Financial Sense Newshour

The BIG Picture Transcription

January 21, 2006

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• Inflection Points
• What Does This Mean?
• Predictions: A Year of Being Flexible
• Other Voices: Matt Savinar

Inflection Points

JOHN: You know it’s interesting, Jim, one of the problems that modern man has is seeing the unity of all things, that truth and facts are interconnected. We like to see compartmentalized issues like philosophical belief is over here, economic belief is over there, religious belief here etc. That these are somehow separate but they’re not, they all interact. You have to look at them all. That’s what we try to do here on the Big Picture as a matter of fact. And it’s important to sound that theme over and over again, because a lot of people have trouble grappling with that.

JIM: As we try to mention on the program numerous times there’s 3 legs to investments. There’s the fundamentals – supply and demand factors – that drive a market or a stock or a commodity. There’s the technicals, because you got a lot of people watching the charts, and that drives certain price action. And then you have the political or geopolitical, as you call it today, because of the global ramifications of the markets we deal in. And you can’t ignore geopolitical events, just take a look at what we’ve seen since the beginning of the year. Thursday we got an Osama Bin Laden tape; we’ve got Iran now threatening to pull its dollars out of Europe and cut production – that’s a geopolitical event. Now, if you don’t think that’s going to drive the oil markets, why do you think the price of oil is at this kind of level? We’re at $68, heading towards $70, right back to where we were towards Katrina. And you know, the other thing is you’re already starting to see it. This week alone I’ve seen 3 price changes at the gas pump driving to work. So, these things happen and people say, “well, you can compartmentalize, this doesn’t impact that.” You’re really closing off a judgment factor in investment analysis if you don’t look at that. If you’re investing in a mining company, or an oil company, don’t you think politics changes that? You get a new government, they expropriate assets as they did to the major oil companies, as they’ve done to some mining companies. Politics enters into the decision, and when these things happen you have to be aware of them; or for example you own a tobacco stock and all of a sudden the Attorney Generals in the various states start filing lawsuits. You don’t think that’s going to affect your investment, or trial lawyers bring a class action suit against a drug company?

JOHN: I think you mean extortion suits, don’t you, where the state can get money out of this because it certainly doesn’t stop the cigarette sales?

JIM: No, but the point we’re making here is there are political aspects to investments in the markets such as when a central bank makes a decision that they’re going to ramp up the money supply. And what we’re going to be talking about today, John, is there are certain events that happen – I call them inflection points – that tell you there’s a sea change coming to the investment markets. Sometimes they’re a wake up call, sometimes they are a rude awakening to something that’s been going on for a long time, but it’s been ignored by investors, government officials, or various other people. And all of a sudden it shows up on the scene, it’s on the evening news and people say, “Wow, where did that come from?”. [3:23]

JOHN: Yeah, when in reality it was building all the time if you were just watching it, you could see it.

Let’s look at some inflection points, obviously oil is the big issue that everyone seems to be chattering about this week. Here’s some background on this. If we look at the last two years or so, back in 2004, we discovered that conventional oil production peaked; March of 2005 the Cantarell field in Mexico peaked; November of 2005, in Kuwait the Burgan field peaked; August to September, hurricanes Katrina and Rita took out one third of the gas and oil production in the United States; and in October and November, Congress failed to pass bills which would ease refinery permits, simplify gasoline mixes around the country, and authorize new drilling. And so far we have no Plan B.

Also, at the same time, gold broke out against the major currencies, and the Fed announced it was going to suspend tracking of the M3 money supply. And I’m sure there was some skullduggery going on behind that, because it intends to inflate the currency beyond anyone’s wildest dreams at some point in the future. Now, here we cross the barrier in 2006, and Iran has removed the seals at its nuclear facilities; Ariel Sharon in Israel suffered a debilitating stroke; we should also point out that the terrorist group Hamas will probably come into substantial amounts of power in the Palestinian elections; Russia has announced it is rearming; Iran is looking at Russia for support; and in March the Iranian oil bourse is scheduled to open where trading oil will be settled in euros and in yen, constituting probably the first substantial challenge to the dollar, even if it’s just at a theoretical level. So, all of these things are interacting.

JIM: And here we are, we’re seeing oil prices at over $68 a barrel. So, all this political tension – you see gold rise $10-15 in one day and then fall the next day – all of this stuff has a lot of impact. These are what I call flashpoints or warning signs, warning something is about to change; something is coming to the markets; for life in the way you know it, or the markets know it, something different is coming here.

And one of the things that we wanted to point out is that these were significant events. The Cantarell field in Mexico and the Burgan field in Kuwait, the second and third largest oil fields in the world peaked. And it was in the back pages. You didn’t see it covered on CNBC, you didn’t see it covered in the financial press, and in fact it was buried in the back pages of most publications. And yet, what does that tell you when the second and third largest oil fields have reached peak production, which now leaves Ghawar, and many, as Matt Simmons would argue, that has peaked. And the Burgan field – and I’m getting ahead of myself because we’re going to talk about what these things mean – but the Burgan field is related to Safaniyah, which is the second largest producing oil field in Saudi Arabia. Those two fields are closely linked, and in fact during the 91 Gulf War, when Saddam Hussein torched the Kuwaiti oil fields, production fell in Safaniyah. So, that’s how close they are geologically.

I saw literally today a gentleman on one of the financial news stations talking about how oil was going back to $30 a barrel. He was giving one of those reasons why he was optimistic about the market and he was saying that we’ve got this supply glut and a lot of oil. Really? Where’s the supply glut, where are the major new oil discoveries that have come on stream, that are going to replace this oil that’s going into decline in the North Sea? Mexico’s oil production will be down this year; Kuwait’s oil production will be down this year; US oil production will be down this year. So, we’ve got now 55 of the top 65 oil producing countries have reached peak production and gone into decline. So, these are just a couple more warning signs that something is going on here. And yet here we are, and we haven’t even gotten to the hurricane season, and we’re looking at $68 oil. [8:05]

JOHN: You know, Jim, the one thing you can’t help but perceive is that we went from a period of geopolitical stagnation over the last part of the year, and began accelerating [away from that] into this year. And everything is beginning to run on the basis of geopolitics: whether it’s Russia announcing it’s rearming; Iran looking to Russia; the events going on between Israel and Palestine, as well. We also forgot to mention Russia snipping off the oil to the Ukraine over a dispute and as a result of that interrupting Europe’s supply and in Germany they’re going “what have we gotten ourselves into”. And they’re beginning to call for alternative sources of natural gas, because they realize we’re dependent on this one leash, and if the leash gets broken we’re in trouble. But all of this, Jim, is being driven by geopolitics, not by economics directly.

