December 28, 2014 3:49 pm

Clever wrapping disguises Europe’s worn-out policies

Wolfgang Münchau

A delayed but well-aimed monetary stimulus blast is better than a premature sputter from cannons

 Maybe it is the seasonal spirit. I feel like someone who got almost everything I ever wished for.

When the eurozone crisis erupted, I asked for an emergency backstop from the European Central Bank. Then I demanded a banking union, and then a large investment programme.

Each time, Europe’s policy makers said yes. I wanted quantitative easing, the purchase of sovereign bonds by the ECB, which has not happened yet but probably will next month. The eurobond was the only thing I did not get.
The score is four of five. So why am I still not happy? The answer is that I feel robbed. It was only an illusion. I did not get a single thing.

The banking “union” will be one in which each country is responsible for its own banking system. The most important structural innovations are joint banking supervision and a tiny fund to cover losses when a banker runs away with the till. When I asked for a co-ordinated approach to dealing with failed banks, this is not what I meant.

It looks as though the same is going to happen with QE. I am sure the financial markets will celebrate the decision. The euro will fall — until somebody reads the small print. The compromise under discussion allows creditor countries to wash their hands of any risk. The idea is that each national central bank buys the sovereign bonds of its own country — and if this results in losses, the national government in question makes the central bank whole. Think about that for a second. Italy’s government borrows money, the Bank of Italy buys the debt and the government promises to compensate the bank if its bonds fall in value (for instance because markets stop believing the government’s promises). The circularity is preposterous.
If the ECB goes down this route, it will be the end of a single monetary policy. Yet the eurozone is supposed to be a monetary union, not a fixed exchange-rate system where everybody happens to use the same notes and coins.

The mooted compromise would also limit the size of any QE programme. There is only so much risk that the cash-strapped governments of the eurozone’s periphery can absorb. They are unlikely to be able to do enough to anchor inflation expectations at the ECB’s target of just under 2 per cent.
I understand that this compromise is still being discussed. No decision has been taken, and not everybody agrees. It is not clear to me why central bankers in favour of QE would accept it.

They might, I suppose, reason that an inadequate QE programme is better than none at all. If so, they are wrong. The habit of accepting half-baked solutions is the reason why the eurozone is in its present mess. Governments accepted permanent austerity in return for emergency cash in the crisis years, but that policy only ended up enlarging the burden of government debt. A flawed QE programme would likewise be, not a small step towards a solution, but a big step away from one.
It is important to be clear about the reasons why QE is needed. There are two possible rationales.

One would be to monetise debt — turning it into a bond that pays zero interest and is destined never to be repaid. This would work, and it would bring economic benefits. It would also be totally illegal, under both the Maastricht treaty and German domestic law.

The other reason for conducting QE — and the only one that is legally acceptable — is to help the ECB achieve its price stability target.

One can have a long discussion about what that means. But a QE programme would have to be open-ended if it were to have any chance of producing this effect. You can either say: “Whatever it takes.”

Or you can say: “No more than such and such billion euros.” But you cannot say both at the same time, and expect people to believe you.

If an incoherent compromise is the only option available, it should be rejected. The eurozone cannot afford another botched policy measure with dubious benefits and considerable side-effects.

If they decide to do nothing, central bankers will at least keep this barrel of powder dry. A delayed but well-aimed blast of monetary stimulus is far better than a premature sputter from the ECB’s cannons. I fear, however, that accommodating Germany will be the overriding priority.

The resulting policy might be wrapped up in language that makes it look like what I asked for.

But the resemblance is superficial. That is the trouble with trying to please everyone. It forces you to take decisions that are pragmatic and realistic — even if they are wrong.

Complete Third-Quarter Gold All-In Costs Show That Gold Investors Should Be Very Comfortable With Their Investment

  • Our analysis of gold costs includes more than 25% of total world gold production and thus we're confident it can be extrapolated very accurately.
  • Gold miners on a core cost basis are producing gold at a higher cost than the previous two quarters due to an increase in taxes.
  • Gold miners on a core non-tax cost basis saw their costs drop sequentially, but are relatively flat on the year.
  • Despite heavy cost cutting, most gold is produced at prices higher than the current gold price, and that is bullish for the gold price.
Over the last quarter, we have analyzed and posted the costs of almost all the publicly traded gold miners, which includes over 6 million ounces of mined production for the third quarter of 2014. This represents 25% of total estimated world production - which is a very large portion of the total worldwide production of gold, and we believe our numbers represent a large enough portion of mined production to extrapolate as a general figure across the industry.

