Saturday, September 30, 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.

Friday, September 29, 2006

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: The wizardry of Woz" and ponder that.

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 in an unofficial deal to pare oil supply.

Since the crude oil price drop began, the story they've been talking up is an oil "supply glut". Even the Reuters' headline stresses this angle. It seems everyone is bearish and counting on OPEC to come on with added supply at any time. The assumption made by many analysts, including those quoted in the articles, is that they can. Is this assumption unfounded?

More on this to come.

Wednesday, September 27, 2006

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 structual change now afoot. For although companies used to have a very limited range of choices about how they raised finance, these days the options are getting wider, as investment banks become more adept at providing innovative issuance tools.

At the same time, the attitude of investors is changing. Whereas banks used to purchase the bulk of loans in Europe, hedge funds are now jumping eagerly into this sphere, together with specialist structured portfolio managers who run vehicles known as collateralised loan obligations (CLOs).

This has created a vast pool of investors wanting to purchase leveraged – or risky – loans, and has meant that the funding that can be placed in the market is consequently far greater in scale.

“There is a massive shift of assets under way from European banks to hedge funds and asset managers,” says Michael McLaughlin, head of global structured products at Bank of America.


I think this story really goes along with the trends described in the recent Economist article on debt. The game is changing and the creation of credit and what we call "money" becomes increasingly complex, a point I believe Doug Noland has made in the past.

We've asked before how new money and credit creation was affecting merger and buyout activity; I think we're starting to see some of the answers.

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.

Tuesday, September 26, 2006

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.

Instead, the Pentagon focused most of its manpower on hunting al Qaida along the border with Pakistan. Karzai, meanwhile, lacked the security forces to extend his authority beyond the region's provincial capitals.

"The south has been to a large degree a vacuum," said a senior ISAF official, who requested anonymity because of the criticism of U.S. policy. "When the Taliban was pushed out (in 2001), they were neither replaced by effective government, nor were they replaced by alternative security forces. NATO is now dealing with the consequences of previous failures in policy."

Taliban leaders quietly re-established bases and training camps in Pakistan's border areas, where they were welcomed by Pashtun tribes, and rebuilt their ranks with religious students recruited from among the 2.5 million Afghan refugees in Pakistan.

To learn more of how these developments are affecting US and NATO troops in the region, see, "The 'surprising tenacity' of the Taliban".

Monday, September 25, 2006

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 strategic assets.

The author goes on to suggest that America should and will continue to cultivate regional powers who might check any designs China may have on the future. Countries such as India, Japan, Indonesia and Vietnam are mentioned as possible allies in this scheme to contain China's rising power and influence. Twining adds,

America’s Asian design is more interesting than a crude effort to contain China. Rather than a neo-conservative plot to prolong US dominance, Washington is actually diffusing its preponderant power by encouraging the rise of friendly Asian partners to help manage a future multipolar order.

Interesting the way the world's leaders plan our fate as though it were all part of some international game of chess.

As far as the commentator's proposals, I'm not too sure what to make of them. I just wonder when we'll learn to associate through mutual cooperation and leave these mobilizations of force behind.

Saturday, September 23, 2006

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".

Thursday, September 21, 2006

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 Minister Thaksin Shinawatra was accused of exploiting to wield near-dictatorial powers, then hold an election.

But Abhisit Vejjajiva, leader of the main opposition Democrat Party, called for elections in six months and urged the generals to lift restrictions on individual rights.

"We are encouraged that they don't want to hold onto power and that their job is to put the country back on the democratic path," he said.

"But they have to prove it and prove it as soon as possible."

Thailand was technically still under martial law.

The same article went on to note that Moody's had reaffirmend Thailand's ratings and stable outlook Thursday, though Morgan Stanley had cut their growth forecasts for the country.

Bloomberg reported that risks to bondholders were easing, as credit-default swaps based on Thailand's bonds fell from earlier highs.

The risk of owning Thailand's bonds fell after the nation's monarch gave his support to the military leaders who seized control of the government, according to traders betting on the creditworthiness of countries in the credit-default swap market.

