Oil battles gold for investment
supremacy By The Mogambo Guru
There are many of you who are skeptical of
my claim that not only will gold and silver go up
like they have in all the rest of the last 4,000
years of economic history when governments started
creating excess money and credit like the stupid
buttheads that they are, and I get tired of
arguing with them because it is so hard to be
convincing when it is obvious that I have no idea
what in the hell I am talking about.
But
while it is obvious that since gold and silver are
going up because the US Federal Reserve has
debased the dollar so much, it is less intuitive
that oil is on its way up, too.
That is
why I am pleased to present part of an interview between
Matt
Simmons and Bud Conrad of Casey Research, which
was published in the August 2007 edition of the
Casey Energy Speculator, which has never
interviewed The Mogambo, so that proves that it is
a class act.
Anyway, they say that Matt
Simmons has been an investment banker for 40
years, is founder and chairman of the world's
largest energy investment banking company, Simmons
& Co International, and that in 2005, he
published Twilight in the Desert: The Coming
Saudi Oil Shock and the World Economy, a book
that, as they say, "has galvanized the peak oil
debate". So he probably knows what he is talking
about.
Well, I don't know for sure whether
it galvanized the Peak Oil debate or not, but Mr
Conrad asked, "If I can just interject, when you
look at the big picture, and try to get to the big
numbers of 342 million barrels of oil equivalent
per year from all energy types that the world will
demand for its energy needs by the year 2030, you
need huge increases not only in the production of
oil, but you need the other kinds of energy. And
you need a huge investment. I've seen numbers like
$10 or $15 trillion in the infrastructure to get
there. My question when looking at the big picture
is - how are we going to fund that sort of
investment?"
At the prospect of spending
$15 trillion on oil infrastructure alone, I was
instantly on my feet, shouting, "Yeah! Where? You
got $15 trillion freaking dollars, pal? You do?
Well, how about handing a few thousand down here?
You won't miss it!"
Well, I am not sure to
which question he was responding, probably both,
but Mr Simmons replied, "The odds of that
happening are less than 1%." Naturally, even a
bonehead like me knows that a 1% chance is not
very good, and I saw that my chances of him coming
across with that cool thousand bucks was now
slipping away. But I cleverly figured that I could
up the percentage if I sort of, you know, made
vague threats of physical violence against him and
his family (which is so popular around the globe
these days), but I have to be careful since the
judge came up with his, "This is the last time,
you Vicious Mogambo Moron (VMM)! The next time you
assault somebody, you're going down, whether or
not, in your Stupid Mogambo Opinion (SMO), you
think they deserve it,!" and I remember thinking,
"I'll bet you wouldn't say that if I came up there
and beat the hell out of you, you halfwit, loser,
piece of judicial dog crap!", which I did not say
out loud, which turned out to be a good thing,
just like my lawyer said it would be!
But
it turns out Mr Simmons was not even talking to
me! He was responding to the suggestion that a
mega-infusion of capital could save us from Peak
Oil Armageddon, which everybody thinks is more
important only because it wasn't THEY who were
getting the thou!
Anyway, he says, "If we
were lucky enough to open up the entire outer
continental shelf and then we were lucky enough to
invent quickly enough seismic equipment to start
doing some sort of a high-grading of where we
should drill, and then we were lucky enough to
have a growing fleet of newer offshore rigs that
could drill wells and we just discovered two new
North Seas, then there's grounds that we could
basically spend four or five hundred billion
dollars and maybe end up 10 years from now with 6
million barrels a day of fresh supply. But the
problem is that each one of those things that I
said, 'If we were lucky enough', we don't have.
And to create each one of those is going to take
10 to 15 years to do. And 10 to 15 years from now,
our 73 million barrels a day of current crude
production could easily be down to 50 or 45. So
you say even if you had another 6 million barrels
per day, you can't climb back out of the hole."
But climbing out of holes is no problem
for those who have gold, as is explained by Ross B
Hansen of Northwest Territorial Mint in his essay,
"The Price of Gold Doesn't Matter". He writes,
"After the past two months, it's difficult to
remember that the year [2007] began with gold
trading at $636.30, silver at $12.96, palladium at
$335, and platinum at $1,139.50."
Now
things are different, of course, but it is not
just about gold. It's also about energy, and he
notes that it is also hard to remember that
"gasoline cost $2.38 on January 1 of 2007,
according to the US Dept of Energy's Energy
Information Agency. On December 31, that same fuel
cost $3.10. That's an increase of 30%."
As
an example, he says, "If in January of 2007 you
had $637.50 to buy an ounce of gold, you could
have bought 1 ounce of gold, or 267 gallons of
gas. With that same $637.50 today, you could only
buy about three-quarters of an ounce of gold, or
205 gallons of gas."
So why doesn't the
price of gold matter? He explains, "If you were
using gold as your standard, you'll discover that
you can buy about the same amount of gas
(actually, a little more) with the same ounce of
gold you had on January 1," thus effortlessly
demonstrating gold's "store of value" as it
preserves buying power! And for a guy who just
wants a little gas in his car so that he can go
out, have a few drinks with his hoodlum friends
and make a creepy nuisance of himself by flirting
with the waitresses until they get the bartender
to come over and make me stop, then I agree; the
price of gold doesn't matter, as all I want is a
little gasoline! And a pizza. And some beer to
wash it down with, too.
Richard
Daughty is general partner and COO for Smith
Consultant Group, serving the financial and
medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise
to heap disrespect on those who desperately
deserve it.
Republished with permission
from The Daily Reckoning.
Copyright 2008, The Daily Reckoning.
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