Friday, September 08, 2006


Since the dawn of time, people have worried about the coming of the end of time. Hundreds of books and movies have been written about the pending doom. Individually, we all should "get right with God" because our death in this world is near. As King David said, "death is only a step away". No man knows when the world will end.

John Nelson Darby, is the father of a Christian movement that "has predicted or predicts the end of time". A few years after Darby "interpreted" the book of Revelation, a scientist from Sweden, Svante Arrenius, first proposed the concept of "Global Warming". Today, the disciples of the one group see the world ending "soon" at the hand of God and the disciples of the other group sees the world ending "soon" at the hand of man.

Some years before Darby and Arrenius, Thomas Malthus postulated that exponential population growth would eventually overwhelm agricultural growth. The world is doomed because excessive demand for resources creates social and political unrest.

Today, tangents of all three concepts swirl around the earth in all sorts of varieties or combinations. The one theory is used to support or defeat the other, which ever is most convenient at the time. A recent article in the Economist Magazine, "The Heat is On", is written to say that Global Warming is the "real problem".

In 1975, the Newsweek front cover article, "The Cooling World", supported Malthus at the expense of Arrenius. The article said, "... a drastic decline in food production..." was at hand because of the cooling world. Those who continue to "push" the "Malthusian model of disaster" have run into a major problem, instead of geometric growth in population, since the 1970's, we have seen geometric growth in food production. Indeed, a growing number of industrialized nations are now headed toward population decline while enjoying the luxury of employing ever increasing numbers of citizens in service work, including religious, medical, educational and artistic pursuits and employing ever fewer citizens in agricultural and manufacturing jobs.

In 1956, Marion Hubert, an American Scientist, postulated that world oil production was nearing the peak. Malthusians have jumped on his theory and, again, one would think the world is coming to an end because we are running out of energy. They keep having to slide the date back, but boy it sure is going to be bad! The big problem for this group is the first law of thermodynamics which says that energy is always conserved. The extra energy being "trapped" by the greenhouse gases of the "Global Warmians" means that the planet earth is continuing to be a "carbon sink" which enjoys a growing supply of energy. The extra energy is being used to grow more plants which in turn can be used for food or fuel.

I have written the above very abbreviated history of "gloom and doom" thought in order to say that smart investors should "slay the dragons of old". It took a very long time for man to realize that fire breathing dragons were not going to "kill us all". We all need to become rational environmentalist and rational conservationist. We should not cut of our own nose to spite our face. We should do our share to make this world a better place without forcing our solutions onto others. You need to have windmills in your neighborhood whether you want them or not. There is a lot of manure in this world and some would like to shovel their pile into your back yard.

Speaking of manure, the stuff emits methane gas that is 20 times as powerful a greenhouse gas as is carbon dioxide. One of the 39 ethanol refineries now being constructed in America is a plant that will convert billions of pounds of manure to ethanol. The beautiful part of the process is that the methane gas emitted will be the energy used in the conversion process.

Folks, there are powerful forces at work in this old world of ours. Thermodynamics is the study of effects of changes in temperature, pressure and volume on physical systems. When a system is in equilibrium it is in what is called a definite state. When external forces push the system out of equilibrium "corrective" action is needed. The good news is that man is only an extremely small player in the system of the universe. We can and will do our part in little ways, such as eliminating the methane gas produced by billions of pounds of manure, but the real "work" will be done by more powerful forces.

Sir Issac Newtons third law of motion which states that actions invoke an equal and opposite reaction, applies to the "correcting" process to keep this old world in a state of thermodynamic equilibrium. From 4th grade science class, we all know that plants absorb heat and CO2. The heat and CO2 that is causing such great alarm is being met by an enormous Newtonian reaction. Even if one accepts the "Warmist view" that the temperature of the earth has increased by 1 degree over the past 100 years, this degree will ultimately go into growing more plants. As long term readers know, the USA has added 80 million hectares of trees over the past 100 years.

Without a doubt, there are trillions of barrels of oil available to help us conserve trees, topsoil, water and other natural resources. Economically and environmentally, it makes no sense to plow, fertilize and pesticize millions of acres of prime farm land in order to grow corn for ethanol. Now that the first "extra large pool of oil" in deep Gulf of Mexico waters has been physically confirmed, over the next several years, the "peak oil alarmist" will fade into the background. As more and more facilities are built, and as more and more processes altered to eliminate waste gases, the warmist will eventually become the dragonist of old.

We live in a "brave new world". A world where more poor hungry people have received "extra" in the past 10 years than at any other time in history. Much more needs to be done. According to C.K . Prahalad in "The Fortune at the Bottom of the Pyramid -- Eradicating Poverty Through Profits", the 4 to 5 billion "under served" produce a total GDP of about 13 Trillion Dollars per year.

I can't cite the numbers but I can assure you that the growth rate of computer chips manufactured has been greater than the population growth rate for a long time and it will continue to be greater for an even longer period of time. As the price decline continues and the availability and power continues to grow, silicon chips are going to help transform the world. Knowledge, communication and freedom are strongly related. As Parhalad says, "markets enable dignity and choice".

The world is on the verge of a great leap forward. It is sometimes difficult to be optimistic when terrorist bombs have recently exploded in scores and scores of countries around the world. However, progress is being made and the pace of progress has increased. Because this point has been argued for ages, I don't expect to "win the debate" here and now. My bottom line is that I want to do all I can to help and the more money I make, the more I can contribute.

A reader sent me a word of congratulations for calling a decline in the price of oil. I must say that the totality of my forecast has not come true yet. The "consensus of the experts" makes me all the more hopeful as the experts agree that the $65 per barrel price will hold at least through the end of the year. Few see a $50 price in fewer than 3 years and I must say that a gradual decline would be as nice as any. With car sales booming in China and many energy projects only partially completed, I try to avoid short term calls but supply and demand does work and we have never had as much in inventory. My call of a return to $30 per barrel oil in three to five years is a slam dunk when one understands that huge profits are available on Trillions of barrels of oil available at that price. My optimism includes my belief that politicians will get out of the way and let drilling comnce in other rich areas of the Gulf. The deep Gulf supplies are far enough from shore to avoid the "state tariffs" being demanded.

Stock prices are also easy to predict. In the short run they will fluctuate and in the long run they will rise faster than other investments. Instead of running around in fear of dragons, it is time to BUY STOCKS! If you'd like to talk about any specific stock area, write me