Where Do You Want to Go -- This Weekend?

With gas prices at an all-time high, we talk with Peter Dunay  Investment Strategist at Leeb Capital Management About Where We're Headed As the Summer Driving Season Begins.

"In the next one to four years, half the earth's oil will be gone. And IF we were to keep sucking it up at the present rate, every drop would vanish by about 2029." Stephen Leeb

With gasoline in the US driving to $4.00 a gallon, we thought it would be a good idea to visit our friends at the Leeb Group. Stephen Leeb, Ph.D, founder of The Leeb Group and Leeb Capital Management, is the author  of six books. The latest, The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel,  was published last year by Warner Books. (You can listen to the podcast we did with Stephen last July - just click on the read more link and you'll find the interview in the Resources section.) In our interview with invstement strategist Peter Dunay, we update the firm's projections regarding the energy crisis - China, India, trends, opportunities and sustainability - a term you'll hear a lot about in the coming months on Total Picture Radio. Peter Dunay is a frequent guest on cable financial programs, including Bloomberg Television.

Peter Dunay - Biography
Based in New York City, Leeb Capital Management was formed solely to provide investment management and counseling to individuals and institutions.
Peter Dunay joined Leeb Capital Management as Investment Strategist and member of the Investment Committee in 2006 and brings a wealth of experience to the company. His expertise in option analysis and investment strategies was developed over twenty years on Wall Street. He began his career on the floor of the American Stock Exchange working for Spear Leeds and Kellog as a specialist clerk for an equity and options book. He rapidly moved from clerking to becoming a member of the Exchange and managing his own accounts working as an option trader/market maker as a member on both the American Stock Exchange and the Chicago Board Options Exchange. After advancing to Head Trader and then President of his own trading firm, he left the floor and enrolled in Graduate School where he received his MBA in finance and management from Boston University as well as receiving a Certificate of Special Studies in Administration and Management from Harvard University.

Graduate school was followed by work as the Head Derivative and Market Analyst for JagFn.com where he reported on financial markets for a live on-air web cast financial network. Responsibilities included being in charge of derivative analysis and investment strategies while simultaneously doing live on-air interviews with senior market professionals, he regularly offered market and derivative reports for the financial network. He then moved to Wall Street Access as its Chief Market Strategist where he was in charge of the institutional execution desk directing all equity and derivative analysis, investment strategies and risk management.  In addition to working with Leeb Capital Management, Mr. Dunay also serves as Editor for Leeb’s Index Trader.

About Leeb Capital Management Growth Investment Philosophy
Source: Leeb.net
Our growth portfolio has two pillars: diversification and growth at a reasonable price. In diversifying, we focus on stocks – most of them big cap stocks capitalized at more than $5 billion – from four groups, each of which is expected to grow faster than the economy as a whole.

The first group is energy companies, from oil drillers to the major integrated oil companies. A long-term uptrend in energy prices will ensure these will be some of the hottest growth stocks around. A second group consists of financial services companies, ranging from property and casualty insurers to bond underwriters to big banks. Technology and defense companies make up the third category, grouped together because in today’s world, increasingly technological expertise underlies our defense superiority. Apart from defense companies, our technology picks range from computer hardware to software to services.

Our fourth and broadest category is franchises, and we are including health care companies here. For one thing, the most solid health care companies are franchises. Pharmaceutical companies have patents that protect their major drugs, and they also tend to have expertise in particular research areas. Second, the health care sector no longer is growing notably faster than the economy and given likely cutbacks in government funding, growth is not likely to zoom ahead any time soon.

These are our four core groups. In addition, we are adding a final category made up of hedges – even though these generally don’t have growth rates better than the economy’s – as a way to protect growth investors from the unexpected. Right now the most likely candidate for such a surprise would be a pickup in inflation, and our hedges are precious metal stocks.
 

Peter and I discuss in detail, Stephen Leeb's Article, in The Complete Investor, titled Oilflation:

Oilflation is here Within Ten Years It Will Make You Roaring Rich or Painfully Poor.
Your Choice.

Choose Right, and the Coming Economic Collapse
Will Not Hurt You at All.

Commentary by
Stephen Leeb, PhD
Chairman, TCI Enterprises
Sr. Editor, The Complete Investor

It's too late to escape. The inflation now upon us is not the old-fashioned, cyclical annoyance you remember so well. It's a new fact of life.

