Market Review: Forces of Nature

Not much happened this week…well, except the fact that the second hurricane in less than a month threatened the Gulf Coast.

Hurricane Rita, with winds even stronger than Katrina’s, had everyone on edge as she churned around the Gulf Waters, closing in on the Texas-Louisiana border. Rita made landfall as a Category 3 storm in the pre-dawn hours of Saturday morning.

Although the oil refineries on the Gulf Coast closed this week in preparation for Rita, as of now, this hurricane appears to have been far less damaging to the refining industry than Hurricane Katrina, which crippled four big refineries with long-term damage.

With these two hurricanes back-to-back, displacing millions of people, and killing countless others, a question keeps popping up: Is there anything we can do to prevent hurricanes?

Of course, after the mess with Katrina, the government is taking every measure to make sure that we would be better prepared for another large-scale rescue mission, but many want to know – can we do anything to quell this force of nature?

In a nutshell, as many of you presumed, the answer is no. But not for lack of trying. CNN reports that in the 1950’s, the federal government put a hurricane modification program called “Project Stormfury” into play. Basically, scientists in Navy planes released silver iodide on hurricanes clouds just outside the eyewall. The hope was that a new ring of clouds would form, change rain patterns and eventually collapse the eyewall. Their theory was the hurricane would spin slower and be less dangerous.

Sometimes these experiments seemed to work, other times the scientists weren’t so sure. So, after the government spent hundreds of millions of dollars on Project Stormfury, the decades-old experiment was abandoned due to inclusive findings.

Then, there is the “Big Bang” theory – why can’t we just blow up the hurricane?

We recently spoke to the Sovereign Society’s Sean Brodrick on this topic…

“Why not use a big bomb to defuse a hurricane? I mean, a hurricane is just energy going in a particular direction, right? You’d think a bushel of those bunker-buster/daisy cutters targeted in the other direction would destroy the hurricane, or at least slow it down.

“I found out why that won’t work on the NOAA website, where they answer the question: ‘why don’t we use nuclear weapons to destroy hurricanes?’ Using nukes hadn’t occurred to me, because of the radiation being whipped around by the wind. And NOAA raises that point. But they also make these other points…

“‘A fully developed hurricane can release heat energy equivalent to a 10-megaton nuclear bomb exploding every 20 minutes.

“‘According to the 1993 World Almanac, the entire human race used energy at a rate less than 20% of the power of a hurricane.

“So, the short answer is, if you could build a bomb big enough to destroy a hurricane, you’d also probably destroy whatever you were trying to save.”

Kate Incontrera
The Daily Reckoning

September 25, 2005 — Baltimore, Maryland

P.S. Mr. Brodrick has written a 30-page energy crisis report outlining the four forces bearing down on energy-dependent America, forces that could wash over our economy like a tsunami. In this report, he describes the six likely consequences of the next oil shock, and tells you about ten energy companies you may want to add to your portfolio immediately – plus, a widely held stock you should sell or avoid at all costs.

— Daily Reckoning Book Of The Week —

Petrodollar Warfare: Oil, Iraq and the Future of the Dollar
by William R. Clark

Far from being a response to 9/11 terrorism or Iraq’s alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production and the ascendance of the euro currency.

Meticulously researched, Petrodollar Warfare examines US dollar hegemony and the unsustainable macroeconomics of “petrodollar recycling,” pointing out that the issues underlying the Iraq war also apply to geostrategic tensions between the United States and other countries, including the member states of the European Union, Iran, Venezuela and Russia.

THIS WEEK in THE DAILY RECKONING: Did you miss an issue of The Daily Reckoning this week? Never fear, we have them all catalogued for you…

As We Go Marching     09/23/05
by Bill Bonner

“People wondered what it was about the Germans that had made them so ready to go to war…and so willing to go along with ghastly deeds on a national scale. Was it something in their blood, in their culture…or in their water?”

Castles in the Air     09/22/05
by Dan Denning

“While China takes the reality of peak oil production seriously, the second important news item from August shows that Americans are still behaving as if it were possible to get rich buying houses from one another.”

Is Copper Popping Its Top?    09/21/05
by Carl Waynberg

“It’s worth noting that even the smallest surplus prediction would represent a considerable change in copper levels from the first half, which saw a deficit of 219,000 metric tonnes.”

A Fool and His Money    09/20/05
by Justice Litle

“In essence, passive indexing is the equivalent of a dog chasing its own tail. Selected companies grow larger as sums of indexed money robotically swell their market caps.”

The Economic Trail of Tears   09/19/05
by The Mogambo Guru

“The fall of the dollar is a cause for concern to everyone in the U.S. – except for goldbugs. Why? Because as the dollar falls, the price of gold should continue to go up. The Mighty Mogambo explains how this is possible…”

FLOTSAM AND JETSAM: In the article below, Kevin Kerr and Justice Litle look at two natural resources that have been in the spotlight recently: Gold and oil. Read on…

by Justice Litle and Kevin Kerr

With Hurricane Rita almost out of the way, fear should start to exit the market. As Antoine de Saint-Exupery (the author of The Little Prince) once said, “Once men are caught up in an event, they cease to be afraid. Only the unknown frightens men.”

In other words, once Rita passes and Texas picks up the pieces, I believe the fear among energy traders will go down – and oil prices with it.

In fact, as I write this, prices are already pulling back. I believe it’s only short-term, and just shows that most energy traders can’t see past the ends of their noses. Remember, hurricane season runs through November.

Michael Schlacter, chief meteorologist for the New York forecasting company Weather 2000, was quoted today as saying, “There’s going to be a storm that we haven’t seen yet, and that hasn’t even formed. It should be a fool’s call to say Category 4 is a potential.”

So sure, I expect oil to pull back, and probably natural gas, too. But at my commodities newsletter, we’ll use that pullback to add new positions.

Likewise, we just took profits in gold. Do you think I’m going to use the next decent pullback to add more gold positions? Bet on it!

The potential for gold, oil and other commodities is extraordinary. And we’re going to aim for a gusher of profits.

Gold on the run means a rising tide of inflation concerns, which means rising interest rates and market pain, which means hard times for the investment banks. But this time around, for this strange interlude, both are sharing an upward trajectory. One or the other is due for a fall from grace. But which?

The investment banks have long been riding a wave of persistent and deliberate asset inflation. When excess liquidity is pumped into the system, those who truly prosper are the ones best placed to dip their hands in the river. As the Greenspan cash swirls and eddies and flows, savvy players massage it and trade it and hedge it; advise the corporations who are deluged by it; and profitably surf the growing swells of debt created by it. No business like flow business.

If the i-bankers are riding high on an asset-inflation wave, gold is cresting on a far more ominous one. Those who buy gold anticipate the day when this supposedly benign asset inflation turns malignant. It will not be a happy day when those offshore bonds come home. The inevitability of the coming mess is good news for gold investors, but bad news for the world at large. And potentially bad news for democracy.