Casey Research
Drilling Down into Oil and Gas Prices
Casey Research Summit Special Report Part II: Drilling Down into Oil and Gas Prices
The private panel that began with three key speakers at the April 27-29 Casey Research Recovery Reality Check Summit continues with a second installment in today’s Energy Report. This exclusive features Casey Energy Opportunities Senior Editor Marin Katusa, Global Resource Investments Founder and Chairman Rick Rule and Casey Research Senior Editor Louis James, turning their attention to oil and natural gas prices and opportunities in equities.
Source: Karen Roche and JT Long of The Energy Report (5/10/12)
The Energy Report: Since we last talked in November, oil went from $90–110 per barrel (bbl). Has it established a floor that will stick? Or, as Porter Stansberry predicted during the summit, is it getting ready to crash? He said that using the same sorts of technology that brought on the glut of natural gas will lead to finding too much oil and driving its price down.
Marin Katusa: Porter was basing his comments on the success of shale gas in North America, and with that you have natural gas liquids and some oil. In North America, gas became a victim of its own success, worsened by a warmer-than-expected winter. But understand that gas, in general, has very localized markets.
When it comes to the oil sector, people think Exxon Mobil Corp. (XOM:NYSE); Royal Dutch Shell Plc (RDS.NYSE.A/B) and ConocoPhillips (COP:NYSE) are the biggest players. The big players are actually the national oil companies (NOCs)—Saudi Aramco, Petróleos Mexicanos (Pemex) and Petróleos de Venezuela, which are not reinvesting in operations and exploration. Their production is decreasing as a result. Cantarell, in Mexico, is one of the greatest oilfields in the world, but it’s decreasing by 3.5% every year. The NOCs are distributing profits to fund massive social programs. For instance, more than 55% of Venezuela profits from oil-funded social programs.
By the way, America imports more than a million barrels of Venezuelan oil each day and pays a premium over what it pays for domestic oil. But that’s another story.
I don’t necessarily agree that the same reasons why natural gas in North America went under $2 per thousand cubic feet (Mcf) would apply globally. India is signing $14–$15/Mcf and more; Japan is at $15/Mcf-plus. It’s twice that in Europe. So North America is a unique case; the rest of the world is nowhere near that when it comes to shale exploration.
TER: Will that change when the U.S. starts exporting in 2015 or so? Continue reading
Economic Volatility
Is Economic Volatility Coming?
Source: Karen Roche and JT Long of The Gold Report (5/9/12).
One special session at the April 27–29 Casey Research Recovery Reality Check Summit wasn’t on the agenda—a private panel for The Gold Report readers with three of the premier summit speakers: Global Resource Investments Founder and Chairman Rick Rule, Casey Research Senior Editor Louis James and Casey Energy Opportunities Senior Editor Marin Katusa. You won’t pin them down to a timeframe, but they’re looking forward to a buyer’s market, as equity prices fall and volatility increases. As Rule puts it, “When the luster is off the sector, it’s off all parts of the sector, so in bad markets the best companies are cheap. When the best come cheap, you have to play.”
Casey Research Summit Special Report: Reality Check or Checkmate?
The Gold Report: When we talked last fall after the When Money Dies summit, Rick, you were looking forward to the volatility preceding the decline of paper currencies as an opportunity to take advantage of the liquidity crisis.
Rick Rule: The volatility I anticipated didn’t happen because the amount of quantitative easing—I would call it counterfeiting—was extraordinary. That cash coming into the system acted as a soporific, so the volatility I had hoped for did not in fact come to pass. People whose portfolios declined probably felt they experienced volatility, but I think it was the weight of the chronically overvalued junior resources sector. Probably 80% of the sector is nonviable and in a state of permanent decline, with the market occasionally punctuated by up moves driven by performance among the best companies.
TGR: So, you were disappointed.
RR: I was very disappointed. I expected a Volatility S&P 500 (^VIX) in the range of 30. For somebody who makes a living basically as a pawnbroker, there are no better circumstances than extraordinary volatility. I didn’t get to practice my trade.
TGR: Do you think it will change in the second half of 2012? Continue reading
What Is Contrarian Speculation?
