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The Daily Reckoning Wednesday, December 23, 2009 'Tis the season for buying oil...and the companies that deliver it, Foreign creditors shift pawns toward the short end of the yield curve, Plus, Bonner & Son on opportunistic bankers and "retarded" airport officials... Eric Fry, working the back of an envelope from Laguna Beach, California... Exactly one month ago, The New York Times ran a front-page headline, "Wave of Debt Payments Facing US Government," and punctuated the point of the accompanying story with the chart below: The following day, we tipped our hat to the Grey Lady and re-produced the chart for the benefit of all Daily Reckoning readers who do not also read The New York Times. We also highlighted some of the disturbing New Math that this chart implied. Specifically, we reported, "The government will have to cough up $1.6 trillion just by the end of March. Ten years from now, the mere cost of servicing the debt is expected to reach $700 billion annually, more than three times the current burden." Do we mind being scooped by The New York Times? Hardly. To the contrary, we're happy for a little company out here on the fringes of financial journalism. We're happy that someone else has bothered to report the obvious: The US government's finances aren't great. An accompanying thought, and one that The New York Times declined to mention, is this: Something that cannot last forever will not last forever. Nevertheless, it seems like forever that the US has enjoyed what Charles de Gaulle's economic advisor, Jacques Rueff, called the "exorbitant privilege" of printing the dollars with which it satisfies its debts. Over the years, America has maximized - nay, abused - that privilege by amassing a balance sheet so laden with liabilities that repayment has become an utter impossibility (without the benefit of a printing press). That America's precarious financial condition continues to dance on the sharp end of pin is a marvel of modern macroeconomics. Even after deconstructing the whys and wherefores of this marvel, it becomes no less marvelous. Essentially, America borrows and spends as much as it wishes by issuing as many Treasury bills, notes and bonds as it wishes. Somehow, no matter how many commas and zeros the US Treasury uses to quantify its auctions, the central banks of China, Japan, Russia and others continue to raise their paddles...no matter how miserably the dollar behaves. Can this bizarre multinational financial arrangement continue forever? The obvious answer would be "no." Nevertheless, this arrangement continues to operate without incident. For more than a decade, the largest central banks and sovereign wealth funds around the globe have been steadily increasing their holdings of US Treasury securities. Sure, some of these buyers - notably the Chinese - gripe publicly about the frailty of the US dollar, and yet, these buyers continue to buy...sort of. As the chart below illustrates, foreign central banks have been ramping up their holdings of T-bills, as opposed to long-dated securities. In other words, foreign central banks, as a group, have been rolling off their long-dated holdings and parking their dollars in T-bills, despite the fact that T-bills yield almost nothing. Hmmm, why would they do that, we wonder? Are the buyers worried that inflation will kick up in the US? Probably. Are the buyers also worried about committing their capital to the US for a long time? Probably. Whatever the exact motives that inspire these Treasury buyers to buy fewer long-dated Treasurys, we wonder how motivated they will be to refinance $1.6 trillion of maturing T-bills during the next three months, and $2.5 trillion during the next 12 months (in addition to fresh borrowing!). "The faith-based, dollar-dependent monetary system is like a loaded pistol in front of a depressed man," Bill Bonner remarked one year ago. "It is too easy for the US to end its financial troubles, Rueff pointed out, just by printing more dollars. Eventually, he predicted, this 'exorbitant privilege' will be 'suicidal' for Western economies." Hmmm...maybe it's time to step out of the line of fire. --- Activate Your 60-day, Risk-Free Trial Now --- We're looking for readers to test one of our most profitable buy and sell recommendation research services for a full 60-days, starting now. So far in 2009, our research analyst has delivered 1,685% cumulative gains with a 70.1% gain per recommendation. That means by February of 2010, you might have already had the chance to more than DOUBLE your money. We have one spot open for you, click here and find out how to activate your trial. --------------------------------------------------------------- The Daily Reckoning PRESENTS: Long time DR readers will no doubt recognize today's guest editor for his frequent and prescient insights into the metals markets. Today, however, he has the lowdown for us on a much blacker kind of gold. Please enjoy... The Holiday Season is Good for Oil Stocks By Frank Holmes CEO and Chief Investment Officer of U.S. Global Investors San Antonio, Texas If 2010 follows the pattern of the past 15 years, we are approaching the start of a seasonal climb in the price of crude oil that could present a good investment opportunity in energy-related stocks. Oil is down from its 2009 peak of $81 per barrel seen in October, but we remain constructive on energy stocks given the improving economy and positive seasonal factors heading into the New Year. As the 15-year chart above illustrates, much of the recent drop in the price of oil lately can be explained by commodity price weakness that typically occurs from October through December, and thus does not represent a cyclical downturn. These seasonal factors include a reduction in driving during the fall, as well as the more moderate average temperatures that typify the weeks between the summer cooling and winter