US Energy Self-sufficiency – Big Game Changer for Investors

Secular (long-term) trends are big friends to investors knowing what to look for.  My last big call was the Canadian dollar back in 2001.  Everything was in place to see the Canadian dollar rise from the 68-cent level versus the US dollar to well over par in 2007.  Even though we held round table discussions with clients and anybody who would listen to us back in 2002, many couldn’t believe the scenario that I presented.

I see the same conditions forming with regards to the US dollar.  There is obviously a few more pieces of the puzzle that have to put in place to make this a strong recommendation on my part, but the evidence is clearly taking shape.  One of the key pieces was on the front page of the Wall Street Journal today.  This article will be clipped by myself, and placed in my long-term file as part of my work on why the US dollar should be bought as a secular investment.

I will try and give you the link however the Wall Street Journal does hide behind a pay wall but the thrust of the article goes like this.

America will halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035 due to declining demand and the rapid growth of new petroleum sources in the Western Hemisphere, energy analysis now anticipate.

By 2020, nearly half of the crude oil America consumes will be produced at home, while 82% will come from this side of the Atlantic, according to the U.S. Energy Information Administration.  By 2035, oil shipments from the Middle East to North America “could almost be nonexistent”, the Organization of Petroleum Exporting Countries recently predicted, partly because more efficient car engines and a growing supply of renewable fuel will help curb demand.

“U.S. oil production was for nearly 40 years in total decline, and that decline was never supposed to end,” says Jim Burkhard, an analyst with HIS CERA.  “This is a major pivot point”

The shift away from Middle Eastern oil means closer ties with Canada, which is emerging as the top U.S. energy ally, but also with Latin neighbors that are strong trading partners.  A dollar spent buying oil from these countries is more likely to end up back in the U.S. than a dollar spent buying Iraqi or Saudi crude.

Since the early 1980’s, more than 30 years, America has had a chronic current account deficit with the rest of the world.  Certainly over half of this accumulated deficit had to do with purchasing Middle Eastern and OPEC oil, which would amount to tens of trillions of U.S. dollars circulating around the globe keeping the U.S. dollar down versus world currencies.  By shifting oil purchases away from Mideast Oil will have a huge impact on the U.S’s current account deficit, thereby helping the U.S. dollar on a secular basis – smaller U.S. current account deficit meaning less outflow of U.S. dollars in the world, therefore making the dollar more valuable.

To me this is a major game changer for investors.  Over half of the pieces of the puzzle are in place for a major bull market in the U.S. dollar and U.S. assets.  Oil self-sufficiency is a big piece of this puzzle.

I know, I know, you think I’m crazy.  Yes, I know, nobody thinks this!  While laying out my case for the Canadian dollar my biggest skeptics were the ones who said, “everyone saw that coming” as the Canadian dollar reached par.

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