Tuesday, April 29, 2008


I just caught a blurb on TV that energy demand was down by a one month record. The big turn is still happening even though it is still hard to see. The rate of change in the decline of the US dollar slowed months ago. Even so, the last dip a couple of weeks back hit an even lower low and the price of oil has since hit a higher high. The momentum has certainly turned. Central banks around the world have been forced into a fight with inflation. Growth is being sacrificed in order to tame rising food cost which represent a high proportion of consumer spending in the poorer of nations.

One of the most powerful ways to fight inflation is to substitute grain for meat. A poor man can save about 85% on his food bill by eating rice and beans instead of meat. The substitution of grain for meat is happening, which means there will be a decline in the animals on the planet. This year there will be both an increase in production of grain and a decline in the demand. GM just announced the closing of another truck/suv plant. Small cars are being substituted for gas guzzlers. The price of commodities will fall.


A few years ago, only a crazy man would have drilled a four mile long gas well. Today, wheat farmers in North Dakota earn revenues from pipes that run up to 4 miles below their farms. Hydraulic pressure is repeatedly applied along the four miles to fracture oil and gas bearing rocks. There are literally trillions of barrels of oil and oil equivalents under ground looking for a way to get out. The increases in production in Montana and North Dakota continue. The same technology is being applied to another massive field in Pennsylvania and West Virginia.

This morning, the major airline stocks are headed up. NWA is up 14% and DAL is up 9%. Airline stocks are bouncing up and down inversely to the price of oil in the short run. The long term move is up and up some more.