer screen a chart of oil prices, which peaked in 1980 at around $40 a barrel. They got down to as low as $10 a barrel, then they spiked briefly during the first Gulf war, got back up to $40, but then they declined back to $20, $18, $17. We got down to $10 and around 1998 back up to $20. So, when you ask them, “Ok if there’s this big conspiracy and they’re controlling prices, then explain 2 decades of price declines?” They shut up when you ask that question. Really, if prices were at $40 a barrel in 1980 and the oil companies were so big and powerful. why did they allow the price to decline for 2 decades? You simply wouldn’t do that. Or for that matter, why did they allow the returns on their capital to fall almost in half? If you take a look at profits in the refinery business, they were so bad – at less than 5% – that many companies flat out went out of business and many majors scuttled their refineries. So, we went from 350 refineries to almost 148 today. The conspiracy theories just don’t add up or hold water. If the oil companies could really control the price of oil, we would never have had $20 oil or $10 oil in the '80s and '90s.
You saw this was very evident after Katrina and Rita
struck all those refineries. 7 major refineries were taken offline
and then they wonder why prices are so high. Energy imports
are another reason why we’re running record trade deficits. JOHN: Yes, and this also then reflects upon an issues that very, very few people outside of tough government or military officials contemplate, which is energy security, especially if we take unaudited numbers from countries that may or may not be our friends. You simply can’t understand oil economics without also understanding the geopolitical and military significance of energy. JIM: John, oil is a political commodity. It’s similar to gold and silver. If you look at the US today or China, Russia, or Europe, energy security has become the number one foreign policy issue today. Whether it’s the United States trying to secure the Persian Gulf or it’s China trying to buy oil from Sudan, they’re scouring the globe today trying to secure energy supplies. Energy security is a very major issue and playing along with energy security is geopolitics as Professor Klare talked about in his 2 previous books. MICHAEL KLARE: “Well, the reason is that oil is essential to the world’s economy on one hand and secondly, because it has become viewed as a matter of national security by powerful countries like the United States and China. No other resource in the current era has that character where governments actually say. "This is a matter of national security. We’ll use force, if necessary to fight over it." So you combine the importance of oil and the fact it will become increasingly scarce, and its national security dimension, and it makes oil very special. And that’s why I focused on it.
JOHN: Well, looking back on this year also as far as energy is concerned, we’ve experienced another energy crisis that is actually still with us, though you wouldn’t know it from watching a lot of the mainline media. Oil and natural gas production in the Gulf of Mexico hasn’t fully recovered. I think as of this show, we still have less than 30% of our oil and natural gas production, which is still shut in. We’ve experienced record energy prices this year from oil to natural gas, we’re paying dearly at the pumps for gasoline and at the same time, if you’ve noticed, virtually all politicians are running the wrong way. Congress is fiddling in the face of another oncoming crisis. This week Democrats blocked drilling in ANWAR. Democrats with liberal Republicans teamed up to block offshore drilling, reducing the permits on refineries and eliminating a lot of the Heinz 57 varieties of gasoline mixes, which would really simplify the whole process of refining here in this country. Not only refining, Jim, but shipping it down the pipes because they have to be cleaned before the different blends can be shipped down so they don’t contaminate each other. In essence, despite another major energy crisis and record energy prices, Congress has done nothing to ease the energy burden or to make the country more secure with an energy policy. JIM: You know the thing that amazes me more than anything else that I’ve seen this year is despite record energy prices – I mean oil got up to $70 per barrel – shortages this Fall following the hurricanes Katrina and Rita and record energy imports, a month doesn’t go by that we’re not reporting record trade deficits. And behind them are record imports of oil, natural gas, gasoline, and jet fuel. Despite all this, John, Congress has done nothing but dither on the energy issue. Nor has the Media done a good job of educating the American Public in my opinion of the dangers of this energy security. The Media, as that one general said, “is still stuck on stupid.” Or they’ve gone on to other things. This reminds me of what veteran CBS news reporter, Tom Fenton, said last Summer.
