Browns to dreadnoughts

stepped out front the other morning, felt the cool, Canadian breeze on my face. The bitter cold of the past weeks had broken, and the day’s forecast was for a high of -8 C and sunny.

Out back, the trout in the river are taking a break. All but the fastest water is iced over, and the mink, mergansers, herons, raccoons and anglers are taking a nap.

Kerry Knudsen

Kerry Knudsen

I have a theory that every stretch of river has an undercut somewhere – a place where the fish can hide from preying eyes. A place where the anglers can pass merrily by, casting into the middle of the stream where nothing lives but stonerollers and suckers, oblivious to the trout lounging inches from their feet.

I also have a theory that the undercuts harbor the biggest fish. There must be a moral there.

I have to think the price of oil will affect the wood industry in 2015. At presstime it is hovering around $50 a barrel. Cheap. The pundits are saying cheap gas will drive down transportation costs, so materials and supplies will be cheaper. That may be, but profit-starved suppliers may pocket the windfall. Waiting for pass-along profits can be tedious.

Any mention of oil, of course, brings up the issue of the Keystone XL Pipeline. At the moment, it seems to be Washington politicians’ favourite badminton bird. On the pro side, they say Canadian oil is the salvation of the U.S. jobs market, hundreds of billions in revenue and energy forever. Almost like they owned it, themselves. On the con side, it’s the dirtiest energy source in the universe, totally unnecessary and an injury to unborn children for eternity.

Personally, I don’t know. I’m just a news guy. Sure, I have heard all the arguments for and against Global Warming. However, whenever anybody asks me, I say it is clearly a huge controversy, with strong arguments on both sides. Then, whoever was speaking with me quits, just after saying I am either a deny-er (a denier is either how you weigh silk or it’s a French coin from the 18th Century, your choice) or a communist.

I will say one thing, when life quits being soft, climate theory becomes noise. If you look at the history of war, for example, you will see the opening salvos always focus on capturing materiel, among which energy is the first.

For history buffs, WWI saw the world in transition between coal-fired warships and diesel engines. In the early days of the war, the critical supplies and routes of the Pacific were under Allied scrutiny, as coaling stations for Germany’s feared dreadnought-class battleships Sharnhorst and Gneisenau. That ended when the British navy learned of the Germans re-coaling in the Caroline Islands in August, lured the German battle group through the Straits of Magellan in December and into an ambush in the Falklands. This eliminated all of Germany’s power in the oceans.

The history of war is first a history of resources, second a history of maneuver, and last a history of politics.

I assume no sides in armed conflict give a rip whether the oil they need is clean or dirty. War is an untidy enterprise.

Anyway, it seems moot to me, as the Americans don’t own the oil and don’t stand to own the pipeline, so the billions-of-dollars-argument is likely inflated.

Probably of greater interest to Canadians is how long Canadian oil will remain cost-effective. The Saudis are candid about the shock to them of oil shale/oil sand production. According to USA Today columnist Maria Bartiromo, “Saudi billionaire businessman Prince Alwaleed bin Talal told me we will never see $100-a-barrel oil again.” Ever. That likely means a big increase in supply from the Middle East.

In any event, my sense is that low oil prices will drive American housing demand up, drive American demand for Canadian products up and drive costs for Canadian manufacturers down.

I understand it won’t be good for stock markets and financiers. However, the middle of the stream is already overpopulated and vulnerable. It’s time to look for an undercut and see who of manufacturers and consumers are waiting there for a thaw.

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Comments

  1. Dan McGarry says:

    Kerry,
    As always I enjoyed your editorial. However the Scharnhorst and Gneisenau were not dreadnoughts (or battleships) they were fast armoured cruisers.

    Not as importantly Jeff Rubin has been predicting for years (Your World is About to get Much Smaller) that higher oil and transportation costs would be most beneficial for North American manufacturers as once transportation costs become too high, local manufacturing will once again flourish. Based on your comments and current trends, Jeff shouldn’t have given up his day job with the bank?

    • Kerry Knudsen says:

      You got me on the dreadnoughts. I should learn not to rely on memory. However, just to split hairs, were not armoured cruisers also known as heavy cruisers, and the light cruisers were called fast cruisers?

      On oil, Rubin’s position is, I think, the favoured one currently. I should remark once more I am no economist. However, I have noticed that for every bull economist there is a bear, for every stock buyer there is a seller and for everyone that gets rich on commodities somebody else goes broke. This suggests to me that economists are closer to witches than to scientists, but that their forecasts can lead to interesting discussions.

      In the ’70s fuel costs tripled in a matter of months, leading to rampant inflation and interest rates over 20 percent, so I expect Rubin’s position has limits. This time, the issue is an oil glut. It is possible that an abundance of oil could lead to the same financial wreckage as did the embargo of the ’70s, but it’s hard to see how.

      Mainly, though, I still see energy as war material in the final analysis, and, while I hope never to see a war such as there was in the 20th century, history says it will come. If so, then the oil will be much better currency than will loonies, in my opinion.

      Interested in your comments.

      kk

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