November 02, 2006
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INVESTMENT DETAILS
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Peak Oil: A Pass/Fail Intelligence Test
by Dan Ferris
You know about peak oil.
That’s the idea that the world is running out of oil, that the price is going sky high as the global supply of oil shrinks to nothing.
It’s going to happen so fast, say true believers, that we won’t have time to develop new alternatives. We’ll be caught with our pants down, and the world will plunge into chaos.
C. J. Campbell, geologist and author of The Coming Oil Crisis, says, “We have come to the end of the first half of the Oil Age.”
As if the Stone Age ended because we ran out of stones.
Peak oil theory is wrong because it demands a repeal of the laws of economics, the simple dynamics of supply and demand. It also endows prognosticators with the ability to see the future, an ability, unfortunately, which no one actually possesses. Finally, like all Malthusian theories, it ignores the fact that every human mouth comes with one human brain attached (and at no extra charge, I might add).
I recently gained a new respect for the folks at Morningstar, who wrote recently (and correctly), “The laws of economics have not been repealed… Canada alone has almost 300 billion barrels in its tar sands, economical to process at prices above $30 per barrel and astonishingly profitable at $70. Ratchet prices up to $40 per barrel and coal-to-liquids (gasoline, diesel, etc.) becomes realistic, providing more than 50 years supply alone. At $70, oil shale – which could supply the world at current consumption levels for 100 years – becomes realistic. Finally, above $80, biomass-to-liquids, an essentially limitless source, becomes economical.”
Peak oil, like every apocalyptic depletion argument, is one of life’s little intelligence tests. If you believe it, you’re stupid and you fail. If you know it’s crap, you’re smart enough to pass. It’s like Y2K. If you moved your family to the hinterlands of Arkansas and predicted violence in the streets, you failed that little test. If you ignored it, you passed.
As for your money, you can take the peak-oil test with your portfolio on the line. Accepting peak-oil nonsense requires ignoring the highly cyclical nature of oil (it was near $80 a couple months ago; now it’s under $60). That, in turn, could lead you to downplay the role of savvy management, like that of, oh… say… ExxonMobil (XOM).
ExxonMobil’s management knows that the company has to make investments work across cycles and in many different pricing environments. That’s why its deepwater Gulf leases only go out to 2008. Management knows the company will get a chance to buy in cheaper at some point. Charley Maxwell’s recent piece in Barron’s is wrong about this. He says they’ll miss out… but Maxwell believes in peak oil, so he fails the test.
ExxonMobil’s management buys to make money, to earn a return on investment, not to indulge fears about paranoid theories. And ExxonMobil has done a better job of earning shareholder returns than most of the companies that now exist or have ever existed.
Since 1950, when it was known as Standard Oil of New Jersey, ExxonMobil has generated average annual shareholder returns of more than 14% a year. More than 5% of that was from dividends. ExxonMobil has raised its dividend every year since 1983. Think about how oil prices hovered in the teens from 1983 to 1998, and you’ll appreciate that dividend record even more. In 1999, when hardly anyone made money in the oil business and a barrel cost about $10, ExxonMobil earned 12.1% on capital. That’s its worst performance: 12.1%. These days, it exceeds 30%. If ExxonMobil can make money at $10 oil, it’s going to be raising its dividend forever.
ExxonMobil’s managers have made it clear that the company doesn’t buy into the peak-oil nonsense. They pass the test.
Good investing,
Dan Ferris
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A LITTLE EXTRA VALUE
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Peak oil isn’t the only fearmongering the financial and political mouthpieces try to ram down your throat. Here’s a smattering of other issues you’re admonished to become paranoid about:
Market crashes
Trade deficits
Foreigners owning “too many” treasury securities
The tapped-out American consumer
Interest-rate hikes (that will kill stocks)
A falling dollar (that will take stocks down with it)
Recession/depression
Hyperinflation
War
All these fears are part of the pervasive idea of the decline of Western civilization, popularized by Nietzsche and others in the 19th century. Ever since then, modern man has always been seen as materialistic and morally bankrupt. Modern people are always displaced, alienated, and isolated.
Arthur Herman wrote a book about all this called The Idea of Decline in Western History. It’s worth a read, and the basic idea is right. Western civilization isn’t in decline. That’s just something people say to sound cool, or to get in with a certain crowd, or succeed in politics, or what have you.
At Extreme Value, we’re finding one bargain after another among large, well-known, extremely well-capitalized companies. It makes no sense to avoid buying great businesses at once-a-decade prices because you think a twice-a-century event might happen.
The only thing you have to fear in the market is fear itself. Get control of your reason, and start making some money.
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Visit www.stansberryresearch.com
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Firearms are useful for defense against crime. Little more. Those who think they could band together to defeat the Globalist Powers are mindless nincompoops or crypto-Zionist provocateurs like Jeff Rense. Anyone with a bit of ground force military experience knows that scattered rabbles of rebels are over rated in a true total war. Vietnam, Afghanistan, Iraq, Chechnya and such like were not total wars. The American Civil War was a total war (or became one by the time Sherman marched to the sea). In a total war, such as where a government seeks to survive AT ANY COST – protesters are not tolerated, news is controlled or shut down, things like the Geneva Conventions are thrown totally away. Total wars resemble what took place on the German Eastern Front during WWII. Actually they more resemble the Battle of Verdun in WWI. If you don’t know what I mean, then you should study them.
