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Showing posts from September, 2006

Matt Simmons interview

Hey peak oil observers, just wanted to let you all know there is an interview with Matthew Simmons at Financial Sense Online. Mr. Simmons is the author of Twilight in the Desert and the guest expert for this weekend's FSN broadcast.

If anyone reading is unfamiliar with the "peak oil" thesis, you might want to listen in and see what the issue is all about.

Will Simmons and friends turn out to be correct in their warnings over crude oil's imminent production peak? Or will their dire prognostications be consigned to the dustin of history?

When I look at the situation, it seems like events have been unfolding in line with the trend towards hydrocarbon scarcity. Shall we wait to find out that we're running out of oil and natural gas or will we encourage innovation and change? Tell us what you think.

FT's lunch with Woz

Financial Times reporter Richard Waters recently sat down to lunch with Apple co-founder Steve Wozniak (known to many as, "Woz") at San Jose's Hickory Pit restaurant, where the two talked about Wozniak's new book and the early days of computer engineering.

The focus piece that emerged centered on Wozniak's fond remembrance of bygone days, when a single inventor/entrepreneur could design a computer in his garage and measure its quality according to his own high standards. Here is how Wozniak puts it:

“The intent to try new things and find them is sort of built into the human being and the human brain,” says Wozniak. “It’s just part of our own innate curiosity. Thinking up a new idea that could really radically [make things] better can happen anywhere, and it doesn’t necessarily happen because I’m gonna put some money down to some bright engineers and they’re gonna come up with it.”

Will the day of the workshop inventor/artisan return? Read "Lunch with the FT: T…

OPEC nations paring back supply

Venezuela and Nigeria have announced they will cut oil production by as much as 200,000 barrels a day. OPEC members have spoken publicly about possible supply cuts in the face of oil's recent correction towards $60, but no formal agreements have been made yet.

It seems the decision by Venezuela and Nigeria to pare back supply has left some OPEC members "furious". However, the Financial Times and Reuters report that several OPEC nations, Saudi Arabia and Kuwait among them, are quietly cutting back supply as well.

An excerpt from Reuters' article:

The world's eighth-largest exporter Nigeria will cut supplies by 5 percent from October 1 after consultations with other OPEC producers, while some other countries in the exporters' club have already trimmed sales, acting Secretary-General Mohammed Barkindo told Reuters on Thursday.

A senior Nigerian oil industry source told Reuters that Nigeria was joining Saudi Arabia, the world's biggest oil exporter, and Kuwait i…

Deals galore!

The Financial Times ran a special report section on corporate finance today that included a very relevant article by Gillian Tett.

In, "Deals galore in a world awash in cheap money", Tett examines the relationship between easy money and an increased number of corporate buyout deals.

Private equity firms have led the latest buyout craze, thanks to increased investor participation in their funds and new ways to finance deals. As the author points out, the number of deals have increased, along with the bid prices.

One reason why private equity firms have been able to make these audaciously large bids in recent years is that investors are clamouring to put money in their funds.

However, another equally important factor is that the debt capital markets have been extremely accommodating. This partly reflects the fact that the global financial system has been awash with cash, after several years in which central bankers have kept interest rates low.

However, it also reflects a bigger …

Commodities notes

Forgot to mention that there was an interesting view of the recent commodities correction in the latest Barron's. This week's Commodities Corner surveyed a few analysts and investment professionals for their take. Is the commodities bull market over or is the recent downwave a correction in an upward trend?

For those who haven't seen it, I remember that the column was, of course, split between two bullish and two bearish opinions. Stephen Roach and another fellow were bearish on commodities, while Frank Holmes of US Global Investors and another investment manager were bullish.

I made a note of Homes' final reasoning; he remarked that the "world now has too many people and not enough commodities". I tend to agree, but a skeptic might reply that resource scarcity has generally been the rule during our time on Earth.