We're looking to add companies to the list that we cover and use them in our total FY2014 analysis, so if you are interested in receiving it and keeping up-to-date, consider following me (clicking the "Follow" button next to my name).

Why These Costs Are Important

For gold ETF investors (SPDR Gold Trust ETF (NYSEARCA:GLD), ETFS Physical Swiss Gold Trust ETF (NYSEARCA:SGOL), Central Fund of Canada (NYSEMKT:CEF), and Sprott Physical Gold Trust (NYSEARCA:PHYS)), this metric is very important because it allows an inside understanding of the true costs associated with producing each new ounce of gold. This is arguably the most important metric in analyzing any commodity because it shows the price where production of that commodity becomes uneconomic. If it costs more to mine a commodity than the market is willing to pay for it, eventually producers will stop producing the commodity and close up shop.

These are the type of environments that savvy commodity investors dream of because it allows them to purchase assets that cost more to produce than to buy, which is an environment that cannot last for very long because eventually supply will be cut, cause scarcity, and then the price will increase.

There are some people that erroneously believe that newly mined gold supply is irrelevant to the gold price. Unfortunately, this causes investors to completely ignore the fundamentals of global gold mine supply and leaves a large hole in their understanding of the gold market. This article isn't the place to go into why they are wrong, but I've addressed this issue thoroughly in a previous article with quotes.
But to make a long story short, the two main reasons why newly mined gold supply is very important to the gold price are the following:
  1. Newly mined gold supply makes up a large portion of annual gold supply (it provides two-thirds of annual physical demand, according to the World Gold Council's numbers).
  2. It is held in the weakest hands (the gold miners) who sell that gold at the prevailing market price.
Again, please refer to that article for a more detailed description of these reasons.

Explanation of Our Metrics

For a detailed explanation of the metrics and each metric's strengths and weaknesses please check out our previous full quarterly all-in costs gold report where we discuss them in detail. The last two metrics (core costs and core non-tax costs) are the most important ones in our opinion, but we provide all four for investors to use.

All Costs per Gold-Equivalent Ounce - These are the total costs incurred for every payable gold-equivalent ounce, which includes everything. This is the broadest measure of costs, and since it includes write-downs, it is essentially the "accounting cost" of producing gold-equivalent ounces.

Costs Per Gold-Equivalent Ounce Excluding Write-downs and S&R - This is the cost to produce each gold-equivalent ounce when subtracting write-downs and smelting and refining costs, but including everything else.

Costs Per Gold-Equivalent Ounce Excluding Write-downs (Our "Core Costs" Metric) - This is similar to the above-mentioned "Costs per Gold-Equivalent Ounce Excluding Write-downs and S&R" but includes smelting and refining costs. That makes this measure one of the best ways to estimate the true costs to produce each ounce of gold, since it has everything (including taxes) except for write-downs.

Costs per Gold-Equivalent Ounce Excluding Write-downs & Taxes (Our "Core Non-Tax Costs" Metric) - This measure includes all costs related to gold-equivalent production, excluding all write-downs and taxes. Essentially, this is the bottom dollar costs of production with an artificial 0% tax rate (obviously unsustainable) which works well because it removes any estimates of taxation due to write-downs or seasonal fluctuations in tax rates, which can be significant. The negative to this particular measure is that since it does not include taxes, it will underestimate the true costs of production.

What are the Industry's Gold Costs?

We have compiled all the numbers for gold companies that we analyzed for 2014 and provided them in the table below. Investors should remember that these costs are displayed and sorted by core non-tax costs, as in costs BEFORE taxes and thus are lower than the real costs of production. To see the real costs of production investors can click on the detail of any of the companies listed below.

