“Go long oil, short stocks!” is what we advised subscribers to do on Friday, with Col. Qaddafy declaring a cease-fire and Japan laboring heroically to contain the menace of contamination from damaged spent-fuel rods. Sketchy news concerning a Libyan truce had caused crude-oil quotes to recede somewhat from their frenzied peaks, but we could think of no convincing reason why Kadhafy would actually stand down.  On the contrary, we assumed that he was stalling in order to consolidate gains on the ground before the “international coalition,” whoever they might be, enforced a no-fly zone.  This they did over the weekend — with France, of all countries, spearheading the attack from the air. It’s hard to imagine what the “coalition” has in mind — other, perhaps, than cutting the rebels a little slack. But a little slack is as much as they’re likely to get, since it seems doubtful the allies will commit the ground troops needed to shut down Qaddafy’s offensive.

In admonishing subscribers to “Buy crude!” we asserted that the “international coalition” may have made the mistake of boxing in a ruthless and paranoid dictator.  Notice that we did not call him a ruthless, paranoid and unpredictable dictator.  For not even the U.S. State Department, never mind the military brass, could expect Col, Qaddafi to simply roll over, running up the white flag and effectively ceding control of Libya’s oil fields to such worthies as France, the U.S. and whoever else signed on to the weekend air sorties. Far more likely, in our estimation, is that Qaddafi would sabotage Libya’s oil capacity before he’d turn it over to the West. What’s to stop him?  We surely don’t envision French troops on the ground, hanging tough with the rebels. And that is why we asserted on Friday that anyone who went home short crude oil futures would get what they deserved come Monday morning.  Actually, as of Sunday night, the May contract was up more than $2 and looking feisty enough to go even higher.

The ‘Wrong’ Catastrophe

Concerning part two of our recommendation – “Short stocks!” – gratification could be a little longer in coming.  We were bearish on stocks not because we feared a catastrophic nuclear meltdown; indeed, as a highly technical article that we linked at Rick’s Picks last week explained, the Fukushima reactors were all shut down at the time of the earthquake, effectively limiting the amount of any damage that could occur.  No, what concerned us most was not radioactive fallout, but economic fallout caused by the crippling of the world’s most important just-in-time producer. Auto-parts users around the world, for one, are already feeling the strain of Japan’s outage; however, shortages in many other key areas of global production are bound to be felt, and soon.

This developing story has been underplayed so far, but it seems inevitable that Japan’s economic slowdown will negatively impact a global economy that was already skirting depression.  Why have the news media emphasized the nuclear scare-story over the perhaps even scarier economic one?  On that question, we defer to our colleague  Bill Buckler, publisher of The Privateer. He notes that the one asset class that has benefited from nuclear-disaster talk is U.S Treasury paper, which the contemptible idiots who bring us the news each day persist in calling a “safe haven” – the safest of havens, actually.  Yeah, right.  With the U.S. Treasury already $14.3 trillion in the hole, Congress has throttled back on spending to the tune of about $3 billion. If you believe in the tooth fair, then every U.S. bond- and note-holder is going to get paid.  For our part, we’ll cast our lot with PIMCO, which recently bailed out of Treasurys as “too risky.”

Moody’s a ‘Useful Idiot’

That is notwithstanding the fact that the U.S. has the unquestioning help of some useful idiots in sustaining a brazen fraud that ranks U.S. Treasury paper as the absolute safest of safe havens. There is Moody’s, for one, which can always be counted on to downgrade Europe’s sovereign paper whenever investor scrutiny might otherwise fall on U.S. debt (which of course retains its God-given triple-A rating). And there’s also G-7, ever eager to dig itself in deeper to protect the mountain of bogus U.S. paper its members hold. Most recently, they helped Geithner throw everything they could at the yen to hold it down. Indeed, if the short-squeeze on yen carry-traders had grown any more intense than it did last week, it would have forced a massive unwinding out of Treasurys, derivatives and everything else that banking’s feather merchants have bought using yen borrowed for next to nothing.

The epic folly that sustains this hoax could last for yet a while longer. However, we are convinced of one thing:  It cannot last forever. 

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