by Addison Wiggin – February 23, 2011
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Oil production already down 25% in Libya… and how it could quickly reach zero
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Just in: Prestigious brokerage matches Byron King’s bold oil prediction
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Grains pull back… Alan Knuckman on where they go from here
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Why the National Association of Realtors has even less credibility today than yesterday
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Mozilo skates… Why the Countrywide chief’s fate is only the beginning
Yikes… Oil is up again this morning. West Texas Intermediate has blasted up to $96.78. (Barely a week ago, it was $85.) Brent is up to $109.02.
According to Reuters, Libyan oil production is already down to three-quarters of normal. And that could soon plunge to zero… if it’s true that a desperate Col. Gaddafi is looking to torch the pipelines leading from his country’s oil fields to Mediterranean ports.
“Gaddafi has ordered security services to start sabotaging oil facilities,” a source close to the regime tells Time intelligence columnist (and former CIA case officer) Robert Baer. “The sabotage, according to the insider, is meant to serve as a message to Libya's rebellious tribes: It's either me or chaos.”
“Seriously,” muses our own Byron King, “I wonder if any of Gaddafi’s goons will pull the trigger. Maybe… Saddam Hussein and Desert Storm sort of speaks for itself.”
Just in case you need a reminder of what happened 20 years ago this month…
As Iraqi forces retreated from Kuwait in 1991, Saddam Hussein ordered his troops to set fire to some 700 oil wells. Nine months passed before the last fire was put out.
Baer says if Gaddafi can’t get the tribes back in line, he’ll turn Libya into a Somalia… with oil. To start that process, he just released some Islamic militant prisoners to stir things up.
It may be just a bluff. Then again, Gaddafi’s own interior minister just joined the opposition. Desperate men do desperate things. We’ll be watching.
“Oil prices could go up substantially even from these levels," says Vancouver favorite Marc Faber. “I don't think that oil is expensive compared to other commodities or compared to other goods prices in the world.”
And if that doesn’t make sense to you, we’ll share this chart with you one more time:
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"Further gains would, obviously, depend on some political problems,” Faber continues — for instance, “some interruptions in oil supplies.”
“Things are (finally) starting to come unglued in the Middle East,” says Byron King, writing today from his old stomping grounds in the Texas oil patch. “Are you surprised? Much of this discord — great and small — has been festering for a long time.
“And also, for a long time, a lot of forces have been working for the pots NOT to boil over. We’ve seen a lot of big power accommodation toward crummy governments, run by thieves and despots, if not zealots and ideologues, if not just plain mentally ill sociopaths.
“Even the much-vaunted ‘resource nationalism’ of recent years is, at root, ‘resource larceny’ by the top dogs. Look at Libya, with 7 million people and $50 billion in nationalized oil money per year. That translates to something over $7,000 per person, yet the place is impoverished. Where did all the money go?
“At any rate, you need to understand that the post-World War II era — which was, in many respects, so favorable to the U.S. — is just plain falling apart before our eyes. It worked until it stopped working. Now? I think it’s broken pretty bad.”
Breaking News: Japan’s Nomura Securities just issued a forecast of $220 oil if exports from Libya and Algeria grind to a halt. Remarkably, that’s the same number Byron uses in his own “New War” scenario for the Middle East.
The grains are in sell-off mode this week. Wheat, which touched nearly $9 a bushel recently, has retreated to $7.85. Corn has pulled back below $7.
But the trends remain in place to drive prices still higher, says Resource Trader Alert editor Alan Knuckman. "The explanation for higher agricultural products has been two major factors,” he says.
“First, the global demand for commodity goods has risen from extreme lows with the financial crisis and continued growth and recovery around the world.
“The second issue has been the weather catastrophe and disruptions worldwide have prevented the rebuilding of stockpiles for seasonal good production.
“The bullish trends have been well established, and data, news or events can only make the situation more dire as we prepare for the crucial spring planting in America.
“The highs in 2008 for corn were above $8.00 per bushel,” Alan points out, so on a pullback below $7, “there is still more upside. Wheat in comparison is below the $9.00 50% recovery from the 2008 extreme highs to the 2009 lows and may have the most upside potential from here.”
Gold has firmed a bit, to $1,411, a seven-week high. Silver is perking up likewise, the spot price now $33.65.
It’s been a remarkable stretch for all natural resources — metals, agriculture, energy. And we don’t think it’s over yet. That’s why we’ve just done something for the first time in four years: We’re opening access to the Resource Reserve.
The Resource Reserve offers “one-stop shopping” for all aspects of resource investing. Everything you can possibly do to profit from the scarcity of natural resources — and the geopolitical tensions making matters worse — is available to you in the Resource Reserve…
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Outstanding Investments, Byron King’s flagship newsletter, just named by Hulbert Financial Digest as the best-performing investment advisory of the last 10 years. Its 21.7% annualized return crushes the nearest competitor by more than half.
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Energy & Scarcity Investor, Byron’s high-end letter that specializes in explosive small-cap opportunities. Readers are sitting on open gains of 147% in an under-the-radar rare earths play… 218% on a miner of an essential “technology metal”… and 525% on an offshore oil driller. (Incredibly, Byron says it’s still a buy.)
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Resource Trader Alert, Alan Knuckman’s commodity options service that lets you collect big gains in a short time. In just the last three months, Alan’s readers have picked up 95% on soybean meal… 217% on wheat… and they’re holding out for maximum gains on a heating oil play already up 223%.
