Keynes, Mustangs, and Oil Prices

“Successful investing is anticipating the anticipations of others.”

— John Maynard Keynes, 1st Baron Keynes of Tilton

There is perhaps nothing quite as agreeable as a warm spring day, laughing children, and burning burgers.

And despite my best intentions, I burnt them black and crisp.

I’m not sure what the connection is between investing and burgers, but it’s there…

Warren Buffett reportedly eats cheeseburgers and fries alone in his office before making an investment decision.

Bill Gates ritually ate burgers and shakes for lunch at Microsoft in 1981 in a two-story building right next to the Burgermaster drive-in.

World’s Best Burger

Lee Iacocca knew how to make history’s best burger.

For those who don’t know, Lee produced the Ford Mustang, the Chrysler minivan, and the K-car.

The story goes that Henry Ford II, Lee’s boss, used to complain that he couldn’t get a burger as good as the ones served in the executive dining room at Ford.

So before Iacocca had a cookout, he went into the kitchen one day and asked the chef what his secret was…

The chef took out an inch-thick New York strip and put it in the meat grinder, mashed up a patty, and tossed it on the grill.

He smiled and said, “Amazing what you can cook up when you start with a five-dollar hunk of meat.”

It’s more like $25 today, but I digress. As I said, I had the best of intentions this weekend when I mixed Old Bay with grass-fed beef to make my patties.

And perhaps I was distracted by a young whippersnapper who dumped a bucket of water on me from a second-floor window, but the end result is best described as hockey pucks.

Good Intentions

And so it goes with John Maynard Keynes’ quote above.

In his magnum opus, “The General Theory of Employment, Interest, and Money” published in 1936, Keynes argued that demand — not supply — is the key to growing economic activity.

And what better way to increase demand than to punish savers through low interest rates and create vast amounts of government deficit spending.

The idea of the General Theory is to spend during economic downturns and save during boom periods.

Of course it sounds great; no one objects to saving for a rainy day.

The problem is that economics have to deal with humans in mob form…

And we humans are weak.

We make mistakes. We lie, cheat, and game the system. Spending in bad times becomes spending in good times. Burgers get burnt.

The good news for us Yankees is that in the old country, they are cooking with gasoline.

The Mighty Dollar

Oil prices continue to drop. WTI is at $91.95. Brent is down to $107.40 (an 11% drop this month).

Gold has bounced a bit to $1,592 an ounce after selling off for weeks.

This move has been caused by two factors: First and foremost, the U.S. dollar has rallied on new worries over spending in Euroland. It is a flight to quality, and the dollar is now the best of a bunch of really bad currencies.

The second factor is that crude oil inventories at the Cushing, Oklahoma, storage hub reached a record 45.1 million barrels on May 11th after rising 16.9 million barrels since January 13th.

This is a new phenomenon and is different from the flat level of inventories from January through April in recent years. It is due to increased production in the Midwest and Canada.

According to the EIA, “Monthly data show the Midwest received about 350,000 bbl/d (25 percent) more Canadian crude in January and February of 2012 than they did in the first two months of 2011.”

Last week in Crisis & Opportunity, we took a number of profits — including 410% gains from Africa Oil (AOI.V).

I received two emails worth sharing with you today:

My $7 stop loss triggered today on African Oil Corp. I bagged 350%. Should have had my stop loss at 6.95, I know.
Is there a buy in level one should be looking to get back in?


Mr. DeHeamer and C&O Team,

I won’t lie. Seeing my suspicions confirmed with my email in your letter put a big ol’ smile on my face that was hard to wipe off… especially since I made a 375% gain from your Africa Oil recommendation. A sizzling feedback is the only heat you should be taking.

The renewed Keynesian spending in Europe — coupled with large oil production in North America — has boosted the dollar at a time when oil inventories are bursting at the seams.

I have taken profits in my oil positions and am looking for other investment avenues.

Boom Times Ahead

Cheap oil and a strong dollar are good for U.S.-based manufactures, the U.S. debt, trade balance, inflation, and mortgage prices.

The 10-year Treasury fell to another new record low of 3.75% this week.

It could be that massive amounts of deficit spending around the globe is the precursor to a devastating economic crisis in the future…

All the best,

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.