WEST PALM BEACH, FLORIDA – I’ve never written about specific investments in these Postcards, except gold, and I don’t consider gold an investment anyway. (Gold is a store of value.)
But recently, I’ve been doing a lot of investment research for the premium newsletter I’m creating, and I found a very compelling idea…
More below.
Life Under Lockdown
Greetings from West Palm Beach, Florida…
Penny is baking cookies with her grandmother. The boys are playing soccer in the backyard. Kate’s listening to a podcast. And I’m in my quiet place, writing this message to you by hand…
Penny and grandma baking cookies
Late, Degenerate Capitalism
You probably noticed that oil prices went negative yesterday. A negative oil price means they PAY you to take it away.
It’s happening because there’s a severe, but temporary, mismatch between supply and demand and there’s nowhere to store the surplus oil. So for now, they’re paying people to take it away.
First of all, I found it very disturbing that the exchange changed the rules the previous day and allowed negative prices.
If you haven’t heard, the CME Group updated its systems to process negative prices earlier this month. CME is the world’s largest financial derivatives exchange.
The next day, some sort of squeeze happened that must have destroyed whoever it was that was long those oil contracts. This didn’t seem just.
The whole thing stinks to me and reminds me why Kate and I prefer living outside the financial system altogether. This is just another example of what Bill calls “late, degenerate capitalism.”
I also took negative oil prices as a warning sign that the financial system is very fragile and unstable still. If you haven’t exchanged your stocks for gold yet, now would be a good time to do it.
Greatest Oil Glut in History
Why is there a temporary mismatch between supply and demand in the oil market?
It’s the coronavirus lockdowns. No one is driving, flying, or taking cruises. And you can’t just switch off the oil wells. So a big “puddle” of oil is forming, with nowhere to go.
By calling it a puddle, I’m understating the problem.
There’s no precedent for shutting down the entire world economy for several months. I think we are about to see the greatest oil glut in all of history… both past and future… by several orders of magnitude.
This is just the beginning.
The oil price will only stabilize when they figure out how to a) turn off the taps b) build more oil storage or c) start burning oil again. A combination of all three would be ideal…
… And then d) demand must exceed supply for a while to draw down reserves again and drain the lake.
In other words, it’s probably going to take 12-24 months for us to process the surplus that’s about to form.
In the meantime, oil tankers will earn fortunes. (The tankers are the big ships that transport oil.)
To give you some perspective, middle-aged oil tankers sell for $30-50 million each. With the way the market is right now, and how high tanker lease rates are, some of these ships will make $30 million dollars THIS YEAR.
It just so happens, there are fleets of oil tankers that trade on the stock market. And for reasons I haven’t figured out, their stock prices are still extremely cheap…
I’ll write more about this tomorrow.
USO: Not a Good Buying Opportunity
I read that retail investors have been pouring money into the oil ETF called USO.
Even if I thought oil prices were going to rise, I wouldn’t buy USO. That’s because the contango structure of the oil market almost guarantees USO will lose money. (“Contango” means the futures price is higher than the current spot price.)
The investors that have been buying USO recently will get destroyed.
And besides, with the current situation in the oil market and the lake of oil that’s about to form, I wouldn’t be speculating on higher oil prices, anyway…
U.S. Shale Is Dead
The U.S. shale industry is DEAD. There’s no way around this.
When storage tanks are overflowing, they’re giving it away for free, and there’s STILL a gigantic puddle of oil forming… you can’t make money by pumping oil out of the ground. It’s that simple.
And the problem with U.S. shale producers is they’re highly indebted. They can’t afford to pause operations for a couple of years while we work through this giant oil surplus.
So the shale oil industry is 100% going out of business. And the Federal Reserve is going to have to absorb the junk bond losses.
(Junk bonds issued by shale oil producers account for 11% of total junk bond issuance. They’re worthless.)
– Tom Dyson
P.S. I’m launching my premium newsletter next month. Stay tuned…
Like what you’re reading? Send your thoughts to [email protected].
FROM THE MAILBAG
From Postcards positivity… to the state of the economy (and what’s next)… readers cover multiple topics in today’s mailbag…
Reader comment: It’s always great reading your posts because they remind me of what are the most important things to focus on. It isn’t easy to start all over again, but reading your daily post renews my faith in myself and helps me identify the mistakes I’ve made… that cost me a 25-year relationship and tens of thousands of dollars. Moving on has been humbling, difficult, and illuminating. Thank God for the friends and family that sustain me.
I agree with your analysis, especially after learning hard lessons fighting the Federal Reserve during ’08-’09. Governments will stop at nothing to keep the charade going. In the end, gold and other hard assets will shine. Reading about your experiences gives me faith in the future and I hope that Postcards from the Fringe continues after the launch of your next endeavor. With your future in mind, I wish you and your family well. I imagine you listen to Pink Floyd from time-to-time based on your experience being “boarded out.”
