These Things I Know

We are in a rare era, where there are dynamics in the economy that are both highly predictable and contrary to almost all conventional wisdom. They're predictable because they are based on almost timeless human tendencies and/or well-established modes of economic behavior. There is an enormous amount of money to be made that will almost certainly NOT be made - at least not by the right people.

The events will be life-changing, but maybe that's why we can't see them. Maybe we're not supposed to see things that are life-changing. More on that later.

Anyway, let's start big, with the big stuff people always talk about:

Global warming: It's important, but it's not going to happen quickly enough to play a role in this scenario.

Islamic terrorism: Forget it. It's an effect, not a cause of anything.

China, India, the BRIC: Try and remember that these are still developing nations, not super-powers - not for a while. If you're Chinese or Indian and reading this, this isn't an insult. This is a statement of fact meant to put the economic situation of your country into perspective. As huge and fast-developing as your countries are, there are ENORMOUS economic threats to them - so listen up.

Oil/Petroleum: Now we're at something that does matter - just not in the way people think. "Peak Oil" has been reached - at $70 a barrel. We have seen a peak of $70/barrel crude oil. By this I mean that production and transport from all the world's fields that are profitable at or below $70 (and obviously I'm using a rounded figure here), has very likely peaked or will soon. But that doesn't mean the big "Peak Oil" that everyone talks about, by which they mean something more like "Peak Petroleum". Because at, say, $100/barrel, substitute goods come onto the market for crude oil in large amounts. The most important are obviously bitumen - as in the Canadian oil sands - and CNG/LNG - compressed or liquified natural gas. They're not as good as crude for fuel needs, but they work - just at a higher price. And both bitumen and natural gas are arguably even more abundant than crude oil - but then world demand is going up, so they'd better be.

No rational person can do anything but hope devoutly that humans outlive their oil supply. That's going to take significant work, but the medium-term significance of what I'm calling "Peak $70 Oil" is that it solidified the "peak oil" story. That story swept across the investing class of people around the world. It has been used to sell what may be the biggest and most dangerous financial bubble ever. Traders are now the dominant force in world markets - traders themselves - and they are trapped by their own behavior.

Gold: Don't make me laugh. Well, okay, to be fair, it probably does have a role for people in developing countries.

The U.S. Dollar: It's everything.

The Euro: Everything else?

May you live in interesting times