After the market closes every night, I usually don a 60 pound backpack and climb the 2,000 foot mountain in my back yard.

To pass the time, I listen to audio books on financial and historical topics, about 200 a year (I’ve really got President Grover Cleveland nailed!). That’s if the howling packs of coyotes don’t bother me too much.

I also engage in mental calisthenics, engaging in complex mathematical calculations. How many grains of sand would you have to pile up to reach from the earth to the moon? How many matchsticks to circle the earth?

For last night’s exercise, I decided to quantify the impact of last year’s oil price crash on the global economy.

The world is currently consuming about 92 million barrels a day of Texas tea, or 33.6 billion barrels a year. In May, 2014 at the $107.50 high, that much oil cost $3.6 trillion. At today’s $32 intraday low you could buy that quantity of oil for a bargain $1 trillion.

Buy a barrel of crude, and you get three for free!

This means that $2.6 trillion has suddenly been taken out of the pockets of oil producers, and put into the pockets of oil consumers, i.e. you and me. Over the medium term, this is fantastic news for oil consumers. But for the short term, things could get very scary.

$2.6 trillion is a lot of money. If you had that amount of hundred dollar bills, it would rise to 250 million inches, 21 million feet, or 3,976 miles, or 1.2% of the way to the moon (another mental exercise). Tip this pile on its side, and you’d have a distance nearly equal to a round trip from San Francisco to New York.

The global financial system cannot move this amount of money around on short notice without causing some pretty severe disruptions. Expect a lot of bodies to float to the surface in 2016.

For a start, there is suddenly a lot less demand for dollars with which to buy oil. This has triggered short covering rallies in the long beleaguered Japanese Yen (FXY) and the Euro (FXE), which are just now backing off of long downtrends.

The fundamentals for these currencies are still dire. But the short-term trend now appears to be an upward one. The yen is tickling a one-year high against the buck as we speak.

The US Federal Reserve certainly sees the oil crash as an enormously deflationary event. The use of energy is so widespread that it feeds into the cost of everything. That firmly takes the chance of any interest rate rise off the table for the rest of 2016. The Treasury bond market (TLT) has figured this out and launched on a monster rally, as have muni bonds (MUB).

Traders are also afraid that the disinflationary disease will spread, so they have been taking down the price of virtually all other hard commodities as well, like coal (KOL), iron ore (BHP), and copper (CU).

The precipitous fall in energy investments everywhere will be felt principally in the 15 US states involved in energy production (Texas, Oklahoma, Louisiana, North Dakota. Etc.). So, the consumers in the other 35 states should be thrilled.

However, the plunge in energy stocks is getting so severe, that it is dragging down everything else with it. ALL shares are effectively oil shares right now. In fact, all asset classes are now moving tic for tic with the price of oil. That effectively makes all of you oil traders.

Throw on top of that the systemic risk presented by the ongoing collapse of the Russian economy. The Ruble has now fallen a staggering 70% in 18 months, and there is panic buying of everything going on in Moscow stores.

The means that the dollar denominated debt owed by local firms has just risen by 300%. Any foreign banks holding this debt are now probably regretting ever watching the film, Dr. Zhivago.

Russian interest rates there were just skyrocketed. The Russian stock market (RSX) is the world’s worst performing bourse. How do you spell “depression” in the Cyrillic alphabet?

And guess what the new Russian currency is?

IPhone 6.0’s, of which Apple is now totally sold out in Alexander Putin’s domain!

Thankfully, this is more of a European, than an American problem. But nobody likes systemic risks, especially going into New Year trading. It’s a classic case of being careful what you wish for.

Of the $2.6 trillion today, about $650 billion is shifting between American pockets. That amounts to a hefty 3.3% of GDP. Tell me this won’t become a big political issue in the 2016 presidential election.

Money spent on oil is burned. However, money spent by newly enriched consumers has a multiplier effect. Spend a dollar at Walmart, and the company has to hire more workers, who then have more money to spend, and so on.

So a shifting of funds of this magnitude will probably add 1.5% to U.S. economic growth this year.

But you may have to get there by riding a roller coaster first.

Oil at $32?

The Reception That the Stars Fell Upon

My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.

I asked who was coming. She said Reagan’s Treasury Secretary George Shultz, Clinton’s Defense Secretary William Perry, and Senate Armed Services Chairman Sam Nunn.

I said I’d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.

When I arrived at San Francisco’s Mark Hopkins Hotel, I was expecting the usual mob scene. I was shocked when I saw the three senior statesmen making small talk with their wives and a handful of others.

It was a rare opportunity to grill high level officials on a range of top secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days. I moved in for the kill.

I have known George Shultz for decades, back when he was the CEO of the San Francisco based heavy engineering company, Bechtel Corp in tghe 1970's. I saluted him as “Captain Schultz”, his WWII Marine Corp rank, which has been our inside joke for years. Since the Marine Corps didn’t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he already was familiar with ballistics, trajectories, and apogees.

I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn’t fight them there, we would be fighting them in the streets of Los Angeles.

He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies.

Closing those bases was the true motivation for the entire Nicaragua policy. To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.

I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament. Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.

Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930’s, although he never mentioned this in any election campaign.

As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which today generates 20% of the total US electric power generation.

Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.

I had not met Bob Perry since the late nineties when I bumped into his delegation at Tokyo’s Okura Hotel during defense negotiations with the Japanese. He told me that the world was far closer to an accidental Armageddon than people realized.

Twice during his term as Defense Secretary he was awoken in the middle of the night by officers at the NORAD early warning system to be told that there were 200 nuclear missiles inbound from the Soviet Union.

He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch.

When the US bombed Belgrade in 1999, Russian president, Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter response. Fortunately, his generals ignored him.

Perry said the only reason that Israel hadn’t attacked Iran yet, was because the US was making aggressive efforts to collapse the economy there with its oil embargo. Enlisting the aid of Russia and China was key, but difficult since Iran is a major weapons buyer from these two countries.

His argument was that the economic shock that a serious crisis would bring would damage their economies more than any benefits they could hope to gain from their existing Iranian trade.

I told Perry that I doubted Iran had the depth of engineering talent needed to run a full scale nuclear program of any substance. He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.

Ever in search of the profitable trade, I asked Perry if there was an opportunity in nuclear the plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCJ), that have been severely beaten down by the Fukushima nuclear disaster.

He said there definitely was. In fact, he personally was going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5^thgeneration technology that uses small, modular designs, and alternative low risk fuels like thorium.

I had never met Senator Sam Nunn and had long been an antagonist, as he played a major role in ramping up the Vietnam War. Thanks to his efforts, the Air Force, at great expense, now has more C-130 Hercules transport planes that it could ever fly because they were assembled in his home state of Georgia. Still, I tried to be diplomatic.

Nunn believes that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind.

But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as this year.

Nunn applauded current administration efforts to cripple the Iranian economy which has caused their currency to fall 30% in the past six months. The strategy should be continued, even if innocents are hurt.

He argued that further arms control talks with the Russians could be tough. They value these weapons more than we do, because that’s all they have left. Nunn delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets. I hadn’t heard that.

As the event drew to a close, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 27 years ago. He responded with incredible detail about names, numbers, and negotiating postures.

I then asked him how old he was. He said he was 93. I responded “I want to be like you when I grow up”. He answered that I was “a promising young man”. It was the best 64th birthday gift I could have received.