Reader comment: Due to the massive demand destruction that has occurred, don’t you think that we will have deflation before any inflation? If the velocity of money is low then inflation is impossible, given that it is just sitting there and not being used. Once people are released from their prison cells and start spending again, then I believe we will flip from deflation to inflation, as we have a massive amount of dry powder (printed money) waiting to ignite. Especially considering the trillions of dollars being provided by the Federal Reserve and U.S. Treasury.
Reader comment: First off, no one is forced to read what you write… so don’t apologize for writing what is on your mind and in your heart. Of course, you hit a variety of topics and threads through your writing, but hey, that’s fine. You have done what a lot of folks wish they had the courage to do, so they either applaud you or envy you (maybe both). I do… both that is.
Reader comment: I’m glad to see you working closely with Bill Bonner and Dan Denning. You are all really smart guys, but at the same time, you all wear your hearts on your sleeves. That makes you, and them, authentic… the real deal in my book. The world lacks that type of authenticity, so you’re in good company.
But, gotta tell you – I am a lifelong fan of Bill B. Again, people might be offended by what he says… even me sometimes. But you all make people think. What a concept these days, right? I think that hurts some people’s heads too much and they feel “offended.” I’d channel my inner Joan Rivers and tell them to grow up. Anyway, keep doing what you do, how you do it, and most importantly, why you do it. Godspeed and keep writing. Hellos to Kate and your lovely children.
Meanwhile, others rally around Tom’s boarding school stories (catch up here, here, and here)…
Reader comment: I’m just one of your long-term readers who has enjoyed your work and never intended to bother you, but your experiences of boarding school caused me to change my mind. I just went to grammar school in the UK in the fifties but ended up in Asia after years in the U.S., where I got married and had two half-Asian kids.
They first went to international schools but, when I had to return to the UK, I wanted to give them the sort of education where they could fit in anywhere in the world. I sent the girl to an academic private day school. It worked. She is gregarious, self sufficient, has backpacked around the world, and worked as a lawyer in London and Hong Kong. I sent the boy to a day prep school and then to Charterhouse (Verites) as a boarder.
I had heard all the horror stories of the old days, but was assured it was completely different today. And it is! Bullying and corporal punishment are out the window. They get a well-rounded education that sets them up for university and the job market. My lad was not sure he wanted to board at first, but has since thanked me and said he wouldn’t have missed it for the world.
I agree with your Dow-to-Gold ratio. I remember back in 1980 when the ratio hit one! I was playing golf on the Costa del Sol that day. The whole week’s holiday, including flight from the U.S., was paid for by the sale of one Krugerrand. Keep writing and good luck!
Reader comment: I’ve enjoyed your Postcards, but I’ve never written because I could not understand how you could put your kids and former wife in danger traveling the way you have through the world. It’s been a great experience for all of you, but imagine how you’d feel if the kids were killed or kidnapped while you stood there with your mouth open. It’s better to be lucky than smart, and you, sir, have been very lucky (especially so that your former is giving you another chance)!
I read about the beatings from your boarding school days. Personally, I went to public school when punishment with a wooden paddle was an accepted practice. I was a troublesome kid in elementary school and would get caught chewing gum or being disruptive in class.
I remember one gym instructor that really enjoyed swatting butts or bums in the hallway or an office. There was never any lowering of one’s pants and another male teacher had to be present to make sure your spine/tailbone were protected with another paddle along your bent-over spine. These paddles had holes drilled in them to make the paddle move faster through the air, to hurt you more. Usually, you were launched forward and it hurt at the time. By the time you got back to the classroom you had a grin on your face. You wanted to impress the girls! Most of the troublesome boys knew to have two handkerchiefs always in both back pockets.
Good luck on your new venture and stay safe. You have a wonderful family.
Reader comment: Allow me to say that your account of your boarding school experience is not self-indulgent. It is most interesting. All my life I have heard of British boarding schools and your account is a unique opportunity to learn about it firsthand. Sounds pretty grim so far. I cannot imagine why any parent would want to send a child away for years. Congrats on the pop-up! We took many a vacation in a pop-up when our kids were young. They are a great way to travel and camp. I really enjoy your Postcards. Keep them coming.
Reader comment: I’m enjoying your Postcards and read them daily. Keep up the reflections from your past! Your boarding school stories bring back some feelings and memories of my own childhood. I was enrolled in a military academy from fourth to eighth grade. Had I been a perfect angel, I’d have not been enrolled there! LOL!
The school was about two-thirds boarders and one-third day students, of which I was one. I couldn’t have imagined being a boarder, and often wondered what that must have felt like. The classes were taught by Catholic nuns and at the time, who seemed like just one breath removed from God himself. I would never have crossed them and sought to please them. I thrived there, but I must say that, once puberty hit, I hated it.
Reader comment: I love hearing about your childhood days at the awful Brit boarding school. I’ve heard tales of that and read about it in novels, but never knew anyone who actually went through it. I give my vote to continue telling us about it. (I’m an ancient 73-year-old, USA citizen.) Best regards.
Tom’s note: As you know, your messages are integral to these Postcards. Please don’t stop writing us at [email protected].