The energy issue isn’t going to go away as politicians may be hopeful that it will. But I’m afraid, John, if we’re going to be doing this show next year, we will be once again be addressing the issue of energy. Perhaps, it will be a geopolitical event in the Middle East, such as Iran, or maybe it’s another bad hurricane season that knocks out energy production in the Gulf. The problem isn’t going away. And unfortunately we’re doing nothing about it. Here is what we should be doing according to the experts: MATTHEW SIMMONS: We have to figure out a way to do that because if we go to war, it will actually be the worst war we’ve ever fought. And if we don’t address the problem, we will be in an energy war. What I find interesting is I actually think we can solve this problem, but I also think if we ignore it, you can’t create a scenario that is too awful. What we have to do is first of all, long term, create some new forms of energy that don’t exist today. That might or might not be possible. I suspect that actually it will be possible because we haven’t worked on it for a hundred years. While we’re doing that though, we have to figure out a way that allows the world to prosper and not shrivel up while we’re using a lot less oil per capita. And figure this out quickly enough so we educate the China and India’s of the world on how to create a sustainable society so they don’t build a society like ours. Because it’s going to be easier for them to do some of these things than it is for us. And I’ll give you just a quick shopping-list of some of the things that we are actually going to need to do. In the shipment of goods, we use worldwide about as much, or a little bit more, diesel fuel than we do motor gasoline, and most of the diesel fuel is used by the truck fleets moving goods. If you could wave a magic wand and in a 5 year period of time and get all of the goods off the highway system going long distances by trucks, and put them on either railbeds or water transportation: on the railbeds – railroads – as long as you have long distance transportation, and long trains versus short trains, and short distances, you can get an energy efficiency savings of somewhere between 3 and 10 times – that’s not 3 and 10%, that’s 3 and 10 times; if you can get them on boats versus trains, it has an additional energy efficiency savings of another 2 to 5 times. So by getting trucks off our highway system we have a major impact on removing traffic congestion. And traffic congestion is public enemy number 1 through 5 on passenger car fuel efficiency. So it’s a real win, win, win. At the same time we have to alter our distribution of food. You know, the average thing we eat today comes from, I believe, an average of 1500-2000 miles. But there are a lot of items, like the first time I ever heard of this concept of food miles was a speaker in London, last Spring, who pointed out that in the Summer in the UK ,almost all the apples come from New Zealand, and they have embedded in them 22,000 miles of travel of a vessel, half coming from New Zealand, and the others going back. When they’re onboard the vessel they’re refrigerated. So it’s a very energy intensive process. We actually can grow stuff close to home in most parts of the world. We just got lazy and thought it was really fun to just go into a grocery store and see all this produce: it doesn’t taste very good, but it looks nice. And then finally we can basically go to distributed work. Because I found being in Maine in the Summer is a lot more pleasant than being in Houston, I taught myself 10 years ago how to be up here and be more efficient than when I’m in Houston. I think there are lots of corporations that have a thousand people working together; there’s no need for a thousand people to be working together, other than the fact it was just a historical coincidence. We now have the technology that people can actually either work at home or work in their village, and by saving 2-4 hours of commuting they will be far more productive. And then we basically end globalization as we know it today, which is effectively a really flawed plan of breaking manufacturing components down into their smallest parts, and finding the cheapest place in the world to manufacture the parts, and then zinging them around the world to be assembled into bigger, and bigger units, until they finally arrive on the showroom as a piece. If you make stuff close to home, you can have a major savings in fuel efficiency. That sort of a plan put in place over 5-7 years would take a lot of coordination; not a single one of those things are impossible to do. We could literally end up cutting oil consumption by 20-40%, by doing all of those. [45:10] KENNETH DEFFEYES: Well, there are a few things that we can do right now. One of course is to convince all the kids to turn out the lights when they leave the room. To the extent you can keep the house cool by opening the windows at night and closing them at 9 in the morning, as long as you can do things that conserve energy, rig up a carpool if you can’t take public transportation, at least get some neighbors together and start a carpool, and those are things that help. If you didn’t do it for Jimmy Carter, check on the insulation of the house, the insulation in the windows, find out whether you can cut back on how much energy you consume. And that’s good for your own pocket book, and not just for the world. So, there are some little things we can do to help. On a bigger scale one of my friends here in New Jersey went shopping for a Prius hybrid gas and electric car, and he was told there’s an 18 month waiting list, and you’ll pay $8 thousand above the sticker price. So, it’s not easy right now to change some of the major things, but at least we ought to start doing the minor things and getting in shape. [46:26] MICHAEL KLARE: There really is no easy answer to that question, Jim, the answer takes 2 parts. There’s a short term and a long term. The long term is that we have to invest a lot of money in research and development of new technologies, and potential new sources of energy. There’s a lot of excitement for example about the potential of hydrogen as a new conveyor of energy, to use hydrogen to power fuel cells in automobiles for example. I understand that General Motors unveiled a new fuel cell vehicle at the Detroit Auto Show this week. So, there is a possibility, but it is going to be many, many years before this is something you can walk over into your neighborhood auto showroom and pick it out and buy it and drive it, because there are no gas stations in America that supply hydrogen. So, we have a lot of work to do to make that possible if that’s going to be our future. 