Aiy! We arrived in London this morning, greeted by a dark sky, rain, and wind. Ah, the summer…we hardly knew ye…

What a delightful summer it was! (More below…)

The weather never actually turned summery - until the last two days - but it was still a marvelous respite from the workaday world of September-July.

We went back to the workaday world yesterday - taking the train up to Paris for an editorial meeting with our new French financial magazine. We are taking a risk with the publication - giving it an English title: MoneyWeek. French may be the language of Proust, but English is the language of money.

Oil dropped to a four-month low today, after Hurricane Gustav veered away from New Orleans and towards the Republican National Convention. Now, the storm seems to be winding down - leaving hundreds of thousands of people without electricity, and estimates of insured damage losses at close to $10 billion, but sparing both the city and the oil rigs off the coast.

Poor John McCain: upstaged by wind and rain. But who knows, maybe he'll be able to make a comeback. Besides, he's got a young woman as a running mate. Hey, …everybody needs a gimmick. The Democrats have that young black guy. And he's got an old white guy as a running mate. So you see, the tickets are evenly balanced. Young-old, white-black, male-female.

Remember, elections - like markets - can be fun, provided you don't take them seriously.

U.S. markets were closed yesterday, but the world of money continued to turn. Asian markets sold off sharply. In Europe, too, equity prices tended to go down, but less so. Oil weakened further this morning, below $110 a barrel.

"You say an increase in the price of oil is 'ineluctable,'" we questioned the French MoneyWeek team. "A bold position to take…no?"

"Well, it's inevitable that the price of oil will go up. Supplies are tight and demand is rising. The price must rise too - that is, unless there's a catastrophic change in the world economy."

Ah, there's always a bit of sand in the gears…a little bit of grit that can wreck even the most sophisticated and powerful engine.

An increase in the price of oil looked ineluctable in the early '80s too. So did higher and higher interest rates - over 20%, in fact. And the stock market was dying too; Business Week magazine announced it on the cover: "The Death of Equities" hit the newsstands in August 1982.

But all those things turned out to be eluctable, after all. The price of oil collapsed to $10 a barrel, interest rates peaked out at 14% for the 10-year T-Note, and stocks got up from their deathbed and began dancing the Hully Gulley, all the way from Dow 750 to Dow 12,000…and then some.

The financial world did an about-face in the early '80s. After a generation-long period of rising rates of interest…topped by a final squeeze delivered by Fed chairman Paul Volcker…rates were ready to come down - for another generation.

As we explained last week, our guess is that the financial world is about to spin on its heels once more. After such a long period of falling real rates of interest, they should be ready to go back up. The credit expansion of the '82-'07 will turn into the credit contraction of the next few years - at least, that's our guess. And again, the previous trend is given - unwittingly - a final push by the Fed. Currently, favored institutions - member banks of the Federal Reserve - can borrow at less than half the rate of consumer price inflation. That makes their real rate of interest NEGATIVE…about -3%.

The Fed also lends to commercial banks - which it regulates - as well as to investment banks, which it doesn't. The investment banks are the same firms that made such a hash of the mortgage market. But the feds didn't want to see their friends and contributors from Wall Street get what they deserved. So, they're bailing them out - openly, as in the case of Bear Stearns…and clandestinely, as in the case of the rest of the street.

And now, everybody's getting in line for a bailout. The feds have already practically nationalized the entire nation's housing stock - by supporting Mae and Mac. And Detroit has asked for $25 billion - again, at negative real interest rates!

Where's the end of the line? That's not a rhetorical question. We want to know so we can join the queue.

*** Blue gold is still golden, Chris Mayer tells us.

"Industry is worried about water," he continues. "It should be, because it uses a lot of it. J.P. Morgan finds that the 'big five' food and beverage companies use 150 billion gallons of water per year, enough to satisfy the daily water needs of every person on the planet.

"The Economist ran a good piece recently highlighting industry's reliance on water and water's relationship in producing so many goods. In Silicon Valley, for instance, 25% of the water use is for making computer chips. Across the country, 40% of the water drawn from lakes and aquifers goes toward cooling power plants. The link between water and energy is strong and largely unappreciated, but not by industry insiders.

"According to a recent survey by the Marsh Center for Risk Insights, 40% of Fortune 100 companies recognize that the impact of a water shortage on their businesses would be 'severe' or 'catastrophic.' Some are taking measures to mitigate water intake as water scarcity issues become more important.

