by Scott Causey, GWP Resource Correspondent
The global financial system is a joke. There I said it. Its ok, I understand it stings a little at first. The latest news over the weekend is France has now nationalized CIF Group, the country’s second largest mortgage originator. Think Fannie or Freddie. Also think about the fact that S&P says France’s sovereign debt is still AAA. Right and Ron Paul actually has a shot at becoming President.
The central bank of Spain released capital outflow numbers from their banks over the weekend as well. In a word APOCALYPTIC! Year to date Spanish banks have seen deposit outflows of 368 Billion dollars or in other words 17% of there entire deposit base! The month of July alone saw 92.88 Billion flee the country. That is 4.7% of the deposit base in 30 days. This is an all out run on the Spanish banks and has been going on in Europe for years now. Gold priced in Euros shows precisely what is going on all over the continent.
The best 2 performing assets in the month of August were crude oil and Silver. Why? Doesn’t the market understand that the global economy is slowing again. Shouldn’t that result in less demand for crude oil and an industrial metal like silver?
I believe the markets realize two things: 1- further wars and chaos for oil are an absolute certainty; and 2- central banks are going to continue to print massive amounts of currency or literally see the this freight train house of horrors we call “markets” run straight off a cliff.
Debt and shenanigans within the banking system are what most of the market is focused on at the moment. While I digress that this surely has played a role, have you noticed that the oil discussion isn’t talked about the way it was in 2008 when crude hit $147 dollars a barrel? For most of the past two years we have heard non stop about how “oversupplied” the market was for crude.
Nothing could be further from the truth. The North Sea for decades has been Europe’s primary source for crude oil. This is what production in the North Sea has done in the last few years:
One of the most important sources of crude oil in the world has absolutely collapsed in production. The economy most closely tied to that production has also for all intents and purposes collapsed. Am I saying that crude oil production and all European markets are destined to go to zero? Of course not, but the challenges facing North Sea crude production are not unique to the North Sea.
Every single day on this planet roughly 85 Million Barrels of crude oil are burned that are never coming back. Also every day oil production companies are in a non-stop race to locate new reserves. What doesn’t help that process at all is the incentives for the oil industry to actually produce these new found reserves.
In other words, is Mr. Market going to give me a crude oil price of 30 dollars like in 2009 or 147 dollars like in 2008? The world we live in has never been so uncertain. That applies for individuals and for big oil companies.
Yet longer term trends are what have the potential to compound your wealth. Think of investing in Apple at 5 dollars a share when Wall Street had all but announced the company as dead. Or buying Exxon stock in the late 1990′s when crude oil was under 10 dollars a barrel.
The certainties that investors can count on today are further currency debasement IE inflation, and energy will become harder and harder to produce on a scale large enough to merely keep production flat – something that has already occured since 2005.
Ignore the day to day noise and realize the trend is your friend. Slower or zero growth due to oil constraints in a best case scenario (no further war in the middle east) means higher debt loads for all developed nations. Not exactly ground breaking news for you at this point, I would hope. The mantra from the masses will be “Do Something”. I agree totally. Short a local currency in Gold and Silver today while you can still afford to buy any.