Lacking the Resources: The Drain in Real Assets & How to Profit From it
September 9, 2009 by John Myers
“The Golden Age of American capitalism is over… In the space of half a century it passed from gold, to silver, to paper, and now it is somewhere between plastic and naval lint.” Bill Bonner and Addison Wiggin, The New Empire of Debt.
“The only thing the States is pumping these days is money.” A Calgary-based, multi-national oil executive.
I use to love to ski. But one March morning a couple of years ago it left me feeling pensive and depressed. I stood at the top of Silver Mountain Ski Resort, east of Coeur d’Alene, Idaho, and watched the lower clouds disperse.
I saw how Interstate 90 snaked through Idaho’s once-famous Silver Valley. But that day the only silver I would see was the giant reflective sign that stood over my shoulder.
Fresh snow had only dusted the mountain. Down below the Silver Valley was black and barren, closer to what you would see on the moon than to what you would experience in the Alps.
My research as a metals analyst reminded me that Silver Valley was the only place on earth where more than a billion ounces of silver have been mined. Since 1884 some 1.2 billion ounces of silver have been harvested in Shoshone County.
I left for home in the afternoon and looked at road signs. The towns along the valley proclaim you can revisit the past and see how it was in the days of the silver barons. But with the sun setting the surroundings looked more like they were from the days of the Jurassic than from the days of Hunt and Getty.
The landscape has been dug, drilled, mauled and mined, and whatever silver was in the region has been long since spent. In a way the Silver Valley is a microcosm for America’s over-harvest of its once-bountiful natural resources.
Fifty years ago the United States was the largest producer of oil and a net exporter. Today its number one import is crude oil. Each year the United States spends nearly $300 billion on foreign petroleum. But oil is not the only resource in shortage.
In 2007 five of the 10 fastest growing imports were: nickel (up 47 percent), feedstuff and food-grains (up 34 percent), precious metals (up 34 percent), tin (up 27 percent) and food oils and oilseeds (up 26 percent).
This year the United States will run a trade deficit of about $350 billion. More than 80 percent of that deficit will be for the purchase or raw materials.
Meanwhile America’s insatiable thirst for natural resources has some Canadians nervous.
“Could the U.S. takeover Canada?” asks the Aug. 20, 2009, Vancouver Sun. Perhaps not anytime soon the newspaper says, but there are reasons to be concerned.
The Sun concludes that Canadian politicians will become more protective of this nation’s sovereignty, “if Americans relentlessly continue their unsustainable consumption patterns even as U.S. resources keep on depleting.”
Given the 100-year trend, it is hard to imagine anything else.
America has always been relentless in its consumption of raw materials and it’s hard to see how that will change. The nation’s whole way of life is based on the excessive consumption of oil, land and minerals. It was the harvesting of those resources that made America great and at the same time addicted the country to a resource-intense lifestyle. But now the nation’s resources are running low.
For example, U.S. experienced peak oil production way back in 1970. Since then domestic oil production has been in a steep decline.
Today Canada funnels more than half the 3.4 million barrels of oil it produces daily to the U.S. and provides 82 percent of all U.S. natural gas imports.
Canada also sells a third of its hydroelectricity to U.S. markets and supplies a third of the uranium used in U.S. nuclear power plants.
Water, of course, is another resource soon to be in shortage. Earlier this year, the U.S. Government Accountability Office said at least 36 states are anticipating water shortages within five years. Again, Canada has excess water it can sell to the U.S. (not because Canadians have been better stewards of the land but because Canada has a richer inheritance and one-tenth the population.)
But even Canada does not have the wherewithal to meet all of America’s resource needs, never mind the needs of a thirsting world.
“In the 1960s most countries lived within their ecological resources,” writes guardian.co.uk. “But the latest figures show that today three-quarters of the world’s population live in countries which consume more than they can replenish.”
While Western economies have slowed to a crawl, China’s economy will grow by more than 8 percent this year. Each new day brings tons of new consumption of raw materials—everything from alfalfa to zinc. And as 1.3 billion Chinese continue to satisfy their growing Western tastes for everything from cars to washing machines, the finite supply of natural resources will get smaller and smaller.
According to guardian.co.uk, “The natural resource crisis is proving worse than the global financial crisis. We are using up the earth’s resources very fast; and as a result, we are heading for an ‘ecological credit crunch.’”
That is certainly an exaggeration from the Liberal left. But there is no denying that real assets are getting used up and at a record rate. If you don’t believe me, just look at some commodity price charts. Rising prices reflect growing scarcity or fears of scarcity.
Commodity markets are one of the only true free markets left, and if you ignore them it is at your own peril. Right now the CRB Index tells me that the commodity bull, while wounded in 2008, is very much alive and getting stronger. That means even higher prices for real assets across the board.
Action to take: A conservative but profitable way to play the commodity bull market is with a real asset fund. There are plenty of good real asset funds out there so talk to your stock broker. Just remember, when you invest in a real asset fund you are betting the price of commodities is going to go up. Given the recent weakness in the U.S. dollar and the continued global demand for commodities, I think this is a safe bet.
Yours for real wealth,
Myers’ Energy and Gold Report