OUTSIDE THE BOX
“To most people dirt is just dirt; to a farmer it’s potential.”—B. Grewal
HUMANS, in spite of all the technological achievements, are not much more sophisticated in some ways than our ancestors were thousands of years ago.
While we know now exactly how solar and lunar eclipses occur and no longer attribute them to a monster eating the sun or moon, we still look for simple explanations for things that we do not understand.
How could Elvis Presley just die? Obviously he faked his death. How could Marilyn Monroe die of a drug overdose? Maybe she was murdered.
How could ancient Egyptians build the pyramids? It had to be with the help of space aliens.
Also when confronted with circumstances that are uncomfortable and unchangeable, and at the same time unable to fully explain the “why,” people often find alternative answers. These alternative answers are always believable to a certain degree, but they usually fail when subjected to a much closer examination of the facts.
English writer and poet Alexander Pope wrote, “A little learning is a dangerous thing.”
Over the last 50 years, we have experienced some of the most profound and significant economic changes the world has ever had. This period ranks right up there with the age of exploration and discovery and the industrial revolution.
The last half of the 20th century brought with it enormous advances in technology, but also a never before seen globalization of the world economy and financial structure.
Change, particularly fundamental systemic change, brings gains and losses. Without the new world economic order, China would, for the most part, still be a nation of subsistence farmers. The citizens of the oil-producing Middle East countries would be tending their flocks, not dining in six-star hotels. In spite of the inequalities, global life expectancy has never been any higher as also with world per capita income.
But the downside, even the short-term situations, are confusing and we look for answers that are very hard to find. We look for someone to blame for the bad stuff.
With local gasoline prices nearing P60 a liter, it must be the fault of the oil companies. Or maybe it is because of government laws and regulations. The financial markets are all crooked so it must the traders and speculators who are guilty. And of course, it is a conspiracy to take extra money from the people.
Between 1971 and 1973, the price of soybeans tripled as did the price of wheat, cotton and orange juice. By 1974 you could add hogs and cocoa to the list. Two years later in 1976, coffee, lead and zinc all made the triple list.
And when do you think the price of crude oil also tripled? Between 1971 and 1973.
Would you believe me if I told you that the price of crude oil is the same today as it was in the year 2000. In fact, 2012 crude oil is priced at the same level as in 1962. No, that is not a misprint; nineteen sixty-two.
There is a conspiracy but it is not with the traders/speculators and it is not a 2012 conspiracy to rob your wallet.
What is the magic about 1971 that caused prices of hard commodities—including oil—to dramatically increase? The Western governments decided that they, with the central banks, could manage money and took the world off the gold standard.
Two things were fairly constant from 1950 until 1971; the price of oil and the amount of dollars in circulation. After 1973, both exploded to the upside.
Notice also that in 2009, oil was priced at $30 a barrel. That is the year that the US government began its money printing operation called Quantitative Easing. The money printing has not stopped and both the price of oil and gold has continued to rise.
If you remove inflation, another word for currency devaluation, since the Federal Reserve was created in 1913, oil is actually $22 a barrel and gold is $18 per ounce.
The real speculators who created the high price of oil are the central banks and the governments. They gambled that they could manage currency better than the free markets, believing that money should have an intrinsic and underlying value and not just be valued on the wisdom of governments.
The governments speculated in 1971 and lost. But it is the people, as usual, that have had to pay off the gambling debts then, now and in the future.
On a personal note, I am planning to do my stock-trading seminar on April 28, 2012. Please e-mail me at firstname.lastname@example.org if you are interested in attending. I will send you the details.
E-mail to email@example.com and Twitter @mangunonmarkets. PSE stock-market information and technical-analysis tools provided by CitisecOnline.com, Inc.