20 or 30 years of effort have to be made. In the meantime what we have to do is to conserve the existing supply of petroleum and use it much, much more prudently. And that means I think driving cars – they may be oil fueled but much more fuel efficient: hybrids, or very fuel efficient internal combustion engines. That’s going to require the States and the Federal Government imposing increasingly strict fuel efficiency standards. There is no other way, we have to conserve the remaining oil and give us the time so that we can develop the alternatives that we’re going to have to rely on in 20 or 30 years. [48:13] JOHN: Well, Jim, there you have it the voices of Matt Simmons, Ken Deffeyes, and Michael Klare on the issues of what it is we are going to have to do. And really, the fact that no one has digested yet is that life is simply not going to be the way it was. It simply will not be. And what makes this situation so precarious is despite the fact there are higher prices, shortages and record trade deficits due to energy, we’ve done nothing. This week Congressional Democrats voted down drilling in ANWAR as we said before, we haven’t passed a bill to get rid of 800 different permits to build a new refinery outside the hurricane belt, nor review a lot of the regulations that are out there that are crushing these various industries. The Arizona refinery has been waiting for longer than a decade to get going. We haven’t opened up offshore drilling, nor have we simplified the 50 gasoline mixes and blends. In summary, we’ve done nothing and we’re no better prepared to handle the next energy crisis that will soon be upon us. It’s not in the farthest of futures. JIM: Well, as Matt Simmons is fond of saying, you can boil it all down to this: we have no Plan B. MATTHEW SIMMONS: Nope. While we’re doing Plan B by the way, we jumpstart the largest energy R&D program ever envisioned, and just pray that over 5-7 years it has the same impact as when people got serious about developing radar, and developing nuclear power, so that we could actually win World War II. But if we don’t do these things, then this really ends up being a very dark world – no pun intended. JOHN: And leaving us with the sobering thought, Jim, that we don’t really don’t have any Plan B right now and we desperately need one. ~ PART 2 ~ Part
2
JOHN: Welcome back to our 2005 year-end summary as we look back over the year -- both in our words and the words of the experts, who were guests here on the program this year. You know, one of the other issues that was really a focal point in the investment markets was what happened to commodity prices this year. I don’t care where you look, most commodity prices were setting multi-decade highs from gold, to oil, to copper, and platinum. And since we’ve been talking about oil, oil prices alone are up 45% this year. Natural gas prices are up 110%; copper is up over 70%; cattle and hog prices are up 17% and 10% respectively; gold is up 12%, after being up 17% to $531; and even silver is having a good year up over 27%. As Jim Rogers pointed out in your interview this year, bull markets are supply and demand driven.
JIM ROGERS: Jim, first, if you go back in history, you will see that this has recurred periodically for the last couple of hundred years. I have a chart in the book showing – documenting this – First, it’s simple economic history: you have long multi-year bull markets followed by long multi-year bear markets. We can explain why in a little bit. The basic reason though it’s not some magic from heaven, it's supply and demand. During the '80s and '90s you had a lot of people screaming about hot mutual funds, hot money managers, and hot stocks. Nobody called you up, Jim, and said let’s invest in a sugar plantation, or let’s invest in a lead mine, because commodities were in a bear market. Now, when there’s a bear market, people do not invest in productive capacity and so supplies dwindle and diminish. There’s been only one lead mine opened in the world in over 25 years. The last lead smelter built in America was built in 1969. There’s been no great oil discovery in the world in over 35 years. Alaskan oil production is in decline now; Mexican oil production is in decline; England, which has been one of the great oil exporters in the world for the last 25 years, is now in decline – England will be importing oil within the decade – you know, the North Sea is in decline. So, as supplies dwindle, at the same time, Jim, you know what has happened in Asia, demand has grown – in America, Europe and everywhere – so when you have demand growing, and supply dwindling that’s a bull market. And it’s always happened, and as I said, it has happened throughout history. It’s not simple, but it’s pretty basic economics and basic history. JIM: John, you mentioned a number of commodities that were up this year, talking about oil prices being up 45%, natural gas up 110%, copper up around 70%, but it’s the whole commodity complex as a whole that is seeing a continuation of what I believe is a primary trend: a bull market in commodities that is still in its infancy. The CRB index, which is 19 commodities, is up 17% this year. It’s up nearly 78% since it bottomed in the Fall of 2001.
