$100 Oil!!!!: "Not necessarily very high."

$100 oil is “not necessarily very high,” said OPEC president Chakib Khelil on Sunday.

The new leader of the world’s largest oil cartel believes inflation-adjusted highs in the 1980s were “between $102-110.” Thus, $100 in 2008 is no big deal.

"The surge in price will probably go on until the end of the first quarter of 2008,” Khelil predicted, “before stabilizing during the second quarter.” How he comes by this view… he didn’t say.

“It would take a lot of economic slowing to arrest the squeeze between growing demand trends and depleting supplies,” notes our own oil adviser, Byron King. “Oil supplies are so tight… between sabotage in Nigeria, bad management in Venezuela, raw depletion in Mexico, Peak Oil in the Middle East.... the slightest amount of bad news -- a hurricane in Gulf of Mexico, a pipeline leak in Alaska, a bomb blast in Iraq… would send prices up even further.”

The new President of OPEC (Oil Producing Exporting Countries), Chakib Khelil said this in a recent speech. He predicted that the "surge in price will probably go on until the end of the first quarter of 2008, before stabilizing."

So, OPEC has now gotten used to the idea of $100 oil and are thinking..."hmmm....how can we squeeze a little bit more..."

Well, expect $100 oil to be a fact of life and remember that inflation-adjusted highs in the 1980s were as high as $110/barrel, so if this is going to be a true record-setting surge, $110+ is not out of the question.

In fact, it may only take one slight bit of bad news like a hurricane in the Gulf of Mexica, a burst pipe in Alaska, increased bombings in the Middle East to send prices to...oh let's say...$125/barrel. Hey, if OPEC can pull numbers out of their keister, why can't I?

Is the high price of oil all about the Middle East and the weak dollar? No. It is also about trouble in Nigeria, increased demand from India and China, depleting supplies in Mexico, bad management in Venezuela, environmental laws, etc. Oil is complicated. A lot of factors are in play, but it only takes one random act to make all of the factors important and in play.

But remember, while some pundits are crying that the sky is falling with Peak Oil, new discoveries are being made, technology is allowing more oil to be had from existing and once thought dead oil fields.

Notes From The Underground:
Dow - 12,818.14 -9.35
Gold - 875.10 +15.10
Silver - 15.57 +0.36
Oil - 96.77 +1.68
Wheat - 9.25 +0.22

To Your Investment Success,

Patrick

Waiting on OPEC...

Waiting on OPEC (Organization of Pertroleum Exporting Countries) to make a decision on increasing/decreasing the supply of oil is a lot like waiting on the Fed to make an interest rate decision.

You generally know what the decision is going to be BEFORE the decision is actually announced. Except that OPEC is more unpredictable. All of the delegates make speeches at various conferences and meetings that they attend. These meetings almost always have reporters and news cameras. The delegates take advantage of this to "spill" a little of their thoughts on the upcoming decision to be made. Voila! The market has the opening to start trading over a decision that may not actually be made for another month or so...opportunity to make money calling!

Oil ministers from the various OPEC nations have been indicating that they would vote for increased production for some time now. The next OPEC meeting is tomorrow! The law of supply states that as supply goes up, price goes down. Well, oil has come of off it's highs of 99 and change to 87.74 over the course of a few weeks because of these indications. Traders have used this news as an excuse to take some profits off the table.

Some analysts are looking at the charts and saying that this "correction" could continue down to $70/barrel. While this would be nice and I would like to see it happen, I am not banking on it.

Remember, China and India are still growing near double digits, our own demand for the black stuff keeps going up and up much to the chagrin of environmentalists. And while the former chairman of Exxon says that oil should be price at $40/barrel, he is not the one in charge of making that decision.

A bunch of shiekhs, princes, and despots are.

So, back to the law of supply...when supply increases, price decreases. Combine this with the law of demand...when demand increases, price increases, especially when supply is not increased, or it is not increased enough to meet increased demand. Now combine this with people in control of that decision who either A) don't like us are looking to make as much money as possible or C) Both.

What will happen is that supply will be increased to a level that satisfies consumers for a time...but inevitably demand will increase again and will outstrip the new supply level, leading to...higher oil prices.

