We have really enjoyed it – this long running decline of oil prices.  It has been something of a marvel.

For one thing, it has made travel relatively affordable this year.  And, while there is still the prospect of another wave down, it shouldn’t happen until we get one more screaming blow-off top in the market.

The future, at least to economics fans, is often foretold in Elliot Waves.  R.N. Elliott laid this all out in a deceptively simple book years ago titled The Wave Principle.

The basic idea is that big trends tend to come in five moves.  There a primary move (in oil’s case down), then a bounce, then a bigger down than the first one, a fourth wave bounce, and finally we settle in at the low.

My best guess is that we are seeing the end of wave 3 down and we might see a fourth wave rally of a couple of years before the fifth wave bottom shows itself.  And that, of course, will come with the Second Depression’s economic low-spot (armpit) somewhere along about 2019-2020.

Before you read a technical note from Oilman2, realize that we sometimes talk in short-hand.  I know that the oil data he refers to is the Texas Railroad Commission (RRC) which is the state agency that manages the oil property rights and  production facilities and dirty little details of oil including plug & abandon policies and what –not.

People who consider themselves shade tree “oil experts” who haven’t spent vast time on the Texas Railroad Commission site looking at the data are pretty much kidding themselves.

So much for my part…now the note from Oilman2 after I remind you the EIA is the Energy Information Administration…

Latest EIA data shows decline of 86kb/day in all US shale plays. The EIA data lags the RRC data significantly, as it is interpolated, whereas the RRC data is compiled and revised. RRC data has been showing even more decline in Texas fields. than the traditional lower estimates they are known for.

This was out late last week:

http://www.bloomberg.com/news/articles/2015-05-10/saudi-chevron-said-to-shut-down-wafra-oil-fields-output-monday

The Neutral Zone is a cooperative effort between Saudi and Kuwait – the buffer zone for leasing they share between them offshore. The Chevron project is a tertiary recovery steamflood operation, and the ceasing of expat work permits for Wafra a year back indicates something more than ‘maintenance’. Khafji, according to my sources, had casing leakage issues on several wells in addition to sanding up in many more – both would require extensive workover ops to return to normal. My guess is a tiff between Chevron and KOC, but that is a guess.

If the rig declines flatline (several operators in OK are starting back to drilling, but not at breakneck pace) for another few weeks, shale oil production continues to decline and we do not see gaining production in Saudi, the bottom may be in.

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There are only two things the average American wants, these days:  To be “famous” and to “get rich.”

The problem with famous, of course, is that it doesn’t pay the bills.  And the benefit of “rich” is that you can buy fame – if you have enough money.

So this morning I lay out a pretty good “get rich” scheme. 

No, it’s not fast, but is has a very good chance of working – since most people don’t even bother trying to get rich; most sit around waiting for it to happen.  Then they get disappointed when it doesn’t.  Go figure.

So we’re off to the realities of “getting rich” after some coffee and a few significant headlines.

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Long – but useful ramble here:  One of the hangovers from being #2 at a regional jet air carrier in the Caribbean is a fine sense of Standard Accounting Ratios.

When an airline figures it needs a 73% passenger load factor to break-even, it’s not blowing smoke…it’s an accounting calculation.  It’s something folks in airline admin, like me, model and tweak and press and connive in order to get all the costs as low as possible and thus, have the best chance of making money.

It’s the art of the ratio.  If you have 100-seats, then if 73 of them don’t have fare-paying butts in then, the airline will lose money on that flight. On the other hand, if there are 100 people in 100 seats, the odds of making money goes up…but again, there are other ratios that need to be considered.

Take your car..

Say you have a $500 payment on it.

Say you drive 100 miles a month.  That would mean you are paying $5 per mile just to drive the car…and some places cabs can be that cheap….and public transportation sure as hell is. 

You get ahead (or behind) in life working these things out.  And then living “by the numbers.”

When you drive 1,0000 miles a month, then your car cost per mile drops to 50-cents…and so forth.  That’s the magic of utilization – which is the amount of use out of something you get for the fixed part of ownership.

Then, there’s the whole matter of variable costs. 

Some of the things in your car depend on how much you drive it.  A fine example is gasoline.  If you get x miles per gallon and drive y miles, you can figure out one of your variable costs.

