For many months, energy, metals and other commodities were rising steadily, building slowly.
And for many months we have been telling you to prepare for the day when a firestorm of buying drives their prices through the roof.
Now, that fateful day has arrived.
Crude oil has just catapulted to new historic highs, surging past the $66-per-barrel level, zooming toward Larrys near-term target. (More on this in a moment.)
Sure, Wall Street pundits are blaming it on a fire at a Sunoco pipeline in
But you and I know better. We know the surge is really driven by one of the most tenacious and powerful demand thrusts of all time. And with this knowledge, were cashing in.
OIH, for example, the oil service exchange-trade fund Ive been tracking for you here, has been moving higher so steadily the only chance investors have had to jump in is with minor corrections that often last no more than a couple of hours. (This is not a daily chart. Its a 5-minute chart, showing just the last 10 days!)
We got one such window last Friday and we got another one on Tuesday of this week. But unless youre on top of it, these windows shut down quickly, and before you know it, this index is sitting at a new, higher plateau.
Its a great market for taking flyers on low-cost, limited-risk stock options. But its not so great for late-comers to the party yearning to load up on the shares at a bargain. (But if youre among them, Larry will have some pointers for you in a moment.)
Meanwhile …
Gold has skyrocketed to $447 per ounce … nearing 16-year highs … catching Wall Street completely by surprise … and prepping for the still-greater explosion to the $500 level that weve been telling you about.
In this case, Wall Street pundits are saying very little. Their hidden agenda, it seems, is to burry gold bullion back in the ground and make gold investors twist in the wind.
But you dont have to worry about them. While theyre pursuing their little agendas, you can be making your big profits.
Yesterday, for example, North American gold stocks, including those weve been recommending, leaped 4% to their highest levels in five months, driven by the skyrocketing bullion, the run-away oil, the sliding dollars, and, dont forget, by all of the explosive inflationary forces that are now beginning to careen out of control.
The surge in oil, gold and other commodities is the markets answer to Mr. Greenspans wimpy, mealy-mouthed, gutless and toothless, measured-pace monetary policy. Its also the markets response to people who try to play games with Mother Nature.
They get their head handed to them on a platter. They get slapped. And among those sheepherding the worlds softest currency (the dollar), no slap in the face is greater than the surging value of historys hardest currency gold.
The Long-Term
Commodities Boom
If this were just a short-term phenomenon, I wouldnt be dedicating so much space to it. But its anything but.
In late 2001, the Commodity Research Bureaus index of commodities futures was trading in the low 190 area. Now, in early August, it has surpassed 320, up over 68%.
Moreover, while the stock markets overall performance has been erratic, the performance of the commodities has been steady:
In 2002, the stock averages fell, but commodities marched higher …
in 2003, stocks rose, and commodities continued to rise …
in 2004, stocks were mostly flat, but commodities rose again, and …
in 2005, stocks have been flat, but commodities have risen even more.
And now, we see nothing on the horizon that can overturn the growing imbalance between demand and supply. Nor is the growing demand just a passing phase: We are smack in the middle of one of the most dramatic population explosions this planet has seen since the agricultural revolution in the early days of civilization.
When will we see an end to this huge growth spurt in the world population? Probably not before the middle of this century.
So if youre waiting for the population-driven demand for commodities to ease, youd better be both patient and young. Because it could take at least another 45 years.
Wall Street STILL
Doesnt Get It
All this is telling you something that inflation is not the tame pussy-cat that Wall Street and
Maybe they think that to manufacture a jam job and send the Dow up 91 points on a Thursday, all they have to do is convince enough people that cars, planes, semis and backhoes run on magic water.
At what price for oil will Wall Street finally start paying attention? $70 a barrel? $80? I cant tell you. But the day is certainly approaching when even the Jack-and-the-beanstalk crowd has to cry uncle. And I cant imagine that critical price level being very far away.
Sweetheart Car Deals
Goose Retail Sales
The 1.8% increase in July retail sales means our consumer-driven economy is going gangbusters, right?
Wrong!
Wall Street was expecting a 1.9% gain, so retail sales were actually a bit below expectations. More importantly, the bulk of the gain was from a 6.7% jump in auto sales. And as you know, auto sales are up strictly because the Big Three automakers have been going wild with their deep-discount employee prices.
The surge in gas prices had transformed most of
What do the nations retail sales look like if you back out the auto sales numbers? Up no more than a paltry 0.3% in July. (The consensus expectation for retail sales ex-autos was 0.6%.)
And guess what else helped boost sales in July! Gasoline! So if you back out auto AND gas sales, youre left with a retail sales increase thats actually close to ZERO PERCENT!
