Agora Financial’s Rude Awakening

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Tunis, Tunisia

• Saudi agrees to pump up the volume of the world’s oil rations,
• Declining well production, meet soaring human population,
• Getting exactly what you pay for in Africa and much more…  

Joel Bowman, reporting from the northern most point in Africa…

Nothing destroys the “romance” of cheap travel quite like roaches in the bunk. But first things first…

We ended last week’s tumultuous ride with a little reprieve for trader’s jittery nerves. The markets rallied into the weekend, rebounding off the week’s lows on Wednesday. The DJIA closed on 12,307.35, up over 165 points on Friday alone. The S&P and Nasqaq followed suit; the two climbed 1.5% and 2.09% respectively.

Gold inched higher overnight and early this morning, up eight bucks to around $881 as of this writing. Oil, meanwhile, hovers stubbornly around the vertiginous $135 mark.

The big news in the crude markets over the weekend was Saudi’s decision to up the rest of the world’s oil ration by half a million barrels per day. Ban Ki-moon, the spokesperson for all nations united, was able to convince Saudi’s King Abdullah to pump up the volume on account of protests erupting around the world.

Abdullah was responding to around 60 countries, according to one UK daily, who joined diplomatic hands to approach the gatekeeper of the well. “Please sir, can we have some more?”

A King’s benevolence, the realists remind us, is rarely dispensed sans caveat. Abdullah requested governments, particularly those in the west of Europe, lower their taxes on gas and warned that insidious speculation in the market is driving prices.

The South Korean UN General himself acknowledged the gravitas of the situation. “Unless we properly manage these issues,” he cautioned, “this may create a cascade of all other challenges and prices, affecting not only social and economic issues but also creating political instability.”

Which brings us to the emerging markets’ of the world…

They rise faster and fall further, but how will the fainter voices at the diplomatic table cope with the shortage of resources and common sense? Southeast of our Tunisian post, in Egypt, men are slitting each other’s throats in the breadlines. To the northwest, in the UK and scattered hotspots around Europe, truckers block the main roads, protesting the soaring price of oil.

Everywhere we look we see too many after too few; a surplus of mouths battling over a shortfall of rice; a cavalcade of vehicles jostling for a place at the pump; a glut of greenbacks bubble-hopping in search of too few stores of true value. What does this spell for the markets and, on a much larger scale, for the human beings that participate in them? Bill Bonner offers some thoughts on one bubble that has been inflating at a frightening rate for quite some time. Enjoy and send your thoughts to us below…

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Three Little Facts and the End of the World
By Bill Bonner

We left off last week staring into the gates of Hell. Today, we go back to laugh at the devil.

Let us look at our first fact. It is about us – the growth in human population. While the rate of growth has gone down since the 1960s, the actual number of humans is increasing faster and faster. The world’s population was only about 3 billion in 1970. Now, it adds that many new faces every 30 years.

If it continues at the rate – which demographers say it will – we will soon run out of food, water, and parking places.

But every generation faces the furnace at least once or twice before it finally gets fried. Apocalypse comes and goes. Barely had Christ shaken the dust from his sandals when Saint Clement I predicted the second coming; the world would end at any moment, he said. Many were those who expected the world to end in 666, a year that carried the ‘mark of the beast.’ And in the early 19th century, the Millerites believed the world would end precisely at the close of October 22, 1843. They gave away their property and gathered on hilltops to await the end. At least one man with an extraordinary confidence in his pocket watch leapt off a barn roof at midnight, expecting to be taken up to Heaven in the moment of rapture. Like an investor, he got what he deserved, not necessarily what he expected. The night became known as the “Great Disappointment.”

Near the end of the first millennium, German Emperor Otto III interpreted a solar eclipse as an exterminating omen. At the end of the second, it was a computer glitch that spelt annihilation. If the computers failed, said the doomsters, the control systems for trains and trucks wouldn’t work. And the banks wouldn’t be able to honor checks or pay out cash. No money. No food. Millions would starve.

The history of the financial markets, too, is full of great disappointments.
In Britain’s commercial property market, for example, developers thought they were in heaven just two years ago. Hammerson’s share price more than tripled in the 3 years from ‘03 to ‘06, as the City seemed ready to take up every new square foot – at a premium price. Higher prices begat further construction which begat more commercial space, which begat a glut, which begat a bust.

Strutt & Parker says commercial property prices in the Southeast are down 25% in the last 6 months. Turnover in the commercial property market fell 75% from the levels in early ‘07. And Hammerson has seen its shares nearly cut in half.

The same process of over-doing it led to the current correction in America’s residential housing market…and will probably hit its commercial property market soon too.

And there you have both the good news and the bad. Delusion is self-limiting. Success is self-correcting. And prosperity brings its own punishment.

Today, the mother of all bubbles is expanding fast; the gates of Hell open wider than ever. Humans are replicating like plastic bags. They blow across the streets and accumulate in bad neighborhoods. Many experts await a Malthusian catastrophe; they see it as a mathematical certainty that food and water cannot keep up. From Nature’s point of view, mankind is destroying the planet – by over fishing, over consuming, over producing, and over doing it generally. Bad news for glaciers and sea turtles. From man’s perspective, it is the planet that is letting him down. He goes about his business – begetting all he can – and then he discovers his car is out of gas.

Another fact: Oil output is expected to decline at about 2% per year beginning in 2010, while population grows at 1% per year.

Of the world’s 65 leading oil fields, 54 are now in decline. And the rate of discovery of new deposits of petroleum that can be accessed by conventional means has collapsed. In the early ’60s, the world’s drillers were finding nearly 60 billion barrels of new oil deposits each ear. In the early 2000s, the rate had fallen to less than 10 billion per year.

Finally, here is another fact: Over the next 2 decades, the average supply of water per person, worldwide, is expected to drop by a third.

Is that how we will meet the devil? With our throats parched, our stomachs empty, and an empty gas can in our hands? Maybe. Maybe not. But one way or another supply and demand will come into balance – perhaps disastrously.

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[Rude Endnote: “There is a difference between being adventurous and sleeping alongside roaches,” your editor’s girlfriend announced, squashing another creepy-crawly with his sandal.

In an effort to get a feel for the real Tunisia, we asked our friendly taxi driver to recommend a cheap place to stay for a few nights in the capital city of Tunis. Smiling, he dumped our luggage out front of a dilapidated building just outside the city center.

Inside, the place smelled of mould and a flickering TV blared out the day’s news in Arabic. A few fellows sat around the dingy lobby, chain-smoking and chatting amongst themselves. A hairy character at the front desk grunted in the general direction of our room. “Un chambre. Sans toilette. Sans douche. Twenty dinars.”

This morning we marked the end of “being adventurous” and checked into the Hotel International. The friendly conciergerie found the details of our previous night’s ordeal rather amusing.

“Is it not same in your country, Mr. Bowman?” he grinned copying the details from our passport to the hotel ledger. “People not get exact what they pay for?”

Until tomorrow…

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com