People don’t put as much attention to the fixed cost side of things…they seem to worry more about the variable costs.

“What in the world could this have to do with the cost of Gold?”

Let me explain:  Keeping a little bit of what meager income we make is a matter of looking at ratios and understanding dynamics of money.

I’m sure this morning, you’ll find lots of finance sites likely to focus on the pop in gold the past couple of days and proclaim that a huge breakout is here.  Not that they would be wrong, but let me introduce you to the dollar/gold ratio.  Because being right, but for the wrong reason can lead to disastrous decision-making.

The basic idea is this:  If a dollar is worth a Euro, then it ought to take about 1,066  of them to buy an ounce of gold. 

Referring to the chart at the top of this page,  please note that gold, indeed is up again this morning – or at least it was at press time.

But at the same time, the “value of the dollar” is dropping.  It was down to 0.875 Euro this morning,

So here is the magic of ratios: 

Price of gold (say $1,218.70) times the dollar to Euro exchange rate (.875) equals a fully priced ounce of gold at about €1,066.3625.

And what would the price of gold pencil to if the dollar rose to 0.94 Euro?  Simple:  $1,134.

The gold/Euro ratio is not fixed, and sure, it will drift over time.  But when you’re playing in a multi-currency world, pah-leese don’t tell me a huge bull market is gold is happening – yet.  The huge bull markets are when major changes in the underlying ratios take place, not when currency has cut loose its moorings temporarily, as it has recently.

My point (and this is why thinking in ratios is so damn important) is to look for the underlying ratio when you are trying to understand anything financial.

Yes, you can make money on gold options and yes, the price of gold is going up…but a study of RATIOS reveals that the driver isn’t everyone waking up and running out and buying six Krugerrands before breakfast.  This is a currency swing.

I will repeat what I was screaming at you a month, or so, back when I told you to watch the Fed which is printing up M1 and M2 like CRAZY to keep the economy pretending to recover:  The forex market is starting to devalue the dollar a bit…and as they do (like printing M1 at a 10.6% annualized rate won’t have an impact?_) the dollar may fall more relative to the Euro.

That will press gold us, begin some internal inflation in the US and offset the big bad ugly word that no one in Washington can cope with: deflation.

Why do you think I was headlining all that stuff about the Fed H.6 currency stocks report a while back?  Do I have to draw you pictures?

Where could it all go?  Well, say the US continues to devalue relative to the Euro.  Say we get down to 0.78.  Where might gold go – strictly on a currency move – in this instance?   Are least to $1,366 or thereabouts.

Of course, were this to happen, the underlying ratio would change.  There’s a pile-on effect that is not insignificant. 

In fact, when you study ratios long enough, a particular neuron in your brain will short out and you will see that the ratios aren’t nailed to the floor and appear as a nonlinear curve over time.  And when the curve gets to a certain spot, the related (nonlinear) pile-on of lemmings begins and prices go off the charts to the stratosphere and becomes self-reinforcing.

Yes, and we can get rich in these instances.

The bottom line is what?

I’m skeptical of this being a major bull market in gold just yet.  We need to see gold up into the $1,300+ range and wait for some pile-on effect to appear to become a real ratio-pusher.

But the ratio (which is kind of rocking chair curve) will be covered in more detail in an upcoming Peoplenomics® report.  But the key thing is to keep an eye on the general business outlook and currencies.

If people really were buying Krugerrands and Maples for breakfast, the currency shift could be discounted away.  But that’s not what’s going on here on this planet.  At least not yet.

While the move over $1,200 is constructive, hold to decaf while we see how bad deflation really is, and how much of the Fed money printing really chases goods and services.  The truth will be revealed in the ^TNX 10-year note rates and the 90-day Euro futures.

If the ^TNX doesn’t drop down next week after options expiration tomorrow, I will be surprised.

This is, don’t forget  (index) options expiration day and traders love to drive markets up to scalp a few bucks.  Trading may be fine for some, but it’s too much work for old men  like me.

Stocks should put on 100-points, or more today.  But it’s not because we recovered from our economic woes overnight.  It’s because with the currency shift, it now takes a few more (watered down value) dollars to buy the same intrinsic value represented by the underlying companies.

I’ve found reducing financial thinking as much as possible to ratios has helped me make average to slightly better financial decisions.  You might consider giving it a try.  A few minutes with a calculator can change your relationships dramatically.  Especially the one with your bank.