The thing I think that most people don’t recognize in the early stages is these cycles last for a long, long time. We’ve had them every 18 years. From 1982-2000, it was a paper bull market. Since really 2000, it’s a new bull market that has started in commodities. Jim Rogers, who has made a lot of money in commodities, explains why they last such a long time: JIM ROGERS: You’re exactly right. I mean, if suddenly somebody finds a huge oil discovery in Berlin, or in downtown New York, or Tokyo, it would be a wonderful, wonderful thing for the price of oil, but so far nobody has done it. Maybe there’s huge amounts of oil left in the world, but we don’t know where it is. And even if we start finding it, it takes a long time to bring it to market. In the meantime, Jim, other oil fields continue to decline. As I said, the North Sea is in serious decline. So, unless we find it very quickly and find it very conveniently the price of oil and energy has to stay high. The surprise is going to be how high it stays, and how high it goes. Jim, I wish I knew. That’s one reason I wrote the book. And even then I assure you there are going to be lots of skeptics. People don’t know about commodities. People have been told to stay away from commodities for decades and therefore, if they don’t know about it, they say, “Oh, go away and leave me alone.” It’s the unknown for most people and you’ve seen it before. If we sat down in 1982 and said "Buy shares," there would have been so many horror stories about all the people who had lost so much money in stocks in the '60s, and '70s, and' 80s. There would have been so many horror stories. On the Business Week front page cover story, which said stocks are dead, that people just wouldn’t have done it. Likewise with bonds. But of course that was a great buying opportunity. [5:11] You know, Rogers is pointing out here why these cycles last a long time, John. You have supply and demand imbalances that come about as a result of a bear market: commodity producers go out of business, the prices fall, the industry consolidates. And then in the meantime you get more people on the planet and the basic things that we need in our life are basic commodities. So, you have in addition to a supply and demand imbalance that comes about, you also have demand catalysts that come into play, which are population booms. And it’s something that Barry Bannister pointed out when we talked to him this Summer: JIM: If we look at the last two centuries, we find that commodities sort of inflate and deflate in unison with energy leading that. In terms of patterns, where we are now, where are we?
Now we’re at the bottom of one of these cycles, I believe. They’ve averaged about 18 years in each direction, up and down, so that’s 36 years point to point. We’ve had 6 or 7 upturns and downturns in the last 2 centuries and we seem to be in one of those upturns, the last one having been in the late '60s, and we’re doing it again.
JIM: That may slow down demand in the short term, to some extent. What about the long term catalyst that makes this a long term trend? BARRY BANNISTER: Well, I’ve said there’s been many years of low returns on capital. Only a fool would have put new money into oil field technology in the late '90s, when obviously the best money should have been spent on Internet. But the good thing as an investor is your interests are not aligned with the general consensus of the public. I don’t think like the public. I don’t act like them. I think in terms of what could be or what’s going to be -- not what should be. So when I looked at investment in the late '90s in energy, mining and new mines, we purposefully reduced the capacity through underinvestment. All we needed was a demand catalyst, which was the Chinese and Indians, to help tighten up the market. And then we had the ingredients present for a supply and demand-driven bull market for the hard assets, which are very difficult to produce. It takes years and years to bring fields on stream, to make them productive. And so I’m fairly pleased the investment is just beginning, which means that the peak is probably not till 2010-2012 for the investment rate, and so the new supply will not be an issue for probably 5 more years, as far as I’m concerned. [8:43] JOHN: You know, I was wondering. Why do you think that -- perhaps outside of energy for that matter -- no one has paid much attention to this bull market in commodities? I mean certainly commodities like investments or commodities themselves have really had stellar returns in comparison to the general stock market. JIM: It’s really a stealth bull market at this point. Yes, people notice energy prices are up, but only because they’ve gone to the gas station and they’ve seen that the price of gasoline has gone up. Or maybe they’ve got an increase in their utility bills? But if you take a look at the Dow Industrials, the NASDAQ, and the S&P 500, we’re at lower prices today than where we were in the first month or second month of the year 2000.