It's being caused by:
A. The final runout of oil
B. The debt-laden, out-of-control house of cards that is our economy today
C. Our indescribably myopic government, and
D. The massive export of our money to China and other countries.

The Fed cannot do anything about any of these problems.

95% of U.S. stocks will be break-even investments at best.

In the end, inflation devours bull markets. Always.

You knew that.

You also knew that actual inflation is nearing 6%-if you ignore the government's massaging of the numbers.

Yet even the official government numbers are the highest since 1991.

What you probably didn't know is that this unavoidable inflation is going to get worse. It will eventually cripple the U.S. securities market so thoroughly that 95% of all our stocks and bonds will fail to bring you a profit (after inflation).

I'm not predicting a sudden, one-day crash. What you'll see is a gradual decline-followed by a steep decline when inflation reaches the 12%-15% level.

The decline could be triggered by the high-flying real estate balloon. The two longest pins seeking that balloon are rising interest rates and massive debt. If the balloon bursts, home prices will fall, and consumer spending will dry up faster than the paint on your "House for Sale" sign.

Or the decline could be triggered by a hiccup in the oil supply. Right now, the pumps are going flat out, yet the world keeps shouting for more and more. The next storm or terror strike could create panic in the oil markets.

Even without any supply problems, cold weather could cause a surge in oil demand. In the past, such surges were regular events. But now with our high debt, one medium surge could shatter the status quo. And you may recall that oil prices have been a factor in every recession since 1973.

In addition, our money keeps flowing overseas in a growing torrent-now nearing $700 billion a year. How long can that continue? For as long as the Federal Reserve keeps cranking out funny money.

Eventually, of course, the money will become a bit too funny. At that point, the Asians and Europeans will suddenly stop sending us their trading profits in return for our T-bonds. When the dollar does its swan dive, the light on our national pinball machine will come on:

GAME OVER.

What's worse than an all-out depression?
Inflation. By a mile.

As a smart investor, you can handle a depression. But inflation could devastate you.

Proof: Look at the 1930s vs. the 1970s. For the decade of the 1930s, the total real returns were:

    * Stocks (S&P 500): +21.9%
    * Cash: +29.3%
    * Bonds: +94.9%

For the inflationary decade of the 1970s, the total real returns were:

    * Stocks (S&P 500): -14.0%
    * Cash: -10.5%
    * Bonds: -17.5%

Kind of shocking, isn't it?

Yes, a depression hurts a nation more than inflation- because the pain hits more people.

But you're not a nation, you're an investor. And it's your tail that's going to get caught in the wringer as inflation continues.

Ah, but here's the big difference between you and Joe Lunchbucket or Bob Briefcase: If a depression were to hit, there wouldn't be much Joe or Bob could do about it; if they were lucky, they'd get low-paying jobs and ride it out.

You, however, are another story. You can just switch your money into those few investments that profit from inflation.

Yes, there are such investments. And I'll be happy to point them out for you. Keep reading.

But first, I have to tell you that ...

The next ten years will be worse than the 1970s.

Remember the days of "guns and butter"? Well, they're back.

Lyndon Johnson's no-win war in Vietnam cost well over $200 billion. Yet that was nothing compared to the $9 trillion we've paid for his disastrous War on Poverty-so far.

Today, we have a war in Iraq that has cost us more than $300 billion so far. And we're also facing those new Medicare prescription expenses of $850 billion over the next ten years. That all adds up.

However, the situation today is even worse than that. Four more reasons:

1. Private debt has jumped from modest to huge: $11 trillion.

2. Public debt is hopelessly out of sight. In addition to the recognized, formal U.S. debt of more than $8 trillion, there is a far worse debt: the long range "unfunded overhang" totalling $72 trillion in future obligations for Social Security and Medicare/Medicaid.

No one in any party has a clue about how to pay off such a sum. Yes, the next generation of politicians could crank up the printing presses to supersonic speed, but that would quickly make U.S. dollars worth less than Monopoly money.

3. Oil. The two crises of the '70s were just political events. (There was actually plenty of oil.) But today, oil prices are high because there are genuine supply problems . . . and new oil discoveries have been bleak to nonexistent. During the '90s, new finds brought only 7 billion barrels a year, while world demand grew by 20 billion more barrels. Each year.

For that reason, oil cannot go down for long. It will continue to zig-zag upward till the end of time. We're rapidly running out of the stuff. And during that span, it will continue to drive inflation (albeit less strongly after alternative fuels start to kick in).