The price of credit-default swaps based on Thailand's bonds fell to $49,000 from as high as $70,000 on Sept. 19, when the coup ousted Prime Minister Thaksin Shinawatra. An increase signals perceptions of credit quality are deteriorating; a decrease indicates improvement.

Global stock investor Mark Mobius, who was quoted in the Bloomberg article, felt the events in Thailand were not unprecedented and noted that he would be a buyer at lower levels.

Moneycontrol India asked Thailand - based investor Marc Faber his opinion of what was happening in the markets and in Thailand. He seems to feel that Thailand's coup is being over attributed as an explanation for movements in the markets. He also makes some very interesting comments on commodities, India and the US dollar. Have a look.

Wednesday, September 20, 2006

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 competition. In a deflationary environment, consumers expect outstanding services, a big bang for their buck, and slavish service. They are ready to defect to the competition over the slightest thing.

All these are facts of life in a deflationary environment. My only question is: why we should regret this? If we seek an economy in which waste is held to a minimum, the people are served, the consumer is king, business operates with top efficiency and innovation, this is all to the good. Deflation never harmed anyone except those who are not willing to work hard for their profits.

There is also an MP3 audio file of this speech. To hear it, just click the link that's at the top of the page.

Tuesday, September 19, 2006

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 transferring the head of the army to work in the Prime minister’s office, effectively suspending him from his military duties.

See the full story by clicking on the link above. It provides a good synopsis of the national trials and tensions that may have foreshadowed this event.

Monday, September 18, 2006

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 the Jordan River, the Nile, the Ganges or the Parana have generally favored cooperation over conflict.

So if history can be trusted, things may stay that way.

I certainly hope they are right, but it has not stopped some observers from noting that tensions and conflict often do arise from water disputes. Some have suggested that past Arab-Israeli conficts, such as 1967's Six Day war, actually arose out of attempts to control regional water sources.

More recently, fighting flared up in Sri Lanka (in what is now being called a civil war) after a dispute arose over access to an irrigation canal.

Obviously, water can be a triggering factor when fighting breaks out between nations and groups (or within them), a point conceded by Reuters' article:

Experts note that violence over water often breaks out within countries -- over rivers, lakes, oases or wells.

In Kenya, dozens of people died early this year in fighting between nomadic tribes over scant water and grazing rights. Tamil Tiger rebels were accused of shutting off sluices in Sri Lanka in August in their separatist war with government forces.

Steiner said countries most vulnerable to water scarcity included already conflict-prone Chad, Sudan and Somalia, as well as Ethiopia, parts of Pakistan, south India and China.

Still, Reuters' "Water wars" ends on a hopeful note by pointing out that even during times of war, cooperation over water resources continued even among warring nations. Let's hope there is some truth there.

For more info on water scarcity and the importance of water as a commodity, please see my review of Paul Simon's book, Tapped Out, as well as the many water focused articles available at Financial Sense Online.

Saturday, September 16, 2006

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, September 15, 2006

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 fact is that the credit expansion has sharply accelerated during these two years of rate hikes instead of decelerating. During 2004, when the Fed started its rate hike cycle, total credit, financial and nonfinancial, expanded by $2,800.8 billion. In the first quarter of 2006, it expanded at an annual rate of $4,392.8 billion.

More from Marc Faber in this Moneycontrol.com interview transcript. Here, Faber addresses the idea of a slowdown in the US economy and how such an event might affect other economies across the globe, principally those of Asia. If you like what you read, be sure to see the sidebar of related articles (more info from Faber and Jim Rogers on Asian markets and commodities).

See also the many excellent articles currently on display at Safehaven.com. Peter Schiff gives us his two cents on the recent gold correction, while Doug Wakefield and Ben Hill offer up a realistic appraisal of Wall Street brokerage analysts and the "buy and hold" mantra in, "Please, Proceed to the Nearest Exit - Part 1". Be sure to look for the follow-up articles in this series as they appear.

And if that's not enough, you might want to have a glance at the interesting ruminations posted on Daily Speculations. All manner of topics covered here, from the risk profile of Steve Irwin's (Crocodile Hunter) career choice to academic studies on social networks, most of which are related back to the markets in some way.

Check out the site's reading list while you're there, you're sure to find some interesting picks.

