The U.S. Economy is still heading for a train-wreck, but you wouldn’t know it if you pay attention to the information and data coming out of the Main Stream Media. I am completely surprised at the apathy and nonchalant behavior of the investing public as the economic conditions continue to deteriorate.
At some point in time, these conditions will disintegrate more rapidly into an exponential free-fall. Once the U.S.A. Titanic finally sinks this time, there will be no coming back. This will be the time we will experience the great wealth transformation from paper to physical… especially gold and silver.
I saw the foreboding economic collapse coming back in 2005. My wife and I lived in a large city in the southeast and after a few years, decided it was time to sell the business and move to the country. So, in the beginning of 2007, during one of the biggest ice-storms to hit the mid-west, we picked up our belongings, loaded the dogs in the truck and moved out west.
We live in a small ranching community in the west, and I have to say, many of the people here know what’s coming. Furthermore, the folks here are in much better shape to weather the coming economic storm compared to their city-folk brethren.
Say Good-bye to Orthodox Analysis
I have said this before, and I will say it again…. the majority of analysis out there is completely worthless. Moreover, some of the forecasts coming from the precious metal community may turn out to be incorrect as well. More on this in future articles.
However, here are three typical examples of the failure of the MSM analyst community to properly forecast the heartbeat of the market:
The talking heads on CNBC and Wall Street were beating the drum for these and other stocks right up until the time they collapsed. Within a year, the prices of these equities imploded to a fraction of their original value.
Did this phase the Wall Street Analyst-For-Hire-Treadmill from continuing to put out worthless garbage? Of course not. Today, we still have the same overpaid analysts putting out Rosy forecasts as the economic conditions continue to disintegrate. Thus, orthodox analysis has outlasted its usefulness and is now, completely dead.
The Time for Unorthodox Analysis has Finally Arrived
In order to survive and to protect ones wealth in the future, investors must look outside the box and into the realm of the “Unorthodox” mind. There are many excellent examples of these analysts in the precious metal community, but the one that comes to mind more than most is Jim Willie.
Early on, Jim was writing about the corruption in the Wall Street Banking system which he calls a criminal syndicate. His label seems fitting as there have been no arrests or convictions to date of anyone from Wall Street since the collapse of the Banking and Housing Market in 2008. Sure, maybe a few fines have been levied, but when the Fed is handing out printed money to the member banks, it’s basically an inside joke to the establishment.
One of the major flaws I see made by the analyst community (including many in the precious metal camp), is the failure to incorporate energy into their forecasts. Truth be told, I don’t include Jim Willie in this group because he understands the dire ramifications of the energy situation going forward.
This is the very reason why I started to research how energy would impact the precious metals, mining and the overall economy — I just didn’t see anyone else really doing it.
For example, the top 5 gold miners diesel consumption for each ounce of gold produced increased 72% from 2005 to 2011. This turns out to be a 9% annual increase of diesel consumption per ounce of gold as production remained flat or slightly decreased during the period.
Moreover, the results for 2012 are coming out, and I have to say the trend seems to be getting worse. If we look at the chart below, we can see that AngloGold’s diesel consumption for each ounce of gold produced increased a staggering 31% from 2011 to 2012:
In 2011, AngloGold consumed an average of 18.2 gallons of diesel per oz of gold, but in 2012 this amount increased to 23.8 gallons of diesel per oz of gold. Furthermore, this 15 million gallon increase of diesel consumption from 2011 to 2012 was on the back of falling gold production — 3.9 million oz in 2012 down from 4.3 million oz in 2011.
So, here we can see that it is taking a great deal more energy to mine and produce gold than it did a mere decade ago. The problem is compounded when we consider that the price of a barrel of oil has increased more than four-fold from $25 in 2002 to $111 in 2012.
The Value of Gold is Tied to Energy
I am not going to get into details here, but the value of most goods, commodities and services is based on the degree of energy consumed in the total process (in all forms and all stages). While I do agree that supply-demand forces and marginal utility play a role in determining the price of gold, energy is the overwhelming factor.
Thus, analysts who believe gold is heading to $650-800 totally miss the mark because they have no comprehension of the energy market. Now, I am not saying that the paper price of gold can’t spike down and go lower, but for it to stay below $1,000 for an extended period, is not logical…. that is, if you abide by the true laws of physical economics.
The U.S. economy is heading for a disaster because of the energy situation — the money printing and U.S. Treasury calisthenics by the FED is just a sideshow. Shale energy is not a savior.
According to Art Berman of Labyrinth Consulting Services and their excellent field by field analysis, the Shale Gas Industry has been a COMMERCIAL FAILURE. None of the shale gas companies are making any money if you realize they are spending 2-4 times more money on CAPEX than they receive in cash flow.
Shale Energy is a Ponzi Scheme that would even make Charles Ponzi jealous. Once the truth gets out that Shale Energy was just another delusion to keep the Fiat Monetary Regime alive a little longer, the greatest transfer of wealth from paper to precious metals will occur.