4. Fear has taken over the bond markets.

Evidence: In the past year, the Fed has raised short-term rates nearly threefold. Yet longer-term rates did not respond. This disparity is unprecedented in U.S. history. It reveals an economy that looks strong but is quite fragile.

What's going on here? What's spooking the bond markets? Simply this: Big investors have not scooped up these higheryielding, short-term notes. Instead, they have flocked to longer-term paper to protect themselves against a vicious economic down-spiral

Those low, longer-term rates prop up house values nicely, yes, but they perpetuate a mountain of long-term mortgage debt. This fans inflation, of course.

THE BOTTOM LINE: If this bizarre divorce between short and long term interest rates persists, we will be wired into an inflationary spiral.

Then if, God forbid, home prices fall sharply, it will be a Category 5 perfect storm that will make the recent tech crash look like a rain shower.

5. The Chindians are eating our lunch.

You knew that. "Job outsourcing" to India has received a lot of ink.

You probably also knew that our balance of payments deficit has gradually exported our money to China. (So far, they are nicely sending it back to us-in exchange for U.S. bonds. That could come to a halt.) But perhaps you haven't had time to sit down and put 2 + 2 together. If so, then here's the fact you may have missed: The massive export of our money and jobs to China and India means that 90% of all the investment profits in the world will be coming from Chindia-for the next 20 years. And therein lies the solution to all the problems I've just presented to you.

While inflation will make it tougher and tougher for you to earn a profit in the U.S., it will simultaneously get easier and easier for you to find profitable stocks-by investing in Chindia. The phrase "shooting fish in a barrel" comes to mind.

Let Me Make This Easy for You

© Dr. Stephen Leeb
Sr. Editor, The Complete Investor

This will be simple. Repeat one word over and over as you contemplate your portfolio:

Chindia.

That's it. For the next 20 years, it will be the source of 90% of your profits - and the world's.

The wizards of Wall Street are missing the biggest shift of our time: the gigantic and inevitable explosion of growth in China and India. Chindia.

The big investment houses cannot shake off their outdated mental picture of the world, a world where the U.S. is the center of everything: capital, brains, and growth.

Sorry, but that picture must be trimmed, starting now. Over the next generation-20 to 25 years-the U.S. will indeed remain the world center for brains, but the world center of capital accumulation and growth has already moved to Asia.

Always follow the money. Move your portfolio wherever it goes. And right now, it's moving to Chindia.

20% Annual Profits for the Next 20 Years?
And 90% of It Coming from Chindia?
Where Do We Get That?

Here is the meat of this bulletin, carved into five easy chunks for you:

1. Before 2010, China and India together will be bigger than the U.S.

By 2009, at present rates of growth, our economy will be #2. Look at the oft-ignored blue bars in the graph below:

The Asian appetite for cell phones, TVs, computers, and other modern goods is growing much faster than economists realize. Soon they will far outproduce us.

That's vast. Yet it's only a minor part of the picture. The larger reality is that . . .

2. Chindia's currencies are inevitably going to move against the dollar-by at least four or five times.

Look at the graph again. The U.S. buck is no longer a real measure of value. The graph shows that since 1989, the dollar value of Chindia's goods and services has climbed from 12% of the U.S. to 17% of the U.S. No big deal.

But the true unit value, the numbers of computers, TVs, and so forth, has rocketed from 43% to 83%-a very big deal.

The difference between the two trends shows a massive distortion in the value of the almighty dollar.

You probably don't think of China as being the good guys. But their economic policies make those Commie bosses look like our guardian angels. Fairly soon, though, the charade must end. The floating yuan will eat up much of the dollar.

After that happens, you won't want to have your nest egg pegged to the dollar or Western equities. As dollars plummet against the yuan and the lowly rupee, we, the world's only military superpower will turn into a monetary satellite orbiting around the new economic star, Chindia.

3. Chang and Patel are catching up with the Joneses.

Go ahead, try to tell a hardworking Chindian that he can't have a TV. Or a cell phone. You'll have better luck standing in front of a freight train.

Sure, Chindia has masses of oppressed and uneducated farmers and laborers. Perhaps always will. But from Bombay to Beijing, hundreds of millions of eager Asians are working their keisters off to get a computer- and a bigger house to put it in.

