The Dollar & Oil The TRUTH

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Here is one man's opinion on the dollar and oil prices. An interesting read.

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Max Whitmore has more than 40 years of experience in the financial services industry, starting his career as a broker with Paine Webber (now UBS) and later establishing a venture capital firm.

Whitmore has been recognized as a top trader of S&P futures, often ranking as the No. 1 trader out of a very select group of approximately 35 S&P traders nationwide.

His proprietary Super Chart system, which has called every major turn in the market since 1965, played a big part in landing him those honors.

He currently edits Max Whitmore’s High-Yield Income Investing.




The Dollar and Oil — The Truth



Friday, May 30, 2008 8:21 AM



By: Max Whitmore



About a month or so ago, I wrote a column that was a tongue-in-cheek, fictional story that addressed the oil speculation that was going on at the time. Of course, that speculation is still going on. Well, this column is one where I am going to tell it like I see it, warts and all.



I have been in this business for over 40 years, as you all know by now, and I have seen a lot. Some of it has been very good and some of it has been very bad. I don’t count myself as having seen it all, but what I have seen helps me get to the bottom of problems in this business.



I want to address two much talked about topics, the dollar and oil. Both of these are the most misunderstood of all the current investing subjects out there that occupy financial print and talk space. Now, don’t get me wrong here. I don’t claim to be able to see every nook and cranny of these subjects. But, what I do see are the elements that repeat the oldest scams around.



The Dollar



The most overused phrase today is the one that says “the dollar is declining fast and is in deep trouble.” The first implication is that the dollar needs to go much higher and fast. The second implication is that the dollar is out of control and about to fall off a cliff to oblivion. The third implication is that the Fed is helpless to do anything to help the dollar. (Do all sorts of special offers to make money from the dollar situation ring a bell?)



Well, as I see it, these implications are wrong an all counts. First, the dollar is nowhere near deep trouble. It is finally on a near-level economic playing field in the world of commerce, and we are making fast and deep inroads into marketplaces all around the globe.



After all, one of the very important ingredients of life is about successful commerce. And we are finally becoming a success. We are more and more being seen as the gorilla in the china shop, a truly tough competitor. If you doubt that, ask the Europeans and others who are fast losing business to us these days.



Yesterday, in fact, due partly to our strength in exports, we had a 2.5 percent jump in durable goods production in April, after taking out the transportation component, and non-defense production was up 4.2 percent ex-transportation. Doesn’t sound like the end of the world to me.



Second, a higher dollar will kill this fast growing export business that not only generates wealth for our country, but adds good paying jobs, jobs we always need. And as a seasoned trader, believe me, if the dollar was about to drop off the cliff, everyone would know it and be buying other currencies in huge droves. That is just not happening. Why? Because the dollar is still the issued currency of the most powerful economic engine the world has ever seen. Others may not like us because of that power, but our dollar, in spite of all the badmouthing it gets from abroad, and sadly even from some home grown economists, is what they want.



Now, lest you misinterpret me, we do have problems in our financial system. We need to bring the political use of economic power under control. Yes, our debt can eventually hurt us, but we are not there yet. For now, we do need to get our spending habits on the federal level in order. And we need to continue to be aggressive as exporters. Any backing off there will clearly hurt. It is a fine balance, but I believe we are up to the task of controlling our excesses and keeping the dollar as a very much wanted currency.



Look, political and economic conditions will change over time for every country and different currencies, not unlike different stocks, will be favored — witness the 12 year China episode, which now is slowly fading (despite what Jim Rogers would have you believe).



It is this endless process of currency adjustments that will go on forever that balances one economy against another in commerce. And as long as the value base of a country is not a fixed asset (gold, etc.) but a perceived value, this constant adjustment will continue.



Lastly, the Fed is hardly impotent when it comes to defending the dollar if the dollar sellers get too aggressive. The Fed chairman said recently that the dollar would be defended, and he quickly added the words “if necessary.”



The “if necessary” part tells currency speculators that the Fed sees the dollar well placed at the moment. So do I. And if the Fed needs to, believe me, they have the power to knock other currencies down and lift ours up. This gorilla has many years before its power is even approximately matched anywhere in the world. That is an undisputed fact in every financial circle.



If you need further evidence, I call your attention to the Bear Stearns event. It is acknowledged by astute financial centers around the world that our Fed saved the world’s financial system from possible implosion. That, folks, is power!