JIM: No, and another example we didn’t mention is guerrillas in Nigeria attacking a Shell oil platform with gunboats and machine guns. So, this is why the markets are on edge in the energy industry. Anytime you have an event that threatens disruption of oil supply you get these spikes in commodities much like we got the spike in August last year when oil hit $70 a barrel when the hurricanes came through the Gulf coast. So, this is why it’s significant when you have the second and third largest oil producers telling the world our oil fields have peaked. And then you have guerrillas in Nigeria; you hear on Friday Iran is talking about cutting back its production if sanctions are levied against Iran, and pulling their money out of European banks in case there’re sanctions. This impacts the market. You can’t look at these things and say, “this doesn’t exist, let’s compartmentalize that.” And we’re going to talk about what this means. [10:15]

JOHN: This is also an argument by the way, Jim, for a free society because in free societies you have the stability in which economies can prosper. And when you remove that, you can’t [prosper], because people have to be assured of the ownership of property and security of their investments, and the ability to make them. And if you don’t have that it’s not going to fly.

What Does This Mean?

JOHN: Well, now that we’ve given this analysis of the background of what’s going on, let us look at what this all means, because conventional oil peaked in 2004. Why don’t you kick it off with that, Jim?

JIM: Well, you know there was a report issued earlier in the year by CIBC World Markets, and they talked about conventional oil peaking in the year 2004. Now, we have unconventional oil – Canadian sands are a good example of that, shale oils is another good example of that – that is where a lot of this excess oil that’s coming out, but the conventional sources of oil have peaked.

And the thing that you have to take a look at is despite all the money spent on drilling, trying to find new oil, in the year 2005 supplies grew by less than 1 million barrels a day, and none of that growth came from outside of OPEC. New oil is coming on stream, but it’s going to need to balance the declines, for example, CIBC is estimating this year we will bring on from new oil fields that are coming online, about 3.6 million barrels a day of new oil production. However, because of declines in Kuwait, declines in Mexico, and declines in the North Sea, 2.2 million barrels are going to be needed to offset declines that are occurring all around the globe. So, this only leaves 1.4 million barrels of new production that is coming on stream. And against that you must weight the factors of how much will Chinese demand increase this year; how much will demand increase in India; how much will demand increase in the US? The US consumed in 2005 more energy than it consumed in 2004. So, our energy needs are still growing, and that’s why that becomes significant. They’re estimating by the year 2007 about 1.5 million barrels of new oil production will come online as some of these bigger fields come online – these are fields that have been discovered that are now being brought into production – but against that you’re going to have almost an additional million barrels that will be needed to offset an additional decline in production. When fields go into decline just picture a bell shaped curve, you’re on the backside of that curve with production levels dropping.

Look at the United States today, we used to produce between 8 and 9 million, almost 10 million barrels a day, now we’re down to about 5.5 million barrels a day since we peaked. And this is a country that’s drilled everywhere you can, except for maybe offshore on the Pacific coast. So, what this all boils down to John, is by the year 2008, somewhere between 2008, maybe 2009 and 2010, depending on how much non-conventional oil will come online, that is when we’re going to peak. So I’ve seen estimates that nail it at 2010 global oil peaks, but from 2008 to 2010 that is when you’re going to see world oil production peak globally, both conventional and non-conventional as a source of oil supply. And at that point we start going down, meaning each year you’re going to be producing less and less, and that is a significant factor. If there was all this oil that everybody’s talking about, like this one analyst on TV today, you would not be looking at $68 oil, you’d be looking at oil maybe somewhere in the 30s. I don’t think we’re going back to $40 oil again. [14:33]

JOHN: Well, Jim, not only is the production declining, and that means we have been getting easy oil, so to speak, on a relative scale, now it’s getting more difficult to find this oil. It’s in hard to get to places, deep sea, remote locations, we have to extract it such as from shales and things of that nature, so this drives up the cost as well.

JIM: It’s not only that. The easy oil has been found. Where we’re finding oil today, if you take a look at it a lot of it is deep sea oil; we’re drilling some of the deepest wells in the ocean that we ever dreamed of in man’s history. Fortunately, we’ve been able to come up with the technology that allows us to do that. But the problem that you have with these deep water wells is just like those in the Gulf of Mexico. All of a sudden you take a look at the weather, and the weather says, hey, a hurricane’s coming through this area. So, that means you have to pull all those pipes up, load’em on to the oil platform, load the piping onto a ship, get the supplies and equipment onto a ship, send that ship to safety, get your workers to safety; you’ve also got to plug the oil hole, I mean you just can’t leave something like that open. So the areas that we’re going to today are less hospitable in terms of weather and also geopolitical – there are a lot of unstable areas, look at Nigeria, a major source of oil for the United States, but you’ve got guerrillas attacking oil platforms. So here is an example not only is it harder to get but the costs of getting it are going up – if you take a look at the balance sheet and financial statements of the oil companies. I don’t care if you’re looking at Exxon-Mobil or British Petroleum take a look at their cost of finding oil, take a look at their lifting costs, all of these are going up. The same thing is occurring in the mining industry by the way. So, the easy gold has been found, the easy oil has been found. So it’s going to cost more to find it, it’s going to cost more to extract it; governments are wanting a bigger portion of the pie, they’re adding all kinds of taxes and extracting a lot of money. Most people don’t realize how much money the government makes in energy in terms of the form of taxes. We pay a lot of taxes on gasoline in the United States, but it’s nothing compared to what people are paying in Europe, or what they’re paying in Canada, in terms of taxes. But oil is going to get more expensive, the easy oil has been found, and [we must] face it. I believe Matt Simmons is right by the year 2010 we will see $200 oil. [17:19]

JOHN: Alright, let’s look at the damage, sort of the good news, bad news type of situation, because in a lot of people’s minds, the damage caused by hurricanes Katrina and Rita is in the past, and that is not affecting us now, and that’s sort of the belief. So, what’s the status?

JIM: One if the reasons I think Katrina and Rita were an inflection point in 2005 is first, an entire American city and a very strategic city in terms of its port was wiped out. Secondly, 28%, almost a third of our energy production was literally taken offline. And what Katrina and Rita really did is expose how vulnerable the United States is, because unfortunately the Gulf of Mexico is one of the few areas in the United States where we we’re seeing increased oil production, and increased natural gas production, compared to other areas of the country – whether it was the Alaskan slopes or the 48 states. So, oil production was dropping everywhere else, and also this is where we get significant natural gas production.

And the other thing, John, is the Gulf Coast has almost 10% to15% of the nation’s refinery capacity. Now, think about this, within a few hours, the US lost one fifth of its domestic production. And we all know from looking at weather patterns, we’re in that decadal oscillator where the oceans are heating, so the hurricane seasons are going to be rough for the next 10, 15, as much as 20 years. And even as of this date we have a number of refineries in the area offline: BPs Texas City refinery will not be fully up and operational until early 2006; Chevron’s Pascagoula refinery will not be online until 2006; Conoco-Phillips’ Bell Chase will not be online until 2006; Exxon\Mobil’s Chalmette, Louisiana, refinery will not be online until 2006 sometime; we’ve got Murphy Oil in Louisiana, their refinery will not be online. So, here’s an event that took place in late August, early September, and here we are almost six months later, and we’re talking about refinery capacity still not being brought back online. And by the way, not all of the oil production and gas production in the Gulf of Mexico will be completely brought online, because for a lot of the independent drillers in that area the cost of insurance for their rigs has just literally skyrocketed, and a lot of the smaller firms are just packing up and saying, “we can’t make it with these insurance premiums to insure these platforms out here.” Only the big guys are out there. So we may have lost 5% of our capacity and production as a result of the storms between 2004, 2005. And now we’ve got the new hurricane season that’s coming up ahead of us. [20:23]

JOHN: Well, you know, Jim, if there’s one thing that has sort of come as a rude shock or awakening both to Europeans and to Americans, it’s that we have certain intrinsic vulnerabilities in the systems. Look what the Europeans just went through with natural gas and that’s a staple for their heating, and some power generation in Europe. But over here, we’ve had articles in Petroleum Review and in Business Week this week talking about the same thing, and this ties together with what you said earlier, that here we have an economic issue – the deliverance of energy – affecting a geopolitical or security, or defense issue – not to mention the domestic impact.