CompanyCore Non-tax CostsCore Costs
Randgold (NASDAQ:GOLD)Under $1000 per gold-equivalent ounceAround $1000 per gold-equivalent ounce
Eldorado Gold (NYSE:EGO)Under $1000 per gold-equivalent ounceOver $1100 per gold-equivalent ounce
Barrick Gold (NYSE:ABX)Around $1100 per gold-equivalent ounceUnder $1300 per gold-equivalent ounce
Yamana Gold (NYSE:AUY)Around $1100 per gold-equivalent ounceOver $2000 per gold-equivalent ounce*
Gold Fields (NYSE:GFI)Over $1100 per gold-equivalent ounceAround $1200 per gold-equivalent ounce
Richmont (NYSEMKT:RIC)Under $1200 per gold-equivalent ounceUnder $1200 per gold-equivalent ounce
Timmins Gold (NYSEMKT:TGD)Over $1200 per gold-equivalent ounceUnder $1200 per gold-equivalent ounce
Goldcorp (NYSE:GG)Under $1200 per gold-equivalent ounceUnder $1300 per gold-equivalent ounce
Newmont Mining (NYSE:NEM)Over $1200 per gold-equivalent ounceUnder $1200 per gold-equivalent ounce
SilverCrest Mines (NYSEMKT:SVLC)Over $1200 per gold-equivalent ounceOver $1200 per gold-equivalent ounce
Agnico-Eagle (NYSE:AEM)Over $1200 per gold-equivalent ounceUnder $1300 per gold-equivalent ounce
Kinross Gold (NYSE:KGC)Over $1200 per gold-equivalent ounceOver $1300 per gold-equivalent ounce
Iamgold (NYSE:IAG)Under $1400 per gold-equivalent ounceOver $1600 per gold-equivalent ounce
Alamos Gold (NYSE:AGI)Over $1400 per gold-equivalent ounceOver $1400 per gold-equivalent ounce
Allied Nevada (NYSEMKT:ANV)Over $1500 per gold-equivalent ounceOver $1500 per gold-equivalent ounce

Important Note: For our gold equivalent calculations, we have adjusted the numbers to reflect the second-quarter average LBMA price for all the metals and converted them into gold at these rates which results in a silver-to-gold ratio of approximately 65:1, copper-to-gold ratio of 404:1, lead-to-gold ratio of 1295:1, and a zinc-to-gold ratio of 1221:1.

Investors should remember that our conversions change with metal prices and this will influence the total equivalent ounces produced for past quarters - which will make current-to-past quarter comparisons much more relevant. This will also lead to minor differences in our previously published true all-in gold costs for the industry since each period has different conversion rates into gold - it will not make a big difference but there will be a difference.

(click to enlarge)

Important Note on Gold Table Above: The difference between "Top-line Gold Ounces" and "Attributed Gold Ounces" is that top-line ounces include ounces produced by miners that are not a portion of their true distribution of production. Attributable ounces are the true ounces that represent a miner's share of production.

To calculate costs, we remove all costs associated to top-line ounces and the top-line ounces themselves to make sure we have accurate cost figures.

Observations for Gold Investors

The first thing gold investors should notice is that in the third quarter we saw a rise in attributable gold production from 5.89 million ounces to 6.11 million ounces, which is around a 5% gain sequentially - with almost 200,000 ounces of this gain attributed to Barrick's additional production.

On a year-over-year basis, though, we saw attributable ounces drop slightly from the 6.20 million ounces we saw in Q3FY13. In general, it seems like gold production will end the year essentially flat - assuming we don't have an extremely good or bad fourth quarter.

Total gold-equivalent production rose by a slightly larger percentage, but we're not particularly surprised as during the quarter most base metals appreciated in terms of their conversion ratios with gold, which would lead to higher gold-equivalent production - though we did see an increase in base metal production by a few gold miners.

Cost Structure of the Miners

But we think the more important statistics here for investors are related to the cost structure of the companies because ultimately production will follow the margin of the miners. As margins rise, gold production will tend to increase, while if margins are falling (or negative), then production will eventually fall - pretty straight forward long-term economic law here.

In terms of core costs (costs including taxes), during the quarter we saw core costs rise on both a sequential and year-over-year basis to $1324 per gold-equivalent ounce. That was the highest for the year and significantly higher than previous quarters despite the increased production (which should have averaged down the cost per ounce).

When we take a look at core non-tax costs (costs excluding write-downs and taxes) we see that costs actually fell on a sequential basis to $1160 per gold-equivalent ounce. That's pretty much the mid-point of what we saw in previous quarters and it tells us that taxes were a significant contributor to the rise in core costs.

