There’s an old saying about explosions: you see the flash long before you hear the bang. I’ve been thinking about that a lot lately.
Matt: “And we saw the flash on February 28th. You could see the flash, and you could see all of this happening, but there’s no bang yet.”
Six months ago, my worst case for the Strait of Hormuz was a couple thousand Marines landing somewhere and a bloodbath. I never imagined Saudi Arabia and Yemen at war and the whole thing spreading. Doug says the really worst hasn’t happened yet.
Oil on the ground vs. oil on paper
North Sea oil trades at spot for $136 a barrel. The futures market has it in the $90s. Doug points out that the distillates from a $100 barrel now add up to about $200, “and that’s what really counts.”
To me that gap says something serious is changing. We’re in a Fourth Turning, people are losing faith in institutions, and markets are an institution too.
Doug: “E- everybody has known theoretically that you could not trust politicians, but we always thought we could trust the price reporting mechanisms of markets. And that’s being called into question, uh, at this point.”
I can’t help thinking the oil futures market has become one of Doug’s self-licking ice cream cones, disconnected from reality.
Saudi Arabia is next
What happens when Saudi Arabia can’t export oil and still has to import nearly everything it needs? It needs dollars, and the only thing it can do is sell Treasuries. Doug went a step further:
Doug: “And what happens when MBS, the current crown crown prince, is overthrown? And I think that that’s almost inevitable for several reasons.”
The princes he locked in the Hilton haven’t forgotten, and Yemen turns out to have about 400,000 men under arms. Doug also flagged Egypt as the time bomb nobody is reading about, with Suez Canal and tourism income both at risk.
Israel fatigue
Doug and I have been on an email string for days that goes on and on about Israel. I told him I’ve got Israeli fatigue.
Doug: “I got total Israeli fatigue. I don’t, I don’t wanna know any more about it, and I really don’t care.”
His worry is bigger than that. So many people are fatigued by so many things that it’s setting up “the, uh, psychological overture to World War III, where you figure, ‘Yeah, you know the only solution is to just do a bunch of killing and sort it out that way.’”
The first cracks
Indonesia has gas lines. Doug reminded me it was a founding member of OPEC and is now a net oil importer. I think that’s the first sign of what’s coming for the rest of us. In the US it’ll probably show up as price, but I wouldn’t rule out the government seeing a chance to “better allocate” fuel to the people it considers essential.
Meanwhile, most Americans have no idea. A friend of my wife’s is marrying a man in the National Guard. Asked if he was worried about the war, she said, “What war?”
So how long until the bang? My guess is sometime before the end of March. Doug, a perpetual optimist, gives it a wider range:
Doug: “I think, I think any time in between tomorrow morning and, and a couple years from now, the shit will really have hit the fan.”
That’s why I keep coming back to real things. Energy is tied to economic activity, and you can’t cut off this much energy without a recession, if not a depression.
Also in this episode
Mortgage rates at 7.5% and a bond market that’s “an accident waiting to happen.” Luke Gromen on AI creating a new white-collar rust belt. Billionaires planning how to keep their bodyguards loyal. Why we still recommend Jim Kunstler’s World Made by Hand novels, plus The Mandibles by Lionel Shriver and The Sea King and the Sorceress by Neil Price. The overproduction of elites. Trump’s $5,000 voting video. Doug’s very Doug take on the Fort Hood shooter’s execution: make it pay-per-view, with the money going to the victims’ families. And Monica Lewinsky’s podcast is kicking our ass.
Doug is speaking at the New Orleans Investment Conference, Oct 28-31, and he says it’s likely his last US investment conference. Click here to join Doug. If you’ve got a question for Doug, head to Crisis Investing, click “Ask Doug” at the top, and post it. To get the full picture of what we’re buying, upgrade to Crisis Investing.
Best wishes from Uruguay,
Matt