JIM: It’s one reason why we’re becoming more vulnerable and one of the reasons why we have such huge trade deficits. It’s because we import 60% of our energy, but as Zapata George pointed out last week it’s really 70%, when you consider how we don’t have enough refinery capacity in this country, so we have to import for example finished petroleum products: gasoline from Venezuela, jet fuel from other places. So, now, we’re importing 70% of our fossil fuel use, whether it’s the actual oil in a barrel ,or it’s gasoline or jet fuel. That is an untenable situation for any country to be in; and it’s one of the reasons why we’re seeing some of these oil spikes. And it’s something that the media has not focused on. Have you ever heard a story coming during the crisis from Katrina and Rita [like this]: “Wait a minute, we get a third of our production from the Gulf. We’ve got all of our refineries in this area, maybe we need to look at maybe alternative energy, relocating or building some refineries in the area where hurricanes don’t come through, or taking a look at maybe ways to start investing in R&D and finding some kind of alternative.” Who knows what that magic bullet’s going to be, whether it’s nuclear power plants, coal, coal gasification, clean coal technology, or taking a look at the transport system in this country that is grossly inefficient in terms of how we transport goods. We should be transporting more goods on barges and on rail which can move more goods at a lower unit of energy consumption, but none of that is being covered, or talked about. It was greedy oil companies and that was about all that was said, ‘he said, she said’, and that’s what we were stuck on for almost 5 months last year. [22:55]

JOHN: Well, Jim, let’s zoom in on that one because it’s one thing to say we’re vulnerable – and, as I said, just up until the last few years, I think people in Europe and North America just took for granted that you turn on the tap there’s water, you go to the gas pump there’s gas, ‘it comes from somewhere, but there’s gobs of it’ that type of thing. Let’s zoom in on exactly what these vulnerabilities are.

JIM: Well, take a look at where we get some of our oil from. We import 1.6 million barrels of oil a day, from Saudi Arabia – very unstable; 1.6 million barrels from Venezuela – Hugo Chavez – and he’s very fond of saying, “you know what, if you don’t get smart with me, how would you feel if I just turn off those 1.6 million barrels.” And that’s just oil. We also get over a million gallons of gasoline from Venezuelan refineries; We get 1.1 million barrels from Nigeria, and here we got rebels attacking the Shell may have to abandon and cut off supplies – one reason oil’s up this week. So, we get our oil from a lot of places that are becoming increasingly, politically unstable, and that is simply not a good position to be in. [24:05]

JOHN: You know, Jim, out of all the conversations that we hear going on right now, first of all, as Joe Duarte said the whole concept of peak oil really hasn’t broken upon the public yet. On George Noory’s program After Dark about a week or so ago, they had a debate on the whole peak oil, discussing if we are there. But even if say we were to get over that little hump, we’ve gotten down to a Plan B issue. And I’ve been following a flurry of op-ed pieces that have been going on in Great Britain, because a few days ago there was an op-ed piece written by a scientist James Lovelock which was featured in the Independent. And he said that the Earth is past the point of no return for global warming. And this started a whole little flurry of debates like “have we gone too far, can we cut it back?” And bear in mind by the way that Europe is not meeting its global warming targets either. But what really fascinated me out of this debate was another op-ed piece in the Guardian by David Adam who said that nuclear power stations would do little to combat climate change, and he goes on to say, “no, what we really need to do is to cut back our demand, rather than try to find alternative energy sources.” And then some of the other proposals were, “well, maybe we should hustle to find other energy sources, blah, blah, blah.” What people really have not grappled with is peak oil has not wedded itself to global warming. I’m waiting to see this interaction, and people don’t understand that the Plan B just doesn’t come online tomorrow.

JIM: No, you couldn’t cut back consumption to deal with peak oil. It will be eventually forced on us in one way or another. People won’t be able to afford it, and wait till the point when even conventional and non-conventional sources peak, and the problems that [will have]. And what we’re seeing around the rest of the world is other governments are grappling [with peak oil]. For example, Brazil, which had to deal with exorbitant oil prices in the 70s that virtually bankrupt the nation because what they were paying for imported oil was more than what they were exporting. A succession of Brazilian presidents have worked on becoming energy independent, and this is the year that I think Brazil can become energy independent, in the sense that 50% of their fuel comes from alcohol made from sugar cane, and they have these cars that have these flex-engines where the carburetor can sense the kind of fuel, so it can run alcohol or it can run gasoline. The point being they took steps, and they said, “you know what, being totally dependent on foreign oil is unacceptable if this country is to thrive or survive.” And we’ve got the rest of the world, John, there’s 132 nuclear power plants under construction in the next decade or more. And China, India, Japan, and in Europe, you’ve got Norway, and other governments in Europe, they’re going to wind power, solar is making a great strides so the rest of the world says, “look, we can’t be put in this kind of position, we’ve got to do something.” I’m still absolutely amazed after what happened to the Gulf, and as Joe Duarte was pointing out, a lot of these oil platforms won’t even be back online, and when they do come back online we start another hurricane season. What we’re seeing around the rest of the world is they’re grappling [with it].

In Europe, you have for example an excellent train system, the Euro rail system. My son spent this summer over there and he said, “Dad, you can’t believe how easy it is to get from one place to another on these fast trains that they have.” We’ve allowed our rail system to sort of fall apart in this country because of the automobile, and they also have mass transit. Now, in certain cities, you go to Washington DC, Metroway is a great way to get around town. So, we’re not taking steps to say, “look, our only source of energy right now, we have to import this. This is not a good position to be in.” You would think the politicians would say, “we need to work on a mass transit system, we need to work on a rail system, we need to work on ways that can use energy more efficiently to transport goods across the country.” And then on top of that John, we vetoed exploration budgets, we’ve vetoed refinery bills, we’ve vetoed bills to simplify the Heinz 57 varieties of gasoline, and about the only thing we did is beat up the oil companies, and we blame-shift. And the problem is when you recognize a problem as many of our guests on this show have said, this isn’t something that you turn on the tap, “OK, we’re going to have a nuclear power plant.” Well, guess what, that may take 3 to 7 years to put into place. Or we’re going to build a new transit system. I mean, here in San Diego, we’re finally working on enlarging a freeway system, instead of a mass transit system, and this freeway system won’t be complete for another 3 to 4 years. So, what are we going to do when oil’s at $100, and $200 a barrel. All of a sudden people are going to be scratching their heads, saying “gosh, maybe we ought to do something about it.” But there’s a lag time as we learned last week with Zapata George who was on this show. It’s a key factor. So there’s a large lag time in energy, massive capital investment that’s going to require. I don’t care if you’re building a nuclear power plant that could take 3 to 7 years; or oil discovery from the time you poke a hole and assuming you poke a hole and you find something, to getting it online, especially, for example with a lot of offshore drilling which takes a huge investment [in just] the pipelines; or wind; or solar. The important point, John, is we have no Plan B, and you would have thought with 25% of the Gulf still down, not online until the next hurricane season, we’d be taking steps, but we’ve done nada. [29:56]

JOHN: Yeah, largely you would say due to political considerations, wouldn’t you think?

