Blind Men, Meet Elephant

I've said before that I'm one of the most bullish people you'll meet at Weiss Research. Everything is relative; I work with a lot of bears. I also read lots of bearish stuff on the web. I think this is very healthy. I am bullish, so reading the bears keeps me honest. It gives me a reality check. Reading people who only agree with you is a way to get sucker-punched.

So I was over at DailyKos.com and I read Jim Kingsland's diary: "The U.S. Is Just About Bankrupt, Yet No One Seems To Care." In it, Jim writes:

"What concerns me, because of lack of coverage, is the growing financial storm that's occuring in this county with so many (unless they've lost their house) unaware. While subprime meltdown has made the nightly news, something that doesn't make the news to give widescale sense of appreciation and urgency is the sagging fortunes of the U.S. dollar and the near insolvency of our country."

Jim then links back to the following chart of the US dollar on his blog:
Jim says: "You will see that the chart of the dollar looks like a bankruptcy chart. The next 3 to 6 months will be crucial. In all likelihood, we're headed for recession. How many realize that?? Most are so overly complacent, really clueless, and thus feel they have the luxury or being able to engage in the usual partisan discourse when they should be removing the wool from their eyes provided by liars like Bernanke and Paulson that all is well. All is not well. Will the body politic do something?"

Now let's go look at a chart by my good friend and crackerjack currency trader Jack Crooks. In today's Black Swan Currency Currents, he charts the US dollar versus the S&P 500 Index...


Jack writes of this chart:

"It’s always interesting to us to listen to people tell us how much they hate the dollar, but love US stocks. We do understand the earnings translation thing, helping multi-national company earnings, but to be so confident on one side of the US fence and so negative on the other still has us confused. It’s just one of many things to add to the growing list of things that confuse us on a regular basis.

"Okay, what is this “major” decoupling telling us? For one, it is telling us relative to the value of the dollar, based on the US dollar index, stocks have NEVER been more expensive."

So these are two VERY bearish views. Now, let me give you some bullish factoids.

For Crude oil ...

Soaring Chinese imports. China’s imports of crude oil increased 6.8% in the first quarter compared to the year-earlier period. And the pace is shifting into higher gear – China’s crude imports rose at an 8.9% rate in March compared to a year earlier.

Mexico’s big oil field is tapping out! From January 2006 through February 2007, Mexico’s supergiant oil field, Cantarell, lost a staggering one-fifth of its production, with daily output falling from two million barrels per day to just 1.6 million.

In fact, the Wall Street Journal reports that Cantarell is fading so fast that Mexico may become an oil importer within eight years. Mexico is our second biggest supplier of imported petroleum, below Canada and above Saudi Arabia – accounting for more than 11% of our imports. We could feel the squeeze from Cantarell as soon as this summer.

US demand is running hot, too! US gasoline demand is up 2.5% over the same period last year. Past experience has shown that demand usually slacks off when gasoline goes over $3 per gallon. But consumers are getting more used to higher prices, and more and more analysts are calling for $4 gasoline this summer.

For Gold ...

China can't get enough gold. According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short.

Gold production is falling around the world. In South Africa, the US, Australia, Peru, Russia and Canada, gold production is going down, depite more spending by miners and despite rising gold prices.

Investment demand is exploding. ETFs have made it easier than ever for US investors to buy gold, and two gold ETFs just made their debut in India.

These are just some of the forces I name pushing gold higher in my Dow Jones Marketwatch article, "7 Reasons Why Gold Should Surge," and there are more than that!

For Uranium ...

Supply just can't keep up with demand. In fact, some analysts say mine production won't catch up to demand until 2017 -- if then! We're looking at AT LEAST a 10-year bull market in uranium.

Uranium futures. The New York Mercantile Exchange (NYMEX) said on Monday that it signed an agreement to introduce uranium futures on its electronic platforms next month.

Global Warming: If we think uranium supply is hot now, just wait until global warming motivates the public into forcing more and more utilities to switch from coal to nuclear power (nuclear power plants emit ZERO greenhouse gases). It's already happening. Texas utility TXU has said it's going to NOT build eight coal-fired power plants and build America's BIGGEST nuclear power plants instead.

So from my perspective, I'm seeing very bullish stuff. I haven't even told you about how Chinese demand should keep copper prices soaring for years to come, or how US steelmakers are laughing off talk of a recession.

It's like the bulls and the bears are the blind men and the elephant. Each describes what he feels right in front of him, but no one can see the whole picture.

So what's going on here? I refer you back to something else Jack Crooks wrote in his Currency Currents this morning:

"It’s interesting to see such a dichotomy, or decoupling, among major asset classes in the same country—both of which are supposed to express some degree of confidence in said country."

Indeed it is. This is when I wish our lawyers would allow reader comments on my blog -- I'd love to get your feedback and take on what's going on. I really enjoy talking to subscribers at the Money Show because that's when we can have this exchange of ideas.

In sum, I don't know what the big picture is. I think anyone who tells you he knows with certainty has a fool for an analyst. This could be a very interesting year. But I have to play it the way I see it, and what I'm seeing in front of me now is bullish for commodities.

Check out my new gold and energy blog at MoneyAndMarkets.com