Hi Folks,

I got this email on Saturday discussing the current situation regarding energy, monetary policy, and MENA, (Middle East North Africa). In short, the current conflict will not die peacefully in the near term and consequently we will see higher oil prices for the foreseeable future. The writer is very correct in noting that conflicts don't end until one side is exhausted. As neither side in any country is exhausted, and with a power vacuum now in place in Egypt and Tunisia and potentially other nations in the region if there is a regime change, we are looking at years of greater instability. This places alot of uncertainty over the supply of oil. Further, despite Saudi Arabia's commitment to making up for any lost volumes, their oil is heavy and sour compared to the lighter and sweet oil currently affected coming from Libya. It's like Saudi is offering to replace apples with cherries: they are both fruits but not the same in type, size, or value.

Regarding monetary policy, they note below that QE2 will continue and the US will continue to print money to fund their deficits and stimulate growth. This means the continuation of the devaluation of the USD. It also means higher inflation and commodity prices. They also note the lack of an energy plan has left the US susceptible and this ultimately means the continuation of the "stimulative" measures that have led to the decline in the USD. Can this be reversed? Yes. Practically and in a timely manner? No. However, a great start would be to get going on the Pickens Plan and utilizing natural gas as a transportation fuel. The US has an abundant and growing supply of natural gas which could be used to offset foreign oil imports. That's not necessarily negative for Canada as we should do much the same and export our oil to Asian markets in order to maximize our resource advantage.

Bottom line: The USD will continue on a weakening trend, (except for the odd flight to the USD in times of turmoil), Canada looks good and in particular our resource industries as a place to invest, and Brazil is looking attractive given their resource base and growth profile, (similar to Canada but with more infrastructure investment and higher economic growth).