"I was impressed to read that Nestle has reduced its water usage by 29% since 1997. Yet 49 of its 481 factories are in water-stressed regions. It takes about 1 gallon of water to make 1 gallon of product. That understates true water usage, though, because it doesn't factor in the amount of water needed to produce the food products Nestle uses as raw materials. According to Jose Lopez, executive vice president, that's about 793 gallons for 1 gallon of product.

"The Mayer's Special Situations "Blue Gold" portfolio remains in good position to profit on freshwater scarcity issues."

You can check out Chris' portfolio - and learn how the 'oil of the 21st century' can make you major gains - here.

*** Now that the summer is coming to a close, we are back in the world of trains, planes and automobiles…of business meetings…taxicabs…security checks…deadlines…speeches…blah, blah, blah.

That is, we're back in the real world…

But we pause to reminisce about the world we leave behind. We took the month of August off - like the rest of France. We did not stop working, but our work was done from home, among friends and family…and preceded at a very different pace.

Instead of rushing to the office, we walked across the yard to a pavilion that we have turned into a library. There, beginning about 7:30 AM we did our reading and writing, until the lunch bell rang at 1PM. Thence, we sat down with Elizabeth and our mother and whoever was visiting or passing through. Sometimes, we were just three. Often, we were 20 or more…

Lunches were served outside. The weather was cool… so we had to wear sweaters and scarves. But it was summertime, and even though it didn't feel much like summer weather, we stuck to our summer routine, no matter how uncomfortable it became.

Almost everything we ate came from our own garden - which is to say, we ate enough greenbeans to choke a mule. Then, the tomatoes and squash ripened, and our diet broadened. Meat was supplied by a local butcher… or by our gardener…who sometimes cooked it over an open wood fire.

"Mmmm..this steak is great," we asked him. "Where did you get it?"

"I have my ways…old fashioned ways…and they're better," he replied.

"What ways?"

"I don't want to say…but in today's world, you have to know how to do things unofficially. Because the authorities are always trying to stop you or tax you. You know, you couldn't get a company to paint your shutters…not the way you have done it. You just reach out of the windows and take the shutters off. That would be illegal for a licensed contractor. They'd have to put up a regulation scaffolding…and have workers with qualifications and hardhats do the work. And of course, if they went over 35 hours per week, you could be fined or put out of business. That's why you have to go around all that stuff…"

We never found out what his ways were. But it's illegal to butcher animals yourself - outside of a licensed abattoir. We presume that our beef was prepared in the old fashioned way.

Lunch took time. At the office, we usually don't bother to eat lunch at all. It slows us down. But for the last month, lunch often took two hours… There was the entrée, the main course, the salad, the cheese, the dessert, and finally, coffee.

These long lunches proved very useful, helping us catch up on family matters. Lingering over coffee, we discovered that we had six children. We learned their names and found out what they had been doing. We found that Elizabeth studied history at the Sorbonne last year, and passed her tests with flying colors.

We also had time to listen to our mother, cousins, nieces, nephews, brothers, sisters…and many people who seemed to just show up at lunch with no obvious connection to anyone.

"What are you doing here?" we wanted to ask. But it would have been rude; instead, we simply enjoyed their company.

"I got a letter today from Margaret's son," began our mother one day. "I knew exactly what it was."

"What?"

"Well, when you get to be my age you'll know. I had sent Margaret a couple of letters and got no reply. We've been friends since World War II when we were both in the army together…in the WACs."

"Why did you sign up for the army?" asked a granddaughter.

"It was the war. Everyone wanted to do whatever they could. I had been at home taking care of my mother, who was very sick. She had had, well…I guess you'd call it a nervous breakdown, today. But it was very serious, and we couldn't leave her alone.

"Every family house has some dark rooms…and every family story has some dark chapters. I feel like I need to tell you what I know, because I'm the last one. I'm the last one of my generation that you're likely to know…at least in the family.

"But my father retired…this must have been 1942…so I was able to sign up for the army. And they sent me to Texas, where I had a job showing movies to the young soldiers. The idea of the WACs was that we were doing work that men did before; we did it so the men could go and fight. I ran the projector to show films of the Germans and what they were doing and how they fought. I can't remember, but I think the gist of it was that if you didn't kill them, they would kill you. I spoke a little German that I had learned in school…very little. So, later, they had me working a little with German prisoners of war too… and they were actually very nice. But I guess they didn't want our soldiers going off to war thinking that they were going to fight nice people.

