JANUARY 2018 DESERT OF THE REAL ECONOMICS INVESTMENT NEWSLETTER

JANUARY 2018 DESERT OF THE REAL ECONOMICS INVESTMENT NEWSLETTER

This newsletter will look at a few fossil fuel issues that may affect the long-term trend of the global economy.  And this newsletter will announce the much heralded launch of upcoming Desert of the Real Economics Strategic Investment Strategy Products.

WILL THE WORLD RUN OUT OF OIL OR WILL THE WORLD RUN OUT OF THE NEED FOR OIL?

For years, experts have warned of “peak oil,” a time when imputed demand for oil will outstrip the supply.  I use the term imputed because we know that demand will adjust as available oil supply decreases. And the price of oil will continue to rise at increasing rates. (Of course we know that supply and demand will reach an equilibrium price. What the Authors are referring to are junctures when demand for oil price it to a point where it becomes "practically too expensive.")

At least since the oil supply shocks of the 1970s, politicos and economists have worried about “peak oil” and its implications.  Inflation, political tensions, societal unrest that could descend into local and potentially global conflicts. A world with over ten billion people with the power disconnected.

Of course the world will never run completely out of oil or natural gas. The price would increase to a point that some residual amount would be worth more than any possible utility. No one will ever bother to pay a thousand dollars for a gallon for gas.

That was the narrative, and it was a reasonably objective presentation of the future in the 1990s.  The foundations of this prediction had its roots in 1970.  That is the year that the United States reached domestic “peak oil.” Domestic peak oil is when the oil output of a nation falls behind its demand. In other words, a country starts demanding more than it can supply domestically and the nation then becomes a net oil importer. (1)

PUTTING OUT THE CAMPFIRES

Oil, natural gas, coal, and firewood, create energy through combustion. Some initial heat and/or pressure is applied and they release great amounts of energy.  They fuel the furnaces, the cars, the locomotives and other engines that run the world. There are finite supplies of these sources and the combustion of these sources produce pollution and global warming CO2. So the petro-party will end. But when?  

For example, the World Energy Council’s earliest forecasts, in a report conducted in collaboration with Accenture Strategy, were for peak oil demand to take place around 2030 at between 94 million barrels and 103 million barrels of oil per day.  Supply would then fall inexorably below demand, prices would increase and substitutes would develop.

PEAK OIL DEMAND…

In the last few years, energy production has moved inexorably to renewables such as wind and solar. Electrical vehicles are moving into the mainstream. Some nations are placing an outright ban on internal combustion vehicles. For example, England will no longer allow the purchase or sale of gasoline vehicles after 2045.  And auto giant General Motors has announced that its future is with electric vehicles and not gasoline engines.  Part of what prompt’s GM’s decision is developing and maintaining leadership in foreign markets that will demand only electrical vehicles.

So we may be no longer talking about peak oil demand in terms of being outstripped by supply. We are talking about the world demanding less oil so supply exceeds demand.  Or in other words, the supply of renewalbles and alternatives will permit humans to leave the carbon in the ground.

“SMARTER” BY HALF

Two-wheeled vehicles are also diverting fossil fuel demand. Worldwide, scooter, bicycles and mopeds are becoming greener. American firms are also looking at the expanding American environmentally friendly urban market. For example, URB-E, a start-up in Pasedena, CA is building foldable electric scooters for the urban landscape. 

OIL DAY-TO-DAY

Below are the 15 countries that exported the highest dollar value worth of crude oil during 2016:

1. Saudi Arabia: US$136.2 billion (20.1% of total crude oil exports)
2. Russia: $73.7 billion (10.9%)
3. Iraq: $46.3 billion (6.8%)
4. Canada: $39.5 billion (5.8%)
5. United Arab Emirates: $38.9 billion (5.7%)
6. Kuwait: $30.7 billion (4.5%)
7. Iran: $29.1 billion (4.3%)
8. Nigeria: $27 billion (4%)
9. Angola: $25.2 billion (3.7%)
10. Norway: $22.6 billion (3.3%)
11. Venezuela: $20.4 billion (3%)
12. Kazakhstan: $19.4 billion (2.9%)
13. Mexico: $15.5 billion (2.3%)
14. Qatar: $14.6 billion (2.2%)
15. United Kingdom: $13.3 billion (2%)

All of the above international traders posted declines in the value of their crude oil exports from 2012 to 2016, ranging from -32.5% for Iraq to -72.8% for Nigeria. Other fast-declining crude oil exporters were: Venezuela (down -70.4%), Mexico (down -66.9%), Kazakhstan (down -65.7%) and Angola (down -63.4%).

