You Call This a Rally?!

The Daily Reckoning – Weekend Edition
December 9-10, 2006
Baltimore, Maryland
by Kate "Short Fuse" Incontrera


Surge. Rally. Rebound. Comeback.

All of these words were being thrown around in the news this week, and not in reference to any sort of sporting event. No, surprisingly, they were been used to describe the U.S. dollar.

Oh, how soon they forget. Last week, we wrote in this space that the dollar had declined to levels unseen since 9/11. But on Wednesday, things began to "turn around" for the greenback. A headline in from the ITH read: "Dollar Stages a Comeback from 20-month Low."

The gain in question? The dollar went from $1.3343 per euro to – wait for it – a staggering $1.3327. Then on Friday, things got even better: solid U.S. job data and remarks from Henry Paulson continued the rally.

First, the job data showed that the economy added 132,000 jobs last month, and advanced the dollar against the euro…which quickly fizzled when data showed that consumer sentiment dipped in December, showing that the spirit of giving isn’t as strong as Americans hit the malls this holiday season.

And then, to add insult to injury, the October jobs data was revised down to 79,000 from the original 92,000, canceling out most of the good news for the most recent data – and showing that the market puts way too much stock in these (often incorrect) figures.

The clincher in the dollar rally was Paulson saying in an interview on CNBC that the Chinese need more foreign exchange flexibility, but didn’t identify an amont by which the yuan should appreciate.

But it was this remark that saved the day: "I believe very strongly that a strong dollar is in our nation’s best interest."

So, our Treasury Secretary says a couple things, nothing really unexpected, the dollar perks up a bit – and now no one is worried? What about all the reasons that the dollar began its decline in the first place? What about the imploding housing market…a slowing economy…and, don’t forget, the ballooning trade deficit? These problems didn’t magically disappear because Paulson pointed out something that everyone already knows.

Short Fuse
The Daily Reckoning

— The Daily Reckoning Book of the Week —

Demise of the Dollar…and why it’s great for your investments
by Addison Wiggin

The DR’s own Addison Wiggin spent over a week in the #1 slot on Amazon’s bestseller list – knocking Harry Potter to number two. He then showed up on Barnes and Noble’s bestseller list and debuted on The Wall Street Journal’s Business bestseller list at #8!

The logical next step was for the book to get on the New York Times bestseller list…which it did, sitting strongly at #5!

The Demise of the Dollar examines the reasons for the dollar’s slide – including the nation’s historic trade deficit, the euro, government spending habits, globalization, and other international factors – and offers an up-close look at the Federal Reserve’s attempts to "manage" the dollar’s value.

To purchase your copy, see:

The Demise of the Dollar

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

A Goldbug’s Life                                                 12/08/06
by Bill Bonner

"The great ‘gold vs. paper money’ debate continues…in this DR Classique, first published in December of 2004, Bill Bonner takes a look at the long history of the yellow metal and tells us why our loyalty should lie with this steadfast currency…"

Not So Benign Conspiracies                                     12/07/06
by Justice Litle

"In the U.S. economy, ‘cash’ is being turned into ‘trash’ at a steady pace. The smart money is buying with abandon because it knows the paper bits floating around today will be worth less than the paper bits floating around tomorrow. Justice Litle wonders: how long can this go on?"

No Refuge in the Herd                                     12/06/06
by Chris Mayer

"As investors, every year can’t be 1982, when you could buy just about anything because just about everything was cheap. Every investor must make do with the market he finds himself in. Chris Mayer explains…"

The Dismal History of Phony Money             12/05/06
by Addison Wiggin

"The fall of the dollar is like a car accident…you want to cover your eyes and walk away, but you can’t help but watch it with a sense of amazement. And if you look through the history of currencies, you’ll find that all printed money eventually ends up the same way: practically worthless. Addison Wiggin explores…"

The Road to Commodity-ville                         12/04/06
by The Mogambo Guru

"The Mogambo has decided to educate the masses using his special brand attention getting tactics. On today’s agenda…the stock market is only profitable for some…and for those who buy gold and silver. Read on…"

FLOTSAM AND JETSAM: A recent report stated that there is no real oil problem, and that we are set for hundreds of years into the future. James Howard Kunstler begs to differ…

Don’t Worry, Be Happy
by James Howard Kunstler

Recently, Cambridge Energy Research Associates (CERA) released a report saying that there was no imminent global oil problem and that enough new oil would come on-line to permit current levels of consumption – and beyond! – for more than a hundred years into the future. CERA’s stunningly disingenuous report flies in the face of everything that is known about the current world oil situation.