JIM: Yeah. Everybody’s caught in this political mind set. “OK, if you want to have an environmental friendly gasoline I don’t have a problem with that, but why can’t you come up with one variety that everybody can agree on, so all the refineries can make the same blend and mix, so you don’t have a different blend for California, one for Texas, one for Arizona, one for Missouri, one for Illinois, one for New York. This is preposterous. [30:36]

JOHN: But don’t you think the reason for that, and it’s interesting that you mentioned that because I just got through driving from the Northwest to Ohio, and what I observed were the different blends of gasoline, every time you stopped at different gas stations. But the reason for that is that there’s no public recognition. It hasn’t struck home exactly what we’re in the middle of right now. It’s what I meant about the environmentalists debating this issue in Great Britain. There was no recognition that this is all tied in together. They’re still diddle-dorking around about the whole global warming thing and [making] dire predictions, etc. There’s no connection of it to anything else, and that’s what you’re seeing. Isn’t that what’s retarding it? Nobody’s really grappled with what’s happening?

JIM: No, and who wants to deal with it, you’ve got different constituencies, they get involved and you don’t have anybody that maybe comes up with an independent panel, and takes a look at a situation and says “wait a minute, here are the facts, we’re importing 60% of our energy, 70% when you’re talking about imported oil – finished oil products like gasoline or jet fuel – that situation is only getting worse: natural gas production is going down in the United States; oil production is going down. And the only thing we’re forced to do is import more energy into this country. So, we better start doing something, and here are some things that we can start doing: maybe we can remove the restrictions for some refineries that could be peak refineries that pick up the peak load in terms of crises outside the hurricane belt; Or maybe we’re going to build a mass transportation system revitalizing the rail system as a more efficient means of transporting goods from let’s say the West coast to the East coast; and start looking at alternative forms of energy, making it wind farms along coastal areas or areas where you get a lot of wind; solar. Whatever it is, because there is no magic bullet, but we’ve done nothing. [32:19]

JOHN: You think we’re in the crunch, and are we irrevocably condemned to go through a crisis now because we failed to do anything?

JIM: Oh, there’s no doubt about it, you talk about anybody that’s an expert and they’ll tell you that we’ve gone beyond that. A crisis is inevitable and let’s just hope that the next time a crisis erupts that there’ll be more common sense in Washington, and it won’t be this blame-shift, stuck-on-stupid, it’s the oil companies, and that whole circus ring that we saw in November. And I think what it’s going to take is people getting ticked off, when they can’t get gasoline or it’s 4 or 5 dollars a gallon, and they start getting inconvenienced as they were in the 70s, they start taking personal action, and then also demanding action from their politicians, with the idea that “don’t blame something, do something.” And let’s hope that they do something that’s intelligent, because never underestimate Congress, not only to avoid an issue but also to do something stupid in response to it. [33:22]

JOHN: You know before we depart this concept there’s one other issue we really need to look at, and that was gold finally making a break out in 2005 when you compare it against currencies.

JIM: I think there’s growing widespread recognition now that all central banks are inflating their currencies. I don’t care if you look at the Fed, at the European central bank, you look at the Chinese central bank, the Japanese central bank, money is depreciating against gold. That was the message, that was significant, because I know, and we interviewed some big people in the gold camp, who felt it was only a dollar phenomenon, in other words gold was only breaking out against the dollar, it wasn’t a global phenomenon, not really a full fledged bull market, well that concept got thrown out the window last year as gold broke out in all major currencies. And I know there’s a lot of talk right now with the Iranian bourse that the dollar’s going to be replaced, that’s it, the dollar is toast. I think that happens longer term, but I don’t think that you’re going to see the Euro replace the dollar, or the Yen replace the dollar, or the Yuan replace the dollar. I think you’ll see the emergence of different blocks. But what I do think you’ll see replace the dollar, replace the euro, replace the yen, replace the yuan will be gold and silver itself, because that is real money. And I think there’s a growing recognition that gold and silver are real money, and that’s what I think you saw in the year 2005. And the significance of that that trend continues to this day. [34:51]

JOHN: It’s interesting the world’s central banks actually recognize that it’s real money while they’re telling their people it isn’t.

JIM: Yeah, what do you think they hold in reserve?

JOHN: Yeah, that sort of thing.

Somebody fired a starter pistol right about January 1^st of this year, and then everything seemed to suddenly switch over and be driven by geopolitics around the world, you know, like even today the Dow is down 200 points; Osama Bin Laden wants a truce; Iran is threatening to take oil off the market; Iran is looking to Russia to support it; Russia has other interests, Russia snips the whole thing going to Europe, Europe’s very nervous; Hamas may get substantial amounts of power in Palestine, they said they’re going to cut off relationships with Israel. Boy!, it’s just bubbling, ever since the 1^st of the year.

JIM: One of the key things this year is I think politics, or geopolitics are going to be driving the market more so. There are just too many hot fires around the globe. We’ve got the hot fire in Iran where they’re saying, “OK, we’re thinking of taking this to the Security Council,” and Iran says, “we’re going to pull our money out of Europe, we’re going to withhold oil, see how you guys like that.” We’ve got Hamas, we’ve got Ariel Sharon having a stroke, so we may have a different political party in Israel. We’re going to have a different political faction within the Palestinian Authority, with Hamas maybe gaining control, so you’ve got a lot of these fires.