The dark side of debt

Cover story of the latest Economist: "The dark side of debt". The big theme of this article is the rise of private debt issuance. Here's a taste:

The world is once again in the grip of a spree of lending, but this time to companies rather than countries. What is striking is that much of this lending is happening not through public share and bond markets, nor exclusively through banks (see article). The issuance of syndicated loans vaulted to $3.5 trillion last year, from $2.3 trillion in 2000. Thanks to the low cost of debt, private lenders, such as hedge funds, are extending vast amounts of credit to leveraged buy-out firms and other private borrowers. Forsaking the sunlit uplands of global finance, the market for capital is plunging into the shadows.

Check it out at the link above.

The 'surprising tenacity' of the Taliban

A new report from csmonitor.com says the Taliban have reestablished themselves in Afghanistan.

Quoting McClatchy Newspapers, whose reports find the Taliban's ranks filled with "a new generation of die-hards", the piece paints a picture of resurgent corruption, violence, and anarchy.

According to the McClatchy Washington Bureau, "By failing to stop Taliban leaders and Osama bin Laden from escaping into Pakistan, then diverting troops and resources to Iraq before finishing the job in Afghanistan, the Bush administration left the door open to a Taliban comeback."

More from "Afghanistan, 5 years later: US confronts Taliban's return" here:

The Taliban quietly re-established themselves because the Pentagon largely ignored southern Afghanistan, according to current and former U.S., European and Afghan officials and commanders.

Until ISAF troops began arriving, no more than 3,000 U.S. troops were deployed there, even though it was the Taliban heartland.

Ins…

America pursuing grand design in Asia

A recent comment piece in the Financial Times outlines America's possible role in promoting a new regional order to check China's growing power in Asia and the world.

Entitled, "America is pursuing a grand design in Asia", the piece is written by Daniel Twining, a former advisor to US Senator John McCain. Here is a bit of the opening:

Asia’s strong states will shape the future of international politics more than the weak states and terrorists of Afghanistan, Iraq and Lebanon. But China’s continuing authoritarian rise, like Thailand’s descent into military dictatorship, suggests that the quality of democracy within Asian nations will be important in determining the course of the emerging Asian century.

Recognising this, the Bush administration – anticipating a future Chinese challenge to American primacy – is pursuing a grand design in Asia as ambitious as its campaign to transform the Middle East, and as bold in its use of military power and democratic values as strat…

F.A. Hayek interview

I recently stumbled across a very interesting item: a 1977 interview with Friedrich August von Hayek, famed economist of the Austrian school.

Interviewed by Thomas W. Hazlett for Reason magazine, this conversation with Hayek was never published. Thankfully, this fascinating interview is available at Reason Online for our reading pleasure. Please enjoy, "The Road from Serfdom".

Marc Faber on Thailand, markets

A little background on the situation in Thailand as markets resume trading there.

From The New Zealand Herald web site:

BANGKOK - Thailand went back to work as normal on Thursday after a military coup legitimised by the king but the opposition called for fast-tracked elections to show the new rulers are serious about a return to democracy.

A day after the military shut down the city in the interests of maintaining calm, Bangkok traffic was back to the familiar near-gridlock, while coup leaders worked on fulfilling a promise of a civilian prime minister in two weeks.

The stock market was down just 0.6 per cent at the midday break after falling as much as 4.2 per cent in the first minutes, a far less precipitous drop than had been feared in the immediate aftermath of the coup.

Traders said a royal proclamation legitimising the military government went a long way to reassure investors.

The coup leaders said they would craft a constitution within a year to repair flaws that ousted Prime Minis…

What government is doing to our money

Please read the following essay, "What Government Is Doing to Our Money", by Lew Rockwell.

Rockwell gives an excellent summary of how an economy characterized by inflation differs from an economy in which deflation is the norm. Here is an excerpt:

For years, Fed officials and others have warned about the grave dangers associated with deflation. Now, we see this very thing taking place in clothing, technology, and other goods that you can buy at large discount stores.