You pay a one-time fee for the Resource Reserve — about as much as you’d pay for just one year if you subscribed to these services separately. And you also get free annual admission to the Agora Financial Investment Symposium.
For that reason, we’re limiting the number of Resource Reserve slots to just 200. You can learn about all the benefits and privileges that come with membership right here.
Stocks are drifting down slightly as we write, adding onto yesterday’s losses. The S&P fell 2% in a day.
Sales of existing homes rose 2.7% in January, according to the National Association of Realtors. That’s slightly more than the Street expected. The number has risen five out of the last six months.
For the record, this may be the last time we ever bother mentioning this figure. According to The Wall Street Journal, the NAR is looking into whether it overstated existing home sales as long ago as 2007.
This became a glaring problem recently: The NAR said 4.9 million previously owned homes changed hands during 2010… while the research firm CoreLogic counted just 3.3 million.
Turns out the NAR doesn’t use MLS listings as its reference point — or county courthouse filings, like CoreLogic. Rather, over the last decade, it used a model keyed to the 2000 Census, making various assumptions about population growth since then.
In other words, the NAR conjures up imaginary home sales the same way the Bureau of Labor Statistics conjures up imaginary jobs.
Screw it… We’ll go with CoreLogic’s figures from here on.
Speaking of people who have no credibility after the housing bubble, the feds have decided whatever Angelo Mozilo did to hose homeowners and mortgage investors at Countrywide, it didn’t amount to criminal wrongdoing.
This was one of those announcements that come late on Friday afternoon to garner as little attention as possible. Officially, the feds had no comment.
So it was left to a law professor at Columbia to explain it to the Los Angeles Times: There were just too many culpable parties to pin the case entirely on Mozilo — mortgage brokers, investment bankers, rating agencies, to say nothing of Fannie and Freddie.
“All share responsibility,” says professor John Coffee, “but none are culpable enough by themselves to compare with [Enron's] Ken Lay, Jeff Skilling or the WorldCom CEO.”
There, in a couple of sentences, is the reason the savings-and-loan scandal of the late ’80s and early ’90s netted more than 1,000 convictions of senior insiders… and the far worse scandal of Ponzi finance during the oh-oh decade has netted precisely zero.
We don’t expect this number to change: There are just too many players in Washington and on Wall Street who stand to lose. Everyone’s in on the scam… except you and me.
Behold, the world’s most livable city… for the fifth year in a row.
Vancouver once again is tops in the most livable cities ranking by the Intelligence Unit at The Economist, based on criteria including “stability, health care, culture and environment, education and infrastructure.”
Melbourne has supplanted Vienna at No. 2. Canadian and Australian cities dominate the top 10. The top U.S. entry is Pittsburgh at No. 29.
We’ve never lived in Vancouver… but it’s a lovely place for a conference in July. Which is why we convene there every year for the Agora Financial Investment Symposium.
We’ve just settled on a theme for this year’s event, one that we’ve been fleshing out in these pages: Fight or flight. Do we (and we’re speaking mostly of Americans) fight the trends of our age and refuse to give up our entrepreneurial spirit… or do we flee for more hospitable climes?
Come join us for a raucous four-day discussion in a world-class city. Early-bird pricing is still available if you call Barb Perriello at (800) 926-6575.
“Uh, you have a chart yesterday that shows the U.S. as the 13th largest oil exporter. Please explain.”
The 5: The CIA Factbook figures we cited include more than just crude… and the United States still exports a host of refined products: gasoline to Mexico, distillates for specialty fuels used by industry in Europe and natural gas liquids, for example.
Of course, the United States ceased being a net oil exporter decades ago… which is what made the oil shock of 1973 so, well, shocking.
“Gotta admit,” a reader writes after seeing yesterday’s issue, “this book — Atlas Shrugged — formulated my base of economic reasoning. Most college students, as well as the public, could learn more and gain a better understanding of the world as a whole from this book. I have read thousands of books, or at least novels, and by far, this is my favorite.
“I would, in my future, wish to emulate or be Ragnar Danneskjold!”
The 5: Twenty years ago, the Book of the Month Club and the Library of Congress asked some avid readers what books had most influenced their lives. Atlas came in second, behind the Bible.
Given its resurgence the last two years, we wouldn’t be surprised to see a similar result.
“I listened to Byron's excellent video presentation, but the subscribe option has not worked after five attempts. Let him know that he is missing subscribers!”
The 5: We’re sorry you ran into trouble. This link will take you direct to the order form.
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S.: “I understand,” a reader wrote in yesterday, “you have some openings in the Resource Reserve. I would appreciate the details.”
The 5: Indeed, we do. We dealt with most of the pertinent details above, but here’s the executive summary…
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Every issue, alert and special report from Outstanding Investments, Energy & Scarcity Investor and Resource Trader Alert…
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Plus, free annual admission to our confab in Vancouver…
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All for a one-time fee equal to what you’d pay for one year if you subscribed to each service separately.
“I am up over $35,000 alone on [Company X], writes a satisfied Energy & Scarcity Investor subscriber.
Adds a happy Resource Trader Alert reader: “On Jan. 29, 2010, [my account] was $44,461.01, and on Oct. 29, it is $76,801.88.”
Again, please review the entire rundown of benefits and privileges that come with Resource Reserve membership, right here.