"I met your father right after I began. It was Christmas Eve. And there was something about him. I didn't know what it was. But I had a feeling. And then we wanted to get married immediately. I don't know why. That's just what people did then. He had been at Pearl Harbor when it was bombed…and he was just being sent out to the Pacific. We didn't know where…or when…or if…he'd come back. Anyway, we wanted to get married right away.

"And Margaret was my best friend. And I was so naïve…I didn't know anything. You wouldn't believe it today. I mean, today, everything is on television. But my family was extremely modest…and extremely discreet. So, Margaret had to explain the facts of life to me just before I got married.

"Anyway, we were very close…and we visited each other over the years. But then, I didn't hear anything from her. And when I got this letter today, I saw that it came from Oregon, you know, that's where she moved with her husband before he died…and it came from her son, not from her. So I knew…

"And that's the way it is when you get old. Your friends and relatives…the people you grew up with…the people you love…one by one…they disappear. And then, you're the only one left…and you tell yourself, well, I believe we'll meet again…like that song…don't know where, don't know when…"

Until tomorrow,

Bill Bonner
The Daily Reckoning

P.S. As the price of crude has been on the decline for the last few days, the price of gold has followed. The yellow metal has fallen to $801.42 an ounce, as of this morning. Many experts feel that this low will be short-lived, so take advantage of this dip - and stock up on this precious metal. There is still a way you can buy gold for just a penny per ounce…take advantage of this opportunity.

The Daily Reckoning PRESENTS: It's hard to believe that Labor Day weekend has come and gone. Where did the summer go? Well, for Outstanding Investment's Byron King, we know where some of it went. He spent three weeks crossing the U.S. and Canada on my "2008 Energy & Geology Tour", searching for new ideas and resource opportunities that can benefit you. Read on…

HOW I SPENT MY SUMMER VACATION
by Byron W. King

My journey began in mid-July, when I flew west to Vancouver via Air Canada. I spent a week there, attending the Agora Financial Investment Symposium.

When the conference was over, I took a bus from Vancouver down to Seattle. Starting at the banks of the Puget Sound - where I visited a large trawler that pulls fish from the Pacific Ocean, as well as a Coast Guard cutter - I headed back home to Pittsburgh.

Over the next two weeks, I covered 3,993 miles in a rented Ford SUV. My plan was to take a firsthand look at some of the most interesting geology - and exciting energy opportunities - that North America has to offer. And I sure saw some things that made my eyes pop.

In Everett, Wash., I toured the Boeing production facility - the largest building in the world. Really, the Everett plant is the box in which they must have delivered the Pentagon. Its floor area is as large as 75 NFL football fields. All of Disneyland could fit inside the Everett Plant, with 12 acres of parking lot left over. And there at Everett, I saw an array of the leading technologies for producing more fuel-efficient airplanes.

I saw three new Dreamliners - Boeing 787s - in the assembly phase. These aircraft will be 25% more fuel-efficient than any comparable aircraft currently flying across the world's skies.

The technology of the 787 will probably decide your flying future, as well as the flying futures of your children and grandchildren. One Boeing representative told me, "Most of the people who will fly on the 787 have not even been born." If the 787 works, you will still be able to enjoy relatively affordable air travel in the future. If not, I guess we'll all be walking to Vancouver.

And even the "older" models of Boeing aircraft, like the Boeing 777 and the venerable workhorse Boeing 747 (whose first flight was in 1969), are still rolling off the assembly lines at Everett. But Boeing has added many new features to improve the fuel-efficiency and operational economics of these aircraft.

There's no living in the past in the world of aerospace. With fuel costs soaring (sorry for the pun), the focus has to be on efficiency and new technology. So we'll see who wins this race - new technology or expensive jet fuel.

In central Washington, I visited the Grand Coulee Dam. Grand Coulee is the largest concrete structure in North America, and the fourth largest dam on Earth. (Two dams in South America and one in China are larger.) At 6,809 megawatts of rated electric power, Grand Coulee is also the largest point source of energy in North America. The spillway alone is twice the height of Niagara Falls.

