Wednesday, November 7, 2007


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Dear Friends:

As of the date of this post, oil prices are hovering at close to $100 per barrel. All products and services which require transportation as part of the delivery process are being forced to endure higher transportation costs, which are, as is customary, being passed along to the consumer. The world economy is still quite oil dependent. The capital markets, the securities exchanges, and many other indicators of economic stability and strength are showing the strain.

With the Chinese and numerous other oil-producing nations loudly rattling their sabers about the prospect of accepting other currencies (and perhaps even excluding the U.S. Dollar) in exchange for their oil, this bodes poorly for the value of the U.S. Dollar. While it bodes somewhat better in the shorter term for the Euro and some other currencies which compete with the U.S. Dollar, the ultimate effect will be the creation of uncertainty at the capriciousness of the oil-producing and exporting countries, and a net devaluation of all currencies in a rush for currency diversification among oil purchasers eager to hedge their bets.

Anticipate the rise to prominence of several types of products during the course of these next 24 months:

1. A spate of oil hedge contracts and other pre-emptive cost insurances;

2. A spate of currency de-valuation insurance products;

3. An upsurge in the type, number and volume of diversified currency funds and fund products available in the U.S. and elsewhere;

4. An upsurge in the prices of shares in publicly-traded "alternative energy" stocks worldwide;

5. Some token tax and other economic incentives to be promulgated by the US Government to encourage the development of alternatives to fossil fuels;

6. An increasing number of exporters (into the U.S.) unwilling to accept the U.S. Dollar as a preferred form of payment;

7. A number of innovative financial instruments which are not only backed by, but which are denominated in gallons or barrels of oil;

8. A worldwide revisitation of the notion of barter.

9. Escalating hostilities between nations which are net producers of oil and those nations which are net consumers of oil. Veiled threats couched in overtures at compromise. Ironically, this exercise will be noisy but relatively ineffective for several simple reasons, including the facts that: A) Too many unholy alliances exist between multinational companies in both camps; B) Too many net consumers of oil are also heavily invested in oil as an asset and a store of value; C) The wide-scale use of any viable, and useable substitute for fossil fuels is likely quite far off in the future (due to the preceding conflicts, and many other reasons, as is so often the case when so many parties are more deeply invested in the problem than any true solution).



Douglas Castle

p.s. Should I fill my gas tank or pay my mortgage? Perhaps I should simply consolidate, and live in my car.

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