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Oil



Now, I want to turn to oil. I will be brief concerning my feelings about the oil situation. This entire run-up of oil prices is a very carefully planned event by the oil suppliers, the Middle East producers being most prominent. If you believe otherwise, you just do not understand markets.



Markets always like a “hot” stock. That will never change. But, it always, I repeat always, takes a “promoter” to get a “hot” stock hot. Promoters will spend money advertising, paying writers to “plug” a stock, buy their way onto radio and TV shows, or whatever it takes to get investors’ attention. Promoters will work with brokerage houses and individual brokers to promote their stock to investors and, if necessary, even bankroll the buying to move a stock higher.



But all this takes time, money, and lots of heavy duty coordination to accomplish. True, now and then a true rush to a stock is caused by a totally unique product like Xerox, Apple's iPod, and a few others I could name. But, that only happens a few times every decade. Most of the “hot” stocks out there make only the promoters and a few of the truly savvy speculators money. The average investors comes out poorer almost every time.



No, this oil move is a carefully orchestrated event. Huge money pools are financing the buying of the futures contracts to run up the prices. Giant power centers are making sure that no one gets “out of line” in this incredible fleecing of the non-petroleum countries.



The folks behind this push are the same ones that brought us the 1973-74 gas lines and changed the world’s financial power centers forever. Only this time the reason for the move by these folks is quite different.



The oil producers can see the handwriting on the wall. Oil will soon become just one of many power sources in the world. The so-called alternative fuel sources will force oil producers to reduce their price per barrel by a huge margin and for good in the next five to seven years. To “make hay while the sun shines” so to speak, the oil powers are using their huge money pools to run up prices that then translate into higher prices per barrel, even when nothing has changed, especially production costs.



All the talk of running out of oil is nonsense. If we want it bad enough, we could do what the Nazis did in WWII and just make it in chemical plants. Did you know that German scientists did just that over 50 years ago and maintained their entire war machine with synthetic fuel?



If you question this, just look at the diamond business. We can now make diamonds that are truly difficult to distinguish from the real thing and for very low cost. Yes, the diamond business is very worried.



No, this oil move is a careful plan to fleece the world of huge piles of money that will then be used to buy banks, insurance companies, food companies, almost any high grossing consumer goods company, regardless of its location in the world. Thus, when oil does fall from its throne, the income from these purchased businesses they own and control will replace the oil income. Who needs oil?



This fleecing is going on even as I write this article. Look in your local newspaper at the companies being bought. Where do you think the money is coming from? It is coming from “private investors” (who are their partners), banks (already partly-owned by oil powers) and other innocuously named private groups funded by the oil giants to disguise their oil-backed involvement.
Look, I don’t write this to condemn anybody. I just want the truth out there on the table. Maybe then somebody in authority will do something to bring a quicker end to this fleecing. Where are the politicians in all this? Where are all the regulators in all this? Surely the Commodity Futures Trading Commission (CFTC) has the power to cool down overheated markets. I used to trade commodities, and believe me, the CFTC can do just about anything they want to a market. Do any of you remember the Hunt Brothers’ attempt to corner a market in the 1980s? The politicians and regulators cut them off at the knees, as they say in my business. But, this time it is not two brothers doing the cornering, it is a multi-trillion-dollar combine that knows they have the power to hold back almost any action that will impede them. Money is power. A huge amount of money is huge power.



Well, that is all I have to say for today. I just wanted to put it in writing that 95 percent of what you hear about the dollar and oil is gibberish designed either to sell something or to bring influence to bear for political reasons. But, that has been going on for centuries and will never change. In this case, however, it is just that the stakes are far, far bigger.



Next time you hear the gibberish, just change the channel, turn the page, or change the subject to football or baseball or some friendly conversation topic. You will accomplish a much more productive outcome.

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I think EF Hutton has just spoken?

[Mule]

A week old.

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So what has changed in a week Mulish?

[sammyg2]

So he is saying that the oil producing countries are using their own money to buy futures and drive up prices on their own product? Interesting.

I've been saying for quite a while that manipulation is happening through bear sterns, Morgan Stanley, etc but haven't considered this angle. I need to do some more digging to see if I can find anything to corroborate this.

