Yes, I am an investment services provider, and I do welcome folks to consider investing in my services, but only after you have a clearer understanding of what I understand. I want you to invest with me not because of a license or affiliation, but because you recognize that I understand markets and thus can manage investments prudently.

Either way, shares of Micrsosoft tripled in price in two years, then lost most of that gain in a few months. Since then, those shares have basically just been stabilizing in dollar price- less and less fluctuation as time has passed. So, if it was a plot, it worked well enough to attract desperate computer users (and short-term investors), but then perhaps folks lost confidence in acompany that allegedly didn’t foresee the potential problems of the Y2K bug.

Oil is priced at over 66 (in dollars), an increase since 1999 of over 500% or a factor of about 6.5:1. In other words, today you could get about 29 barrels of crude oil for one share of everything in the NASDAQ.

The change is a factor of over 33:2. In other words, over 5 or 6 years, an investment in oil has outperformed an investment in NASDAQ by more than fifteen times. Again, I’m approximating here, but do you see the point?

The oil industry has apparently grown in importance faster than the computer industry. I’m not saying oil has grown in importance relative to computers by tenfold in the last several years, but I’m saying only the exact multiple would be in question, not which was grew more in importance.

If we couldn’t get cheap oil in abundance, how important would the internet be? Or, think of it this way- if you think computing is a leading market, how leading would it be during a black out (a power outage as modeled for January 1, 2000)?

Sure, computing may have been the top-performer among emerging markets for a few decades, but if we modify the opening question to what is the single most important market in the world today- or the most important market in the last 100 years, would computing be on the short list? I suggest that the reason that e-bay has been so successful is not just the internet itself, but cheap transportation- which currently means cheap oil.

So, let’s be grateful for computing, but realize that your computer may have been designed on one continent, manufactured on another, assembled on a third, and shipped to you on a fourth. How many continents are there again?

Computing is in position to eventually become a dominant market, but not without a certain infrastructure of international trade- which again currently means oil. So, back to the sequence, when the Euro was introduced and oil trends reversed in 1999- were those developments the result of the Y2K bug or the high tech sector collapse of early 2000? Of course not. But when oil trends reversed- and the entire infrastructure of international trade shivered- could that have been a factor in the 76% drop in the NASDAQ from 2000-2002? Sure, as I trust you would agree.

It simply cost more to trade in computers. When it costs more to trade something, that can slow demand.

Every top is overpriced and every bottom is undervalued- that is why there is a long-term reversal, right? But WHY were they overpriced- why were investors so excessively optimistic about the high tech sector? Did they ignore that something like cheap oil might be a factor in the prominence of the computing industry- and that cheap oil might be a temporary thing?

So- here’s a quiz. Which is more fundamental to you: 10 barrels of oil or a brand-new computer? Well, neither- but if I ask in gasoline gallons, would you rather have 200 gallons of gasoline or one computer? I’ll make it easier- imagine there is no electrical power where you live.

The computer market is obviously a dependent market. So is fuel (a major use of oil- which is also used to make interesting things like plastic- right, like on your computer keyboard there). However, fuel is a more primary market than computers or even plastic.

So, let’s say you found some desperate geek that, even during a power failure, is willing to trade you your old computer for 200 gallons of gasoline. After all, maybe the geek has thousands of gallons of gasoline and really doesn’t need that much, but would really like to put a laptop in their electronic age museum.

Alright, so now you have 200 gallons of gasoline. However, fuel markets are dependent on physical infrastructure like roads (and automobiles, automotive parts, etc) as well as political infrastructure (wars and so forth). You decide that you think the political scene is getting unstable, so you only want 100 gallons of gasoline, enough to get out of the region in one truckload like in the Beverly Hillbillies.

Needing 100 gallons and having 200 means you have 100 gallons to spare- because where you are going, you won’t need any fuel- or it is really cheap and you can get much more there. So, here are your options- you can get a single ounce of gold or. enough food to feed your family very well for a week.