And yet in the beginning or the middle of a recession in 2001, commodity prices took off and they’ve never looked back. I don’t care if you’re looking at energy, oil, natural gas, heating oil, copper, lead, zinc, silver, gold – any type of commodity – lean hogs, cattle prices, that’s where all the money has been made. But yet what I think we’re seeing right now is we’re in the early stages of a bull market. In the early stage, you have what I call the "early adopters" -- that’s the smart money that gets in. And usually it isn’t until you get to the final stage of a bull market that the trend is adopted by the public. If you look at the equity markets, the majority of money that went into the stock market came in to the mutual fund industry after 1995 when we had already had basically 14 years of a bull market. So the public came in toward the very end. You also have a Fed rate-raising cycle right now, so some investors are probably skeptical if this trend can continue because everybody is worried about economic weakness. If the Fed raises rates high enough, the economy will slow down and go into recession. And with a recession there’s going to be less demand for goods, so therefore less demand for commodities. So there is some of that thinking right now. But commodities can do well in an economic downturn even in depressions. As I pointed out, this commodity bull market began in the mid of a recession and it’s not unusual in a recession or a depression that you see the greatest bull markets in commodities as Jim Rogers points out:
You can contrast that with gold, for instance, for which there are vast numbers of believers and lots of supply. Gold is 50% of its all-time high because supply has continued to grow or certainly hasn’t disappeared. And therefore you don’t have a huge bull market. All of this stuff is supply and demand. You can have a bad, bad economy and still have a huge bull market. [12:22]
JOHN: You know there was something that Jim Rogers mentioned in your interview, which I think is helping to change the perception of commodities as an asset class. That is their negative correlation to the markets. JIM: I think what you’re referring to was his reference to that Wharton and Yale study that showed commodities are not only negatively correlated to the stock market as an asset class, but John, even more important was the fact that commodity returns have equaled and at times surpassed the returns in the stock market. JIM ROGERS: What’s equally fascinating is they started it off by saying…when we started looking at commodities, we thought we’d find lots of studies. We were astonished to find there are virtually no studies on commodities. And you asked earlier well that’s part of the reason that nobody understands commodities, because nobody has ever really systematically sat down and looked at them. The professors – and Jim this is not some whacko like me, this is Yale University and the Wharton School at the University of Pennsylvania – said in the last 45 years you would have made more money in commodities with less risk and you would have had a better inflation hedge. Now, if I’m right, this is going to change the face of investing and especially commodity investing, because they have now confirmed everything nuts like me have said and they have made it legitimate. You remember when the academics did a study on junk bonds in the late '70s, it opened a whole new asset class which had never existed before. Now there are hundreds and billions of dollar invested in junk bonds around the world. In the '60s there was this academic study about stocks, which made them legitimate again after the '30s, '40s, and '50s. This is going to make commodities legitimate. All the Trustees and directors and investors who’ve always said, “Oh get out of here, I don’t even want to talk about them,” are not going to be able to do that in the future. If I’m right -- and they’re not making much money in stocks and bonds -- and commodities are doing well, they’re going to be terribly criticized for not owning commodities, because they have now been made legitimate. And you’re going to see huge amounts of money coming into this field. Not this year. Not next year, but over the next 10 years. Ultimately, there’s going to be a huge, gigantic bubble as there is in every bull market at the end. But you know, that’s a long way away. Well, yes, I would go further than that. I would say stocks and bonds are not going to do well in the next 10 or 15 years and commodities will. So you should put your money in commodities. But most people are not going to do that. Warren Buffet has said many times, among other people, diversification is an excuse for people who are losers and not [the way] to make any money. The way to make money is to put your eggs in a basket and watch the basket very, very carefully. That is the way to make money. But let’s say that people insist on diversification. Well you’re exactly right, the studies have shown repeatedly, some of your money needs to be in commodities, if you’re going to be legitimately diversified.” [15:19] JOHN: Well, Jim, I’m going to ask my famous question, with an obvious established trend in commodities, where does a person invest? JIM: Well I think something that we have to