Conclusion for Investors

Let's now focus on the actual numbers and what they mean. The fact that core costs were $1324 per gold-equivalent ounce really means that miners, on average, are still well above the gold price when we include all their costs. Of course, this number is a quarterly number and can fluctuate quite a bit from quarter-to-quarter, but even if we look at the first quarter ($1222) and second quarter ($1225) numbers we see that the costs to produce gold are above the current spot price when all costs are taken into account.

When it comes to core non-tax costs, which may be a better indicator into the general trend of mining costs as it leaves out taxes and write-downs, we see that costs for the quarter ($1160 per gold-equivalent ounce) were down slightly from the previous quarter but up from the first quarter. While they aren't above the current spot price, these are costs before taxes and there is very little margin for miners to make any meaningful profits - a 2-3% margin on such a risky endeavor like mining a deposit will severely discourage future investment.

Additionally, these core non-tax costs completely ignore taxation, which in the natural resource business often includes royalties and revenue-based taxes. Thus, a portion of taxes will hit the miners regardless of their profits - thus this 2-3% on sub-$1200 gold quickly disappears.

The fact that core and core non-tax costs are not sustainable at the current gold price, may not have much of an effect on production this quarter - but it certainly will in future quarters and years. Investors need to remember that the seeds of gold production five and ten years from now are being sown today.

Miners still haven't cut costs enough to make a decent profit on a core costs basis, and this suggests that there is a structural problem with producing gold at the current gold price. This supports our belief (and the belief of many in the industry) that we've reached peak gold and soon we'll see production start dropping significantly as operations are closed and wind down.

For mining investors that means that you have to be very careful which miners to invest in if we don't see a higher gold price. But for investors that own the gold ETFs and physical gold, this is a very promising trend as the miners' pain is the gold investors' gain - more struggling miners means less future production.

The fact that miners still cannot get costs lower suggests to us that the gold price really isn't sustainable below $1200 per ounce on any intermediate to long period of time. So while some prognosticators calling for $1000 gold (Goldman we're looking at you) may be right on the short term, there really is no way in our minds how we can see that gold price for very long - most gold would cease to be produced.

So as long as investors can take a little volatility, we think that some time in the next few years gold will be much higher as supply is choked off by the current gold price. If gold demand actually increases during this time frame, then we could see some fireworks in the gold price as supply simply will not be ramped up enough to meet any increase in demand.

Gold is a much safer investment than the financial media seems to think, and gold investors should sleep well knowing that production costs are on their side.

What’s Really Going on Inside the Latest GDP Number

By Shah Gilani

Dec 26th, 2014

Sit down before you read this.

It’s going to make your head spin and, worse, change the way you think about what’s real in America.

Christmas came early this year, for the market that is, by way of a gift from the U.S. Bureau of Economic Analysis.

However, this branch of the U.S. Department of Commerce, didn’t put its gift under anybody’s tree. They put it over all of us.

The gift was headline news that the “third revision” of third-quarter gross domestic product (GDP) showed the U.S. economy grew at a whopping 5% annualized rate, not the 3.9% rate posted in the “second revision.”

That sounds like good news, right?

Well, here’s what’s scary…

Bad Santa

“Ho! Ho! Ho!” said the stock market. Good news is now good news on top of bad news being good news for stocks.

And so, with just enough time before Christmas for the stock markets to react, we got a 5% “print” from the BEA, which pushed the Dow Jones Industrial Average above 18,000 while the S&P 500 made yet another all-time high.

Too bad the BEA is a Bad Santa. The latest revision was a “put-on.” The folks at the BEA put it over on all of us.

What they did to get to that 5% number – to make us all feel gifted by a robustly recovering economy, to get us to go out and spend spend spend, to get stocks to soar – was pure prestidigitation. It was pure legerdemain.

It was pure BS.

I’ll prove it to you. Here’s what the BEA posted on its website:
    “The GDP estimate released today is based on more complete source data than were available for the ‘second’ estimate issued last month. In the second estimate, the increase in real GDP was 3.9 percent. With the third estimate for the third quarter, both personal consumption expenditures (PCE) and nonresidential fixed investment increased more than previously estimated (see ‘Revisions’ on page 3). “The increase in real GDP in the third quarter primarily reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, decreased. “The acceleration in the percent change in real GDP reflected a downturn in imports, an upturn in federal government spending, and an acceleration in PCE that were partly offset by a downturn in private inventory investment and decelerations in exports, in state and local government spending, in residential fixed investment, and in nonresidential fixed investment.”
In the second paragraph, the BEA says the increase “primarily reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, state and local government spending, and residential fixed investment.” Then in the very next paragraph, it says that “an upturn in federal government spending, and an acceleration in PCE that were partly offset by a downturn in private inventory investment and decelerations in exports, in state and local government spending, in residential fixed investment, and in nonresidential fixed investment.”

