War, Peace, and Financial Fireworks

By Casey Research

Politics has long been a driver of international markets and fickle financial systems alike. Everything is connected. Here are some voices from the just concluded Casey Research Fall Summit talking about cause, effect, and war.

James Rickards, senior managing director with Tangent Capital Partners and an audience favorite at investment conferences, says the Middle East, Russia, and China are all working against the U.S. dollar and for gold.

America’s recently improved relationship with Iran is actually bad for the petrodollar, he claims, because the Saudis and the Iranians are bitter enemies. The Russians, for their part, aren’t sitting idly by while the US imposes sanctions on them—aside from Putin being able to freeze US assets in Russia, Rickards believes that Russian hackers may already have the ability to shut down the New York Stock Exchange.

China does want a strong dollar because it still holds over $1 trillion in dollar-denominated assets. But Beijing is aware that eventually the dollar will depreciate, so it’s buying gold to hedge against a decline in the value of the US currency. Current gold reserves are estimated to be between 3,000 and 4,000 tonnes of gold; the ultimate target may be 8,000 tonnes.

Rickards thinks that we are approaching a period of extreme volatility in the U.S. markets and recommends allocating 10% of one’s portfolio to physical gold.

Bud Conrad, chief economist at Casey Research, also is a petrodollar bear. For the past 40 years, he says, the petrodollar has bestowed extraordinary privileges on Americans, but that era is now coming to an end.
Dozens of countries have already set up bilateral trade agreements that circumvent the US dollar. Dollars as a percentage of foreign reserves have declined from 55% in 1999 to 32% today—and could reach 18% by 2019, says Conrad. Ultimately, the petrodollar will fail, which will lead to a rise in sought-after commodities, especially gold.

Conrad thinks the greatest danger we face may be a combined financial and political collapse. Current geopolitical problems are even worse than economic problems, he says, and the trend is toward more, not less, war. Wars, on the other hand, often precipitate financial collapse.

Grant Williams, portfolio and strategy advisor for Vulpes Investment Management in Singapore and editor of the hugely popular newsletter Things That Make You Go Hmmm…, wholeheartedly agrees.

War and financial turmoil have always been inextricably linked, says Williams. Both occur in natural cycles, and one often causes the other. He believes that we’re in an extended period of economic peace because the Federal Reserve has used monetary policy “to abolish the bottom half of the business cycle.”

Although that may sound like a good thing, it is not. The business cycle, argues Williams, is inevitable and natural; we need it to cleanse the economy. But the Fed has leveraged to such unsustainable levels to “keep the peace” that the inevitable fallout will be that much worse.

He foresees serious wars to accompany the coming financial turmoil. Today’s geopolitical setup, he says, is similar to 1914’s. In 1914, France was a fading former giant (that’s Japan today); Britain was a waning superpower, no longer able to guarantee global security (that’s the US now); and Germany was an emerging industrial power huffing and puffing and making territorial claims (today, that’s China).

Rather than all out war, Marin Katusa, Casey’s chief energy investment strategist, believes the new “Colder War” will be fought by economic means, specifically through domination of the energy markets.
While Europe is using less oil than it did over a decade ago, says Katusa, it’s depending more on Russia for its energy. North Sea oil and gas production is in decline, and Norway’s production has reached a plateau and is dropping. Russia, on the other hand, owns 40% of the world’s conventional oil and gas reserves.

The solution, Katusa says, is the “European Energy Renaissance.” As Putin tightens the thumbscrews on his energy trading partners, more and more EU countries are waking up to the fact that they will have to produce their own energy to gain independence from Russia. As the best ways to play this new paradigm, Katusa recommends three undervalued North American companies that are in the thick of the action.

To get Marin Katusa’s timely stock picks (and those of the other speakers), as well as every single presentation of the Summit and all bonus files the speakers used, order your 26+-hour Summit Audio Collection now. They’re available in CD and/or MP3 format. Learn more here.

The article War, Peace, and Financial Fireworks was originally published at casey research

Get our latest FREE eBook "Understanding Options"....Just Click Here!

