Toshio Matsuda, Commentator & Intl Economist

Straight from the Shoulder 　No.469

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It is difficult to fathom the economy when peering through the lens of economic fundamentals. This is because the economy is a rather wayward entity, with the direction of its flow largely remaining a mystery. What is the point, for instance, of analyzing the fundamentals for the first quarter of calendar 2008 (January ~ March) as we approach the end of May? This amounts to little more than rereading past entries in a diary.

Many economic analysts scoffed at my predictions, made from last year, that the price of crude oil would rise to $150/barrel in 2008. No one is laughing now, though, with some pundits in fact claiming that crude will rise to $200 and offering up other projections. This has prompted me to laugh at them. Computing from the present volume of global floating money, together with the level of capital to enter the market from here on stemming from the generation of new wealth, the ceiling price for crude is $150.

If crude does come to be traded at over $150, it will represent an oil bubble. The principal fallout from that turn of events would be the hastening of the timing of an eventual fall in the price of crude and a wider decline. While it is simple to explain why the price of crude has continued to soar, there is no need for reasons or other clarification of the hard data. What is important is that the data does in fact exist, and what can be deciphered from the current evidence before one’s own eyes.

So, what exactly would happen if the price of crude did rise to $150? For one, investment would grow brisk into alternative energy industries, solar energy in particular, which up to now have remained unprofitable due to the high cost factor. The cost of energy, defined as a ceiling of $150/barrel for crude oil, has become firmly established as the standard energy cost for the world economy, with economic fundamentals adjusting to conform to this level. This will comprise the shift in the world economy from here on, and with it the global economy of tomorrow.

Economic conditions consist of a chain of instant economic phenomena occurring as the result of complications stemming from human desires. This is a dimension that cannot be controlled by any one nation – not even the United States. Skillful politicians are adept at reading the emerging trends of the economy and human psychology, introducing political and economic policies in tune with those currents and then behaving like they are the ones that are moving the world.

The price of crude oil will continue its sharp rise, and shortly reach the $150 level that I have cited from before. This will signify the end of the petrochemical age. This shift in the source of energy, the staple that in fact fuels the global economy, is akin to the change in the source of light from candles to electricity. For that matter, at the instant that a candle burns itself out and is on the verge of being extinguished, the flame surges up one more time before dying for good. This is in fact the fate of all things in the natural world, and human beings are certainly no exception to the rule.

So, just what is available to replace oil as the energy source in the coming era, in which the ceiling for the cost of energy will in fact be $150? Mankind has effectively depleted the reserves of timber, coal, oil and other substances with solar-accumulated energy, with the only remaining source now being the sun itself. What about nuclear power? Well, it is my personal belief that destroying the nucleus (in this case uranium) of existence (creation) comprises an act of treason or betrayal against the giver (God) of everything to the recipients (mankind). Those responsible for such destruction will be doomed to suffer “divine punishment” for their deeds. In view of this, I choose not to recognize nuclear power as the energy source of mankind. Moreover, the excessive level of risk versus the massive investment required also leads me to believe that, when all is said and done, nuclear power will not be adopted for this source.

As mentioned, the final remaining energy source for the human race, which has largely exhausted all solar accumulated energy, is the sun itself. Accordingly, the proper target for investment by mankind from here on is in fact the “sun” – more specifically, the “solar industry.” It must also be understood that the change in energy sources represents a shift in the economic yardstick. While there are limits to the supply of solar-accumulated energy, the sun itself offers a virtually infinite supply of energy. Yet, at a time when energy, the benchmark of economic value, is on the verge of shifting from finite to infinite, we must ask ourselves if mankind is prepared to deal with this momentous change in that economic value benchmark. In the world of investing, continuing to move forward over the same proven track means that the super rich will perennially enjoy an advantage. In contrast, a change in economic value from the foundation up signifies the arrival of an era in which it will require “brains” to make money.

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