Notes From The Underground:
Dow - 13,248.73 -6.84
Oil - 87.74 -1.57
Gold - 803.80 +5.70
Silver - 14.30 +0.03

To Your Investing Success,

Patrick

Where To Turn? What To Do?

Now that the Dow seems to be coming back full force, what is an investor to do?

Obviously, the bulls are back and they are running hard!

I like the fact that the market is going back up, but because I treat my investments as a business, I need to look strategically first, before I can take advantage of the opportunities that present themselves.

What was driving the market down?

Well, the declining dollar, rising oil prices due to increased demand, rising commodity prices due to both increased demand and the declining dollar, falling real estate sector due to the credit crunch.

Over the next four days - Monday, Tuesday, Wednesday, and Thursday - I will take a look at each of these reasons and show you why they are still relevant even though the stock market is trying to say that they are not.

The fact of the matter is that the market will be increasingly volatile for some time. We are also in the middle of a great bull market for stocks as baby boomers and the near baby boomers are stuffing as much money as they can into investments to prepare for retirement. The thing is, these same boomers are also looking at asset classes such as real estate and commodities also. So, if you combine the buying power of these individuals with the demand across the world for financial instruments, we are truly in a great era of investing, volatile as it may be.

And that is why you must understand the various asset classes and markets so that you can make money regardless of the direction of the investment, the market cycle, or the level of volatility.

The US Dollar is declining at a rate not seen since 1992. In 1992, the US Dollar had reached an ALL-TIME LOW, that has since been trumped by today's US Dollar. The Loonie (Canadian Dollar) has reached par with the US Dollar and surpassed it in value. C$1 now buys $1.05 US. This is a level not seen since the early 1960s. The Australian Dollar is at a 23 year high and is about to reach par to the greenback. Virtually every foreign currency that you look at is at or near and all-time high for the dollar.

What is causing this devaluation of the dollar is the near continual pumping of money since 9/11 by the Fed and the US Treasury. The Fed, under the direction of Yoda (Alan Greenspan) and B-Squared (Ben Bernanke) has defined as its mission to keep the economy out of recession - NO MATTER WHAT! Even if this causes inflation (which we will discuss when we talk about commodities) and even if it makes our assets more attractive to foreign corporate and sovereign funds.

There have been two separate benefits to stock investors because of inflation.

One, US assets have become more attractive and cheaper to buy for foreign corporations and sovereign funds. (As an aside, sovereign funds are surplus currency assets held by foreign governments) Just look at the recent purchase of Commerce Bank by the RBC Bank of Canada, the purchase of 20% of the NASDAQ by the Government of Abu Dhabi, and 4.9% investment into Citigroup by Abu Dhabi. Many of these foreign corporations are taking aim at financial assets here in the US.

For more on sovereign funds, go to my post from today on the Real Estate Lifestyle Public Forum (www.realestatelifestyle.com).

Second, US based companies that do a great deal of business abroad. Exporters and multinationals are able to sell more goods abroad due to the fact that foreign currencies can purchase more dollars, thus our goods are cheaper to buy. Look to big multinationals like Altria that are able to derive 1/3 to 2/3 of there business outside of the US.

Now, the big downside to the devaluation of the US Dollar is the rumbles around the world that oil and commodities may begin to be purchased in foreign currencies like the Euro. The US Dollar is THE standard currency for all commodity transactions worldwide. They are priced in dollars, they are sold for dollars, they are bought for dollars. Once these transactions can be decoupled from the dollar, why would foreign countries need to hold so many dollars in reserves? Sure, to buy US assets, but the purchase of US assets are not their primary use. China has the largest sovereign fund in the world, somewhere between $400 billion and $1 trillion. China has no interest in buying US companies directly. In fact, they are helping there own corporations grow and purchase foreign assets. If nations do not have to hold so many dollars, they will dump them on the open market AND then the value of the dollar will truely plummet.

What to do then?

In addition to what you would normally hold in US stocks, an investor should also be holding a near equivalent amount of quality foreign stock holdings. Many of them actually trade on US stock exchanges like the New York Stock Exchange (NYSE) and the Nasdaq.

Until tomorrow.