[MRM]

The problem is that the guy who controls Oil doesn't get along with the guy who controls the Dollar. One is not supposed to be senior to the other, but the Dollar Desk has traditionally been viewed as more prestigious and Dollar is usually a little older than Oil, although moving from one desk to the other is technically a lateral transfer. Oil is a little younger and more aggressive than Dollar, and he thinks he's the big dog. Dollar is an old money East Coast establishment gentleman who is pretty sure the Dollar Desk is the culmination of all of civilization's progress, and Oil's money is too young and too much of it. To which Oil replies that there is no such thing. They go at it a bit. The big guy hasn't intervened yet, but he will if it looks like those two are going to start hurting the rest of the Enterprise. So far their spat has driven up profits for everyone else, across the board. Things will calm down after the election because Oil is going to move over to control the White House and Dollar is keeping his portfolio.

[competentone]

Originally Posted by tabs

I think EF Hutton has just spoken?

I think he is pretty "clueless" about the current situation.

I think he understands nothing about fiat currencies and how we have "exported inflation" by exporting dollars over the past decades. As those previously exported dollars return to the U.S. domestic economy -- along with the new money the Fed is pumping into the system with actions like its bailout of Bear Stearns -- extreme price inflation in our economy will be the result.

We are seeing that price inflation already in economic goods with inelastic demand curves -- particularly in food and energy.

"Printing" money does not create wealth; and that is true no matter how many "voodoo economists" try to claim otherwise. In the coming years, we will be paying the price for the "easy money" policies in previous decades.

We've feasted, now the waiter has brought the check. Someone is going to have to pay the bill.

[MRM]

I hate to say it, but I pretty much agree with Mr. Whitmore. I will defer to his judgment on where the money is coming from to run up the price of oil, but the rest seems pretty standard and well accepted economic analysis. The dollar has been this low before and our budget deficits have been this high as a percentage of our economy. Our economic ship is actually righting. If we get federal spending and the budget deficit under control we'll be in pretty good shape. In the long run.

[Rich76_911s]

Devaluing the currency is NOT all Peaches and Cream. Hell if we devalue it enough we can start manufacturing plastic dolls and shipping them to China. But is that necessarily a good thing?

What other consequences are there from a weak dollar other than increased exports and higher manufacturing? The major and most severe to our economy is as Competentone mentioned inflation. The American Consumer makes up roughly 70% of domestic GDP, and rampant inflation is a dangerous sword to be waving around. Or simply ignoring as it appears Maxy poo is doing.

His whole thesis on price control in oil isn’t all that great either. I am sure producers have some ability to manipulate price, but that is hardly the whole story. If the producers of oil were this good at controlling price we wouldn’t have seen oil as cheap as it was for 25 years from the early 80’s to the early 2000’s. It’s not like the middle east got their first econ 101 book in 2003.

Max needs to either go home and sit on his pile of money, or do some more work before he writes his next piece.

[tabs]

Originally Posted by competentone

I think he is pretty "clueless" about the current situation.

I think he understands nothing about fiat currencies and how we have "exported inflation" by exporting dollars over the past decades. As those previously exported dollars return to the U.S. domestic economy -- along with the new money the Fed is pumping into the system with actions like its bailout of Bear Stearns -- extreme price inflation in our economy will be the result.

We are seeing that price inflation already in economic goods with inelastic demand curves -- particularly in food and energy.

"Printing" money does not create wealth; and that is true no matter how many "voodoo economists" try to claim otherwise. In the coming years, we will be paying the price for the "easy money" policies in previous decades.

We've feasted, now the waiter has brought the check. Someone is going to have to pay the bill.

I think there are some people who would disagree with your conclusions.

[KaptKaos]

We've been in an economic war for some time now. Isn't it obvious?

[Mule]

Originally Posted by KaptKaos

We've been in an economic war for some time now. Isn't it obvious?

Apparently not as much as you would think.

[KaptKaos]

Originally Posted by Mule

Apparently not as much as you would think.

So how much of our debt does China own now?

[Mule]

Waaaay too much! Same for Saudi.

[KaptKaos]

The golden rule applies.

He who controls the spice, controls the universe.

They want us out of the middle east.

[island911]

Thanks tabs.

[silverc4s]

Thanks, Tabs;
How do we get SOMEBODY in the News Media to talk about this, maybe have Mr Whitmore on their show???

Right or wrong, we are not even having the right national dialog. Here it seems like do we want to punish the oil companies, or speculators, or one party or the other, or Chindia... never thinking that however it has happened OPEC is getting all the MONEY!!! Right?