CERA is fronted by Daniel Yergin, author of the Pulitzer Prize-winning history of the oil industry, The Prize. Apparently, Yergin has parlayed his legitimacy as an historian into running a disinformation service wholly owned by the IHS Corporation, a lobbying and public relations firm serving the defense, oil, and automotive industries. Apart from making a lot of money as executive vice-president of a company with about $300 million in net annual profits over about $500 million in gross revenues, it is a little hard to discern what Yergin’s motives might be in shoveling so much bad information into the public arena.

Much of CERA’s "story" hinges on the supposition that snazzy technology will allow the recovery of "oil" (liquid hydrocarbons) from solids that require costly mining and processing operations to covert them to liquids. In effect, CERA says that tar sands, kerogen shales, coal-to-liquids, plus super-deep ocean drilling will not only make up for currently depleting fields of easily-acessed liquid sweet crudes, but actually surpass current total production. This would seem, on the face of it, to violate everything that is known about Energy Returns on Energy Invested (ERoEI). And, in fact, the very companies working the tar sands in Alberta, Canada, have just this year steeply raised their dollar estimates of what it will take to convert that stuff into usable liquids – it ain’t a pretty story.

CERA does not acknowledge some of the fundamental facts of the current situation, for instance that the world’s four super-giant fields responsible for at least 15 percent of total global production since 1980 (Ghawar in Saudi Arabia, Burgan in Kuwait, Daqing in China, and Cantarell in Mexico) have all passed peak and turned down into depletion. CERA doesn’t acknowledge that discovery of new oil peaked worldwide in the 1960s with more than 40 years of steady decline since then. Or that there has been almost no provable meaningful discovery the past several years (and Chevron’s as yet unproved deepwater "Jack" claim of 3 to 15 billion barrels total is not significant in the context of a world that now burns through 30 billion barrels a year.) CERA doesn’t acknowledge that the predicted U.S. peak of 1970 was absolutely on target and that our domestic production of regular crude has fallen from around 10 million-barrels-a-day in 1970 to under 5 m/b/d now (still declining yearly, including the Alaska North Slope fields). CERA doesn’t acknowledge that current total global oil production through 2006 is at least absolutely flat and more likely falling (depending on whose numbers you look at), which would tend to indicate that the world has bumped up against the ceiling of its all-time total capacity. CERA doesn’t acknowledge that exports are down nine percent this year because the nations with export capacity have growing populations and economies that require more and more of their own oil.

The CERA story also tragically gives aid and comfort to those who deny that climate change needs to be taken seriously, since it is saying, in essence, that we can easily continue pumping carbon dioxide into the atmosphere – by burning as much coal as we can. The CERA report amounts to "don’t worry, be happy."

Perhaps most tragically, there is no corrective for this mendacious PR. It’s not against the law to spread lies about a business venture – which is what the oil industry is – even if its truthful condition is critical to the functioning of our society. There’s no oversight committee or agency authorized to investigate public relations activity. It’s a basic case of buyer beware. Unfortunately, the buyers in this case are America’s political leaders and the news media responsible for informing the public.

The mainstream media swallowed CERA’s PR hook, line, and sinker, without a single reflective burp. It even drove the prices on oil futures markets down a few dollars a barrel — though the price was back up by the Friday following the report. The only cogent analysis of the CERA report took place on the Internet, and for the most part on a single site:, which is the best-informed forum of debate on these issues operating in the United States.

Editor’s Note: James Kunstler has worked as a reporter and feature writer for a number of newspapers, and finally as a staff writer for Rolling Stone Magazine. In 1975, he dropped out to write books on a full-time basis.

His latest nonfiction book, "The Long Emergency," describes the changes that American society faces in the 21st century. Discerning an imminent future of protracted socioeconomic crisis, Kunstler foresees the progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and, amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in smaller places and eat locally grown food.

You can get more from James Howard Kunstler – including his artwork, information about his other novels, and his blog – at his Web site:

The Daily Reckoning