Rick Rule’s Primer on Contrarian Speculation
In an interview with Louis James, Rick Rule provides an excellent summary of what contrarian speculation investment is and makes a powerful case that the current metals climate means gold stocks are the play to make.
[If you weren't present at this timely summit, you can still learn the details of Rick's current investment strategy, plus much, much more. Get the actionable advice and economic perspectives and insights of 31 financial luminaries to make sure you don't miss the opportunities ahead.]
Louis James: Ladies and gentlemen, welcome. Thank you very much for tuning in. We are at the Casey Research Summit – the reality check on the recovery of the economy. One of our luminary speakers who is always at our events, Rick Rule, is with us here now. We’d like you to give us the quick tour of your talk today and we’ll go from there.
Rick Rule: Sure. My role here wasn’t to do economics; that’s not what I am. I am a speculator, and so I talked about where we are in the context of where people are with their own portfolios – in particular portfolios that are junior-resource centric – which is what I think most of your audience was interested in.
Louis: Right.
Rick: And my point was that there were some good forces in the market: lots of cash on the sidelines; some good work being done; and basically a good market for resources as a consequence both of population growth and demographic growth at the bottom of the economic pyramid, and in terms of historical supply constraints. And there were some bad factors in the market: excessive debt in the system; way too much government interference; very large social takes on a global basis, beginning to impact extractive industries. And there were some truly ugly factors – the ugly factors in particular being poor corporate as opposed to share market performance, and the unfortunate truth that probably 80% of the junior resource stocks on a global basis are valueless. So the sector itself is in perma-decline. Although the performance – as you know from being affiliated with Casey – of the top 10% of the sector can be extraordinary. It often serves merely to focus attention on the worst companies in the sector. And then I went on to say: “This is the set of circumstances that exists, now what can we do with this?” Continue reading
Is an Economic Deluge Nigh?
By David Galland, Casey Research
If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured.
Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped.
It is said that history doesn’t repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress.
You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to “level the playing field” and the global economy, already in tatters, will fall off the edge. Continue reading
Oil Prices < $40/Barrel?
Marin Katusa vs. Porter Stansberry on Oil Prices
At the latest Casey Research conference, respected investment analyst Porter Stansberry stood at the podium and predicted that the price of oil will fall below US$40 per barrel within the next 12 months. Part of his reasoning revolves around the impact that the shale gas revolution has had in the United States – he believes a similar thing will happen with oil.
Porter is a friend of mine and a very smart, successful individual… but I think not.
From my perspective, the pressures at play in the oil market are all pushing prices in the opposite direction: up. Global supplies are tightening, costs are rising, and demand is not falling. Prices are going to remain high, and then go higher. And there will not be a shale oil revolution anytime soon.
I’m the kind of guy who puts his money where his mouth is, so I challenge Porter to a bet. I bet Mr. Stansberry that the price of oil will stay above $40 a barrel over the next 12 months. The wager? 100 ounces of silver.
Porter has made a lot of good calls in his career. I highly recommend watching his video The End of America, an interesting and entertaining look at his prediction that the US will soon drown in its debts and cease to be a global economic powerhouse, a transition that will lead to riots across the country.
Porter and I agree on a lot of things, but on this one he’s wrong. Below are my top ten reasons that high oil prices are here to stay. Continue reading
So Long, US Dollar As World’s Reserve Currency
So Long, US Dollar
By Marin Katusa, Casey Research
There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.
For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.
The dominance of the dollar gave the United States incredible power and influence around the world… but the times they are a-changing. As the world’s emerging economies gain ever more prominence, the US is losing hold of its position as the world’s superpower. Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start. Continue reading
This Gold Market
Why I’m Excited About This Gold Market
After a reasonably long period of sustained and occasionally dramatic escalations, commodity markets in general, and precious metals markets in particular, have declined. This is normal and healthy behavior, even if it is uncomfortable for some market participants. Readers with a long memory will remember the 1970s gold bull market, where the gold price advanced from $35 to $850 per ounce – though in 1975, in the middle of that epic bull market, the gold price declined by 50%. While a 50% decline is a near-religious event for many market participants, particularly those on margin, it is instructive to note that at the bottom of the retrenchment the gold price was up threefold from its $35 low, and that gold went on to increase eightfold in price after the bull market resumed. It is thus important to recognize that cyclical retrenchments are a normal and healthy feature of a secular gold bull market.
