A Big Picture Look at 2016 - The Daily Reckoning

A Big Picture Look at 2016

Jan 1, 2016


Paris, France

'Another bad day for oil,' says Investor's Business Daily.

US crude oil fell below $37 a barrel. The Dow fell 116 points.

Neither of these events is significant. We report them merely to warm up.

It is the last day of 2015; we look for a good way to 'wrap up' the fast-departing year.

Myth or Reality?

'What if we're wrong?' we've been asking.

As we proved yesterday, we err as much as anyone. But we spend more time than most trying to understand the 'big picture'. And we hope to be slightly more right than wrong at least about that.

But even this could be a trap. What if there is no 'big picture'? What if it is just something we imagine...a vision created in our own brain...a myth, not a reality?

Some of the world's most successful investors maintain that trying to see the big picture is a waste of time.

  Equitymaster Conference 2016  
23rd January. Mumbai, India
  It gives us great pleasure in extending you an invitation to join us at the Equitymaster Conference 2016. This is going to be one of our most important Conferences ever! And I strongly recommend you attend it.

At the Equitymaster Conference, our best ever line up of speakers, starting with Ajit Dayal (Founder, Equitymaster) and Bill Bonner (Founder, Agora Inc.) will aim to address all your questions about the current investment environment, thereby help you in planning your next steps. Including...

»  Where are the stock markets headed?
»  What should be your investment strategy for Indian stocks?
»  Is it finally time to get bullish on real estate?
»  Is the Gold story over?
»  What's next for India's economy, and the Indian Rupee?

Plus, at the Conference you will get an opportunity to rub shoulders with not just our speakers, but also like-minded investors from across India (Last year we welcomed guests from 33 cities, and 3 countries).

So if you are serious about your investments, The Equitymaster Conference 2016 is something you cannot afford to miss. More details about the Conference and our speaker line up are available here.

We suggest you move very fast on this invitation.

Reserve your seat under our 'Early Bird' opportunity!

Peter Lynch, for instance. Lynch ran Fidelity's Magellan Fund for 13 years and made returns of 2,639% over that time. He liked to say that if you spent 13 minutes a year on economics, you wasted 10 minutes.

'We can never know what is going on' goes the argument. So, we're better off investing our energy into researching individual stocks.

But pity the poor Japanese investor in 1989, his head down, adding the numbers carefully: 'Don't bother me with this big picture stuff,' he says to his customers. 'I'm doing stock analysis.'

Here we are, 26 years later, and he's still analysing...and waiting to get even.

Or imagine the Jewish shoemaker in Hamburg in 1935.

'A cobbler sticks to his last,' he might have said, hunching over a pair of riding boots.

Or imagine the white farmer in Rhodesia after it became Zimbabwe.

'We're not going anywhere,' he might have said to his family.

There are times when it pays to raise your head and look around.

Right or wrong, we believe this is one of those times. And when we open our eyes, we see some weird, wonderful, and worrying things.

Credit Pumpers

Take the oil industry, for example.

There are two main ways to compete in the business world - on price or quality. If you are in the oil business, you have limited choice. You compete on price, because the quality - after refining - is much the same.

The world's low-cost producer of oil is Saudi Arabia. It aims to sell as much oil as possible, largely because it has little else going for it. Nobody buys a Saudi perfume. Nobody drives a Saudi automobile. Nobody goes to Riyadh for world-class financial services.

The Saudi product is oil. Its strategic goal is to protect its market share. It does so by occasionally flooding the world with cheap crude to squeeze its competitors' profit margins.

According to the news reports, that is what it has tried to do recently - aiming to keep US-fracked oil off the global market.

The problem, from a big picture perspective, is that the world's low-cost energy producer ran into the world's low-cost money producer.

Ah...there, we have the makings of trouble.

The Fed's cheap money regime financed the US oil industry. With low-cost, readily available funding, frackers were able to greatly increase US output. Now, they pose a substantial challenge to the Saudis.

But wait...now coming into focus is an even bigger picture...

For half a century, cheap oil - abundantly and conveniently under the dry ground - has made the Saudi elite rich.

They sold it all over the world...using the proceeds to build their wealth overseas and reinforce their power at home. They paid off political leaders, raised armies to protect themselves from foreigners, and hired police to torture their opponents at home.

Cheap credit - gushing up like an overflowing septic system - has done much the same thing for America's money elite, too.

The US has the world's reserve currency; it is the world's low-cost producer. But the product is not something stamped out in the mills of the Monongahela or honed in the machine shops of Chicago.

The middle class gets no part of this business. Instead, America's credit pumpers are an elite bunch. They, too, sell their wares all over the globe, using their gains much like the Saudis - to buy politicians, control the flow of wealth and maintain their own power.

Who are the biggest lobbyists in Washington?

The banks, of course.

And what is their strategic goal? To protect their market share.

More to come...in 2016.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

2019 Lok Sabha Elections and the Perils of Populism July 17, 2018
Evidence from around the world shows that populism can only lead to more populism and this is clearly not good news for the Indian economy.
Why We Defended Trump in London July 17, 2018
Bill discusses how Trump's trade war with China is a win-lose proposition and how the risk of China's collapse will be shared by all her trade parties...
The Market Gods Are Laughing July 13, 2018
President Trump escalated the trade war yesterday, and the Chinese say they will retaliate. Where is this trade war heading? Bill shares his insights.
MSP Leads to Excess Procurement of Rice, Which Leads to Waste of Water and Money July 12, 2018
Wheat, MSP, Food Corporation of India, CACP

Equitymaster requests your view! Post a comment on "A Big Picture Look at 2016". Click here!