Bob Moriarty of 321Gold says that since the crash of 2008, the financial system has become a zombie, and he urges investors to pay attention to when they take some money off the table.
The world's financial system died in mid-September of 2008. Since then it has become something out of Night of the Living Dead, in other words, a zombie. Central banks around the world came up with an interesting new concept that you could somehow borrow and spend your way to prosperity. Great concept but it seems to have failed utterly.
We have a zombie financial system now and the world owes more than at any point in history. Most governments are functionally bankrupt yet they want to borrow and spend more in the hopes that if it didn't work before, maybe it will somehow work if they do more of it. Our grandchildren and their children are going to be paying for this monumental stupidity. Continue reading "A Zombie Financial System, Black Swans and A Gold Share Correction"→
The Energy Report:Bob, in January you published an article saying that the drop in oil prices could be the "straw that pops the $7-trillion derivative bubble." Can you explain the influence of oil prices on derivatives?
Bob Moriarty: It's not the oil prices that are significant; it's the change in oil prices. If you own an oil field and it costs you $75 to produce a barrel, at $110 a barrel ($110/bbl), you're OK. If oil drops to $45/bbl, you're in serious trouble.
In the shale oil sector, producers were taking out hundreds of billions of dollars in loans to finance shale oil that was costing them about $110/bbl to produce. It looked good on paper, but was a disaster waiting to happen. A lot of people in the shale oil business will soon be going out of business.
This could start World War III. The United States is the biggest oil producer in the world today, and Russia is number two. Russia's economy is based on oil priced at $110/bbl. They are very angry at the U.S. and Saudi Arabia for the games that have been played in oil. Oil at $45/bbl is not sustainable. It could bring down the world's financial system all by itself.
The real cost of energy today is $60 to $70/bbl. In the last piece I did with The Energy Report, I said $75 to $100/bbl oil was the new normal. That's still true. Oil is way below the cost of production, and that's going to hurt a lot of people.
The Energy Report: In your Gold Report interview last fall, you said that the two biggest reasons for the erosion of the middle class are peoples' inability to save money due to low interest rates or low wages, and higher taxes, especially the hidden taxes we end up paying.
Bob Moriarty: Yes. I think there are 37 taxes on a loaf of bread. Taxes have increased dramatically over the last 20 years, including what are called the "unclaimed taxes."
In an article James Gruber wrote on peak oil last month, he made the point that debt is actually a future call on energy. Under the General Agreement on Tariffs and Trade, when you owe money, you've already spent the energy. He argues that the economy is an energy system, not a monetary system. He's absolutely correct, in my view.
"The enormous increase in wealth we've seen worldwide over the last 150 years has stopped."
The enormous increase in wealth we've seen worldwide over the last 150 years has stopped. There will be no more growth. From a mathematical point of view, you cannot increase growth. Energy consumption per capita has to go down, and that means wealth goes down. All the debt we've accumulated is a noose around the neck of society.
TER: Gruber also wrote, "Deflation is winning the battle over inflation." His argument is that excessive debt has to be deleveraged and in that deleveraging process, asset values will plummet. Central banks are doing whatever it takes to create inflation in an environment where deflation is really the underlying tide. What do you have to say about that? Continue reading "Food, Water and Fuel Are Necessary to Life and Investors"→
The Energy Report: In September 2012, you described $100/barrel (bbl) as the new normal. What market factors are behind today's price of $93/bbl?
Bob Moriarty: If the new normal is $100/bbl in any given market, the price should be as high as $115/bbl and as low as $85/bbl. The price will continue to swing around that. Even with the Bakken coming on-line and other domestic U.S. production occurring in the U.S., cheap oil is gone.
TER: So when you look at oil consumption, do you look just at the U.S. or do you look globally? For example, what role does China play?
BM: I am concerned with U.S. consumption as a measure of how the economy is doing. Oil use in the U.S. has been declining since 2008 because economic activity has been declining since then. I think oil consumption in the U.S. is thebest indicator of economic activity because there is direct correlation between the two. [See first chart below]