Readers should consider whether the reasons for the gold market are intact. Has gold’s decline made it more likely that sovereign debts can be serviced or that unfunded obligations can be met? Does it mean that insolvent banks are now healthy? Does it mean that creating trillions of unbacked dollars and euros and renminbi will have no consequences? Of course not. We are simply uncomfortable with volatility.
Gold’s Current Weakness
Let’s examine some factors that may have contributed to gold’s current weakness and think about the probabilities of those factors contributing to further weakening in the gold price. Continue reading
Sociopathy Is Running the US – Part Two
By Doug Casey, Casey Research
I recently wrote an article that addresses the subject of sociopaths and how they insinuate themselves into society. Although the subject doesn’t speak directly to what stock you should buy or sell to increase your wealth, I think it’s critical to success in the markets. It goes a long way towards explaining what goes on in the heads of people like Bernie Madoff and therefore how you can avoid being hurt by them.
But there’s a lot more to the story. At this point, it seems as if society at large has been captured by Madoff clones. If that’s true, the consequences can’t be good. So what I want to do here is probe a little deeper into the realm of abnormal psychology and see how it relates to economics and where the world is heading.
If I’m correct in my assessment, it would imply that the prospects are dim for conventional investments – most stocks, bonds and real estate. Those things tend to do well when society is growing in prosperity. And prosperity is fostered by peace, low taxes, minimal regulation and a sound currency. It’s also fostered by a cultural atmosphere where sociopaths are precluded from positions of power and intellectual and moral ideas promoting free minds and free markets rule. Unfortunately, it seems that doesn’t describe the trend that the world at large and the US in particular are embarked upon.
In essence, we’re headed towards economic and financial bankruptcy. But that’s mostly because society has been largely intellectually and morally bankrupt for some time. I don’t believe a society can rise to real prosperity without a sound intellectual and moral foundation – that’s why the US was so uniquely prosperous for so long, because it had such a foundation. And it’s also why societies like Saudi Arabia will collapse as soon as the exogenous things that support them are pulled away. It’s why the USSR collapsed. It’s the reason why countries everywhere across time reach a peak (if they ever do), then stagnate and decline.
This isn’t a matter of academic contemplation, for the same reason that it doesn’t matter much if you’re in a first-class cabin when the ship it’s in is taking on water. Continue reading
Is Animal Testing about to become Obsolete?
By Chris Wood, Casey Research
As an analyst who spends a great deal of time researching biotech and pharma companies, I’m well aware of the challenges facing the drug industry in the US today. From onerous regulation and an approval process that has made drug development prohibitively costly and complex to the pending patent cliff that puts more than $35 billion in annual sales at risk to the apparent decline in innovation suggested by the steep drop in patent applications from big pharma – all portend an increasing inability to replenish shrinking pipelines with new products… i.e., to produce drugs that improve and save lives.
| Despite its techie name, “virtual R&D” actually refers to the way the process is directed and managed, relying mostly on outsourcing. The goal is to attain clinical proof of concept for a drug as efficiently as possible by building a lean core management team and outsourcing the bulk of the process. |
But the news is not all bad. Scientists and entrepreneurs (often one and the same) are fighting back. With computer-aided drug discovery, the rise of backyard biotech, and virtual R&D, developers are experimenting with numerous ways to cut costs and time from the arduous process. One new and particularly interesting effort in this area is a play on the well-known system-on-a-chip (SoC) technology from the world of computers, that can be described as human-organs-on-a-chip. I guess we can call it HOOC for short? Continue reading
Where (and When) to Place Your Investment Bets?
By Jeff Clark, Casey Research
Let’s explore the advantages of saving in gold and silver over dollars. Here’s a hypothetical look at what could occur over the remainder of this decade.
The charts below compare saving $100/month in gold and silver vs. an interest-bearing money-market account. For our projections, we assumed gold’s average annual gain of 18% since 2001 will continue through 2020. For the money-market account, we used an annual interest rate of 1% in 2012 and added 0.5% each year, so that by 2020 it’s earning 5%.
Here’s what would transpire by 2020: Continue reading
