|
I hope you enjoyed your holiday weekend! Elisabeth and I certainly did. We went nowhere, did nothing and got plenty of much-needed rest. The only excitement was last night, when fireworks lit up three separate points on the distant horizon beyond our lake. Unfortunately, other kinds of fireworks are also about to go off — and much closer to home. Indeed, just this weekend, oil prices rose back over $59 … a major wire service warned of a housing bust … and we saw still more pressures building on the Fed to raise its rates in the months ahead: While we were celebrating the Fourth of July, crude prices continued to edge higher, again approaching the $60 level … getting ready to blast off to $65 … and building momentum for even higher highs. In the heat of the summer, traders are already worried about the cold of the coming winter. They see worldwide refining capacity so tight than even the slightest glitch could drive prices through the roof. They fear a price rise in heating oil, diesel oil, even jet fuel. And they’re forecasting up to $70 per barrel of crude by year-end. That’s assuming Iran is quiet, Iraq is tame and the world’s oil supplies remain fluid. Otherwise, all bets are off, and almost anything is possible. To put the oil price surge in proper perspective, take another look at this chart from chartoftheday.com. You may remember it from last year, when we first brought it to the attention of our readers. Since then, oil prices have surged from the mid $40s to the low $60s. But the fundamental principal behind this chart remains intact: OIL IS STILL CHEAP! Indeed, after adjusting for inflation, today’s $60 oil is still FAR below the historic peak reached in the early 1980s when crude oil reached the equivalent of more than $90 per barrel in today’s dollars.
The big difference? Supply! In those days, in the wake of the Shiite revolution in Iran, wide-spread fears of MAJOR supply disruptions swept through the oil markets, driving prices through the roof. Today, in contrast, despite some scattered scares — emanating from Iraq, Nigeria and Venezuela — supplies are actually flowing smoothly … for now. So you can understand the trepidation in the markets last week when Iran elected as their new president one of the leaders of Iran’s Shiite revolution of a quarter of a century ago, Mahmoud Ahmadinejad. The Iranian government denies recent allegations that their new president-elect was one of the student ringleaders of the U.S. embassy hostage crisis of 1979. They deny it’s the same man who, indirectly, helped drive up oil prices and helped bring down an American president, Jimmy Carter. Meanwhile, the former American hostages swear it’s the same man. And they should know. They spent many months in intense interaction with their captors, and it’s unlikely they would forget.
What most observers do seem to be ignoring is what I pointed out to readers months ago: The new, 21st century Shiite revolution now spreading throughout the Middle East — not only in Iraq where they are the dominant faction in power, but also in surrounding nations, where Shiites are either a majority or a substantial minority. Right now, the Iraqi Shiite leaders tolerate the U.S. presence in the region strictly as a means toward an end. But as soon as they are more confident of their foothold in power, they are bound to be a loud voice in OPEC for tighter supply ceilings and even cut-backs. And, as you saw last weak, even if they never take any actions against the West, the mere threat of such action could be enough to drive oil prices higher. Reuters Warns of Housing Boom-Bust! Also over the holiday weekend, we saw the first-ever warning of a housing bust by a major U.S. wire service — Reuters:
These words are from Reuters, mind you. Not from my Safe Money Report or Money and Markets. They confirm everything I’ve been telling you. And they represent one of your last warnings before the bust. Federal Reserve Focusing on Inflation Fed Chairman Greenspan doesn’t want to go down in history as the man who ignored the energy price explosion. Nor does he want to be remembered as the man who ignored the great housing bubble. That’s probably why last Thursday, there was NOTHING — not a word — in the Fed’s statement that hinted of an end to their string of interest-rate hikes. And anyone expecting such a statement was sorely disappointed. But the statement did contain plenty of commentary related to inflation. They talked about energy price inflation, consumer price inflation and corporate pricing power. They admitted, again, that the Fed’s policy is currently on the side of easy money, implicitly TOO easy and in need of further tightening. Most important, they clearly paved the way for many MORE rate hikes to come. How high? It’s anyone’s guess. For now, suffice it to say that even if it rose to 5%, the Fed funds rate would be on the LOW side, given the inflationary fires already spreading throughout the world economy. Heck, in years past, with far less danger of inflation than we have today, the Fed funds rate was at 6%, 7%, even 8%. Consider for example, the inflationary impact of …