You mentioned about Russia, and the natural gas situation, and another significant event was on January 11^th an op-ed piece in the Wall Street Journal by Russia’s Foreign Defense Minister Sergei Ivanov where he basically said, “we’re rearming.” And I caught that, and if you read it, it’s a January 11^th article, it’s by Sergey Ivanov, if you subscribe to the Journal you can do a search on it, call it up, it’s on one of their op-ed pages. It was called A Strong Russia where he basically made the case for Russia’s need to rearm itself, and he laid out almost a 3 or 4 point program. He said number one, they’re going to build their strategic missile regiments, in fact they just added a new missile regiment, and currently their new mobile missiles are now not only hard to detect – remember we had a hard time detecting Saddam Hussein’s mobile missile launchers – but he said their current ballistic missile technology is currently unmatched by any world rival. He also talk about in the next two years they’re going to deploy a new ballistic submarine with new sea-launched ballistic missiles. Also they were working on a new rapid deployment force which requires tremendous rearmament, increased combat training and joint military exercises, and new defense coalitions, mainly they were referring to the Shanghai Cooperative, [that’s] the 5 different ‘-stans’, Russia and China. Here we’ve got a new Cold War building and nobody’s noticed that. So, everywhere you look, John, we’ve got geopolitical matters driving the markets right now, which is one reason I think you’re going to see the markets become extremely more volatile, number one, as a result of a lot more major players involved in the markets today – whether it’s hedge funds, it’s institutions such as mutual funds, pension plans, insurance companies – they’re bigger players. A lot of these bigger players are more leveraged, and so whatever move they take if they want to go into oil they will leverage that position, if they want to go into gold they will leverage that position, they want to go into sugar, who knows, whatever it is they’re buying or selling they’re using more leverage. So, you see these giant up moves as we saw for example in oil and gold in the month of September following Katrina and Rita, and then all of a sudden we get these tremendous down moves like we saw the following month in the month of October. This is just part of the real world today, and it’s something that you’re going to have to get used to. [38:55]

JOHN: And obviously, energy is going to become a weapon of sorts – both oil and natural gas. Russia has both of those.

JIM: They have both of those. I mean a good example, Iran is threatening oil as a weapon right now, Russia has threatened oil as a weapon right now, and the unfortunate thing is we don’t have a lot of areas or different sources of energy. That’s the thing that just blows my mind, that we aren’t creating the equivalent of the Manhattan project or something, and using the best brains that we can in R&D and try to come up with some kind of R&D program to find a new source of energy; or come up with an energy plan much in the way Brazil did as a result of the oil shocks of the 70s. But because geopolitical events are driving markets today, it’s one reason you need to have gold and silver; it’s another reason that you have to have energy. What the financial world refers to as liquidity is nothing more than a lot of excess money and credit that is sloshing around the globe, and wherever it lands, if it wants to land one day on oil, you’re going to see a spike in oil prices, if it decides to exit oil you’re going to see a big drop in oil prices. If it wants to land on gold it’s gold prices are going to spike. And so that’s why I think you have to have your core positions even though, you know, we sold our overvalued gold stocks, we still kept a 50% position in gold and we’ve been reentering the market through what I call gold value plays. But you want to keep these core positions or at least keep a core position. And you might want to trade part of your portfolio, but as Dave Morgan talked about, you always keep a core. [40:43]

Predictions: A Year of Being Flexible

JOHN: Oh, great one, I wish you to stare into your crystal ball, and tell me what things are going to do this year?

First of all let’s look at Santa Anita, and what’s happening. And then we’ll move onto the other investments right?

JIM: Well, you know if I was to describe sort of a theme this year it would be a year of being flexible because the easiest thing people say is, “give me your forecast for the Dow,” you know, I don’t get into that. I don’t get into those things, and it’s not that you couldn’t you go out [and forecast it], the easiest way to do is to take a look what you think earnings are going to be for the S&P this year or the Dow stocks, and then apply a multiple of that and that’s how you get your forecast. That’s how they’re done. What we’ve seen here in the first two or three weeks is just an example of what you might expect to see this year. I think there are a number of issues that are going to come to the front this year. I think if I was to describe anything, peak oil is probably going to be the most significant event in our lifetime, because you and I, John, have grown up where you can just go to the filling station, and put gas in your car. Those of us who were baby boomers who were in college at the time probably remember the gas lines during the oil crisis in the 70s, what that was like. I can remember staying up late, late at night waiting till about 12 o'clock because there was a filling station a couple of streets down from where I lived, and the trucks would come in the night and refill the station, and I would always wait and stay up late so I always made sure I had gas. So thank goodness I had a VW Volkswagen which got good gas mileage – I had to go to from where I lived I had to go to Tempe to Arizona State, and then I was working my way through college, I had a job, and so I couldn’t be without transportation. And that really had an impact on me in terms of as a college student, you know, “it’s like Wow! what is causing all this, how could this happen,” because I just assumed oil was plentiful, and assumed that until basically about 10 years ago: I always thought oil always be there. And then as I began reading about peak oil and hearing about it and started researching – I mean I was reading about this stuff about 10 years ago, and we wrote about it in 2001 and 2002 when I wrote 2 major pieces. And I remember people saying, “you’re nuts, you know, what are you talking about,” because oil had dropped back down with the recession down into 20 dollars. So, energy is certainly going to be at the peak of one of my forecasts this year. [43:39]

JOHN: You really drove a Volkswagen? I have a hard time picturing you in a Volkswagen. Anyway, let’s start with the easy stuff first, OK.

JIM: Alright, first of all we’re going to take out all the old highs in oil, you know we’re almost there right now, but I think we could see $80 to $85 in oil this year. I think also if we have a serious geopolitical fallout, whether it’s Iran, Hugo Chavez, with Nigeria cutting off or this thing that’s going on in Nigeria, if there’s a serious geopolitical event I think you could see the Goldman Sach’s spike of a hundred dollars. Natural gas will take out its old highs of 18 to 20. I’m looking at probably a 10% to 15% devaluation in the dollar this year. Another bad hurricane season, 4 to 5 bad hurricanes disruptive certainly of what either the pipelines or the oil infrastructure in the Gulf, that could give us a spike high. Gold this year, everybody’s taking about $600. I think it’s going much higher than that, I think in the 750 to 800 dollar range. I also think despite that, depending on when the printing presses start going into overdrive, you’re going to get a flood of liquidity like we’ve never seen before, and I do think we could possibility of a new record on the Dow.

I think helicopter money begins its next leg of the great inflation. If you want to hear my views on great inflation go back to my September article of the year 2004 The Great Inflation, but I think that’s where the United States is going, we’re going to hyperinflation. We’re going to begin this next leg, so those are sort of the easy things and I’m not – I don’t pretend to be a technician, so I’m not going to tell you that oil will peak this year at 83 dollars and 25 cents and the timeline will be August 1^st. I can’t give you that. But we’re definitely going to take out the old highs probably spiking in the $80 to $85 dollar range, and with a serious geopolitical [event] – all we would need is have Iran withhold one or two million barrels off the oil market – and that would be enough to drive oil to $100. Those are some of the easy ones, John. [45:57]

JOHN: OK, so what’s all this going to do to the price of gold, silver?

JIM: I think you’re going to see volatility and large price swings. If you look at a chart of not only the price of gold, but the price of oil, around late August and going all the way into September you saw this spike not only in the metals, but also in energy. you also saw it in the price of metal stocks and you also saw it in the price of energy stocks, and then the following month completely reversed that. And that is simply just all of this money that is sloshing around the globe: it’s the 8000 hedge funds, it’s the 9,000 or 10,000 mutual funds, it’s the big insurance companies, the pensions funds. One day they’re taking a position on the news, taking profits, I mean that is something you’re just going to have to get used to. So you’re going to see these big price swings in gold and silver, and especially energy. One of the reasons is not just all the large players that are in the market, but also because of all the geopolitical factors. I mean, you know, goodness, as we mentioned earlier, look where we’ve been, and we’re just 3 weeks into the year. [47:10]

JOHN: It should be exciting. What about alternatives: biodiesel, wind, solar, coal? Is there anything that already exists like diesel that might come back?