Grand Coulee contains 24 million tons of concrete and 12 million tons of steel. Back when they constructed Grand Coulee in the 1930s, 12 million tons of steel would have built 240 battleships. So that's a lot of steel.

But devoting massive amounts of resources is exactly what you have to do when you want to build energy systems and produce a lot of energy. People made that choice back in the 1930s. They spent the money, dedicated the labor and resources and built the dam. Now, about 66 years after the first turbine started spinning, we are still benefiting. So there's certainly a lesson for our time in the history of the Grand Coulee Dam.

In Saskatchewan and North Dakota, I saw the development efforts that are going on in the Bakken Formation. The Bakken is a rock formation within the Williston Basin, a sedimentary basin covering parts of three states and two provinces. The Williston Basin contains a vast wedge of sediments as much as 15,000 feet thick in some places.

The Bakken itself is one of several hydrocarbon-bearing formations within the Williston Basin. But the Bakken reaches a maximum thickness of only about 150 feet. In fact, it's even thinner in most areas.

The best understanding of the Bakken Formation is that it is both a "source rock" for hydrocarbons, as well as an oil and gas reservoir. That is, over millions of years, organic matter accumulated in the sediments and became chemically altered by heat and pressure. All of this produced oil and gas. Now the oil and gas have collected within the sedimentary beds of the Bakken. But it's tricky to get them out. It requires directional drilling and subsurface "fracturing" to break up the shale and release the hydrocarbons.

Wells in the Bakken Formation are not easy to drill, and they are not cheap. Yet on my travels, I saw at least a dozen working drilling rigs. I saw many dozens of brand-new oil wells with the pump jacks still breaking in. The roads of Saskatchewan and North Dakota were clogged with literally hundreds of trucks hauling rig components and drilling supplies.

Investment is moving into the Bakken play, what with the high prices for oil in the last few years. I spoke with farmers who described years of toughing it out on the hard prairies, followed by recent lease payments in the millions of dollars.

And there's a human migration going on as workers from all over North America travel to this exciting new energy patch to take jobs that can pay over $100,000 per year. But if you are thinking of going, take your fur-lined underwear - they drill year-round, and in winter, the temperatures have been known to get down to 60 below.

There's much more to discuss about where I went and what I saw. But I want to say that I'm home now and there's another hydrocarbon boom going on right around me. It's the Marcellus Shale play, and in a sense, it's like reliving the history of the old boom days of the Pennsylvania oil patch in the mid- and late 1800s.

The Marcellus Shale is a vast rock formation that extends over New York, Pennsylvania, Ohio, West Virginia and parts of Maryland, Kentucky and Virginia. And like the Bakken, it's loaded with (mostly) natural gas, but in some areas, there are a lot of natural gas fractions like ethane, propane, butane, etc.

And just the initial leasing and land plays of the past year or two have brought immense new money into the region. Indeed, in parts of Pennsylvania, it seems like entire counties have hit the lottery. Prices for oil and gas leases have just plain soared.

From one end of Pennsylvania to the other, courthouses are packed with land agents. The agents are searching titles as far back as the 1850s. Really, there are lines out the doors of some courthouses due to the Marcellus land rush. In Bradford - home of the original Pennsylvania oil boom of the 1860s - the local register of deeds has placed a 15-minute time limit on any one person's use of the title search computer terminals.

One woman told me that she and her husband have been "land rich and dirt-poor" for their entire lives. "My husband had to work at a factory job just to make enough money for us to pay the taxes on the farm," she said. "And we almost never made any money off farming." And now they are millionaires. They have engaged a "big name" law firm in Pittsburgh to write up a business plan for the newfound family wealth.

Stories like this are occurring all over the lands west of the Alleghenies, and even in hardscrabble places like northeast Pennsylvania. As a matter of fact, some of the thickest sections of the Marcellus Shale are in northeast Pennsylvania. (Marcellus Shale is shown as the gray region below)

So the Marcellus play is going to have some serious legs. And I have already identified a few great investment opportunities, which I will share with you in the coming weeks.

Until we meet again…

Byron W. King
for The Daily Reckoning

Editor's Note: Byron King currently serves as an attorney in Pittsburgh, Pennsylvania. He received his Juris Doctor from the University of Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard University. Byron is also co-editor of Outstanding Investments, and editor of Energy & Scarcity Investor. To get the latest issue of Outstanding Investments, see here.

-- Posted Tuesday, 2 September 2008 | Digg This Article