How did that gallon of milk or loaf of bread end up at your grocery store? What about the lawn mower at Wal-Mart or the tennis shoes at Target? ANSWER: Two-thirds of all goods are transported on trucks. That is why the price of diesel fuel, which hit an all-time high of $2.34 a gallon last week, will ultimately affect all of us. When you’re using 35 billion gallons of diesel, any increase in its cost can add up fast. In 2004, the price of diesel averaged $1.81 a gallon, which translated into $62.6 billion of fuel costs. According to the American Trucking Association, each 1-cent increase in the price of diesel costs the trucking industry an extra $340 million in a year. All told, the trucking industry will spend $16 billion more on fuel in 2005 than it did in 2004. Do you think truckers are going to eat this extra $16 billion? Or do you think they’re going to pass these extra costs on to their customers? This is just one obvious reason why rising fuel costs will fuel more inflation … why the Fed must continue to jack up its Fed funds rate … and why all of this will have a direct impact on you and me. What can you do in self-defense. Just in case you missed them, I want to reiterate the steps Martin stressed for you yesterday … 4 Steps for Defense and Offense Step 1. Keep your money safe. In fact, we feel safety is more important today than at almost any time in recent history. That’s why we recommend you keep the bulk of your cash in short-term Treasury bills. You can buy these through the U.S. Treasury Direct program or with a Treasury-only money fund. Step 2. Boost your yield and income. That’s tougher nowadays with long-term fixed yields still low. But there are a select few investments that are providing VERY attractive yields PLUS relative safety at the same time. One company, for example, Enerplus (ERF), is throwing off nearly double-digit yields AND capital gains of more than 30% in a year. (For more details, see Martin’s special report, “Yield Plus Potential for Large Capital Gains.“) Plus, if you are a subscriber to Martin’s Safe Money Report, stay on the look-out for his next energy stock recommendation, to be released on the web on Friday, July 8, and to be in your mailbox early next week. Step 3. Hedge against more Fed rate hikes … If you have some extra money to play with … or you need a hedge against the coming financial crunch … we recommend put options on interest-sensitive stocks such as Citigroup, Bank of America and Fannie Mae. The more rates rise, the more money you can make. Step 4. Stay in touch! Markets are beginning to gyrate more wildly. The impact on your money will be swift and direct. So be sure to look for Money and Markets in your inbox every weekday, Monday through Friday. Not getting Money and Markets every day? If so, it could be due to hyper-active spam blockers. For example, last week, we heard that spam blockers didn’t like our repeated use of the words “inter—- rates,†thinking our Money and Markets issue was another one of those pesky mortg— ads. So instead of putting your Money and Markets issue into your inbox, they may have dumped it into your “junk†or “bulk†e-mail boxes. With many internet service providers, you can easily prevent that from happening. All you have to do is “whitelist†our e-address. Simply follow these instructions. Best wishes, Martin D. Weiss, Ph.D. About MONEY AND MARKETS MONEY AND MARKETS is written by the editors and financial analysts at Weiss Research. To avoid any conflict of interest, our editors and research staff do not hold positions in companies recommended in MAM. Nor does MAM and its staff accept any compensation whatsoever for such recommendations. Unless otherwise stated, the graphs, forecasts, and indices published in MAM are originally developed and researched by the staff of MAM based upon data whose accuracy is deemed reliable but not guaranteed. Any and all performance returns cited must be considered hypothetical. Contributors: Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, David Dutkewych, Larry Edelson, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Anthony Sagami, Julie Trudeau, Martin Weiss.
© 2005 by Weiss Research, Inc. All rights reserved.
|
And today, 
But it doesn’t matter. No one denies Ahmadinejad’s radical Shiite politics. Nor does anyone deny that, among all Mid-East revolutionaries, radical Shiites are easily among the most willing to use their scarce oil as a geo-political weapon against the West. 