Of course, you go for the gold, because you know the old saying worth its weight in oil. Unfortunately, your family includes children AND old people. After you use about five gallons of fuel and these people start going CRAZY (and you are all in one vehicle, remember). Then, you realize that you are not really all that hungry for gold, but could go for some cheese (or whatever).

Okay- I know my presentation is a bit silly, but the point is this: there are two primary markets: food and shelter. EVERY other commodity is secondary- even fuel and yes even plastic computers. When there is a food shortage, people will even sell GASOLINE for food.

I know it sounds crazy, but trust me on this- or just ask a four-year old if they will trade you their lunch for. a gallon of refined black gold. Unless the kid has at least two lunches (one to spare), there will be no trade, right?

Economy comes down to choosing an objective, then choosing some means in pursuit of that objective. Usually, using one method will exclude using others- insofar as you can go to one store or the other right now, but not both at once. You might even go in sequence to two stores, but if you go by car, you can still only use each gallon of gasoline once. After that, you can’t use it anymore. That scarcity is the root of economy. A choice about economy is called economizing.

So, consumable goods (like gasoline and food) are more likely to suddenly become scarce than recyclable raw materials (yellow bricks, CD-Rs, sturdy shipping boxes) or durable goods (a chair, a building, a boat). Unless there is a hurricane or a war, the supply of durablesis relatively stable- compared to consumables.

Perishable goods- which for practical purposes means fresh food- can get scarce even faster than firewood. I can also go a whole summer without firewood. Try that with food (then again, don’t).

If there is merely a shortage of fuel- not a total absence, then people might pay $6 a gallon obviously for it. Some folks may think wow, that sure is a lot to pay. However, the people who paid that much apparently thought, wow, I am sure glad this was only a shortage of fuel, because I got an entire gallon of gas- didn’t have to abandon my vehicle and walk home- and only had to give up a few pieces of paper.

Paper (or electronic currency) is always a derivative market. There is little inherent value in the coin or the bill or the paper check or the plastic card, but the contract or human agreement behind the currency is where it derives it’s purchasing power.

Ah yes, barely a mention of real estate so far- let’s address that. I did mention that war and other political changes can effect the appeal of a particular real estate contract. How about a hurricane or regional economic shift?

Let’s say that a region has a huge economic growth; could that effect real estate prices? Or how about this:

My favorite example of the predictability of real estate markets is not the huge drops in the 30s across the modern world or in the 90s in Japan and Russia, but this: the baby boom. Briefly, a bunch of soldiers stopped hanging out with each other exchanging gunfire and went home to their mates and soon there was a big surge in pregnancies. Even folks who were civilians celebrated the decrease in danger by intitiating more pregnancies.

Well, to make a long story short, about twenty or so years later, there were a bunch of young folks ready to move out of their parent’s homes- much more than there had been in previous years. Could that effect real estate prices?

Most developers did not study demographics, but some who did realized that more twenty-somethings meant more demand in the housing sector. They were right- many young adults did indeed move out of their parents homes and start their own households- many more than in prior years. Why? You’e right- because there were just so many more of these young adults to move out than there were in prior years. The baby boom became the twenty-somethings boom.

As many know, the baby boom was not just a few years. The real estate surge actually grew as these folks advanced in the job market and soon started purchasing homes in large numbers- again much more first-time homebuyers (and more total homebuyers) than in any prior year- for year after year after year.

So, after a while, many folks noticed this change in real estate and thought- wow real estate is doing so well- look at these prices- doubled already since 1970! Most of these folks didn’t predict the surge, they didn’t understand the surge, and they didn’t know when it was likely to end. They were speculators. and in the worst sense of the word- maybe a better word would be gamblers.

So, they noticed the trend eventually and then starting following the trend. Some did very well. for a few years.

However, the baby boom was followed by a declining birth rate. Guess what that meant? Less first time-home buyers from year to year is right!