We have been banging on about M2 for months now. Finally, we have found someone who supports our view.
We suggest watching the video and looking at the presentation to gain perspective for the charts.
Natural resources are in many ways like leverage. We find out that we have an abundance of them and suddenly we feel rich. Striking Oil! Finding Gold! are all terms that we use to represent a sudden appreciation of wealth whether commodities are involved or not.
Sadly, natural resources don't last forever. This does not, however, prevent human inexorable greed from treating as if they did. The fast profits, tax revenues and jobs that result from the over extraction of finite commodity products will always create problems during the growth of society. As Reverend T R Malthus explained, using the concept of Malthusian Disaster, there will be dislocation of resource production and population growth at some point in the future which will cause a delayed but cataclysmic fall in population. A thesis that was designed for the agricultural markets but is equally applicable to energy due to an efficiency correlation.
With this in mind, we would like to introduce the latest super star commodity - Natural Gas. From Wiki:
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons(primarily ethane). It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.
Most natural gas is created by two mechanisms: biogenic and thermogenic. Biogenic gas is created by methanogenic organisms in marshes, bogs, landfills, and shallow sediments. Deeper in the earth, at greater temperature and pressure, thermogenic gas is created from buried organic material.
Before natural gas can be used as a fuel, it must undergo processing to remove almost all materials other than methane. The by-products of that processing include ethane, propane, butanes, pentanes, and higher molecular weight hydrocarbons, elemental sulfur, carbon dioxide, water vapor, and sometimes helium and nitrogen.
So far, natural gas has been a huge phenomena in the US. Justified as a cheaper, cleaner and more abundant product that Oil, the supply has exploded over the last century. The peaks reached in 1998 are currently being surpassed today.
Surely this is a good thing? Ehm…not quite.
The issue with natural gas, in our opinion, revolves around the process of its extraction called Hydraulic Fracturing. In simple terms, a hole is drilled into a gas filled rock, filled with chemicals, this is then mixed with water before a mechanism is added to control the gas release. The Centre for Health, Environment and Justice provides a simple diagram which can be enlarged by clicking on it (see left).
"Every week, if not every day, Europe influences stocks, overwhelms sector-specific news, and frustrates careful security selection. The result is wave after wave of manic risk on and risk off days, together with spiking correlations and unsettling volatility."
Mohamed El-Erian - CEO of PIMCO
"The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance."
John Maynard Keynes, The Economic Consequences of the Peace