What is the result? It's been a wonderful blessing to consumers. Indeed, it has been our saving grace in times of soaring prices for education, energy, houses, and medical care. If some prices had not fallen, the American economy would be in much worse shape.

Does deflation make business more difficult? Most certainly. Retailers can't hold on to inventory as long as they use to. The maintenance of profitability involves relentless innovation, keen-eyed cost watching and cutting, constant attention to the co…

Thailand - state of emergency declared

Here's the news from the Times Online:

Army-owned television stations interrupted their scheduled broadcasting to show images of the country's revered Royal Family and songs associated with the Army.

At least 10 armoured vehicles were seen in central Bangkok and around 50 soldiers were reported to have arrived at Government House in the Thai capital, ordering police officers to hand over their weapons.

The cable television station of the Nation newspaper reported that tanks were parked at the Rachadamnoen Road and Royal Plaza close to the royal palace and government offices.
Thaksin Shinawatra, the Thai Prime Minister, who is expected to leave office later this year after a disputed election and mass protests against his Government, is in New York for the opening of the UN General Assembly but he ordered the army not to "move illegally".

"I declare Bangkok under a severe state of emergency," he told the country's Channel 9 TV station. He also said he was tr…

Water wars

Water scarcity is becoming a big issue in our world. Although the earth's surface is largely covered by bodies of water, only a small percentage is freshwater suitable for our drinking and agriculture needs. Will problems arising from water shortages lead to conflict and mass suffering?

Reuters addressed this topic today with an article entitled, "'Water Wars' loom? But none in the past 4,500 years". The opening section of their report seems to debunk the notion of war resulting from water scarcity:

With a steady stream of bleak predictions that "water wars" will be fought over dwindling supplies in the 21st century, battles between two Sumerian city-states 4,500 years ago seem to set a worrying precedent.

But the good news, many experts say, is that the conflict between Lagash and Umma over irrigation rights in what is now Iraq was the last time two states went to war over water.

Down the centuries since then, international rivals sharing waters such as t…

Greenspan's influence

Just got around to listening to a very interesting interview that was aired on Financial Sense Newshour's September 9 broadcast. The guest expert was Peter Hartcher, author of Bubble Man: Alan Greenspan and the Missing 7 Trillion Dollars, and the discussion centered on Alan Greenspan's influence over the economy and his stature as a public figure.

I found the conversation to be a very frank and level-headed examination of our monetary system and of Greenspan's career. I think you'll like it too, and it sure beats the usual pablum put forth about Greenspan and his time at the Fed.

Friday reading

A short list of articles and interviews you might find interesting. These essays seem to have a common thread running through them. Lots of interesting thinking about the economy, commodities, and inflation. Have a look.

The Aden Sisters offer their analysis of "Gold's Mega Bull Market" at Kitco.com.

Kurt Richebacher gets to the bottom of supposed "global tightening" over at The Daily Reckoning UK. Do not be fooled by incremental rate hikes when money and credit conditions are easy like Sunday morning. Here's an excerpt from "A tightening farce":

It is, of course, perfectly true that monetary tightening impacts the economy and its inflation rates with a pretty long delay. The trouble in the US case is that there never was any monetary tightening. There were many small rate hikes, and the Greenspan Fed had probably hoped that the higher costs of borrowing would exert some restraint on credit demand. But it has not happened. It was a vain hope.

The fa…

Conflicting headlines over IMF reports

Wasn't it just the other day that news headlines warned about "global imbalances" and an increasing risk of global recession? Today's news items regarding the IMF's World Economic Outlook report seem to paint a different picture; while the news about risks and imbalances remain, forecasts for continued growth are highlighted in the most recent headlines.

Earlier in the week, news reports of IMF forecasts focused on the risk of a global crash and imbalances that might rock the global economy. On September 13, The Independent Online carried an article headlined, "IMF: risk of global crash is increasing".

That article was based on findings from the IMF's recently issued Global Financial Stability Report, and implied that the risks to the global economy stemmed largely from the possibility of a "US-led" slowdown, rather than global imbalances cited earlier.