Will Russia Lose Its Oily Grip on Europe?

By Marin Katusa, Chief Energy Investment Strategist

Vladimir Putin is on a roll. Ever since the Russian president-turned-prime-minister-turned-president got into office 13 years ago, he's been deftly maneuvering Russia back into the ranks of global heavyweights. These days, he's averting cruise missiles from Syria before breakfast.


For a strategy to return Russia to superpower status, Putin had to look no farther than his own doctoral thesis, Mineral Natural Resources in the Development Strategy for the Russian Economy.

To say that Russia is rich in natural resources would be an understatement. In 2009, the former heart of the Soviet Union surpassed Saudi Arabia as the world's top oil producer—largely because Putin put reviving Russia's aging, neglected oil industry at the top of his priorities list.

The chart below shows proven oil reserves from the pre-Putin era to now. In just 16 years, they have risen by more than 30 billion barrels—which may still be too low, because it's not yet clear how much of the 90-odd billion barrels of undiscovered oil in the Arctic is actually recoverable. And in addition to new discoveries, the rising price of oil has made many formerly uneconomical deposits worth a second look.

As a result, about half of the more than 10 million barrels of oil per day (bopd) that Russia produces are exported… only to return as cash and, increasingly, a fistful of clout.

With Putin's monster deposits being the closest and most conveniently accessible,  many European nations rely heavily on oil and gas imports from Russia and the former Soviet states:

In a world where "he who has the energy wields the power," Russia's European customers find themselves in a very uncomfortable situation. How fragile their position is became clear in January 2009, when Putin, enraged over a price and debt dispute with Ukraine, shut off the natural-gas spigot, leaving customers in 18  European countries literally out in the cold.

Now the Russian vise grip on Europe is about to tighten even more as new energy markets are opening up to Moscow.

In January of this year, Russia's pipeline company, Transneft, completed the $25 billion, 4,700-kilometer-long East Siberia-Pacific Ocean (ESPO) pipeline, and in June, Putin signed one of the world's biggest oil deals ever.

For the next 25 years, Rosneft, Russia's state-controlled oil company, will deliver about 300,000 barrels per day to China—raising Russian oil exports to the Chinese by 75%. Besides China, the pipeline is also conveniently located for Japan, South Korea, and even the US West Coast.

This advantageous situation allows Putin to play hardball with Europe: If its customers there don't ante up what Moscow wants in price or pound of flesh, its income from ESPO customers could enable the country to twist the EU's taps closed.

It comes as no surprise that Europe is desperately trying to find a reasonably priced replacement for Russian oil. And in the very near future, it might just get its wish.

Hidden deep below Central European soil may be one of the largest oil deposits in the world, comparable in size to the legendary Bakken formation in North America. I call it the "next Bakken."
The full extent of this oil colossus is still unknown, but the final result could be one for the record books.  And a small company with 2 million acres of land in the "next Bakken" is hard at work to prove up the reserves and make itself and its shareholders rich in the process.

This is not a stab in the dark; there's no doubt that the oil is there. In the past, 93 million barrels of oil have been produced on the land the company owns now. But thanks to the company's state-of-the-art technology, management expects to be able to unlock many more millions or billions of barrels of to date inaccessible or uneconomical oil.

In fact, all of management is invested heavily in the company, which is always a good sign—one of its directors, for example, owns more than 1.2 million shares.

(By the way, the country where this deposit is located is forced to import more than 700,000 barrels of oil per day from Russia, a balance of power that could shift dramatically with this new windfall—so chances are good that the government will enthusiastically support the new oil production.)

Since our initial recommendation, Casey Energy Report subscribers already made gains of up to 66.4% from this company—but this is not a one-hit wonder whose fame fades as fast as it started. If the deposit indeed has what we think it does in recoverable reserves, the company could generate exceptional profits for years on end.

You can get my comprehensive special report "The Next Bakken… and the Small Company Best Positioned to Take Advantage" free if you try the Casey Energy Report today, for 3 months, with full money-back guarantee. Click here for more details on the "Next Bakken."