When younger, Alan Greenspan wondered if he could have prevented the Great Depression had he been Fed chairman during the 1920s. Fate, however, was to give Greenspan a far different future than he expected; instead of preventing a depression, he would cause one.

After the scare of the 1970s, central bankers, i.e. Greenspan et. al., focused on containing inflation and came to believe they had successfully done so, not realizing that monetary expansion had instead morphed into asset bubbles, e.g. stocks, property, and bonds, not general price inflation as in the past.

Deluded by his apparent success, as chairman of the Federal Reserve Greenspan provided Wall Street with ever-increasing amounts of credit while unleashing market forces that would someday bring down the markets themselves (not until his Fed tenure ended would most understand what Greenspan had set in motion).

Receiving an honorary knighthood from the Queen of England in 2002 for his apparent ability to create growth without inflation, Greenspan enjoyed the adulation of his increasingly wealthy followers who had not yet experienced the end-result of his policies, to wit the catastrophic collapse of global markets on an unprecedented scale.

Greenspan’s loose credit policies were to be responsible for the collapse of the two largest bubbles in history, the US dot.com and the US property bubbles. Their sequential destruction within a decade would unleash 20 years of Greenspan’s unprecedented compounding debt upon an unsuspecting world-a vast deleveraging that would bring down the global economy and push it towards the edge of another Great Depression.

If fortune was unkind to Alan Greenspan, it would be no less so to his successor, Ben Bernanke. Bernanke would be the chairman of the Federal Reserve when Greenspan’s massive property bubble collapsed in 2007, one year after Greenspan resigned.

But Ben Bernanke, like Greenspan, also had a date with destiny that was to be far different than expected; for just as Greenspan wondered if he could have prevented the Great Depression, Bernanke was certain that he, Ben Bernanke, if appointed chairman of the Fed, possessed the requisite knowledge to reverse a depression should one occur.

And just as fortune had presented Greenspan the opportunity to test himself and his theories in real time, Ben Bernanke was to be afforded the very same opportunity. The outcomes would not be dissimilar.

Pity should be reserved only for those deserving

Learn more about peak oil and how you can make money investing in oil futures.

Gold is so misunderstood.

My colleagues and I often joke about how gold is the “all-weather” investment. When the economy is good, pundits claim gold will rise because of inflation. When the economy turns bad, gold bugs claim it will soar on safe-haven buying. According to conventional wisdom, there is no losing scenario for the yellow metal.

We saw more mis-judgement on the gold market yesterday.

Many analysts seized on the Federal Reserve’s Open Market Committee announcement as evidence of good things to come for gold. The Fed said in the speech that it will continue supporting the U.S. bond market, by using interest from Fed-hold mortgage-backed securities to purchase government bonds.

There was a lot of news about why this will be good for gold. Essentially that the Fed is creating money to give to the government (via bond sales). The government will spend this money, unleashing it “onto the street” where it will cause inflation. Hard assets like gold should soar.

But this is not the case. The Fed is not creating new money. It is using interest payments on mortgage securities to buy bonds.

These interest payments come to the Fed from one of two sources. Either from government agencies who issued the securities, or from the private sector who own the underlying assets.

This means whenever a payment goes to the Fed, it is being taken off the street. Either drained from government coffers (in the case of payments from agencies), or from the economy (in the case of private-sector payments).

The Fed then turns around and buys bonds. Injecting this money back into the government, and (possibly) eventually into the economy.

But the net sum of money out in the world remains the same. For every dollar unleashed on the planet, a dollar is siphoned out of the system.

Creating money is inflationary and good for gold. Cycling money between different hands is not.

Here’s to doing the money shuffle.

Get the latest information about oil stocks and the best oil futures for your investments!

Natural gas is a broken global market.

For oil, there’s enough import-export capacity worldwide that global prices tend to align closely. In natgas, global markets are fragmented. Leading to disparate pricing in different regions. Just look at the comparison below, from PFC Energy.

