Monday, June 12, 2006


Another 100 million barrel field has been found. A few months ago, I wrote about the huge new find by Connoco. This week DNO, a Norwegian Company, announced its recent find to be over 100 million barrels.

Many folks do not believe me but I am confident that the price of oil is going to go down. The reason is simple economics. The price is ultimately set by the cost of the "marginal producer". The tar sands of Canada are producing huge profits at today's prices and production is steadily increasing. At a Coal to Liquid conference yesterday, it was reported that Coal to Liquid technology is now capable of producing fuel at $35 to $45 per barrel. This morning it was announced that Iraq has restarted pumping oil through Turkey. This will have the immediate effect of adding about 500,000 barrels per day to the current burgeoning supplies in storage. Crude is trading down about $.68 per barrel today. Iran has until June 29 to accept a deal.

The recent collapse in the price of Gold, Aluminum, Copper and Lumber is a great indication that the central banks of the world have gotten "on top of the curve". The great Stan Salvinson used to say that inflation is "bingo, bango, bongo". Bingo is the phase where employee wages go up too much, bango is the phase where commodities go up too much and bongo is the phase where interest rates go up too much. By the time you get to the interest rate phase, inflation is being pushed up by all three. However, the rise in interest rates slows down employment growth and commodity prices and then interest rates can follow the others down, before starting the cycle all over again.

The good new is that growth and technology stocks do well when it becomes clear that inflation is not out of control. The price of Gold, Silver, Copper, Lumber, Oil, wages and more are telling us that inflation is not out of control. Indeed, lumber is close to a five year low. Home builders will use less lumber, copper and other goods as the market takes a breather. Bonds will rally on the news that inflation is dying. Stocks will follow soon thereafter. Add to your investment account today and send me an email to take advantage of the coming BULL MARKET SECOND LEG!