heating seasons. During the 15- year period, January has typically been the month in which the seasonal oil price trend starts back up again as markets prepare for the summer driving season. It is interesting to note that, while crude oil prices are usually soft during this time of year, energy stocks begin to strengthen in December, offering nimble investors an opportunity to capitalize on the favorable seasonal strength that usually follows. The chart below shows month-over-month performance trends for the S&P 500 Energy Index during the past 20 years through November 2009. On average, during the past two decades, these large energy stocks have gained an average of two percent in December. After a dip in January, the index has charged forward with average month-over-month gains exceeding 2 percent in three of the next four months before a seasonal falloff beginning in June. The line graph shows the frequency of positive returns in each month. Twelve of the past twenty Decembers (60 percent) have seen positive returns for the S&P Energy Index - in April and May, positive returns have occurred in 15 of the past 20 years, or 75 percent of the observations. We believe supply and demand fundamentals for energy will tighten as the economic recovery takes hold next year. Energy stocks will benefit accordingly. Earlier this month the International Energy Agency raised its 2010 forecast for global oil demand, largely as a result of accelerating economic growth in China. OPEC is also expecting oil demand to increase. It's a different story on the supply side - the energy team at PIRA sees net global oil output actually declining in 2010, which would tighten spare capacity to less than 1.8 million barrels per day, roughly half of current levels, and would likely exert a potent upward pressure on prices. 'Tis the season for buying oil stocks. Regards, Frank Holmes, for The Daily Reckoning Editor's Note: This commentary is from the portfolio management team of the U.S. Global Investors Global Resources Fund (PSPFX): Frank Holmes, Brian Hicks and Evan Smith. For more investment research and insight, visit www.usfunds.com. Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US- FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. And now to Bill and Jules Bonner with today's reckoning from Buenos Aires,  Lisbon, London and, finally, Paris... Not much financial news again today. The Dow up 50 points yesterday. Gold sinking, down another $8. We're spending Christmas in France. Jules came in from South America a few days ago. He arrived in the midst of storms and breakdowns. You'll see his account of his trip below. Maria is on a plane from Los Angeles, after wrapping up a horror film in Louisiana. We had her on the phone just before she left; she was in tears: "Oh Daddy...you remember how worried I was about taking this part? I cried all the way out there... You know, I wasn't sure...it seemed like a low-budget film... "But it was so great. This was what I was made for...this is where I belong...there's nothing like it... "...sniff...sniff...sob...sob...everybody was so nice...so professional..." "Well, what's the matter?" "It's over...the film came to an end... And I don't know when I'll get another role...I cried all the way back to LA." Back in Paris... We're moving house. There are boxes piled all over the apartment. (More about that in a few days...) Movers came in the door at 8 AM... Three big fellows in red jackets... So we took our portable computer and decamped to a local café... We're sitting in the corner, in the window... It's still early morning, but people are moving about, going to work, opening up their shops, and getting ready to leave the city for the holidays. An old woman with a headscarf is pulling a two-wheeled shopping cart...out to get her morning bread. Men in suits and topcoats, briefcases in hand, march resolutely to work. A pretty blonde is trying to hail a cab. And two gendarmes - in their bright blue uniforms with red braid - have stopped their motorcycles in front of the café. They seem to be discussing something funny. Both are laughing. They are probably part of an escort for the first lady of France, Carla Bruni, who lives nearby. Whenever she leaves her apartment, she has a motorcycle escort preceding her black limousine. The trouble with working in cafes is that it can be hard to concentrate. Which is probably what happened to Jean Paul Sartre, who spent most of his career in a café in the Latin Quarter. We don't know much about his work, but his conclusions are appalling claptrap. But back to the world of money... After all, that's what you don't pay us for, isn't it? To keep an eye on the money. So, let's take a look... What's happening in the world of money is that the depression continues... You wouldn't know it from reading the headlines or talking to economists. According to the official line, the US economy expanded 2.2% last quarter. How is that possible? Well, here at The Daily Reckoning, we've invented a new word to describe it - ledgerdemain. Go ahead. Look it up. You won't find it. But the word perfectly describes the practice of making things look like what they are not by using accounting tricks. Unemployment is over 10%...and apparently still rising. House prices are punky...probably anticipating an avalanche of new houses for sale, from the 'hidden inventory' of places that people would like to get rid of...if there were any buyers. And the typical consumer household is rediscovering thrift. It's too soon to know exactly what is going on...but we have a suspicion. The "growth" now being registered is a product of ledgerdemain, not genuine economic expansion. It is growth a la Japan... Very long time Daily Reckoning sufferers may remember. In the early '00s we wrote so often about Japan that readers got sick of hearing about it. They threatened to cancel their subscriptions if we didn't stop talking