The worry over those imbalances were cited in a newspaper article Monday by IMF chief Ro…

Marc Faber presentation on investing, global trends

Link to a Vcall presentation given by Dr. Marc Faber, "Investing in a world of rapidly changing geopolitical and economic trends".

Update: Original Vcall audio link has expired, but has now been replaced with an archived audio presentation link.

See also, the accompanying presentation slides in either HTML or Powerpoint format.

If you doubt that commodities are in a secular bull market, then listen to Faber's comments. Corrections and shakeouts will occur along the way, but the long term trend is up, according to Faber. And despite the ongoing correction in crude oil, you can forget about seeing $11 oil again.

You may not agree with his analysis, but if this is a topic that interests, you would do well to listen.

A look at commodity indices

I was reading the commodities page of FT's "Markets" section today, when I reminded myself to take another look at the various commodity indexes and see how they're constructed.

These indexes represent the price performance of a basket of commodities, but the index configurations may vary. Some of the indexes have entirely different weightings among component groups and individual commodities, while others might neglect a particular commodity or group entirely. Since once index may differ from another, returns are likely to diverge as well.

This seemed evident when I looked down the page and noticed that the DBLCI-MR Total Return Index (based on the Deutsche Bank Liquid Commodity Index) was recently up over its year ago period, while the well known GSCI Total Return is down from a year ago. What gives?

Well, when I looked up the page to see Kevin Morrison's article, "Indices battle against 'contango'", I began to understand. Read this article to…

Political vs. economic means

Read an excerpt from John Mauldin's recent book, Just One Thing, that I wanted to reproduce here. It was an essay by Bill Bonner entitled, "The Means are the Ends", posted here under the alternate title, "A Thousand Clowns".

In this piece, Bonner explains that the traditional means of human interaction and achievement have been taken over by political (dishonest) means. Here's an excerpt:

In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale - and, of course, make things better. Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight...and by spending itself to make up for the lack of spending on the part of consumers and businessmen. Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and…

Oil & energy roundup

A few articles and points to round out some of the oil and energy news that's recently been made public.

First off, Matthew Simmons provides a brief commentary on the oil supply/demand picture going forward. In "Underestimating Demand, Overestimating Supply", Simmons declares that the experts' estimates of world oil supply and demand have been proved totally wrong:

In retrospect, the best way to review key fundamentals is to look carefully at changes in global supply and demand, and where they’ve come from. Between 1991 and 2005, global demand for oil grew by 16.6 million b/d. More astonishing is that non-FSU demand grew from 58.9 million b/d in 1991 to 79.8 million barrels a day in 2005. In other words, outside the unanticipated collapse of the Former Soviet Union, the rest of the world's oil demand grew by 20.9 million barrels a day in just 14 years (35%; 2.5% per year) vs. the projection by many oil pundits that oil demand growth was certainly slowing down.

Furt…

Chinese FX reserves

"What am I gonna do with all this dough?". That seems to be the question for many foreign central banks holding excess foreign exchange reserves.

Much of the reserves are held in the form of dollars and dollar-denominated assets, and countries like China are wondering what to do with all their cash. A recent FT.com Lex piece pointed out that investment returns on these holdings are modest, and diversifying away from fiat currencies is not as easy as it sounds.

See "Chinese FX reserves" for more.

Columbia charms oil and gas investors.

Remember when, from the American perspective, Columbia was the crazy, out of control country down South America way? Well, not anymore. Thanks to a rising tide of socialism in countries like Peru, Venezuela, and Bolivia, Columbia is starting to look a lot more attractive to investors worldwide.

Here's what the Financial Times has to say:

Colombia has become a hot spot for oil and gas exploration in Latin America as energy multinationals face increasingly hostile business conditions elsewhere in the region, industry experts say.

A steep and sustained fall in guerrilla attacks under President Alvaro Uribe, who began a second four-year term this month, and a reduction in tax rates are key attractions.

