Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Petrocapita Sept 2010 Update


Published on

  • Be the first to comment

  • Be the first to like this

Petrocapita Sept 2010 Update

  1. 1. Petrocapita Update September 2010
  2. 2. Petrocapita Update With hands firmly grasping the handle of the bucket… Winston Churchill once said “that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.“ It could be said with equal certainty that printing and spending money as a path to prosperity falls into the same category. Unfortunately, it seems the only consistent skill governments and central banks possess is the ability to debauch their currencies. They have an unblemished track record in this regard as evidenced by the uniform collapse in the purchasing power of fiat money since modern central banking came into widespread existence in the early part of the 20th century – witness the greater than 95% decline in purchasing power in both the US and Canada as an example of massive and unrelenting central bank inflation. Granted, pointing out the role of governments and central banks in inflation is not a novel observation. Many have made this connection before and much more elegantly including Ludwig von Mises who said “Government is the only institution that can take a valuable commodity like paper and make it worthless by applying ink” and Voltaire, a man who lived through a spectacular fiat money collapse, who said that “paper money eventually returns to its intrinsic value -- zero.” So you might reasonably ask what is the point of this note if I’m going to state the obvious? There is much talk about QE, stimulus, bond yields, risk premiums, volatility, velocity of money, deflating asset prices and so on and so on. My point today is that to focus on 1
  3. 3. Petrocapita Update (continued) what is happening in the immediate term is to specifically SocGen concluded that Italy, miss the forest for the trees. Only by taking a Germany, France, Portugal, United States, step back is it possible to remember that the United Kingdom, Spain, Ireland and Greece developed world is still in the midst of a truly all have large negative net worths – i.e. they massive and unprecedented experiment in which are bankrupt. Canada wasn’t mentioned, not the Keynesians are still in charge – printing and because the government’s finances aren’t in the dispensing money on a vast scale. Some say same dismal condition, but because SocGen that it will have no effect because the “velocity didn’t publish the numbers. of money has collapsed” while others predict It is the unfolding bankruptcy of western hyperinflation. governments that will drive inflation as they increasingly rely on the printing presses to In the midst of all the seemingly contradictory fund their deficits. Jordan Roy-Byrne reminds data and the clearly contradictory predictions I us “Hyperinflation is a fiscal not a monetary prefer to fall back on a simple economic dictum phenomenon. The reality is that hyperinflation is - if an item can be created for zero cost and is first and foremost set in motion and driven by a created in increasing quantities its value will trend deteriorating fiscal situation. In fact, significant to zero. Is money subject to different rules than economic weakness and deflation is a precursor other economic goods? to hyperinflation. Too many analysts believe that there has to be some economic demand That leads directly to my next question – will or some consumption to stimulate inflation or the governments of the west continue to print hyperinflation. Printing money to try and stimulate money? Morgan Stanley thinks yes. In a recently your economy or excessive credit growth is what published research piece proclaiming the US leads to inflation. Printing money because you “broke” and that no conceivable combination of are broke and can’t service your debts is what austerity and/or tax increases will fix the problem, leads to hyperinflation.” Morgan predicted that some form of default via the printing press is sure to happen. Societe To follow the logic to it’s conclusion, if the Generale went a step further and conducted governments of the west are bankrupt isn’t a a simple calculation of the approximate “net printing press default plausible? Time will tell, worth” of various western governments. To but I feel certain about this – the governments of use SocGen’s circumspect language “the the world can’t print food and can’t print energy fiscal challenges are unprecedented”. More but they can and will continue to print money. 2
  4. 4. Petrocapita Update (continued) Therefore I want to leave you with three simple questions – in the next decade will: – Fiat money be worth more or less – Energy demand be higher or lower – Food demand be higher or lower If you believe as I do that fiat money will be worth less while food and energy demand will be significantly higher then perhaps you will appreciate the logic of having long term, low cost exposure to the things that the growing economies of the world need (food and energy) but located in politically stable parts of the world like western Canada. 3
  5. 5. DiSClAimer: The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Petrocapita Income Trust (“PETROCAPITA”) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither PETROCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to PETROCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting PETROCAPITA or its relevant affiliate directly. #400, 2424 4th Street SW Tel: +1.403.218.6506 Calgary, Alberta T2S 2T4 Fax: +1.403.266.1541 Canada