about it. In our view, the US economy was following Japan into a long, slow slump...with on-again, off-again deflation...and on-again, off-again growth. We were wrong. Under the influence of unprecedented stimulus from the feds, the US economy did not go into a Japan-like slump; it went into a bubble. But now the bubble has popped...and it appears that the US is finally entering the Japanese trap. And there's nothing much the feds can do about it. Government spending keeps the GDP from collapsing. But it is phony GDP...government giveaways, boondoggles and payoffs to the financial industry. "It is a depression," we told a small group of Dear Readers in Paris on Friday night. "It has nothing in common with the typical post-war recession. And it won't end until it has done its work." And more thoughts... You've got to hand it to the bankers. They make money coming and going...bless their greedy little hearts. The New York Times documents another "payday on Wall Street:" "More than $50 billion of new capital was raised as part of the effort by the biggest banks to repay the money from the Troubled Asset Relief Program and get out from under the thumb - and pay caps - of Washington. "Here's what the post-bailout bonanza means for all the banks that helped find investors for the new shares: Bank of America's $19.3 billion offering generated $482 million in fees; Citigroup's $17 billion offering resulted in $425 million in fees; and Wells Fargo's $12.2 billion offering led to $275.6 million in fees. (The banks paid themselves roughly 2.5 percent of the offering price.) "Other banks were beneficiaries as well. As part of the Citigroup offering, for example, Citi syndicated part of the sale to Morgan Stanley, BNP, Lloyds and ING . (Why can't Citi do it alone? The answer is that to raise that kind of money, you need a little help from your friends, some of whom are better at raising money than others.)" And here's a note from Jules, describing his trip from South America... "As we took off from Buenos Aires, we noticed an unsettling, rumbling, flapping noise coming from below the plane. I said an Ave Maria and gave myself to the Gods. Then the rumble stopped. And we trucked onwards to Sao Paolo. Sitting in the plane, waiting for a cleaning crew and the remaining embarkees from Brazil, the pilot's voice rang through the plane. Some panel on the lower landing gear was defective. Apparently this represented no threat to our safety... But we still had to sit around in Sao Paolo until they removed the panel. Of course, they couldn't replace the panel, which meant that we had to fly at a lower speed (to limit any further damage and discomfort). Lower speeds mean more gas usage. "In short, we didn't have enough fuel to reach London. We stopped over in Lisbon to discover that the Law restricts flight crews from working more than a set amount of hours. So we had to wait for a new crew. We spent the day in Lisbon at a hotel. Then, with a fresh crew and a not- so-fresh bunch of passengers... we stood in line to get through Portuguese customs for a couple hours. Portuguese officials are, in fact, more retarded than the TSA and Homeland combined. They seemed to be under the impression that we had visited that ugly city of public housing shame by choice. Ha! "Meanwhile, it was snowing in London. The British were convinced the apocalypse was upon them... I blame Al Gore. Finally we were cleared to pop on over to Heathrow. "We arrived only to find hordes of other British Airways passengers, already forming orderly queues and having passive-aggressive breakdowns. We waited and waited, only to be told that every flight the next day was already overbooked. By that point, the hotels British Airways had reserved were full up. In fact every hotel in the immediate area was full. I rushed to the Sofitel, hoping that its high prices would keep "le peuple" out. I was wrong. "The concierge phoned every hotel nearby. No joy. Finally a couple from Geneva, a German, and I found ourselves being taken to a chav-tel in some London suburb. ["Chav" is British slang for England's brutish underclass.] When we reached the Travelodge, there was some low-class skank having a drunken breakdown in the stairwell. Her friends told us that she was "just being a bit emotional tonight, cuz she's f*cked up." Good start. The Pakistani hotel clerk was under the impression that Swaziland and Switzerland were the same country. My Genevois friends spent a good amount of time explaining the difference. Meanwhile, two blue-collar boys were having a few hundred drinks at the hotel "bar"...but they weren't actually staying there. They were talking of the old days...when the older one had abandoned his son (the younger one), who had then been kicked out by his mother. "After enjoying the local color, I got to my room, ate two small cans of Pringles, and fell asleep. It had been an entire day since food had crossed my lips. Sounds of drunken misery continued to reverberate throughout the place. "The next day, I checked out, deciding that at least Heathrow would have some civilized people. Since the Chase card [Jules' credit card] stopped working [which happens when you travel], I also feared that I would not have enough money to rent a room that night. Well, if I couldn't remove the block on the card, I would just stay the night at Heathrow, which I still think would have been preferable to sleeping in THAT place. "Fortunately, Henry came through. [He got the credit card unblocked.] Bless him. I am now warm and comfortable. "In conclusion, I will never return to the United Kingdom. It is horrible. The British are uncivilized and miserable. No wonder they lost the Empire." Until tomorrow, Bill Bonner The Daily Reckoning   The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future "THE GREAT AMERICAN RECOVERY RP-OFF" Brace yourself for what's about to go down as the BIGGEST FINANCIAL SWINDLE in world history.