JIM: OK, one thing that we know is you can get more energy output from diesel than you can from regular gasoline, and we’ve seen hybrids with gasoline and of course electric battery type motors. I think you’re going to see this kick in. And what we’re going to do is combine diesel with a hybrid, so you can even get more output, more miles per car. And I think you’re going to see diesel make a comeback into the United States, I think you’ll see it mixed with hybrids. I also think that this is the year as we were talking in the energy section with Joe Duarte when you wake up one day and all of a sudden CNN and the mainstream media discover peak oil. You’re going to see a tremendous search for alternative energy. And we already have 10% of our portfolio in alternative energy, we’re increasing that; you’re going to see a spike in alternative energy companies, and sources, because once the world recognizes peak oil is real then the next question is going to be, “OK, then what replaces it, what should we be doing.”

Nuclear power. So you’re going to see uranium hit higher price levels. Uranium stocks are doing well but they’re going to go ballistic. You’re going to see coal stocks because there’s a lot of coal because people say, “alright, what is it that we have.” I think Ken Deffeyes in his book Beyond Oil wrote a couple chapters but he wrote a piece and I think this is what’s going to happen: OK peak oil’s here, what do we have right now that works. We don’t have a new energy solution, hydrogen or whatever is out there right now and still in an experimental stage. So immediately it’ll go to OK, what do we know that works, so you’ll see nuclear take off, you’re going to see coal take off, you’re going to see coal gasification. Canada is already going to coal gasification to make up its declining natural gas production, and hopefully that will increase Canadian natural gas production. And hopefully for the United States because that’s where we get a lot of it. So, alternative energy makes a strong showing: biodiesel, wind, solar, coal gasification. I think you’re going to see CAPEX spending in the energy sector ramp up, so you’re going to have to look at the oil service area. And this is one area that I think the world is going to start waking up to. So, if you’re looking at an investment opportunity one area that you need to start looking at is alternative energy, because the world hasn’t quite woken up to that fact yet, and when they do, when Wall Street discovers alternative energy you’re going to see the price of these stocks spike. [50:04]

JOHN: Well, OK, Jim, but there’s no such thing as a perfect world and there are random flukes that come out of the random fluke generator. What are the wild cards going to be?

JIM: I think one random card is obviously the Federal Reserve. I mean Wall Street was pretty much until this week going with ‘done in one’. They thought Greenspan would raise January 31^st, the futures market was saying it was only fifty-fifty whether they go in March. I think the Fed goes in March, they could even go in May, and because especially if energy is spiking as it is right now. A lot of that’s going to flow through cost factors, listen to any of these annual reports, companies are missing estimates, a lot of companies – whether it was Alcoa or others – are deciding energy costs are driving cost factors up, and margins down, and profits down. So, I think the Fed is definitely a wild card out there. We’ve got the funny business with M3, I think the fact that they’re not reporting M3 is a significant factor, especially since M3 is growing at a double digit clip right now. So, the real reason that we’re seeing inflation is we’re printing a lot of money right now and that’s it, it’s now starting to be visible in basic commodities and goods where you don’t have excess production as we do let’s say in manufacturing. You can bring the cost of a plasma screen down, but you know, you’re not bringing the cost of copper down or gold down or energy down, because we don’t have excess capacity in that. So, the Fed is a definite wild card here, because I think Wall Street is being too complacent right now, and saying ‘done in one’. I don’t think we’re done in one, so there’s a wild card.

Another wild card is something we’ve been talking about all along is the geopolitical factors, whether it’s Iran, whether it’s war with Iran, whether it’s an oil embargo on Iran and the rest of the world. Whether it’s Russia threatening to withhold natural gas. If it’s Russia getting involved in a conflict, if it’s Nigerian guerrillas attacking oil platforms, or whether it’s Hugo Chavez threatening to withhold oil shipments to the United States, whether it’s Hamas taking over the control of Palestine and cutting off with Israel, if it’s Benjamin Netanyahu. I mean, I could just go on down the list.

And the other thing that I think is a third wild card, I do not believe we’re going to get through this Fed cycle without something blowing up every time we do this: in the year 2000 we got the stock market crash, the market blew up as a result of the Fed rate raising cycle; and the previous rate raising cycle we had accidents in Asia, we had accidents with Long Term Capital Management; we had accidents in 1994 with you know Procter & Gamble, Orange County. I mean every time we do something like this there is an accident somewhere, and with the amount of leverage that’s out there today in the market – with consumers, with government, with hedge funds, with investment managers – I can’t believe that we’ll get through this cycle [without] somebody, somewhere having guessed wrong, and is on the wrong side of the boat. [53:16]

JOHN: Well, obviously we need to point people in a given direction. So, having given and stipulated everything we’ve talked about here in the big Picture, what would you do?

JIM: Well, number one, I think you need to have bullion: gold and silver. And you need to buy it while you still can, and there are various ways to do it, you might want to consider owning it overseas and we’re going to have a guest on mid-February, we’ll have James Turk on and he’ll tell you a very efficient way to do that. I think you keep your core holdings of gold and silver, oil and natural gas, and I think also start investing in alternatives. Other things that I think are going to come to prominence is water. People are talking about energy, but water is also a major issue. And as food is, because a lot of food is grown with petrochemical fertilizers, and [what happens] as you start getting to peak oil. I saw one company – they had a chemical fertilizer plant –coming up with an alternative way of getting natural gas from coal gasification, so they can still keep their fertilizer plant going.

So you’re going to have to look at more innovative ways, natural ways in terms of farming and raising food. One model that seems to work but I think you’re going to see more of in the future is the whole foods market. I mean Whole Foods is primarily organic produce, and also because they use organic produce, usually when they open up stores they try to do business with local farmers rather than trying to ship a head of lettuce 3,000 miles, because I don’t think that’s going to be working again in the future.

So, core areas are water, food, energy and especially start adding alternative energy to your portfolio. And I also believe another prediction this is the year that I believe you see the juniors outperform the majors. The majors – too many of the majors in my opinion – are selling at selling at grossly overvalued prices. When you see $570 or $580 gold in the ground and consider that it takes about $260 or $270 to get it out of the ground, that’s not where I would be putting my money. I really think the junior development companies, the junior producers are going to be the star performers. That’s where we’ve been buying since the beginning of the year, that’s where we are going back into and I think that’s going to be one of the star performers. [55:44]

JOHN: If I listen to it Jim, it sounds to me like the things you’ve been recommending from the last 4 or 5 years, just having tracked some of what you’ve been doing I would say it’s working based on your performance.

JIM: Well, if you take a look at – as Jim Rogers has talked about, as Marc Faber has talked about, as I have written about in the Next Big Thing – these are long lasting cycles: you don’t replace energy, shortages of commodities, these aren’t things that are going to go away in one or two years. These are long lasting cycles. So, how we avoided the downfall of the market crash of 2003 is we moved into this area because we sensed what was cheap. Well, what was cheap back in 2000 and 2001 was energy. So, energy was on the top of our list. What was cheap in the year 2001 was gold and silver, so that was on our list. What does the world need a lot of besides energy, well, water. That’s been on our list. What else does the world need. Well, it needs food. And all of this is interconnected, if you think the food cycle is connected to the energy cycle. It takes energy to run a combine, it takes energy to create the fertilizers so this, all of this, is interconnected and I just think these are long term themes that you can go with and stay with, because these are going to be long lasting trends. I mean, you’re [still] going to see the volatility in gold, you’re going to see the volatility in energy and certainly when you’re in commodities.