Longwave economics is not about hit-and-run trading.  It’s about these larger ratios over time that anyone can teach themselves to observe and invest by.

More Dot-Connecting

Madison Avenue Mike, when he’s not being a demigod of NYC fashion, is one of the more cogent news tipsters around here.

His “picks” this morning include the report that the Fed really has secret bailout plans and capabilities that dwarf those powers of mortal finance….

And he spied parent banking firms are likely to plead guilty in some FX-schemes.  Of course, the caught-red-handed bankster class ain’t commenting – but you’ve been around our coffee-klatch news operation here long enough to know what “No comments” means, right?

Blah, Black, Blah…Producer Prices

Here, read this press release:

The Producer Price Index for final demand fell 0.4 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.2 percent in March and decreased 0.5 percent in February. On an unadjusted basis, the index for final demand declined 1.3 percent for the 12 months ended in April. (See table A.) In April, more than 70 percent of the decrease in final demand prices can be attributed to a 0.7- percent decline in the index for final demand goods. Prices for final demand services edged down 0.1 percent. Within intermediate demand, prices for processed goods fell 1.1 percent, the index for unprocessed goods moved up 0.9 percent, and prices for services advanced 0.5 percent. (See tables B and C.) Final Demand Final demand goods: The index for final demand goods moved down 0.7 percent in April following a 0.3-percent rise in March. Leading the broad-based decline, prices for final demand energy fell 2.9 percent.

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Universe is always having fun with us – often at my expense. 

So Tuesday, when I went down  to the airplane hangar (to make sure everything was coming along) sure enough, I got out of the truck (*with flat soled shoes on) and promptly fell on my butt in a mud puddle.

Hmmm…falling down, is it?

Sure enough, when I got home, the web was lighting up with word on this week’s “near pass” of asteroid 1999 FN53.

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Another Earthquake in Nepal.  7.3 and dozens more dead.

End of story?

Well, not quite.

Here’s an interesting story to ponder:  Some friends of ours were in Nepal & Tibet a while back (within the last two years) and one of the oddities they found was a very large number of Israel IDF folks in country.

Normally, I would have written this off as insignificant, but then I caught this story in an Israeli media outlet a while back (*after the first big quake) that headlined “Nepal earthquake updates / Some 200 Israelis preparing to return home on special flight”

Maybe I am tilting at windmills here, but my mind keeps wanting to add one and one and come up with something.

So far, it’s only a question:  What is Israel looking for in the Himalayas if anything?

Say, here’s a website that goes into one thing that I remember about the area:

“There is a tradition in Tibetan folklore of beyul — secret or hidden lands, usually described as valleys.”

And what about Shambhala or Shangri-La?  Shangi-la first:

“Shangri-La is a fictional place described in the 1933 novel Lost Horizon by British author James Hilton. Hilton describes Shangri-La as a mystical, harmonious valley, gently guided from a lamasery, enclosed in the western end of the Kunlun Mountains. Shangri-La has become synonymous with any earthly paradise, and particularly a mythical Himalayan utopia – a permanently happy land, isolated from the outside world. In the novel Lost Horizon, the people who live at Shangri-La are almost immortal, living years beyond the normal lifespan and only very slowly aging in appearance. “

And Shambhala?

In Tibetan Buddhist and Hindu traditions, Shambhala (also spelled Shambala or Shamballa; Sanskrit: ?????; Tibetan: ??????????; Wylie: bde ‘byung, pron. de-jung; Chinese: ???; pinyin: xi?ngb?l?) is a kingdom hidden somewhere in Inner Asia. It is mentioned in various ancient texts, including the Kalachakra Tantra^[2] and the ancient texts of the Zhang Zhung culture which predated Tibetan Buddhism in western Tibet. The Bön^[3] scriptures speak of a closely related land called Olmolungring.

All of which get’s us to wonder why would Guru Rinpoche supposedly empowered some 108 of such places?

“Who?”

Padmasambhava^{[note 1]} (lit. “Lotus-Born”), also known as Guru Rinpoche, is a literary character of terma,^[1] an emanation of Amitabha that is said to appear to tertons in visionary encounters and a focus of Tibetan Buddhist practice.