How can you have an increase in PCE and the other stuff that was “partly offset by a downturn” in the same stuff the BEA said had increased?

I’ll tell you what’s going on.

Do Look This Gift Horse in the Mouth

The increase in personal consumption expenditures is all that matters. The BEA increased that number so much in the revision that nothing else matters.

Of course, its double-talk matters, but that’s just minor rubbish.

What the BEA gift-givers did in their revisionist juggling act was knock down personal savings by revising savings down over previous months by almost 20% and magically put all that money, about $140 billion, to work in the economy.

And presto, we had 5% GDP growth.

It gets funnier and freakier.

They said most of the increase in spending was on Obamacare. How many people do you know who bought into Obamacare last month?

They said last month we increased our gasoline and energy consumption by a whopping 4.1%.

However, I recall oil prices falling almost 50% and gas prices falling more than 20% since late summer.

Go figure.

And about that PCE increase. We whooped it up spending on what? Christmas presents in July, August and September, long before Black Friday sales and Cyber Monday?

Maybe we did spend $140 billion earlier than we planned to spend on the holidays. Because we sure didn’t spend much on them.

According to most analysts, we saw disappointing Black Friday sales. And ShopperTrack had expected a $10 billion Super Saturday this year, but according to that analyst, sales on the last Saturday before Christmas were up only 0.5% from last year’s $9.1 billion.

RetailNext just said spending at specialty stores and large footprint retailers was down 8.9% over the weekend before Christmas versus a year ago. And traffic was down 10.2%.

We better be shopping online!

Okay, that’s getting ahead of the third-quarter numbers I’m talking about. But you get the point. How could we have spent $140 billion more in Q3 before the holiday season when the holiday season looks like a mini-bust?

Don’t even get me started on home sales.

Just say “Ho! Ho! Ho!” and enjoy the market rally while it lasts. The fabricators in our government bureaus are beholden to the powers that manipulate us all.

If it’s a feel-good feeling they want us to have, mission accomplished.

Happy holidays… suckers.

