The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
By Stephen Leeb
Business Plus 2006
196 pages. $16.99
Stephen Leeb, the author of The Coming Economic Collapse, holds academic degrees in economics, mathematics and psychology. Which means he’s a very sharp guy.
He wrote a book called The Oil Factor a few years ago, in which he predicted the price of a barrel of oil would go to $100. In other words, his prediction was right.
In The Coming Economic Collapse, he continues to make predictions.
Leeb begins by asserting that an economic crisis is approaching. The crisis is energy-related and will “be brought about by the conflict between rising global demand for energy and our growing inability to increase energy production.” The supply and demand dynamics of oil are so out of whack that Leeb predicts we will soon see oil at $200 per barrel.
Leeb points out that most people are in denial about the actual amount of the world’s remaining oil reserves. The supply is not limitless. In fact, says Leeb, it has been declining for the last 30 years. However says Leeb, people don’t want to accept the reality of the situation. As proof, he takes a look at the dotcom collapse, which occurred at the turn of the century. According to Leeb, the majority of people – especially investors – succumbed to speculative mania, which is where “people en masse forsake reason and objective thinking and succumb to a primordial instinct to run with the herd.”
The result was the bursting of the technology bubble.
In Leeb’s opinion, the tech crisis “put the U.S. economy in an extremely perilous situation. The very fabric of our civilization came close to disintegrating.” Leeb goes on to credit the Federal Reserve with saving the day. The Fed lowered interest rates, pumping money into the failing system. “The unprecedented amount of liquidity rescued our economy, and society as a whole.”
Leeb equates the mass delusion of the dotcom crisis with what is presently taking place in the energy sector. Everyone is in denial, because no one wants to know the truth.
Leeb’s analysis of the tech crisis may be excessively melodramatic and misdirected. For it seems more likely that fiat currency precipitated the dotcom collapse than mass delusion. And there is a paucity of evidence to support Leeb’s contention that most experts believe oil supplies are limitless. In fact, in chapter two, Leeb presents voluminous evidence showing that oil supplies are limited. Yet he acts as if he is he only one capable of interpreting the data and coming to the correct conclusion.
In chapter three, Leeb discusses the various reasons for the collapse of civilizations. The primary cause, according to Leeb’s thesis, is the depletion of natural resources. And civilizations fail to see what is going on because of “psychological blindspots,” which he expounds upon in chapter four. In a word, the cause is “groupthink.” Groupthink is “a deterioration of mental efficiency, reality testing, and moral judgment.” The way to avoid groupthink is “emotional maturity.” This means a willingness to look ahead, face the facts, and plan accordingly.
From there, Leeb proceeds to chapter five, where he tells investors how to make money on Wall Street by simply evading groupthink. According to Leeb, groupthink is dodged by “stepping back and observing the situation and your feelings objectively,” and by developing an open mind. The primary characteristic of an open mind is realizing that “the recent past is not necessarily an accurate guide to the future.”
In chapter seven, Leeb explains why he believes the price of oil will surge to $200 or $250 per barrel. It’s simple. The demand for oil will increase, while oil production will not be able to meet the demand. Russia, China, and India, along with the U.S., will require more and more energy to fuel their expanding economies. When their requirements cannot be met, havoc will be the result. Runaway inflation will begin, because “rising oil prices are like taxes. They add to the cost of everything, while discouraging business expansion.” At the same time, America’s debt level will cause housing values to fall and a decline in stock prices, says Leeb.
The Coming Economic Collapse was published in 2006, which means it was probably written in 2005. Part of Leeb’s gloom and doom scenario has come to fruition: housing values have plummeted and unemployment levels are high. However, a barrel of oil is not $200 and stock prices have not declined, although they did take a hit for a brief period. One wonders what Leeb’s analysis of the present situation is?
In chapter nine, Leeb examines the 1970s and superimposes what happened then onto what will happen in the immediate future. In other words, he draws an economic analogy between the two time periods. Only he believes what is about to happen in the future will make the 1970s look like a walk in the park on Sunday afternoon in August. For what is about to happen is the total social and economic destruction of the U.S.
He tries to envision this destruction in chapter ten. “The only government would be local. Highways and commercial buildings would fall into disrepair. The only industry possible would be cottage industry.” Food would be hard to come by. Unemployment would be rampant. And higher education would be a thing of the past.
According to Leeb, the way to sidestep this end of civilization is to immediately begin developing alternative energy sources. His favorite is wind energy. “Probably the second most promising energy source is coal.” Leeb does not like nuclear energy, because of waste management factors. He ends this section by making an urgent appeal for the government to begin planning for the future.
Since apparently Leeb doesn’t think the government will respond to the coming crisis, he utilizes the final three chapters of his book to advise investors on how to get rich from the coming economic disaster. His advice goes like this. Stay away from cash, stocks, bonds, and small-cap stocks. The place to put your money is gold, gold shares, oil, oil shares, oil service companies, foreign stocks (China and India), and real estate. The latter investment – real estate – would seem to contradict what he prophesied in chapter five. Nevertheless, Leeb feels real estate is a safe haven. And of course, he is bullish on alternative energy investments, especially wind energy and liquefied natural gas.
Leeb asserts that if his investment advice is followed – no matter what happens – investors will come out ahead.
Reading The Coming Economic Collapse is a bit like reading the final book of the bible, the book of Revelation. It looks into the future and prophesies a coming Armageddon. Which means it’s full of gloom and doom and dire predictions of untold suffering. Only Leeb, unlike the writer of Revelation, doesn’t have the advantage of divine insight. So in effect, Leeb is guessing. And he’s basing his guesses on what has happened in the past, a methodology he warns against in his book.
End-of-the-world types will probably enjoy it. But most everyone else will find it mediocre, at best.