In my opinion it is imperative that as many people as possible prepare now for very probable world-wide inflation. The “core” inflation term was set up to fool some of the people all of the time, and was designed to omit energy and food inflation. If you have bought any food or gasoline lately you may be surprised that governments gives very low figures for inflation. For example I bought a large jar of mixed nuts in June for $9.95 and in October the same thing was $14.95. With increases in transportation costs etc. and because rates have been at historic lows for several years the only way rates can go are up. When there is any economic expansion or a weakness in revenue in the US then certainly rates will rise. Canada is very much aligned to US interest rates; for example-when Quebec threatened to separate, NY raised Quebec bond rates immediately.

It is possible to lower gasoline demand in Canada and the US by switching over (initially trucking) to natural gas, but this will take time for many reasons. Even if there were natural gas stations right now it would take years for the switchover.

So how do we protect ourselves? Shares in gold mining companies are obviously a hedge for all commodities. SLI geologists as I write are standing over an immense metal containing altered rock formation. There have not been metals such as iron found in any sort of concentration for me to think that our underground mountainous anomaly contains anything other than gold and sulphides, it is only the question of how much.

For future protection for the next ten years or so my preference is that Tesoro would be sold for cash + shares in a major mining company. If it is sold for cash, then one should look for other gold and silver investments, but also consider options such as debt reduction to counteract (my) expected interest rate increases. There are other commodities that some individuals possess such as producing farmland, but for me the liquidity of gold and silver is very appealing.

I have pasted part of an interesting (for me) oil article from Weiss, written by Sean Brodrick: "Can the Saudis Save Oil-Addicted America"? This underlines my paragraphs above regarding the reality of energy increases.

“Energy giant BP forecasts that global use of energy of all types will rise by nearly 40% by 2030, led by demand from China, India, Russia, Brazil and other fast-growing countries. This surge in China’s petroleum demand is driven by that nation’s embrace of the car culture on which America is built.

Do you want some interesting statistics? The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Per that same 1,000 people, Germany has 540; Japan has 593; Britain has 525; and China has 37. So here are a couple of questions for you.

1. For how long do you think so many Chinese will be willing to forego driving cars?
2. As the people in emerging markets buy cars, what do you think that will do to global oil demand?

New-car sales in China have zoomed past U.S. auto sales, and China is expected to add 125 million cars to its roads over the next five years, with auto production targets of 30 million annually by 2016. Compare that to the United States, where only 13 million new cars were sold in 2011.

So, higher fuel prices may slow down China’s quest for cars, but it probably won’t bring it to a screeching halt. This puts more demand on the global oil supply — you’re now competing against drivers from Beijing to São Paulo, Brazil, for every gallon of gasoline — and this keeps more upward pressure on prices. The only thing that could detour higher oil prices is a decrease in demand, and that would come hand-in-hand with a global recession. Personally, I’d rather pay higher gasoline prices than have to deal with another recession.”

Thursday, March 22, 2012