Break Up Citigroup

Simon Johnson

DEC 26, 2014

Citigroup building

WASHINGTON, DC – America’s presidential campaign is already well underway. The election is not until November 2016, and very few candidates have formally thrown their hats into the ring, but the competition to promote and develop ideas – both behind closed doors and publicly – is in fully swing.
Earlier this month, Citigroup took advantage of this formative political moment by seizing an opportunity to score a tactical victory – but one that amounts to a strategic blunder. Using legislative language apparently drafted by Citi’s own lobbyists, the firm successfully pressed for the repeal of some of the 2010 Dodd-Frank financial reforms. The provision was then passed after it was attached to a last-minute spending bill – a tactic that ensured very little debate in the House of Representatives and none at all in the Senate.
At a stroke, Citi executives demonstrated both their continued political clout in Washington and their continued desire to take on excessive amounts of financial risk (which is what this particular legal change permits). Lobbying to be allowed to load up on risk is exactly what Citi did during the 1990s and 2000s under Presidents Bill Clinton and George W. Bush – with catastrophic consequences for the broader economy in 2007-09.
As a result, breaking up Citigroup is under serious consideration as a potential campaign theme. For example, in a powerful speech – watched online more than a half-million times – Senator Elizabeth Warren responded uncompromisingly to the megabanks’ latest display of muscle: “Let’s pass something – anything – that would help break up these giant banks.”
Defenders of the megabanks – Citi, JP Morgan Chase, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley – dismiss Warren as an avatar of left-wing populism. But this is a serious misconception; in fact, Warren is attracting a great deal of support from the center and the right.
Senator David Vitter of Louisiana is the most prominent Republican member of Congress in favor of limiting the size and power of the biggest banks, but there are others who lean in a similar direction.
Similarly, the vice chair of the Federal Deposit Insurance Corporation, Thomas Hoenig, a political independent, consistently warns about the dangers associated with megabanks. And former FDIC Chair Sheila Bair, a Republican from Kansas, argues strongly for additional measures to rein in the biggest banks.
From the perspective of anyone seeking the nomination of either of America’s political parties, here is an issue that cuts across partisan lines. “Break up Citigroup” is a concrete and powerful idea that would move the financial system in the right direction. It is not a panacea, but the coalition that can break up Citi can also put in place other measures to make the financial system safer – including more effective consumer protection, greater transparency in markets, and higher capital requirements for major banks.
From the left, the emphasis has been on the megabanks’ abuse of power and the great rip-off of the middle class. From the right, the stress is on the hazards of crony capitalism, owing to the massive implicit government subsidies that these banks receive. But both left and right agree on the fundamental asymmetry that the recent “Citigroup Amendment” implies: Bankers get rich whether they win or lose, because the US taxpayer foots the bill when their risky bets fail.
Potential Republican presidential candidates have hesitated to take up this issue in public – perhaps feeling that it will inhibit their ability to raise money from Wall Street. Among the Democrats, however, the opportunity seems to be much more compelling; indeed, avoiding a confrontation with Wall Street might actually create problems for a candidate (as Hillary Clinton may well find out).
The Progressive Change Institute is currently running “The Big Ideas Project,” whereby people can vote on what they regard as the most important policy proposals. Three of the top ten ideas under “Economy & Jobs” are about imposing greater constraints on the big banks – and there is a sharp upward trend in support for Break Up Citigroup (full disclosure: I suggested this item for the website).
This idea would play well in the Democratic primary elections (which start in early 2016). And, because it forms the basis for responsible policies, it would attract support from centrists. And voters on the right like proposals that offer a credible way to end the favoritism – if not outright corruption – that has come to define the relationship between the top levels of government and Wall Street.
“Break up Citigroup, end dangerous government subsidies, and bring back the market.” The US presidential candidate who says this in 2016 – and says it most convincingly – has a good chance of winning it all.

lunes, diciembre 29, 2014




Evgeny Fedorov


December 26, 2014 3:13 pm

Oil price collapse stokes financial crises in producing countries

Ed Crooks in New York

The most significant development in the world economy in 2014 was the collapse in the price of oil.
The near-50 per cent drop in the price of internationally traded Brent crude from a high of more than $115 a barrel in June to less than $60 earlier this month has put extra money into consumers’ pockets and boosted fuel-intensive businesses such as airlines, while cutting oil companies’ revenues and stoking financial crises in oil-producing countries including Russia and Venezuela.

The roots of the price collapse lie in the US shale oil boom, which began when small and medium-sized producers worked out in 2009-10 how to apply to oil production the techniques of horizontal drilling and hydraulic fracturing that had already been highly successful for natural gas.

US oil production has soared, from about 5m barrels a day in 2008 to 9.1m b/d this month. For the first three years of the boom, the rise in US output was offset by other supplies coming off the world market, but in 2014, however, there were no more such interruptions.

Meanwhile, global demand growth slowed sharply, in part because of the slowdown in China.
World oil consumption rose by 1m b/d in 2012 and 1.3m b/d in 2013, but is expected to have grown by just 600,000 b/d this year. Saudi Arabia and the other members of Opec compounded the price crash on November 27 by declining to cut production to stabilise the market.
The response from companies has been speedy. Oil producers such as ConocoPhillips and services companies such as Schlumberger have announced cuts in capital spending, employment, or both. BP said it was accelerating its existing cost-cutting programme.
The fall in oil prices is expected to be a net positive for the world economy. However, while the gains are widely spread, the pain will be concentrated on oil producers, leading to consequences that could have wider impacts, such as the collapse in energy company junk bond prices.

Harold Hamm, chief executive and majority owner of Continental Resources, warned this week that the “law of unintended consequences” often kicked in when oil prices fell. There are already signs that the market is starting to self-correct. US shale companies are drilling less, meaning that their production growth will slow, and American drivers are rushing back to gas-guzzling cars. The longer oil stays at its present level, though, the more likely it is that those unintended consequences will emerge.

Houses of Worship

Science Increasingly Makes the Case for God

The odds of life existing on another planet grow ever longer. Intelligent design, anyone?

