Energy: The cheap, easy-to-pump oil is fast being used up.  To be sure, there were plenty of oil discoveries in 2009, especially in Brazil and the Gulf of Mexico. A whopping 10 billion barrels of oil was added to reserves, the highest rate since 2000. However, the world is consuming around 83 million barrels a day, which equates to 31 billion barrels a year. So, even in a good year, we barely replaced one third of the oil we consumed

The world is producing up to 93 million barrels per day, but production at existing wells is declining at up to 8% a year. That means we have to add more than 6 million barrels per day every year to keep production flat. Five years down the road, we'll likely have to replace 30 million barrels of production. That's more than three times the amount of oil (8.1 million barrels per day) that Saudi Arabia produced in 2009.  

That means we have to drill a lot more wells. And the oil we find is very deep and therefore very expensive. Oil companies are now putting drills down 4,000 feet in the Gulf of Mexico to then drill through 35,000 feet of rock. These wells are deeper than Mount Everest is tall! Assuming that significant finds are made, it will still be 7 to 10 years before the wells go into production.

Oil prices longer term are going up, until there is an alternative . . . on final thought on Energy prices – do world’s governments actually want higher energy prices?  The simple reason is the TAX generated on these is greatly needed – as tax revenue in all other areas is falling. Things that make you go Humm?

Comment on BONDS from INSTITUTIONAL ADVISORS

Zero percent interest rates create different economic environment, just like Zero degrees Kelvin (a.k.a. absolute zero) creates a different physical environment. Once we hit 0% it is very difficult to turn back, mainly because we can’t go much lower and therefore we don’t get any more relief from a further decline in rates. While the great majority of experts are talking about exit strategies and are attempting to time when the Fed and BOC will start raising rates, I would like to point out that the Bank of Japan has stuck with a 0% interest rate policy for close to 2 decades. At this point, that appears to be the path of least resistance in my opinion.

provided by  Money isn’t everything, according to a group of affluent Americans surveyed by Merrill Lynch Wealth Management. Focusing on family and friends, it turns out, gained in importance through the recession.

Just over half of retired respondents with at least $250,000 to invest said they wished they had focused more on their “life goals” than on “the numbers,” according to the firm’s Affluent Insights Quarterly, released Jan 18th. In fact the leading response was wishing they had given more thought to how they wanted to live in retirement (38 percent) followed by wishing they had worked with a financial adviser earlier (23 percent) and given up more luxuries to reach their retirement goals (18 percent).

Just a reminder

All USA federal debt, including unfunded liabilities, isn't 100% of GDP, but 500%+. In most industrialized countries, federal-government debt is between 350% and 360% of GDP. Eventually the U.S. will arrive at a point where interest payments on government debt all of a sudden go to 20%, 25%, 30% of tax revenue. And once you go above 30% you are done. You go into default or your currency breaks down and your system collapses. The problem you will run into first is a dramatic increase in individual tax rates. You'll see bigger wealth redistribution programs than you can believe.

The end game for Japan? Thoughts from The Absolute Return Letter - February 2010

The first country to really feel the pinch could very well be Japan; in the bigger context, Greece is just the appetizer. Japan's debt-to-GDP ratio has grown from 65% in the early 1990s when their crisis began in earnest to over 200% now. Fortunately for Japan, the high savings rate has allowed shifting governments to finance the deficit internally with about 93% of all JGBs held domestically[3]. This is the key reason why Japan gets away with paying only 1.3% on their 10-year bonds when other large OECD countries must pay 3-4% to attract investors.

Now, predicting the demise of Japan has cost many a career over the years. Despite the ever rising debt, and contrary to many expert opinions, the yen has been rock solid and bond yields have remained comparatively low. I often hear the argument from the bulls that the Japanese situation is sustainable because they, unlike us, are a nation of savers. Wrong. They were a nation of savers.

Looking at chart 5, it is evident that the demographic tsunami has finally hit Japan. The savings rate is in a structural decline and the Ministry of Finance in Tokyo may soon be forced to go to international capital markets to fund their deficits. I very much doubt that non-Japanese investors will be as forgiving as the Japanese, and that could force bond yields in Japan in line with US and German yields. Herein lies the challenge. Japan already spends 35% of its pre-bond issuance revenues on servicing its debt. If the Japanese were forced to fund themselves at 3.5% instead of 1.3%, the game would soon be up.

So if you have Yen sitting in the bank time to move and take advantage of the current exchange rate  . .