Category: Economics & Investing

Mr. Rawles I read your blog often, thanks for the entertaining and informative site. I would like to comment on David from Israel’s post regarding Chevron’s oil strike in the gulf. I work for a very large E & P company and have many years experience in drilling and production. There is nothing holding back the exploitation of this field except time to build the facilities and and acquiring the drill ships (cost $500,000+ per day for the ship) to punch the holes. We routinely produce gas and oil from 24,000′; the depth of the water does not really matter …

There is a big problem with counting the Chevron Oil strike in the Gulf of Mexico because of its depth. This hit that is estimated to be large is also inaccessible using current equipment. Chevron and two other companies had to go 7,000 feet below the warm water layer of the Gulf of Mexico, and then drill miles below the sea floor for a total depth of 28,175 feet. For comparison this is cruising altitude for an airliner, compare that depth to the 69 foot depth of the first commercial oil well in the USA. We need to first design …

Jim, This is just my opinion, based on years of observation (rather than facts and figures) but I think I know where most of this is coming from. Politics. The oil companies are thriving under Bush/GOP rule and so they’re playing their part like they so often do, rolling back the source of so much anger and irritation (gas prices) and giving the false sense that things are “getting better”. I fully expect them to rise again, quickly, right after the election. Bush and company will restart their massive theatrical performance of real and implied violence against oil producing nations …

Dear Jim, My recommendation for an investment metal is palladium. The first thing we need to look at in relation to this is rhodium. As can be seen in the Kitco charts, rhodium’s value has gone to insane levels, due to a combination of supply troubles–Russia and South Africa are the primary sources, and neither is tremendously stable–and demand issues. As China and India develop, all the commodities will be more in demand, and India has made great strides in the last few years as is noted from this Indian American blogger. So the industrial metals in limited supply will …

You’ve surely noticed he recent huge drop in the price of crude oil (currently at around $62.50 per barrel, down more than 21% from its July peak of $78.40 per barrel.) Simultaneously, we have seen smaller, yet significant drops in the prices of gold and silver. (See the 30 Day gold and silver charts at Kitco.) Gold has dropped about 11%. The declines in the prices of the precious metals can be attributed to gut level trades made by the big institutional investors. Decades of experience has taught them that when oil moves significantly, then gold and silver will move …

Jim: Dr. Kurt Richebächer’s “A Tightening Farce” featured in Wednesday’s September 13th, 2006 edition of The Daily Reckoning makes three salient observations about the way asset inflation in the housing market leads to economic dislocation. Item: “Housing price busts have larger wealth effects on consumption than the equity price busts [do]…” Item: “All major banking crises in industrial countries during the postwar period coincided with housing price busts.” Item: “The disinflation increased the real burden of debt, which exposed inflation-related overinvestment and associated financial frailty." A stock market crash primarily affects discretionary spending; a housing market crash will leave many …

Mr. Rawles: I’ve been following the articles you post about the impending housing bubble burst, and I happened to see this article about Adjustable Rate Mortgages (ARMS) that backs up some info you had posted not too long ago. One interesting statistic I saw on page 4: “More than a fifth of option ARM loans in 2004 and 2005 are upside down — meaning borrowers’ homes are worth less than their debt. If home prices fall 10%, that number would double.” So 40+% of mortgages would be upside down, in an only 10% depressed market? Not looking good. I rent …

James: I’ve been trying to figure out whether we’re going to go hyper-inflationary or depressionary when the ESHTF (Economic Schumer Hits the Fan). We’ve all been watching the .5 to 1 trillion in ARMs that are going to reset in 2007. Will this be what topples our economy? My money says yes. Here’s the housing bubble as I currently understand it. 1) 20% (more in California) of mortgages are adjustable rate mortgages (ARMs) 2) 50% of people lie on the mortgages applications overstating their income 3) Many brokers lie to the borrowers about how fast the payment will go up …

Just a heads-up, lots of folks in place like California where non-recourse loans are mandated by law (at least for homes) feel pretty smug, thinking that even if they get upside down on a mortgage they can walk away without repercussions. Bad news: the IRS considers the amount of the loan “forgiven” by the bank to be income. That means, to use California numbers, if you owe $500,000 on a house which sells at foreclosure for $200,000, you now owe income taxes on your $300,000 in income you just “received”. Just a quick “report from the ground”, I live in …

James, Great site. Keep up the great work. Here are two interesting links about the market dominance of ethanol in Brazil: CBS News and Washington Post. Brazil plans to be energy independent by next year, based on conversion of sugar cane to ethanol. In comparison, the ethanol extracted from corn yields only about 15 to 25 percent more fuel than the fossil fuels that were used to produce it. In Brazil, according to industry studies, the sugar-based ethanol yields about 830 percent more. Sugar cane may not the answer here in the US, but it does show what can happen …