One of the implications being: if you’re going to produce natural gas (or ship it as LNG), find the regions with the top prices.

Increasingly, it’s looking like this will be Asia. And specifically, southeast Asia.

By way of example, Vietnamese Deputy Minister of Industry and Trade Hoang Quoc Vuong said last Thursday that Vietnam will likely need to import over 800 billion cubic feet of gas annually by 2025 in order to meet demand.

The announcement came as part of the release of a World Bank report on Vietnamese gas sector development. In the work, the Bank estimates that Vietnam’s gas use will triple over the next 15 years.

The report also recommends that Vietnam move toward liberalized, competitive gas pricing in order to spur development of domestic gas resources. Exactly the kind of environment that will create opportunities for gas producers.

At the same time as gas demand is ramping up in nations like Vietnam and Thailand, the Asian super-powers are also hungry for supply. PetroChina said today that northern China (including Beijing) could face gas shortages of up to 300 million cubic feet per day this winter.

This is not a huge amount, relatively speaking. But it does underscore the point that Asian gas use is only growing, and supply (as well as transportation infrastructure) has lagged.

All the signs of a good gas market. I’m going back at the beginning of December to continue looking for projects that could capitalize.

Here is to the wide world of gas.

Get the latest information about peak oil and learn the best ways to invest in oil stocks.

Hedge funds are dumping natural gas.

The most recent Commitments of Traders report in the U.S. shows that bets on natgas by funds dropped 16% in the week ended September 14. Bringing the total to the lowest level this year.

Indeed, sentiment in the gas business is running low. As one analyst bluntly told me on a recent visit, “Gas is [three-letter synonym for donkey].”

Is the situation really that bleak? Price-wise, it certainly isn’t pretty. Front-month NYMEX gas is sitting at $4/mcf. Even for the coming winter months, futures prices are only running $4.50.

But the fundamentals don’t tell quite as depressing a story.

Gas in storage, for example. After a record gas inventory build in the U.S. last year (reaching 3.8 Tcf in October 2009), gas use in the first few months of 2010 stayed strong enough to burn through the entirety of this overhang.

This year, inventories haven’t been building as fast. As of the second week of September, U.S. storage stood at 3.267 Tcf. Well below the same week last year, when stores came in at 3.458 Tcf.

What about production? There have recently been concerns that growing output from U.S. shale gas plays would swamp the market.

But here again, the numbers are not too bearish. Through the first six months of 2010, total U.S. production was 13.27 Tcf. That’s higher than the same period last year, but only by 114 Bcf. Amounting to just a 0.86% increase in output.

And some sectors in America are actually using more gas these days. Power generators have switched from oil to cheaper natural gas wherever they are able. During the first half of 2010, gas use for power was up 154 Bcf, or about 5%, over the same period in 2008 and 2009. More than absorbing the increased production coming from shale gas.

None of this is to say gas is going back to $10/mcf any time soon (although you never know what a strong Gulf of Mexico hurricane might do). But even last winter amid record stockpiles and growing production, NYMEX gas managed to hit $6 in December.

Might not be as bad as the funds think?

Here’s to being contrarian.

Get the latest information about oil stocks and the best oil futures for your investments!

You all know the story.

The race to secure natural resources is intensifying. Particularly amongst governments and nationally-sponsored corporations. And particularly in Asia.

We�ve been seeing signs the last few years that Asian nations are stepping up their drive for oil, copper, iron and natural gas. I talked last week about India jumping into the fray in a big way for coal.

A few more indicators this week worth mentioning. Korea is upping the ante.

Korea National Oil Corp (KNOC) leaked this week that it will sell between $500 million and $1 billion worth of bonds to fund its $2.6 billion hostile takeover of Africa/North Sea-focused Dana Petroleum.