Oil Reaches Beyond
Just the Gas Pumps
On Tuesday, Alan Greenspan and his Fed buddies affirmed their idiotic claim of low-to-no inflation. “Core inflation, they said, has been relatively low in recent months and longer-term inflation expectations remain well contained.
Yeah, right.
Let me give you two personal examples of how $60-plus oil is costing my family more money.
Yesterday, I called Papa Johns for our standard delivery order two pizzas, one cheese, one Canadian bacon. But when our pizza arrived, it came with an extra item I did NOT order a $1 fuel surcharge!
Our restaurants have felt the pressures on the food-cost side due to the higher ingredient costs related to fuel, says the company.
OK. Ive heard of fuel surcharges for airline tickets. I could even understand surcharges from a company like FedEx or DHL. But pizza?
Meanwhile, the 36-year-old house we bought recently was badly in need of a new roof. But the real estate market here in western
In our case, the good news is that, after a three-month wait, they finally started work yesterday. The bad news is that our cost for new asphalt shingles jumped from $39 a square to $42 a square, a whopping 7.6% increase just while we were waiting for the contractors to show up.
Reason: Asphalt roofing shingles are a petroleum byproduct.
Now, an extra $1 for pizza delivery and an extra $3 for shingles arent going to kill me. But it just goes to illustrate how far out of touch the pundits are. That includes Mr. Greenspan, the government number crunchers, and anybody who tells you inflation isnt a problem.
Next Stop on the Oil
Market Express Train: $75
Bullish should not mean blind. I see oil zooming. But I also keep my eyes wide open for anything that might get in its way.
Thats especially important right now with oil busting out beyond $66 this morning … with oil news hitting the headlines … and with investor emotion heating up.
But coldly and objectively, I think the next stop for this oil market express train were on is $75 per barrel! Thats my near-term target, and heres why …
First, oil prices are rising even though
Normally, rising stockpiles signal that demand is falling and prices should come down. But thats not happening here.
Why?
Because
*
* The world has changed dramatically in the last twenty years. Between
* Although the
* That means that over 95% of the worlds population can affect oil inventories in dramatic ways that are not being reported, or at best, are reported with a long lag.
Second, although oil has exploded higher, its not yet off the charts. Quite to the contrary, the charts show it still has plenty of upside potential left on this move to about $75 per barrel. Any correction should find solid support at $62. And even in the worst case scenario, I dont see oil correcting further than the mid- to low-$50s.
The key point to remember: With each new phase, the up-and-down swings are getting wider and wilder. And right now, were in the midst of an explosive upswing.
Third, nearly all of the same, powerful, supply-and-demand forces that have driven oil from $30 to $65 are still firmly in place today.
Oil Takeovers:
The Boom Is
Just Beginning
Just in the past two weeks weve witnessed over $7 billion in mergers and acquisitions in the oil and gas industry. A solid beginning. But merely the first phase.
Unlike the merger frenzy of the tech boom which was based almost entirely on huff and puff, the takeover boom in oil and gas is based on real assets with real value. And its driven by actual demand for the most important commodity in the world.
That gives this merger and acquisition spree much longer legs. Compared to what weve seen historically in other industries, I expect the oil merger boom to be more sustainable, involve fiercer competitive bidding and generate more profits for investors.
The takeover boom in oil is a natural consequence of the worldwide scramble to secure diminishing supplies of a mission-critical commodity in limited supply.
Recommendations
for Late-Comers
If youre not already on board with investments that are already soaring in this market right now, what do you do?
Just follow these steps:
1. Decide how much you are comfortable allocating to oil stocks or oil stock options. Lets say its $30,000.
2. Split that figure in half.
3. Put the first half in the investments weve been recommending. If youre relatively risk adverse, use the more conservative vehicles like Canadian royalty trusts that aim primarily for yield. And if youre relatively aggressive, go for the call options that have been generating up to triple-digit gains.
4. Unless youre a very sophisticated investor, stay away from speculation in futures contracts. And dont borrow to invest.
5. Keep the second half of your allocation in cash. Save the ammo for the next correction. It may be a very short one like we saw on Tuesday. Or it may be a bit deeper, after oil hits my targets. Either way it should be a great buying opportunity.
6. If you want to join the charter members to my Energy Options Alert, dont delay. This morning when I checked, there were only 53 slots left. I figure theyll be all gone by Sunday night, or sooner.
Best wishes,
Martin Weiss,
Tony Sagami and
Larry Edelson
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. 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. Contributors include Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