look at that stage of the cycle, and something we haven’t seen so far -- which I believe is going to change -- is that the CAPEX spending cycle is going to pick up. As prices of commodities continue to rise, eventually management of mines and oil companies are going to feel more comfortable in starting to spend money to improve and enlarge either an existing mine, find new deposits, or find more energy. When we were talking to Barry Bannister, who also is a good friend of Jim Rogers by the way and follows the commodity markets, he is probably one of the best commodity analysts out there today. He addressed this issue. This is something that you’ll see in the next phase of the cycle: JIM: Looking at the individual sectors, energy companies in particular, they’ve done very well. When do you think we’ll see the surge in CAPEX spending? Even though companies are spending money, I don’t think we’ve seen a great surge in CAPEX spending from the majors yet, have we? BARRY BANNISTER: Not much. You’re just starting to see backlogs rise and companies that service these sectors and build their capacity. And you’re starting to see the oil service rig count up sharply. Since the 99 bottom, it’s about doubled, but it was down for so many years. Your first wave of performance is the commodity and then the second wave would be the commodity producer. The third wave of performance is the people who serve the commodity producers: the service companies. And so you’re starting to see some of that -- not as much as you saw already, but because they’re fairly light on assets and they have the ability to magnify their return on capital -- those industries that serve these cash intensive, cash using, capital intensive, reserve purchasing commodity producers, these serving companies may be attractive right now. [17:27] JOHN: Well summing up, Jim, you’ve gone on record and stated that this is really a long-trending cycle. It is your belief that commodities are becoming the next big thing, right?
JOHN: And Jim, launching forward, intrepidly into the future, despite Fed rate hikes, rising energy prices, and natural disasters, the economy has held up well this year. You must admit that. JIM: You know, there’s a reason for that, John, and I believe it’s because money and credit are still abundant. When I was doing research for the final segment of The Day After Tomorrow, I was talking to the homebuilders and to the various lenders on these projects -- in fact the new project that has started to the east of us. I was really surprised by what the lenders and the builders were telling me. I expected with the Fed raising interest rates for them to say, “Boy, money’s tight right now. The banks want to see more money down, a little bit more equity to cushion them.” I didn’t get that. I got, “Oh there’s all kinds of loans. We’ve got option ARMs. We’ve got 3 year ARMs.” There was a plethora of all kinds of loans that you could take out. So, they weren’t basically saying, “Hey, things are tight.” So, interest rates may be rising, but the fact is credit isn’t tight. There is plenty of money around and banks are still in the mood to lend. In fact, you can’t look at the money supply figures any more, because there are more ways that credit enters the system. A lot people say, “well, we’ve had a slowdown in the money supply growth, so maybe things are tightening.” That is not the case. There’s a lot more ways in which credit enters the system. And this is something that Doug Noland has made a close study of, which is our giant credit bubble which keeps expanding to this day. And I think that is what is keeping the economy afloat. Let’s listen to Doug:
So, a lot of money supply would include demand deposits, and savings deposits, but we also include – like in M2 – retail money market fund deposits, and M3 will include jumbo deposits, and even institutional money funds. So, when we talk of money and credit we can look at narrow money, which would be let’s say, Federal Reserve credit or we can try to look at broad money, which goes all the way out to M3 and would include a lot of these institutional holdings.
And when we’re analyzing money and credit, the first thing we have to do is step back and look at is the system extending credit. And if you look at it today, it sure is. I mean we’re at record credit creation. Last year we had double-digit household debt growth, which was I think the strongest since 1988. We had 9% government debt growth. Total nonfinancial credit grew at the strongest rate I think since 1988. So we know the system is creating credit. Even this year with a real deceleration in the money supply, you can look at bank credit and see that bank credit is growing year to date at a 14% rate, which is really incredible. We have real estate mortgage loans in the banking system growing at an almost 14% rate. We know that right now we have incredible mortgage credit growth. Last year I think the number of total mortgage credit growth was $1.2 trillion, which was a multiple of what we did during the 90s. And we’re on track right now, I’m sure we’re going to beat last years mortgage credit growth because we have more home transactions at higher prices. So, we have to stand back, and we know today that we have enormous credit growth.
