Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG)

[Bruce A Thompson]

It's not about gold

It's about Bakken shale oil. The advertised break even price of shale oil is $70 a barrel. That break even price is actually just the most expensive 4% of the 30 million bpd that will be coming from there.

Interestingly enough, that is the same 30 million bpd that OPEC imports into the US.

If the pipeline from Canada is put in place, the tar sands oil adds to the US supply but it is more expensive to produce than the shale oil.

What can OPEC do to trash both options and guarantee another 20 years of draining money from the US economy? The same thing it did in the late '70s. It can flood the market with cheap oil.

The pipeline gets put on the back burner and the tar sands people go belly up because they cannot compete in the world market. The shale companies stop producing at prices where they cannot make money. The debt service takes them out to Chap 11.

Can OPEC pull it off? Will they do it? Hell yes to both questions.

Is this going to happen? Hell yes.

Will gold decouple from oil? Probably.

How can we investors make money? First, we can short the expensive producers and the equipment suppliers. They will be the first to go under. Then we can be ready to invest in the companies who will be buying the Bakken assets for pennies on the dollar from the BKY Courts. The lower debt structures and lower hard asset costs will lower the break even point down to under $50 a barrel.

Or we could just take more trips to Grandma's house using the cheap gas and jet fuel while trading the JNUG/JDST ATM machines.