But another undiscovered area that’s being ignored right now is food production, whether it’s sugar, whether it’s cocoa, whether it’s coffee, all of these things are going to start getting more expensive. And if you can find the companies that can produce them do so. And the nice thing about this concept of investing in basic necessities, if the US goes into recession which is what I’m predicting, you don’t need to buy a brand new computer, you don’t need a new plasma TV, you don’t need a new stereo, you don’t need a new car, maybe you don’t need a new suit, but you know what, you need energy, you need natural gas to fire your stove, you need to turn on the lights, you need to put gasoline in your car, you need food, you need water – these are the things the world has to have, every human being has to have.

And the other thing too I believe is health care especially a lot of the drug companies which are undervalued. I mean, if we’re going into a recession you’re not going to tell your doctor, “well, you know, I’m not going to fulfill my prescription this week because the Fed’s going to raise interest rates, or it looks like the economy’s slowing down.” These are basic necessities, and you know, granted there’s not as much sizzle to food, water, or you know, an alternative energy stock as there is to a Google, but you know what, they’re making money, you can make money this way, because these trends once again they’re not going to be solved – the world’s food shortage, the world’s energy shortage, the water shortage – all these things aren’t going to be solved overnight, they’re not going away, and that’s why I think this is a long term play that you can make. [58:58]

JOHN: And having said all of that for the Big Picture, Jim, it’s time to move on to our Other Voices segment and who the mystery guest is we’ll find out right on the back side of the break.

Other Voices: Matt Savinar

JIM: Welcome everyone to Other Voices. This week joining me on the program is Matt Savinar, he’s proprietor of Life After the Oil Crash.net, which follows peak oil very closely.

Matt, you and I were talking earlier during the week. There was a study done by CIBC markets on conventional oil, and according to them, conventional oil peaked in the year 2004. We’ve got unconventional oil like the Canadian oil sands, and even though we have new fields that are coming on stream, we’ve got production in decline. And one thing that really struck me was that last year in March, Mexico announces their largest oil field – the Cantarell field – had peaked, and then in November buried in the back pages Kuwait announced that their Burgan field had peaked. I thought that was rather significant, and nobody seemed to be paying attention to it.

MATT SAVINAR: Yeah, I totally agree with that. I don’t know if you’ve had the chance to look at the news in the last couple of hours, Kuwait reported on Reuters that from Petroleum Intelligence Weekly that Kuwait may just have to cut their reserves by 50% from 100 billion down to 50 billion, and of course this is being discussed on the various peak oil forums. [1:00:33]

JIM: Not on CNBC.

MATT: No, they’re too busy – I don’t even watch television any more, but I imagine there’s some sort of celebrity trial or something that’s being covered. Yeah, our level of denial to borrow a phrase from James Kunstler is almost supernatural. [1:00:53]

JIM: The other amazing thing was the first week of the year we had the auto show and I was thinking GM and Ford are in trouble right now. They’re losing money in their North American operations, they’ve got some of the highest costs of production, but then I was looking at GM introducing muscle cars, and a whole new line of SUVs, and I almost felt like saying, “Guys, have you taken a look at the price of oil lately?”

MATT: Yeah, one of the examples I use is when people assume or hope that they – whoever they are, government or corporations – are going to come up with some type of plan to deal with peak oil. I say wait a minute, look at GM and Ford. Now, GM and Ford produce cars, and particularly SUVs, and they’ve been doing this for a good number of years now. And their business as any business out there is one of the most dependent on cheap oil as you can get. So, you would think GM and Ford with all of the money that they’ve got, all of the muscle they’ve got, they would have some really smart people with MBAs, and maybe some other things, looking at these trends in energy, and maybe telling them at least 5 or 10 years ago, “hey, guys, we need to start switching to more hybrid type technology making more fuel efficient cars.” But from the looks of it that discussion apparently isn’t taking place, or never took place. So, it’s again the level of denial that goes up the food chain from the average person, who’s too hypnotized by the celebrity trial to apparently the top executives at our biggest and most prestigious corporations. [1:02:28]

JIM: You know, one of the things that I’ve seen, and in fact I’ve got an email that if we have time we’re going to probably read it during the email section of this show, this guy is angry and he thinks it’s all an oil conspiracy by the oil companies to just get more profits. And if any industry, the oil industry makes a return on sales of only 9% compared to other industries, so their returns are lower. But you know, Matt, if it was a conspiracy how come it didn’t work from 1980 to 2000.

MATT: Exactly, why didn’t it, if it’s a conspiracy. I remember the week before the 2004 election oil had hit at what was at that time a new high $55 a barrel. Of course, everybody was in an uproar about the oil and gas prices. It’s one week before the election now, between those two candidates, it’s Kerry and Bush, and I know a lot of people feel there’s no difference between the two. Well, I tend to agree with that, with the exception that the oil companies if they could have one of those two candidates in office, of course it’s going to be Bush, because, you know, Bush is very much in with that industry. And so, if high oil and gas prices were just a conspiracy by the Saudis and by the oil companies, and by all these other evil people, they would have brought the price down to $25 or $30 a barrel in the weeks leading up to the election to make sure that Bush was elected. Now, of course ultimately he ended up being elected but a week, 2 weeks, before the election nobody knew what was going to happen. So,…

JIM: I guess on the positive side with Matt Simmons’ book coming out Twilight in the Desert, with sites like yours that alert people to the concept of peak oil, it’s at least starting to get a lot more coverage, a lot more publicity where people are saying, “hey, this is a reality here we need to look at this.” But then every once in a while you get somebody that comes out and says, “look, below the earth it’s full of all this gooey stuff called oil that replenishes itself, the abiotic oil theory.” And I don’t there’s any geologist that gives it any credibility.

MATT: Yeah, there’s no oil company out there looking for the abiotic oil. And I asked some of the – I’m not going to name any names – but the more prominent advocates of that theory, I said “well, wait a minute if you show up with this replenishing oil [theory], hire yourself out to some independent companies and help them find these magical replenishing oil fields, you’d be the richest person on the planet.” But the brain will be capable of incredible mental gymnastics when they want to be. And I think believing in things like a constantly replenishing well of oil is probably an example of that.

JIM: You know the surprising thing Matt, and I don’t know how you feel about this, but what really struck me is when after Katrina and Rita hit where you had a whole US city that was literally wiped out, and probably one of our most important strategic ports – even as you and I are talking today we’ve got 4 or 5 refineries that aren’t fully up and running yet – I would’ve thought that they would’ve passed a bill to eliminate the 800 permits for a refinery, and let that refinery in Arizona eventually get the go ahead, that we would have done something significant, that Congress would have said, “wait a minute, we can’t be this vulnerable to foreign oil number one. Number two, we can’t have one third of our oil and natural gas production go offline, it leaves us in a very precarious situation. Let’s do something about it.” But nothing was done on the energy front, whether it was refineries, simplifying the 50 gasoline mixes we have, or exploring or finding new oil and gas, or for that matter, incentives or anything else, for alternative energy. It’s almost like we’re stuck on stupid.