Notes From The Underground:
Dow - 13,374.40 +2.68
Gold - 785.90 +3.10
Silver - 14.10 +0.14
Oil - $87.83 -0.88

To Your Investing Success,

Patrick

$100 OIL!!!!

We could hit $100 oil...Today!

After closing at $98.03 in New York yesterday, the price Black Gold peaked at $99.29 in overnight trading. This morning oil opened at $98.63 in New York, however, with today and then Friday being light trading days due to the Thanksgiving Holiday volatility will reign.

Also, remember, that overseas trading has no holiday. They will continue to trade the gooey stuff overnight.

Then there are the concerns that China and India's rapid development and increased demand will put further strain on oil supplies. Refineries are already starting to complain that they aren't getting enough of it. They have exhausted the surplus that has kept gasoline prices at the sub $3/gallon mark.

Currently, oil producers are pumping 85 million barrels a day out of the ground. The US Department of Energy says that consumption is between 85 and 86 million barrels per day. And remember, they are the government, they are here to help, and I have a few grains of salt to throw at their numbers.

On a positive note for the stock market (it needs a few hundred of these right now), it looks like the Fed may be cutting rates again due to what they perceive as slow growth. 2008 forcasts are showing US economic growth between 1.8 and 2.5%. They are also saying that inflation will fall to between 1.8 and 2.1%. Remember that inflation never falls...it just goes up at a slower rate.

Again, are you willing to believe the Fed's numbers when the price of gas is breaking $3/gallon, heating oil is supposed to be 25% higher than last year, and wheat has tripled in the last four years (but producers of foodstuffs have not acted accordingly, yet).

Wall Street did not like the Fed projections. Combined with higher oil prices, the credit crunch, and how it is affecting financial stocks, the Dow is down this morning at 12,925.77 DOWN 84.37 points.

That is all that I have. There are many, many buying opportunities out there. I am going to ferret them out and get back to you soon. Look in your mailbox for updates and notice of these opportunities soon.

Notes from the Underground:

Dow - 12,925.77 -84.37
Gold - 802.50 +12.20
Silver - 14.48 EVEN
Oil - 98.63 +0.60

To your ultimate investment success,

Patrick

GET PAID to ride out volatility!

Volatility increased in the markets again today after recovering from a roller coaster Monday and Tuesday. The day was pretty serene for the most part with the Dow hovering just above flat. Then at the end of the day there was a 75 point sell off.

What must be remembered here is that the market has been all over the map this past month (not to mention all year) and traders are skittish about holding on to gains for very long. If they have them, they are locking them in by selling them.

On the stock front, I have a pretty easy solution to how I handle this kind of market and skittish traders in particular. One, I hold dividend paying stocks. I GET PAID TO WAIT THIS MARKET OUT!!!! I hold dividend paying stocks for the long term, I hold BIG NAMES in there respective industries. I hold stocks that are paying out at least a 3% dividend and have the financials to grow the dividend whenever they choose.

The dividend gives me the ability to reinvest in other opportunities as they spring up in this volatile market.

For example, I am actively buying I-Shares Silver Trust (SLV) to hedge inflation. Silver and gold prices have recently pulled back due to profit taking (essentially, I am taking advantage of a dip) and the brief idea that inflation (according to the government's numbers) ain't that bad.

Remember, the Fed is LYING to you when it comes to inflation. Food and energy is not included in the number. The CPI is due to come out tomorrow and we will see how much of a fib it is this month.

I am also buying silver in particular because it is selling at a great discount to gold. Traditionally, gold trades at 17x silver, so with gold at $817/ounce, silver should be trading at $48/ounce. Instead it is hovering just about $15!!!! This is a great buying opportunity for silver which in addition to being a hedge to inflation and a precious metal used in jewelry, is also has many industrial uses and is in great demand in China and India whose economies are growing by 10% a year.

So, you could be buying silver directly, or you could be buying a paper certificate that trades on the New York Stock Exchange.

Until tomorrow, which is THURSDAY.

Notes from the Underground:
Dow - 13,231.01 -76.08
Gold - 817 +19.80
Silver - 15.03 +0.46
Oil - 93.99 -0.10

SLV - 149 +0.33

Patrick

PS THURSDAY is REAL ESTATE DAY, so draw your own conclusions to the theme of tomorrows post.