The same day, the world’s second biggest smelter, LS-Nikko announced a joint venture with Korea’s top steelmaker, Posco. Under the deal, the two majors will work together on the acquisition and development of copper and iron ore projects.

These are deals of mega-proportions. So much so, the Korean government said it fears currency appreciation because of state-associated firms issuing billions in new won-denominated debt.

Not to be outdone, Japan also announced some ambitious natural resource plans this week. Tokyo Electric Power Company (Tepco) said it is aiming to take more ownership in liquefied natural gas projects around the globe.

Tepco currently sources 11% of its LNG supplies from projects in which it owns equity. Mainly Australia’s Darwin LNG facility. The company said it wants to grow this to 33% equity supply by 2020.

This is a big jump in supply. Meaning Tepco is going to have to be fairly aggressive in pursuing buy-in on new projects.

With all these plans on the books, deep-pocketed Asian governments are going to be increasingly butting heads with regular corporations as well as each other when it comes to buying resource projects. A lot of cash is being brought to bear on the sector in a great game of “chicken”, with significant implications for project valuations.

The Asian slant means projects within shipping distance of the East are going to be in demand. Pick your investment spots wisely.

Here’s to the amazing race for resources.

Learn more about peak oil and how you can make money investing in oil futures.

I wrote last week about big changes coming to financial regulation in Europe.

Look for the sequel soon in the U.S. America is buckling down for a new era of financial rulemaking.

Case in point: on Friday, the newly-created Financial Stability Oversight Council met for the first time ever. This 11-person committee is made up of officials from the Department of Treasury, Federal Deposit Insurance Corp, the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission (amongst others). Its mission is “identifying risks and responding to emerging threats to financial stability.”

The Oversight Council is going to be the “front line” in creating harder rules for the American financial system. The stated goal being to prevent another financial crash like the one in late 2008.

And the group is wasting no time getting started. One of items discussed at Friday’s meeting was increased oversight of non-bank financial firms.

There’s been a lot of criticism since the financial crisis over non-bank entities. The charge being that large financial conglomerates like AIG were allowed to carry out bank-like activities without being subject to the regulation that governs American banks.

The Oversight Council will change that. The group is already off and running creating a list of non-bank entities that should be supervised by the government, and drafting rules on how these institutions should be allowed to do business.

This is going to be a big change for the American banking community. And it’s not the only big financial reform coming down the pipe.

Another sore point in the wake of the financial crisis has been derivatives. Simply, financial instruments whose value derives from the value of a separate financial instrument. Derivatives range from the relatively simple (options) to the complex (credit default swaps).

Critics say that over the last several years financial industry players have been allowed to write derivatives too freely. The result being this area of finance ballooned. To the point that the estimated total value of derivates outstanding globally is a staggering $615 trillion.

Another beef is the way derivatives are traded. Often on the over-the-counter market, making price discovery very difficult. Meaning that holders of derivatives have a tough time determining the value of the instruments they carry on their books.

Financial regulators are looking to change this. By requiring most derivatives to be traded through central clearing houses, the way most stocks are. This would create a nexus point for derivatives trade, where information on prices could be gathered and communicated to the market.

This is in process. On Friday, CME Group (owners of NYMEX, CBOT and several other of the major U.S. exchanges) said it is reviewing a proposal from the Commodity Futures Trading Commission on new rules for clearing of derivatives.

This is going to be a major shake-up. Any time you make ripples in a pond worth $615 trillion, there’s potential for unintended consequences.

One potential issue with greater price discovery for derivatives is that the discovered price may not be good. Firms that are carrying derivatives on their books at $100 may find out these instruments are only worth $50 in a market context. Leading to a wave of write-downs and subsequent financial problems. Much like we saw after new accounting rules were introduced in the U.S. in 2007.

The new derivatives system won’t be here tomorrow, but it’s not far off. And when it comes it could have big effects. FYI.

Here’s to discovering the real value of things.

Get the latest information about peak oil and learn the best ways to invest in oil stocks.