MY TAKE: These hundreds of millions will soon surpass the world average. They are stampeding uphill, following the familiar track of Scots, Jews, Armenians, Dutch, and other downtrodden ethnic groups who snapped back like a rubber band and became highly prosperous.

But even if the Chindians do no better than reaching equality with the rest of the world, they will soon be buying four times as many cell phones as we now have in the U.S. In fact, a mere 5% increase in anything there (cars, energy consumption, whatever) equals in size a 40% leap in America, simply because Chindia has eight times as many people.

Right now, they have only one-third as many cell phones per capita-and one-ninth as many computers. So they have lots of room to play catch-up.

Even scarier: If they just reach the world average in energy consumption, they will be burning up an additional amount of energy nearly equal to the entire energy burn of America today! And again, the signs all say they'll do better than that-within about 20 years. (See my following article on the looming oil catastrophe.)

Scarier still, if you add energy onto all other goods, Chindia will create, in our generation, 2.7 "new Americas" in their leap to parity with the world.

Now do you see why you need to have your money earning its keep in Chindia instead of rotting away in Detroit and Seattle?

4. Multiply 400%-500% unit growth times 400%-500% monetary growth, and you have yearly profits of over 20% . . . for the next 20 years.

If you like to read tables, this one below will give you a shot of adrenaline. The shocker is the bottom line. It means, roughly, that Chindia will be the main event-almost the only show on the planet besides energy-for perhaps the rest of your life.

For the next 20 to 25 years, 92% of the world's economic growth will flow from Chindia. That includes soft drinks, cars, cell phones, energy (oil, nuclear, natural gas), you name it.

As a patriotic American, you may be annoyed to hear that we are within five years of becoming #2 ... and that the U.S. will soon comprise less than 8% of the world action. Understood. But my most honest advice about that annoyance would be, Get over it.

5. Nothing is going to stop this Chindia megaboom.

Apart from a new black plague, giant meteor, or massive jihad attack, everything I've written above is going to come to pass. I am not guessing in the slightest.

First, India is still so far down that they hardly have anywhere to go but up; worldwide recessions mean little in that enclave of human struggle to stay a notch above survival.

Second, there won't be any big recession to knock down China. Why? Because-no joke-they simply won't allow it. They have to keep economic growth above 7%; otherwise, unemployment could threaten their highly insecure government. (Think TianAnMen Square times 100.) Even in the midst of their current smileyface campaign to look good for the 2008 Olympics, they launched in October, 2005, a new round of vicious persecution of Chinese Christians- because, believe it or not, they are afraid that some lowly Christian might convert members of the Party! That sort of paranoia is your guarantee that your dollars are safe in a brutally stable China.

How Can You Cash in on All This?

I hope I've made it plain that your future prosperity rests upon having a stake in Chindia.

If you want to be on the first tee by one o'clock every day without touching your principal, the bulk of your portfolio should have a Chindia connection.

Learn to play the Chindia card-over and over and over. But play it smart, don't just throw your money in an easterly direction and hope the wind blows it into the right baskets.

I would like to send you a copy of my brief special report, Eastward to Eden. It tells you specifically which stocks to buy in order to start cashing in immediately on this Eden-like garden of investment bliss.

I won't name all of those stocks here, but I will warn you of a large pitfall should you decide to "wing it" and buy Chindia stocks on your own: Many amateur investors are assuming that peppy little lowcap companies are the perfect match for Chindia's fast-growth pace.

Very wrong. Why? Because Chindia is so huge that only bigcap firms have the financial power to break into it. Eastward to Eden will tell you exactly which big-cap stocks are booming in Chindia now ... and will likely continue to climb 10%-15% a year for the next two decades. Get your free copy today.


The Absolutely Guaranteed,
Locked-In, Vanishing Commodity

By Stephen Leeb, Ph.D.

One investment is guaranteed to rise long term-for the rest of your life.
It's a vanishing commodity so important that every nation's economy hinges on it. Buy it intelligently, and you will make millions.


In the next one to four years, half the earth's oil will be gone. And IF we were to keep sucking it up at the present rate, every drop would vanish by about 2029.

It won't happen quite that way, of course. Long before 2029, the quality of crude oil will go from fair to terrible, the extraction costs will become crippling, and you will be paying $12 to $15 a gallon at the gas pump.

Life will revolve around oil- or the lack of it. The government will be forced to spend horrendous amounts on frantic research to find ways to replace oil-with wind, coal, solar, ethanol, tidal, geothermal, and the ultimate energy source, hydrogen.

