80 THE BiG DROP
see the value of those earnings reduced when translated to U.S.
dollars as long as these competitive devaluations continue.
The second storm is the slowdown in energy production.
Here the battle is being waged between Saudi Arabia and the
frackers in North America. Saudi Arabia wants to maintain
high production in the face of a global oil glut in order to force
the frackers to stop drilling and even shut down some existing
capacity. The cost of lifting oil from the ground in Saudi Arabia
is less than $10 per barrel, whereas the cost of oil from frack-
ing in North America averages over $70 per barrel. This is a
war the frackers cannot win. The impact is already showing up
in layoffs, cancelled orders for pipe and declining rig counts.
This damage will get worse.
The third storm is the slowdown in global growth generally.
Japan and parts of Europe are technically in recessions. China
still has growth, but it is slowing rapidly. The U.S. growth en-
gine seems to be slowing also, with GDP falling from 5% in
the third quarter to 2.6% in the fourth quarter, and with initial
signs indicating even weaker growth ahead.
The question for you as an investor is who is the Andrea
Gail in this perfect storm scenario? Is there a single compa-
ny that has exposure to the oil patch and overseas earnings
streams and that is geared for growth at a time when growth
is slowing? Which companies are most exposed to all three
converging fronts in this financial perfect storm?
Once you know that, positioning yourself to profit is a matter
of getting the timing right and then buying the right put options.■ Bayes’ Theorem
In my counterterrorism work for the CIA, we were constantly
confronted with problems that could not be solved with the
information available. That’s the nature of intelligence work
— you never have enough information.