There is an alternative explanation:  Perhaps the US and others involved in the early Gulf Wars found something in their raids on ancient artifact locations – something widely reported during the fights.

What IF – and this is only an IF – there was some hint in ancient literature that a previous civilization (ET’s come visiting and ignored the Prime Directive perhaps? Ancient history is full of dueling off-worlders…) had left hints to new technologies scattered about the world in other than the territories of Mesopotamia?

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Mother Nature doesn’t seem  to be very happy with Nepal.  This morning’s earthquake – the second in two weeks in Nepal – has us contemplating the possibility that the exceptional strains around the Pacific Plate and the Indo-whatever-it-is will have to have some balancing – and that bodes poorly for either the West Coast or Hawaii.

As you know, we had recently discussed some of the work of G.A. Stewart (see his website The Age of Desolation here) and we’ve mentioned that May 10 has been a day of concern for some time, but there’s this little matter of calendar adjustments that keep the mega quake window open until the end of the month, or so.

One of these days, a longer investigation of calendar reform is in order, although Wikipedia has a fine start on it over here.  The idea of the can of worms this “accuracy of calendar” opens begins to reveal itself as we read:

The calendar was a reform in 1582 to the Julian calendar. It was introduced by Pope Gregory XIII, after whom the calendar was named, by papal bull Inter gravissimas dated 24 February 1582.^[4] The motivation for the adjustment was to bring the date for the celebration of Easter to the time of year in which it was celebrated when it was introduced by the early Church. Although a recommendation of the First Council of Nicaea in AD 325 specified that all Christians should celebrate Easter on the same day, it took almost five centuries before virtually all Christians achieved that objective by adopting the rules of the Church of Alexandria (see Easter for the issues which arose).^[

Without getting too deeply into it, the basic idea of the calendar not being “nailed down” with high precision fasteners, has to be considered any time you look at historical data.

What we can say with some certainty is that yesterday was yesterday and tomorrow is likely to be tomorrow, but much beyond that, religion and government have been conspiring for a good long while and the constant re-write of history books – in the era before moveable data or moveable facts (as opposed to simply moveable type) – has a fair degree of importance.

For one, we can’t say with very high precision what happened from about 1700 and earlier.

One of the champions of pointing this stuff out is a Russian mathematician by the name of Anatoly Fomenko.

He went through all the best information available on the Middle Ages and came to the conclusion that a lot of it was simply made up.  A good starting point if you’re interested in the possibility that even relatively recent history was just “made up” can be found in Fomenko’s History: Fiction or Science? Dating methods as offered by mathematical statistics. Eclipses and zodiacs. Chronology Vol.I which is but the first of several books on point. 

Then problem is that Fomenko worked history backwards through referenced historical events and came to the conclusion that Christianity may have been largely made up. 

The problem with Fomenko’s work is two-fold.  First, it doesn’t make Christians very happy because it opens the door to the possibility that a competing religion (Islam) may not be the newer religion by as much as is claimed.

The other point that’s debatable in Fomenko is whether or not the Earth’s rotation or even our position among the planets more recently is as “stable” as we’d like to think.  Science has be moving slowly toward Velikovsky’s cosmological model of colliding worlds and that really upsets everything.

The result, for Fomenko was being branded in places like Wikipedia as a “Historical Revisionist:

“Fomenko is a supporter of drastically revising historical chronology. He has created his own revision called New Chronology, based on statistical correlations, dating of zodiacs, and by examining the mathematics and astronomy involved in chronology. Fomenko claims that he has discovered that many historical events do not correspond mathematically with the dates they are supposed to have occurred on. He asserts from this that all of ancient history (including the history of Greece, Rome, and Egypt) is just a reflection of events that occurred in the Middle Ages and that all of Chinese and Arab history are fabrications of 17th and 18th century Jesuits.

He also claims that Jesus lived in the 12th century A.D.

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I’ve given Elaine an interesting project:  Find some companies that she thinks we ought to invest in.   Having received approval for our minor parts change on the airplane, I think a trip to a casino somewhere would be interesting but options are far easier to play at home and you can make a lot more money at it.

Sounds simple enough until you start looking at the task in detail.  Then it becomes…well…daunting.

This morning we consider the problem of stock screening in some detail, consider some different approaches to sniffing out under-valued companies, and offer Mrs.

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