World to End Soon: Strong Buy.

Here's a little morceau from Marginal Thoughts, the website of a guy who runs a kind of commodities/doomsday portfolio (which is up 38% vs the market, btw):

“Tonight we'll share a completely unfounded suspicion with our readers diligent enough to check for new posts every night. WE DO NOT LIKE this recent action in gold. It's bullish, we're profiting from it, but I'm afraid that the market is sensing something problematic in the near future.

“Oil is making new highs, and gold is pushing towards 450. Something is not right. Something is about to break. We could be dead wrong about this, but our advice is to abandon conventional stocks and head for high ground. We feel that our portfolio contains adequate protection against adverse geopolitical circumstances, we will stand pat. Again, it's speculation, it's unfounded and unsupportable, but due to the strange action in precious metals, we foresee something ominous down the road. You have been put on notice.

“On that note, have a great night!”

Of course, he seems to be suggesting that the market is predicting a terrorist attack. It’s true that the market seems to have a way of predicting things (earnings misses, merger news, etc, sometimes seeps out in advance of official announcements; market participants sometimes collectively guess outcomes right, etc). This was why John “Iran/Contra” Poindexter wanted to build a terror futures “market” as part of the DARPA/Total Information Awareness program.

The idea was shot down since, among other flaws, you could go long a Friday bombing, then blow something up on Friday and collect. But legit markets like that do exist. One of em called the new Pope dead on. How well they—or the oil and/or gold markets—predict catastrophes is another question. Gold, for example, was in the middle of a decline when 9/11 happened.

The thing is, liquid markets tend to be pretty efficient, but they’re not psychic. For oil and gold futures markets to predict an attack, enough oil and gold investors might need to actually know that one is about to happen. I don’t think that is the case. More likely, what with the London bombings and Iraq, lots of peoples’ intuition may be that the risks of an attack are higher than normal. But does it really take a market to figure that out? Half these traders are getting their bags searched for bombs on the subway every morning. My guess is that unless there’s a massive global conspiracy, the markets won’t see an attack coming.

Whether the Marginal Thoughts guy is right or wrong in his interpretation that the market is predicting a calamity (and that one is indeed coming), it’s common sense that oil, at least, should be rising. The world is basically producing at capacity; there’s very little cushion for supply disruptions; it’s hot; it’s peak driving season; there’s all kinds of savage violence in the Middle East; bombs in London and Istanbul; Chavez is fuckin’ wack; Putin is fuckin’ wack; Nigeria is a christforsaken shame in every respect; and the US supplies are probably peaked out. On top of all that, demand is still rising. Despite ~$2.75/gal gas, American demand for it jumped 1.4% over the past year. It must suck to have an SUV right now. Anyway, the basic equation is something like this: limited supply + huge demand=higher prices. Higher prices = more oil futures buyers chasing the gains = even higher prices.

There is definitely an element of mania to the whole thing, but given all the crazy fucks around (both friend and foe), it’s not unreasonable to think that the shit will hit the fan any minute now. (That probably has something to do with why we’re camped out on the ocean of oil beneath Iraq. From the Hobbsian/ Leninist/ Neoconservative points of view, better us than someone else.)

What about gold? Why is it a safe haven? We don’t really use it up like we do our precious, precious oil. I think pretty much all the gold ever mined is still around (and supposedly would form a 66ft-square cube if we mushed it all together). We don’t really, really need it like we do other things, at least as far as I know…

Lessee, we solder stuff with it; we plate stuff with it; we put it in teeth (which we could, and probably do, recover post-mortem); and we use it for Bling. But with most of those applications, we don’t use it up, per se; we just assign it a use until we melt it back down for something else. If you’re Alberto Fujimori, for example, you take all the Inca masks in the Peruvian National Museum and melt them down for gold bars, which you use for bribe money. But how is gold money? How is it so valuable if it’s really not in very short supply, and we don’t really, really need it anyway?

Gold barely reacts with anything; it hardly oxidizes, it hardly corrodes, it hardly dissolves. Like its patron saint, 2-Pac Shakur (who not coincidentally took an Inca name), gold Just Don’t Give a Fuck--it’s one of the mellowest of metals. I think we think gold is so valuable because it’s sort of a tradition. Governments also used to just dictate its value, but now that we’re off the gold standard, the market does. And the market thinks gold is worth about $450 and ounce these days, give or take.

From an investment point of view, gold is the haven of value we flock to when the world is at risk of exploding and taking all that is great and good with it. But why? Is gold intrinsically valuable? Call me an A-Hole, but when the shit goes down, I’d rather have a fistful of iodine pills, tons of ammo, and a few thousand CLIF bars. Keep your gold, you mother-whoring bastard, or join me in the hills! We shall feast on the flesh of the invaders and the walls will be as knives, etc.

My guess? In the post-apocalyptic hellscape, as civilization feasts upon its own rancid corpse, Bling will no longer be King; brute force will be the only currency left.

That said, I’m long both oil and gold….almost exclusively. Just in case I’m wrong.