The favourable investment climate contrasts with those of other countries in the region, such as Venezuela, Bolivia and Ecuador, where governments have as much as doubled the tax and royalty rates levied on foreign-owned operations and, in some cases, expropriated assets.


Western and Easte…

They make that now, too?

China is sating America's appetite for ethanol by exporting the biofuel to our shores. From Reuters:

China is unexpectedly emerging as a major exporter of ethanol as record-high crude oil prices and a U.S. deficit in the biofuel have pushed up its international price, triggering an investment boom.

Industry officials said China's 2006 exports of ethanol, or ethyl alcohol made largely from corn or cassava, were set to exceed 500,000 tonnes (625 million liters or about 11,000 barrels per day).

Shipments may reach 900,000 tonnes (1.13 billion liters or 19,000 bpd), some traders say. It had virtually no ethanol exports for fuel last year.

Most of the ethanol cargoes go directly or indirectly to the United States due to a switch this year to use ethanol as an additive for cleaner gasoline. Some are dehydrated in Caribbean countries for use in the U.S., helped by favorable taxes.

Apparently, China is taking advantage of a window of opportunity to supply the US with the ethanol it curren…

New oil find in Gulf of Mexico

A group of oil & gas companies, led by Chevron Corporation, has announced a significant oil discovery in the Gulf of Mexico. From the New York Times:

The prospective yield of the area, called the lower Tertiary, could approach six billion barrels of oil, Devon said. The other owner, with a 25 percent interest, is Statoil of Norway. Chevron owns 50 percent.

Statoil said the test results were “very encouraging and may indicate a significant discovery.” It said the company and its partners plan to drill another well in the area next year to try to determine the extent of the field.

The deepwater find has the potential to become one of the largest domestic oil supplies, although people familiar with the industry point out that it will take years for this oil to come to market. From CNN Money:

Neither Chevron nor Devon would say how long it would take for oil from the well to reach market. Experts say it will take billions of dollars to build the deepwater oil platforms and pipelines nee…

Riverside Conversations

For your listening pleasure: a link to episodes 1-3 of the "Riverside Conversations" series, featuring renowned investors Dr. Marc Faber and Jim Rogers.

Heady discussions about the markets, the world economy, and the changing face of the world are found here. Enjoy.

Plethora of new commodity ETFs

The London Stock Exchange will soon be a home to a new group of commodity tracker funds.

29 Exchange Traded Commodities (ETCs) will be listed on the LSE within weeks according to a report in the Times Online.

The new instruments will be sponsored by Graham Tuckwell's ETF Securities, a firm that had already launched ETCs representing the price of oil and gold.

19 individual commodities, from nickel to cotton, will be represented with their own ETC, along with ETCs for 10 commodity groups tracked by Dow Jones-AIG. A detailed list of ETCs planned for listing can be can be seen in this HedgeWeek article.

Exchange Traded Commodities are simply a variation on the Exchange Traded Fund, or ETF. They are both traded throughout the day on a financial exchange, and are structured to offer investors a cost-efficient alternative to conventional mutual funds.

But while ETFs typically represent a share index or an industry group comprised of publicly traded companies, ETCs track the price of a sp…

A history of home values

Economist Robert J. Shiller has constructed an existing home price-index going back to 1890.

The graph, entitled, "A History of Home Values", is inflation-adjusted and is benchmarked to a starting figure of 100 in the first year. Thanks to Piggington.com for reproducing this chart.

Here's an interesting exercise: look at the chart and see what you notice about the price movements over time. What I see from looking at this chart is that, while the 1970s and '80s booms were noticeable enough and took the index from near identical trough points (down around 105) to similar peaks (up into the low-mid 120s), it was the current boom and the post-WWII boom that showed the largest moves in percentage terms.

The current boom, highlighted in the graph, has taken the index from a low of around 110 to a high near 200. This is an upward move of about 81.8%. The price move of the WWII era took the index from a low of 70 up near 110, a 57% gain.

What everyone would like to know is, h…