By Eric Metaxas

Dec. 25, 2014 4:56 p.m. ET


In 1966 Time magazine ran a cover story asking: Is God Dead? Many have accepted the cultural narrative that he’s obsolete—that as science progresses, there is less need for a “God” to explain the universe. Yet it turns out that the rumors of God’s death were premature. More amazing is that the relatively recent case for his existence comes from a surprising place—science itself.

Here’s the story: The same year Time featured the now-famous headline, the astronomer Carl Sagan announced that there were two important criteria for a planet to support life: The right kind of star, and a planet the right distance from that star. Given the roughly octillion—1 followed by 24 zeros—planets in the universe, there should have been about septillion—1 followed by 21 zeros—planets capable of supporting life.

With such spectacular odds, the Search for Extraterrestrial Intelligence, a large, expensive collection of private and publicly funded projects launched in the 1960s, was sure to turn up something soon.

Scientists listened with a vast radio telescopic network for signals that resembled coded intelligence and were not merely random. But as years passed, the silence from the rest of the universe was deafening. Congress defunded SETI in 1993, but the search continues with private funds. As of 2014, researches have discovered precisely bubkis—0 followed by nothing.

What happened? As our knowledge of the universe increased, it became clear that there were far more factors necessary for life than Sagan supposed. His two parameters grew to 10 and then 20 and then 50, and so the number of potentially life-supporting planets decreased accordingly. The number dropped to a few thousand planets and kept on plummeting.

Even SETI proponents acknowledged the problem. Peter Schenkel wrote in a 2006 piece for Skeptical Inquirer magazine: “In light of new findings and insights, it seems appropriate to put excessive euphoria to rest . . . . We should quietly admit that the early estimates . . . may no longer be tenable.”

As factors continued to be discovered, the number of possible planets hit zero, and kept going. In other words, the odds turned against any planet in the universe supporting life, including this one. Probability said that even we shouldn’t be here.

Today there are more than 200 known parameters necessary for a planet to support life—every single one of which must be perfectly met, or the whole thing falls apart. Without a massive planet like Jupiter nearby, whose gravity will draw away asteroids, a thousand times as many would hit Earth’s surface. The odds against life in the universe are simply astonishing.

Yet here we are, not only existing, but talking about existing. What can account for it? Can every one of those many parameters have been perfect by accident? At what point is it fair to admit that science suggests that we cannot be the result of random forces? Doesn’t assuming that an intelligence created these perfect conditions require far less faith than believing that a life-sustaining Earth just happened to beat the inconceivable odds to come into being?

There’s more. The fine-tuning necessary for life to exist on a planet is nothing compared with the fine-tuning required for the universe to exist at all. For example, astrophysicists now know that the values of the four fundamental forces—gravity, the electromagnetic force, and the “strong” and “weak” nuclear forces—were determined less than one millionth of a second after the big bang. Alter any one value and the universe could not exist. For instance, if the ratio between the nuclear strong force and the electromagnetic force had been off by the tiniest fraction of the tiniest fraction—by even one part in 100,000,000,000,000,000—then no stars could have ever formed at all. Feel free to gulp.

Multiply that single parameter by all the other necessary conditions, and the odds against the universe existing are so heart-stoppingly astronomical that the notion that it all “just happened” defies common sense. It would be like tossing a coin and having it come up heads 10 quintillion times in a row. Really?

Fred Hoyle, the astronomer who coined the term “big bang,” said that his atheism was “greatly shaken” at these developments. He later wrote that “a common-sense interpretation of the facts suggests that a super-intellect has monkeyed with the physics, as well as with chemistry and biology . . . . The numbers one calculates from the facts seem to me so overwhelming as to put this conclusion almost beyond question.”

Theoretical physicist Paul Davies has said that “the appearance of design is overwhelming” and Oxford professor Dr. John Lennox has said “the more we get to know about our universe, the more the hypothesis that there is a Creator . . . gains in credibility as the best explanation of why we are here.”

The greatest miracle of all time, without any close seconds, is the universe. It is the miracle of all miracles, one that ineluctably points with the combined brightness of every star to something—or Someone—beyond itself.

Mr. Metaxas is the author, most recently, of “Miracles: What They Are, Why They Happen, and How They Can Change Your Life” ( Dutton Adult, 2014).