MATT: Well, yeah, there’s a, I think it was James Woolsey who when he testified before a Senate subcommittee, and one of the Senators asked him, “well, what’s it going to take to wake average people up.” And he said, “you know, we had of course 9/11 happen, Everybody knows that 9/11 and oil are intimately connected because however you feel about 9/11, there’s no disputing that oil money funds terrorism. And so we had this horrible event happen, there’s a huge dependence on our dependence on oil, and particularly on foreign oil, and then we launch a world wide war that’s going to last the rest of our lifetimes as we’re being told, [and] that just so happens to be where most of the world’s oil is. Now we’ve got $3 per gallon gas. We’ve see how vulnerable we are to acts of God like Katrina, and I don’t know if anything is going to wake people up.

This is just something I usually refer to with a couple of friends, I call it like [my] awareness index. I go on to Alexa and I punch in my site, and some of the other popular peak oil sites, and see where they rank on Alexa. And I punch in the WWE, it’s the world wrestling entertainment, and I say OK what’s the ratio, because I did this to prove a point to somebody who said to me, “Matt, you’re making such a big difference, and all these people…” and I said, “no, to the one-tenth or 1% that are listening, yeah, but to the society as a whole, you know all of us who are out there doing websites and publishing books and everything, we’re not…when the wwe they’re getting something like 50 times as many visits as myself or any of the other popular peak oil sites, that kind of tells you something.” You know. So,…

JIM: You know, as we close here, I know that there are many people [in our audience] who read Fortune magazine, but there was an article in the December issue about Richard Rainwater, a legendary investor who is now devoting almost his entire days to studying peak oil. He gave you a nice mention because your website is one of the first websites that Rainwater comes to on a daily basis. But what does it tell you Matt when some pretty smart people – Rainwater being one of them – is talking about how to prepare for it?

MATT: That’s a hard question to answer. I’m not really sure what to say. As the problem for every person like Rainwater at any level of society at that upper echelon of the financial system there’s still 10 or 20 or 100 other people who are totally cool to this. And I think this percolates through say my sector of the society, which would be I guess you could say young professionals. For every person like myself who’s aware and concerned and trying to figure out how to respond to this, and what should we do, and so on and so forth, there’s a hundred or a thousand other people who have their heads in the sand. So, you know, it was very nice, I was very flattered, and it was a huge compliment and all that type of stuff, and it’s nice to know that people are reading it, and people who have some sway in society, but the I don’t know if it will make that big of a difference overall. I sort of hope that maybe some folks who do have that level of influence could maybe lobby, could maybe start to get together some type of rational plan, but… [1:09:29]

JIM: Yeah, we don’t have a Plan B., Matt. As we close why don’t you tell people about Life After the Oil Crash, your website. It’s rather unique. There are all kinds of things that people want to get educated, it’s not a sales site, I mean you can order books or things that are relevant on your site, but tell people what your site does.

MATT: It’s organized so that when go on it, the first page or maybe the second, that’s the introduction to peak oil. It’s basically organized like a ‘frequently asked questions’. And so I go through all the various questions that people always ask when you first find out [about peak oil]. Basically what I did is I went through all the questions that I asked, and I spend months researching when I first found out about this stuff, I went, “well, what about this, what about that, what about this idea over here.” And I address all of that, and so that’s sort of the sites main attraction I guess you could say. And then the second most popular [section of the] site is the breaking news, and so I have all of the news related to oil, and I also put stuff up there that in my opinion, anything that I read that I find interesting or thought provoking or relevant to the state of the world I put up there. [1:10:41]

JIM: And you also cover I believe the arguments against peak oil. In other words you take some of the objections to people that would be doubters and you deal with that.

MATT: Yeah, exactly, I have what about abiotic oil, and won’t the market solve this, and what about all these new technologies, and can’t we do this. And can’t we do that, and go through all those, and sort of shoot them down. And you know it seems to be pretty effective, to people who actually sit down and read it, it seems to do the trick, at least from the feedback I’ve gotten.

JIM: Well, I’ll tell you it’s a great site for somebody that wants to become more educated on peak oil both the pros and the cons you handle both sides. In fact you have a peak oil primer. Well, Matt as we close why don’t you give our listeners your website, and tell them how they can get there.

MATT: If you just go to www.lifeaftertheoilcrash.net you’ll come to the site, you can also Google oil or peak oil it’ll come up near the top.

JIM: OK, well, Matt thanks for joining us on the Financial Sense Newshour, I hope you’ll come back again, and especially when significant stories are posted, that really impact. Last year I think Cantarell and Kuwait’s oil field peaking were a major, major story, and it really didn’t get much coverage.

MATT: Yeah, I hope so.

JIM: Alright, Matt, well listen have a great weekend.

MATT: You too!

JOHN: Jim, out of time for today, we have a new feature, we didn’t get to any emails today but we will try to do that next week, and as far as emails go we have a new feature.

JIM: We’ll have the phone number up on the web. We talked about it last week did not get it up on the web it’s been a very busy week but we’ll have that up next week. So, when you see the number if you’re listening to this radio show, on the front page of the Financial Sense Newshour we’ll have the toll free number to call. Just call that, and say who you are and briefly, you know, what’s your question and we’ll try to get that on the air, that’s a promise for next week.

JOHN: Who’s coming up as far as guests in the future? I saw Dr. Marc Faber is going to be back with us shortly.

JIM: We’re putting together a roundtable that we’re going to have in the month of February, but I don’t want to let that out of the bag yet until I really get confirmation. It’s getting a little tricky as we’re trying to get people around the globe together at the same time with different time zones. I mean some people are going to be doing this roundtable at 12 midnight, and others are going to be doing it at 8 in the morning. So, it’s going to be a little bit tricky, so I don’t want to let that out yet.

And coming up on the show next week my guest will be William R. Clarke he’s written a new book called Petrodollar Warfare, and later on in the month, we’re going to do a lot more on some of the oil issues that we have. [Our guest will include] Congressman Kurt Weldon, Countdown to Terror, he’s head of the Foreign Intelligence Committee; we’ve got Bob Froehlich, he’s written a book called Investment Megatrends; we’ve got Sonia Shah Crude: the Story of Oil. So, we’ve got a lot of things that are going to sort of keep you abreast of people that have written things that are rather significant, because I really do believe that peak oil will probably be the number one story in the media this year if it’s not war in Iran before that. So, we’re going to try and bring some of the geopolitical people, get some different perspectives on this because certainly I don’t need to tell you that’s what driving the news today.

Well, unfortunately John, here we are, the end of another show. We’ve run out of time, but on behalf of John Loeffler and myself, we want to thank you for joining us here on the Financial Sense Newshour. Until you and I talk again, have yourself a pleasant weekend.