The price of oil is on the move again, big time!
As I write this, oil is trading at $76.55. It is within an earshot of taking off to my next target: $100 a barrel.
Don’t fool yourself, and don’t let anyone on Wall Street convince you otherwise: Oil prices are headed much, much higher.
Right now, most investors and Wall Street gurus figure that current prices for oil and gas are high enough to start snuffing out demand. Therefore, they think prices will soon start falling.
Hogwash! We’re not even close to the point where energy costs begin to negatively impact the economy …
Today’s energy expenditures are running at an estimated 6.2% of household gross domestic product. That’s less than half the amount of expenditures that we saw during the oil embargos of 1973-1974 and the oil crisis of the early 1980s.
To get to those levels, oil would have to double to $155 a barrel before it would seriously hit the economy. Unleaded gas prices would have to rise to more than $6 a gallon at the pump!
Now, I don’t think prices will get that high. But I do expect $120-a-barrel oil and $4-a-gallon gas.
One reason: Oil is just greasing up one of the most powerful inflation engines the world has ever seen.
The proof is in your pocket …
You’ve Got Garbage
In Your Wallet!
Those dollars in your wallet are pieces of rubbish.
Our currency can’t even hold on to the slightest of rallies. After declining another 10% just since November of last year, the greenback bounced a mere 3.7% from its low.
Now it’s tumbling again … down 2.6% in six weeks … down 7.3% since the middle of February …
Plus, with oil prices surging and the Fed pausing on its rate hikes, the greenback is in serious danger, just a stone’s throw away from plummeting much lower.
This has dire implications for money in your wallet, savings, and retirement accounts. In a moment, I’ll tell you what you do to protect yourself.
First …
Why the Dollar
Is So Weak
My father taught me a long time ago: Never promise more than you can deliver. I live my life by that.
Our government does exactly the opposite. For Washington, it’s “Promise way more than you can deliver, and hope it never blows up in your face.”
Unfortunately, it is blowing up in Washington’s face. Right now! The result could be a sheer disaster for our government, and an even more dramatic fallout for U.S. citizens.
Problem: Washington is the most indebted government in the history of civilization.
Between actual borrowings and future obligations, the U.S. government owes close to $44 trillion — money borrowed from foreign private investors, governments, and overseas banks … money owed to millions of employees on government payrolls … obligations to millions of victims of broken pensions … millions who are now retiring and entitled to their hard-earned social security … throngs of people on, or about to go on, Medicare. The list is endless.
And all these debts are going to lead to one of the most massive inflationary cycles of all time.
The reason is simple: The only way the government can even attempt to chip away at the massive debts hanging over this country is by inflating its way out.
By devaluing the dollar even more, these debts become less burdensome. After all, it’s easier to pay them back with cheaper, more abundant dollars and credit.
This is why Bennie and the Fed chose to stand pat on interest rates two days ago: There is no way the Fed is going to deliberately cool the economy. They have to keep it growing — by hook or crook — or their whole house of cards could come tumbling down.
So, the Fed will re-inflate the economy, and pump money and credit into the system like there’s no tomorrow. All in a desperate attempt to avoid the twin “D” words — debt and deflation.
The pause in rate hikes was one signal.
Another is the massive increase in the M3 measure of money supply. Since May, it’s been rising at a 10% rate. That implies inflation of 10% or more down the road!
And this problem will only be compounded by two more powerful forces:
1. The current war environment will likely last for several more years, and unfortunately, it will probably get worse before it gets better. As I explained in “The Biggest Inflation Mongers in History,” war creates more debt and requires easy monetary policies.
2. The rise of Asian economies will create massive demand. Nearly three billion people — half the world’s population — are simultaneously starting to demand better lifestyles, more material goods, and additional services. This increased demand will equal increased prices.
When I add all these factors up, I reach only one conclusion: All natural resource prices will ultimately see unfathomable highs. Gold will hit well over $1,000 an ounce … oil will rise to more than $100 a barrel … gas prices at the pump will go to $4, even $5, a gallon … platinum will reach $2,000 an ounce.
You name it and the price will be higher one year from today, still higher the year after that, and even higher three years down the line.
What to Expect in the Next
Leg of the Inflation Cycle
You can tell that the next wave of inflation is already underway. You can see it in the oil price surge I told you about earlier.
You can see it in gold’s spectacular rise from $545 in May to as high as $655 two weeks ago. That’s a blistering $110 rally — almost 20% — in just over two months.
You can see it in copper, which has soared from $3 a pound on June 14 to $3.70 now. That’s a 25% increase in two months. And it comes despite the slowdown in housing.
You can see it in platinum, palladium (up 20% since the middle of June), in the recent thrusts higher in corn, wheat, soybeans, and more.
Naturally, the next leg up will not be straight up. The swings will get wilder and wilder. The stocks that will benefit will get tougher and tougher to pick. The risks will increase — but so will the rewards.
Here’s what I suggest …
First, hold all recommended positions in my Real Wealth Report.
Naturally, they’re soaring because I choose investments that protect the purchasing power of your dollars from the three forces I’ve been harping on in this issue.
You can’t change any of these forces, but you can protect yourself and prosper!
Second, if you don’t get my Real Wealth Report, you can look at a couple of diversified energy funds. A few that we like are Profund UltraSector Oil & Gas (ENPIX), U.S. Global Global Resources Fund (PSPFX), and Enerplus (ERF).
Third, keep your eyes on the companies that have loads of unexploited precious metals. That should include small-cap mining and exploration companies, and especially small-cap energy companies right now.
With oil and gas prices about to explode higher, I think the small-cap energy companies are going to be on fire going forward.
Because their market valuations are small, even the slightest surge of investor demand can send the share prices of many energy stocks flying higher than seems possible.
Consider these three examples …
- Valkeries Petroleum, a small oil company that traded its way from $1.08 to $5.70, a gain of 428%.
- Transglobe, which went from $0.48 a share to $6.20, a gain of 1,192% in 12 months.
- Producers Oilfield Services, which went from $0.35 a share to $8.60, a gain of 2,357%.
If you had invested $2,000 in each of these three stocks, your $6,000 investment could have turned into as much as $85,540!
You can’t go back and grab those gains, and neither can I. But I believe the small-cap energy stock boom has a long way to go. It could easily provide similar, even greater, profit potential.
Stay tuned for more details …
Best wishes,
Larry
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MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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