QUOTE OF THE DAY

"So that in the nature of man, we find three principal causes of quarrel. First, competition; secondly, diffidence; thirdly, glory.

The first maketh men invade for gain; the second, for safety; and the third, for reputation. The first use violence, to make themselves masters of other men's persons, wives, children, and cattle; the second, to defend them; the third, for trifles, as a word, a smile, a different opinion, and any other sign of undervalue, either direct in their persons or by reflection in their kindred, their friends, their nation, their profession, or their name."

-- Thomas Hobbes, The Leviathan

Dear Wealth Daily reader:

Terrorism Hits the Brits
The US Economy Reacts

Sometime around 4 in the morning while I was dreaming of lying on the beach sipping on a chilled Chardonnay, four explosions devastated the waking city of London.

Three blasts rocked the London Underground and one ripped open a commuter-packed double-decker bus during their morning rush hour.

According to a US official, at least 40 people were killed in the explosions which left several hundred injured

British officials have yet to make public the death toll.

A previously unknown group calling themselves the, "Secret Group of Al Qaeda's Jihad in Europe," claimed responsibility for the destruction in the name of Al Qaeda.

The group claimed that the attacks there were in retaliation for Britain's involvement in Iraq and Afghanistan.

The group claimed the attack on a website posting and warned Italy and Denmark to withdraw troops from those two countries. Arabic satellite station, Al Jazeera, also reported that it had received a phone call from the group claiming responsibility.

At home, Wall Street felt the terrorist jitters. Traders sent stocks sharply lower this morning.

Here's how things looked around 10 am.

In the first five minutes of trading, the Dow fell 66.22.

The S&P 500 also slipped 6.88 and the NASDAQ tumbled 15.39.

The US dollar hit a 14-month high against the pound after the explosions, but fell against the euro and was mixed against other major currencies.

The Bush administration and the Treasury Department are keeping a close eye on the global markets in the wake of the explosions.

But amidst all the madness most defense stocks shot up including our own DHB which was up this morning almost 3%.

Other defense stocks jumped. Armor Holdings, Lockheed Martin, and Ceradyne all rode the latest terrorist wave, which makes me think bullish thoughts for the defense industry in the short term.

Oh Oil!
Not surprisingly oil prices also felt the news.

Oil was down over $2 before the bell. But the price rebounded back over the $60 hurdle as US trading began.

Which really makes me nervous. The price of oil has hit an all time high twice in two days.

The truth of the matter is that oil hasn't yet hit the ceiling.

Supply fears, inventory reports, and now terrorists attacks keep pushing the price skyward. And then there's Dennis. The growing category 2 hurricane that's ravaging Jamaica right now and heading for the US.

The hurricane is project to hit the Gulf of Mexico sometime early next week, which means that we'll probably see an extended oil rally finishing off the week.

But the big boys on Wall Street are torn over the future of oil

Two of the biggest investment banks have come out with very different forecasts.

In March Goldman Sachs said oil could top $100 a barrel. But last month, an economist from Morgan Stanley predicted oil prices could collapse.

So who's right?

Most economists and energy analysts say the price of oil will probably float between $50 a barrel and the low $60s in the foreseeable future.

Personally I see the price over the top end.

However, amid the madness and energy debate between oil nerds, one news story that came out last night will have far-reaching economic implications. And it also validates Mike Schaefer's long argument that the world is facing an energy crisis of historic proportions.

Instead of paraphrasing the article, here it is in its entirety:


Saudis warn of shortfalls as oil hits $61
By Carola Hoyos and Neil Dennis in London
Published: July 6 2005 22:02 | Last updated: July 6 2005 22:02

Oil prices hit new record highs above $61 a barrel on Thursday, driven by short-term supply fears as the first hurricane of the season threatened crude production and refinery operations in the Gulf of Mexico.

But private warnings also point to a worsening long-term outllook, with Saudi officials saying that the Organisation of the Petroleum Exporting Countries will be unable to meet projected western demand in 10 to 15 years.

At today's prices, the world will need the cartel to boost its production from 30m to 50m barrels a day to 50m by 2020 to meet rapidly rising demand, according to the International Energy Agency, the energy watchdog for consuming countries.

But senior Saudi energy officials have privately warned US and European counterparts that Opec would have an "extremely difficult time" meeting that demand. Saudi Arabia calculates there is a 4.5m b/d gap between what the world needs and what the kingdom can provide.

Saudi Arabia has the world's largest oil reserves and will need to bear up to half Opec's production growth in the next 10 to 20 years, with the rest mainly coming from Kuwait and the United Arab Emirates.

Saudi Arabia pumps 9.5m b/d and has assured consumer countries that it could reach 12.5m b/d in 2009 and probably 15m b/d eventually. But a senior western energy official said: "They said it would be extremely difficult to move above that figure".

But European officials hope that energy saving measures could curb oil demand. They believe Opec could produce the 44m b/d the world would need if consumers adopted efficiency measures under discussion by governments in the US and Europe.

G8 leaders are expected to discuss the high oil prices during their three day summit which began in Gleneagles, Scotland, on Wednesday.

Fears that US refineries are ill-equipped to meet winter demand for heating oil and other distillates have driven crude prices more than 9 per cent higher in the last week.

These concerns were compounded on Wednesday as Chevron, Shell and BP all reported they were evacuating workers from platforms in the Gulf of Mexico as tropical storm Dennis was upgraded to hurricane.

These concerns were compounded on Wednesday as Chevron, Shell and BP all reported they were evacuating workers from platforms in the Gulf of Mexico as tropical storm Dennis was upgraded to hurricane

The August West Texas Intermediate contract on the New York Mercantile Exchange hit a record $61.63 in early electronic trade, while on London's International Petroleum Exchange, the front-month Brent crude contract climbed to an all-time high of $60.26 a barrel.

****

It's scary, but Mike's prediction that oil would hit $65 this summer looks freakishly true.

I asked Mike for his thoughts, given today's terrorist attacks, on the future price of oil.

In his usual matter of fact style, he simply said, it's going up.

You may remember that earlier this year Mike said that "I'm going to make this very easy for you. Oil is going to $65 a barrel."

Then he showed you a graph of oil with an ominous head and shoulders technical formation.

It looks clear to us that oil is going higher in the coming weeks.

-Luke Burgess