Please keep in mind: I'm an optimist. I truly believe we will have breakthroughs in energy and move into a post-oil era of peace and plenty. But I'm also a realist. So I have to tell you that we've started thirty years too late on our search for energy alternatives, and we're facing about 20 years of very upsetting shortages during this transition time.

$200 a Barrel Oil: It will make you rich, or it will make you poor.

Oil production will begin to decline worldwide by 2009 or before. Permanently.

As investors figure out what's happening, they will panic. (Surprise, surprise.) Prices will take off again. By 2010, oil will cost $200 a barrel. Oil at $70 a barrel will sound like a dream from long ago.

Your lifestyle will begin to adjust to the new reality of a world with less and less oil. (Think mopeds, moving closer to work, wearing two sweaters in winter, etc.) Without these adjustments, we could soon be facing a threat to capitalism itself.

The runout date of 2029 assumes just a nice, solid growth in the world economy, about 4% a year, nothing more. So this is not a radical projection, not scare tactics. If it begins to sound like a doomsday fantasy to you, let me give you some numbers:

Right now, the world uses up 86 million barrels of oil a day. The Department of Energy says that will reach 95 million by 2010. And by 2023, demand will reach 120 million. But that's demand, not production.

And what about production? Hang onto your aorta. A reputable Wall Street firm (UBS) estimates that production will inch up from today's 86 million barrels a day to just 120 million within a decade and then stop growing. Forever!

Friend, there is an awesome gap between 86 and 120. Where will those extra millions of barrels come from ... day after day?

Because the world oil pool is drying up, most OPEC countries have been unable to increase their production in recent years. Even Saudi Arabia has been trying without success to raise production for 20 years.

There are no more huge untapped pools waiting to be discovered. In fact, many of the officially listed pools don't even exist. Owing to Near-East politics and OPEC rules, world oil reserves have been insanely exaggerated to comical levels. In actual fact, we're now sometimes having to drill down as much as four miles to find any oil!

You can't say, "Well, if there is a global shortage, I guess all those poor Chinese and Indians will have to suffer." No, we'll suffer right along with them. Their money is as good as ours. In fact, by 2020 or 2025, China expects to be importing twice as much oil as the U.S.- to feed the 170 million new cars they'll be putting on the road by then. And just in the last year, China used 15% more oil than the year before! (Yes, this should worry you if you're not solidly invested in Chindia.)

We can't solve the demand problem by slowing down global growth. Americans are in a very bad position to do that sort of trick. A few decades ago, Paul Volcker pulled it off in the U.S. in order to cool inflation. But back then, we had a nice savings rate cushion. Today we have the opposite, a horrendous debt burden, so we have to keep the economy moving. Any attempt to cool things down would kick us into a vicious depression by denying corporations the cash flow they need.

You can't shrug this off with, "Oh, I heard all this stuff back in the oil crises of the '70s." Those crises were political. The world actually had the production capacity to meet 130% of our needs in those days. Now it's about 102%, and that 2% "excess capacity" is hardly enough to get us through a cold winter.

Conservation won't do it. We've already gone to smaller cars, double-pane windows, solar panel tax writeoffs, etc. Further conservation will come ever harder.

By 2010, oil will hit $200 a barrel, pushing inflation well into double digits. Windmill farms will sprout like spring corn all across the land. The U.S. government and the American press will finally admit that we must begin spending hundreds of billions- perhaps a trillion-dollars in a crash program of energy research, focusing on the wave of the future, hydrogen fuel.

The Best of Times, the Worst of Times

It's going to be a golden future-if we can reach it alive and solvent.

But as you can see, you can bet your life we'll face a ton of change and turmoil no matter what we do.

I'm confident that the powers that be will eventually wake up and starting pouring tens of billions into energy research, especially hydrogen. But they can't do it fast enough. (They should have begun by 1970.) Knowing governments, they'll drag their feet awhile longer, which will prolong the painful transition to a sustainable energy system.

The resulting squeezes and panics in the markets can bring you the greatest profits of your life by far. While most investors get blindsided and perhaps drowned by wave after wave of distortions, you will be surfing on them. I have strong hopes that you will be able to multiply your money thirtyfold, sixtyfold, even a hundredfold-while your golf buddies may fight bankruptcy. It will truly be the best of times and the worst of times.
 

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