By early 93 there was said to be 3 million militia volunteers who were arming, and practicing to defend liberty because of Ruby Ridge and Waco. By 95, because of the Oklahoma City attack, and an economy that was picking up, those potbellied heroes scattered to the winds. Units that once had 200 men fell suddenly to 12 and so on. But that was just as well. During 1994 I asked many of them what their local plan of action was. Almost every one stated that their MASTER PLAN was, in the event of a Government show down, to retreat to their individual homes, and trailers, and to die defending their guns. Anyone who has read even a modicum of military history knows that such a plan was little more than collective suicide and the romantic self-aggrandizement of bigmouthed potbellied men.
While North Vietnam had the whole communist block behind them, the Afghan rebels had refuge in Pakistan, and even the Iraqis have helpful friends in Syria, Saudi Arabia, and Iran, an American revolutionary force would have no safe haven, nor even the French army and navy that they had in the Revolutionary War. Canada will not offer safe haven. Mexico could give a rat’s ass about helping a bunch of armed gringos with an attitude. Not only that, but the US government or the Globalists are ready to attack such a force with a total war – not the playacting wars they have leveled at third world rebels. Why? Because the USA has one of the most dangerous nuclear forces in the world – not to mention a lot of other really powerful arms and abilities. The Globalists are not about to ALLOW all that power to fall into the hands of a rabble of Constitutionalists. Do you think they have spent over 150+ years, countless lives of their victims, and vast treasures just to lightly throw it all away to a pack of small-arms-rebels? Believe me, in that fight they will be so dirty, so evil, so violent that it would make Stalin blush!
There was a war fought against the early members of the N.W.O. right here in the USA. It was called the American Civil War. Even though the South was weaker in manpower and arms, because of its valor and abilities the conflict started out with an almost 1 to 1 odds. It was slightly in the North’s favor, but only if it could hold out long enough for its naval power to starve the South of arms. A modern war today would not be anything like that. Today’s odds would be more like 30 to 1 against the freedom fighters. And anyone who knows anything about wars, knows that 5 to 1 is usually certain defeat for the lesser.
In a modern civil war the dark powers WILL use Nuclear, Biological, and Chemical warfare (NBC war). This is not going to be your grand pappy’s musket skirmish line. Back in late 93 I recall one of the big discussions on the patriot radio programs was where to by an NBC protective suit. As if, if a few guys could scrounge those up that all would go well. Since my brother had gone to a full NBC school I knew how utterly foolish these patriots were. Though it never reached the World press, my brother’s military class was privy to a deadly chemical attack launched by the Egyptians on the Israelis during the 73 war. The attack followed the very same format that was S.O.P. for the US Army at the time: 1st salvos are an LSD gas. No, (repeat NO) gas mask, filtering system, or suit is able to prevent a few molecules of LSD from seeping in. It only takes a few such molecules to render soldiers silly. In the case of the Israelis who where hit at the targeted bunker, all had lost their senses and had then taken off their gas masks. That’s how the LSD gas works. 2nd Salvos were a nerve agent, a blood agent, and mustard gas. So the 1993 patriots were day dreaming how they would withstand a “gas attack”, not knowing at all that by US Army S.O.P. such an attack would involve 4 agents, not one, and the likelihood of anyone surviving it was about nil (just as it was for the Israelis at the bunker attacked by the Egyptians). As I recall they patriots also wanted to buy atropine shots to protect themselves from nerve gas. My brother told me the story about a military officer at his school who accidentally got a small whiff of VX Nerve gas. It took almost 100 atropine shots just to keep him alive long enough to get him to the hospital!! The single atropine shots that are issued to soldiers in the field are worthless. They are little more than psychological armor.
Are small arms and .50 cals and such like really the stuff of taking on the N.W.O.? Yes, but only if the N.W.O. wants to stage a media show like Afghanistan or Iraq. Even Fallujah was little more than a retard effort. Here is how I would have dealt with the town: 3 AM, large planes swoop in and drop anti-personnel mines in a ring around the town. 5 AM saturation bombing from as many B52s and B1s as is possible around the clock. During this time arty is brought up and takes over by nightfall. 6 AM next day, powerful ground force moves in behind mine-sweepers. That would not be a media show. That is almost the way the US Army dealt with small German villages near the end of WWII who offered any resistance. Some were bombed and others were shelled flat. The Arab has never actually seen real warfare.
The truth is the N.W.O. is looking for a fight with American patriots – not quite yet, but soon. The fight they plan for will look nothing like the media war shows you have been used to seeing. It will involve truly sinister and scientific means to exterminating you and your families. If Robert E. Lee was here today, he’d suggest you seek a court house in Appomattox immediately! What you face today and the odds against you are many orders more dangerous than what he faced in Virginia in 1865 when he surrendered his army. Are guns of any real worth defending freedom? Not in a real all out conflict – and that his how American civil wars are fought: total and all out.