The listed 15 countries accounted for 81.4% of all crude oil exports in 2016 (by value). 

The United States is 20^th on the list, exporting $8.3 billion, or 1.5% of world usage.

2018 “INVESTING OPPORTUNITIES” 

Probably the two top investing stories of 2017 were the record stock market closes and Bitcoin. Bitcoin has made stratospheric gains since it was launched in 2009 and there are many competing cryptocurrencies, such as Litecoin, Etherium and Zcash. 

Recently, however, Bitcoin has stalled and new ETFs which allow investors to take long and short positions in Bitcoin may rationalize and restrain its bubble-like moves.

In the December 2017 Newsletter, the Author Rob discussed the lack of attractive non-equity investments and the specious products appearing on the market. Such products included:

• A painting (which may be fake) sold for $450 million.
• Bitcoin (which may be worthless) soared nearly 700% from $952 to ~$8000. (Now up to over $11,000.)
• US corporations sold a record $1.75 trillion in bonds.
•Argentina, a serial defaulter, sold 100-year bonds in an oversubscribed offer.
• Illinois, hopelessly insolvent, sold 3.75% bonds to bondholders fighting for allocations.
• The market cap of the FANGs increased by more than $1 trillion.
• Money-losing Tesla Inc. sold 5% bonds with no covenants as it burned $4+ billion in cash and produced very few cars.  (Hmmm… when did we last hear the term "burn rate"? 2000, the Author Rob recalls.) 

THE 2018 LAUNCH OF DESERT OF THE REAL ECONOMICS STRATEGIC INVESTMENT STRATEGIES

The Authors announce the launch of a series of investment products to compete in this NIRP/ZIRP (2) market.  We will launch one or two a month. They are best enjoyed if you read them while playing the Jimmie Fallon Show “Note Writing” pianomusic. 

New-Life Lotto-This environmentally friendly “Green” ETP seeks to develop superior returns in the recyling and repurposing arena. New-Life Lotto will invest in discarded lottery tickets under the assumption that intoxicated, illiterate and really stupid people occasionally throw away winning lottery tickets. Advanced environmentally friendly “mining” techniques will include digging through liquor store, tavern and convenience store dumpsters searching for discarded tickets. Tickets will be “recycled” by rechecking them for winning combinations and redisposing of the losing tickets at recycling centers around the nation.

Bitchcoin-This new cryptocurrency will service the American prison inmate community. As we know, America imprisons more people than any other nation on earth.  Because of this, the market is very large and should continue to expand, especially given Attorney General Jeff Session’s pledge to step up enforcement of the draconian federal marijuana laws. Bitchcoin will use the emerging prison blockchain techonology to store and transact bitchoin transactions. This prison blockchain will reside on the networks of illicit cellphones inside prisons. Bitchoins may be used as a cryptocurrency to buy and sell illicit drugs, commissary items, discounted prison pay-phone call time, shankings, and as the name implies, “bitches.” (3)


OFF AS ALWAYS TO A GREAT NEW YEAR IN THE DESERT OF THE REAL

(1) Because of new supply and fracking techniques, the US is once again a net oil exporter and may one day again become a net importer. But maybe not.  Great Britain has moved from net importer to net exporter with North Sea Oil, back to net importer, and now back to net exporter.

(2) NIRP is an acronym for Negative Interest Rate Policy and ZIRP is an acronym for Zero Interest Rate Policy. 

(3) Although it should not be need to be said, the Desert of the Real Investment Products are shared only for the purposes of satire, parody and farce. It is hoped that State Security Commissioners and the Securities and Exchange Commission appreciate this humor.