So, then we have to look and try to determine which types of debits and credits – what types of financial instruments – is this system creating. And even if you look at money supply -- right now I do a measurement where I take out the change in the money market funds, because right now we have a major disintermediation out of the money market funds where I think a lot of individuals and a lot of institutions are just saying I would rather not pay a fee, I’ll just go out and buy Treasury Bills directly – you can buy them online – or I’ll buy commercial paper, or I’ll buy all of these new instruments that Wall Street is creating. So, just the shifting of their money market fund deposits into owning securities directly can lead to a contraction of money supply, but even if I exclude money market funds, I think my year to date number is that money is growing above 6%.
But I think what is really going on right now is that we have a huge increase in mortgage related securities that we’re creating and probably selling to institutional investors. So, instead of this money being circulated into bank deposits, money market funds, and instruments in the money supply, a lot of institutions are going for higher yield and buying securities that aren’t included in the aggregates. So, it gets very confusing but importantly we know there is huge credit growth and we can also look at most spreads and indications of liquidity – and we also know today that there is tremendous liquidity in the markets generally, not in some areas recently, but there is a lot of liquidity and credit creation. So that’s why I argue we have cracks out that, but the credit bubble is unfortunately alive and well. [24:39] I think what you need to understand here is something that Doug points out is that as long as there is money available, and number two you can borrow that money at a rate that is less than the inflation rate, people – investors and businesses – will keep borrowing. We’ve been dealing with this issue this year. Are we going to get a hard landing or a soft landing as a result of these Fed rate hikes? And it was one of the questions I posed to Barry Bannister in terms of where are we going. Are we headed for stagflation? What’s going to be the result of all this money and credit? JOHN: Jim, you mentioned that as long as business or investors can borrow at a rate that is below the inflation rate and invest that money at a higher return, people are going to continue to borrow. But in mentioning the inflation rate, it has become obvious to everyone that there is inflation at the consumer level. It costs more to live this year, so you argue that inflation -- not deflation -- has proven to be correct so far. You don’t hear much from the deflationists anymore with oil being $57 per barrel, natural gas at $13 per cubic measure, and gold at $505 -- not to mention every other commodity that is going up. Just look at the cost of services, from health care premiums to education, to utilities. It’s very obvious that the business of living is getting more and more expensive. JIM: What I think we’re seeing here is that we’re at a critical juncture where we move from what I call low inflation levels to higher inflation levels that lead us into what could become a staginflationary era: anemic economic growth, but higher inflation levels. It was something Barry Bannister commented on when I talked with him last Summer. JIM: Barry, I want to start our discussion with some macro issues that could impact the markets and commodities. We have a couple of scenarios. Scenario one, the US economy continues to grow strongly, the Fed raises interest rates, oil prices start to rise – that’s one scenario. Another scenario is as a result of these, we get a weak economy and a hard landing. Let’s talk about that. BARRY BANNISTER: You’re hitting it on the head. I think there’s the ‘darned if we do, darned if we don’t’ scenario -- that if we have a strong economy, oil will rise. The only reason oil would fall is if it reached a clearing price that slowed the economy. That’s not a very good outcome either. But oil is already rising and that’s because we have strong demand and fairly tight supply from years of under investment. JIM: What about some of the implications? I remember when oil prices hit $40, they said that would slow down the economy. Then the figure was $50. Now we’re looking at over $60 and we’re still going strong? BARRY: If you go back to the peak, around 1980, oil was around $95, inflation-adjusted. It would be a long way from the prior peak. Also, consider that the US and Western Europe are less oil-intensive than they used to be. But on the other hand, we have large trade deficits from countries that use a great deal of oil to make manufactured goods that we import. So we essentially import a lot of our oil in finished products, not just in raw form. Another factor to consider, Jim, is that oil demand is now largely inelastic, which means that as the price goes up that doesn’t mean that the demand goes down. You have no other choice to fly a jet, or to drive a car, than to buy oil, as opposed to 50, 40, 30 years ago, when you could cease using industrial boilers and quit burning oil to heat homes and so forth.
JIM: Well, looking at it from the government point of view, there’s a strong political motivation to understate the CPI. By understating, it keeps COLA adjustments down on entitlements, which are at this point the largest part of the government’s budget. And by understating CPI, the government can minimize the inflationary impact on things such as rents, which are indexed to CPI, or wages, pensions and a whole list of ancillary costs to artificially keep inflation rates down. But you’re starting to see some labor unrest in the pub and private sectors: the New York Transit strike and the UAW negotiations with Ford are starting to reflect this. I think people instinctively know that the inflation rate is grossly understated. I mean they see it every day in their lives, when they go to fill their gas tank at the gas station; they go to the grocery store to buy food; they see a doctor; or they pay their utility bill. These distortions not only are being seen in our daily life, but by understating inflation they also understate the economic numbers. When we talked to John Williams he pointed this out in his monthly Government Shadow Statistics – an excellent newsletter by the way – let’s listen to what John Williams had to sa |
Energy,
the Big Story of 2005
JOHN:
Will, Jim, we’ve spent a lot time here this week reviewing a
tremendous amount of what used the be called "footage" of this
year’s programs, listening especially our guest experts and trying
to extract a final picture of what actually happened this year. And
looking back over the year there are a number of issues which
really, truly stand out. We experienced another energy crisis, oil
and natural gas prices rose far more than the experts had anticipated.
JIM:
I hate to say it, but one of the phrases you don’t like to say in
the financial industry is "It’s different this time." But it
is
different. We’ve had, as you mentioned, John, 13 rate hikes and the
highest energy prices on record. When oil prices were at 40, they
said, “Boy, if it goes to 50, it’s going the kill the economy.”
Then it was $60. Well, heck, they got to $70 and the economy is
still going strong. Long-term interest rates are lower today than
where they were when the Fed began raising interest rates in June of
2004, and we've had a rising dollar this year. Gold has risen along
with the dollar. And stock prices -- at least as we're talking now
-- are
still in positive territory. This is a different rate raising
cycle.
During the
'80s and '90s you had a lot
of people screaming about hot mutual funds, hot money managers, and
hot stocks. Nobody called you up, Jim, and said let’s invest in a
sugar plantation or let’s invest in a lead mine, because
commodities were in a bear market. Now, when there’s a bear market,
people do not invest in productive capacity, and so supplies dwindle
and diminish.
So
I decided it would be interesting and educational to see if you
could actually put together a list of the top 20 oil fields by name.
And I thought somebody must have done this before. And the more I
dug, the more I realized that no one ever had. So I basically decided
– arbitrarily – 100,000 barrels per day [bpd] production was my
cutoff of what constituted a giant oil field. All Fall of 2000, I
believe this was, I basically took data from various areas and kept
trying to hone in on the total list. I decided once I got it
done, that I would circulate it widely to the 4 or 5 or 600 people,
who really ought to know the areas a lot better, and that would
flush out the real data.
And about seventy years
after the Industrial revolution really got under way in earnest, we
started drilling for oil. We discovered there was quite a bit of it and that it was even more powerful an energy supply than coal
was. It was a liquid and it was easy to transport. It was
superior to coal in every way. At that point, we made the transition
from coal to oil and you see this especially around the turn of the
century – end of the 19th Century, turn of the 20th
Century – where whole systems like the British Navy begin to
convert from coal to oil, and railroad systems convert from coal
burning steam locomotives to oil driven engines, and so on. And that
really launches the great robust phase of the industrial revolution
in the 20th Century.
But when the supply is closely matched to the
demand, as it is now, then little things like a hurricane in the
Gulf of Mexico, a warmer-than-average Winter in the Northeastern
United States, labor troubles in Nigeria, and those little things
can cause the price to flap around a lot. And, you know, if we get
lucky and have a warmer-than-average Winter, no hurricane hits the
Gulf of Mexico, Chavez behaves himself in Venezuela, and so forth,
and so forth, and then, wow, for a moment there’s going to be
enough oil and the price will go down and of course a thousand
economists will chant in unison: “See! There was no Hubbert’s
Peak. There was no problem: the price just went down. [18:38]
DOUG
NOLAND