Thursday, September 14, 2006

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 Rodrigo Rato, whose remarks were convered in a September 11 Reuters article entitled, "Global imbalances could cause world recession - IMF".

But the order of the day is the call for higher growth rates in the world economy by IMF economists. From the Sydney Morning Herald's September 15 article, "A golden era for world economy":

WORLD growth will be stronger than expected next year but the threats to the global economy are intensifying, the International Monetary Fund says.

The fund has raised its global economic growth forecast to 5.1 per cent this year and 4.9 per cent in 2007 - both a quarter of a percentage point higher than its previous forecast in April.

"This would be the strongest four-year period of global expansion since the early 1970s," the fund's six-monthly analysis of the world economy released in Singapore yesterday said.

But it also warned the risks to the world economy were "increasingly tilted to the downside" compared with six months ago.

The fund's economists estimate there is a one-in-six chance of world growth slumping to 3.25 per cent or less next year - a significant slowdown compared to the last four years.
Raghuram Rajan, the IMF's research head, described the global economic outlook as "schizophrenic" because the strong forecast was "surrounded by more uncertainty than usual".


Well, whatever you make of those reports, don't let it throw you too much. After all, this is an organization that believes inflation originates from "tight labour and commodity markets", rather than ever-expanding global money and credit supply.

Incidentally, I would note that while protestors are being banned from the site of IMF and World Bank meetings in Singapore, female escorts are welcomed and recruited!

Wednesday, September 13, 2006

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.

Tuesday, September 12, 2006

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 find out how the indexes are affected by the presence of a contango in the commodities markets.

Sunday, September 10, 2006

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 revive the economy.

The new idea caught on. Soon economists were advising all major governments about how to implement the new “ism.” It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists’ judgment of whether it made sense to spend or save was better than individuals? All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called “political means,” instead of allowing normal “economic means” to take their own course.

The crucial point in this essay lies in this piece of wisdom: the way we choose to do things greatly influences the outcome. Too often people believe (and repeat) the saying, "the ends justify the means". We believe that the means are the ends. The way we seek our goal will largely determine the outcome, for good or bad.

Friday, September 08, 2006

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.

Further work by the Peak Oil Review Editors shows that "total supply gain in Russia and China was offset by the increased domestic consumption in those two countries". As those countries reach peak production sometime in the next decade, will the other oil producing countries be able to generate major increases and keep supply growing? See the above link for more.

You might remember the post earlier this week about the recent Gulf of Mexico oil discovery. Randy Kirk makes a few points regarding this discovery in the article, "Clarification of the Huge Chevron Oil Discovery", at Energy Bulletin. In fact, Mr. Kirk points out that the discovery may have more impact on the natural gas market than oil. Check it out.

In renewable energy news, solar panel manufacturers continue to struggle through the polysilicon shortage. For more on how solar companies are coping with a scarcity for one of their essential components, see "Solar World: Desperately seeking silicon". That link brought to us by the theoildrum.com in their September 8 edition of DrumBeat.

For more on advances in solar panel manufacturing and a great many other alternative energy items, see The Energy Blog, another great site.

Thursday, September 07, 2006

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.

Wednesday, September 06, 2006

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 Eastern companies alike are taking a strong interest in Columbia's oil and gas resources.

Tuesday, September 05, 2006

John D. Rockefeller and the Age of Oil.

An interesting look at how the "oil age" came about.

Written by Byron W. King, "John D. Rockefeller and the Age of Oil", is an excellent historical essay which helps us understand the energy dilemnas we now face.

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 currently needs but has not yet produced. I did not know that China was the third largest ethanol producer behind US and Brazil until reading this article.

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 needed to extract the oil and get it into world markets.

"At best we're not going to see a drop of oil for five years, maybe seven years," said Fadel Gheit, oil analyst for Oppenheimer. "It's great news for Chevron and even more so for Devon. But you can't hold your breath waiting for it."

Shares of the three partner companies are higher today, with Devon leading the pack, up 16% as of 2:06 ET.

Monday, September 04, 2006

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.

Saturday, September 02, 2006

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 specific commodity or commodity index group. Now anyone can make a directional bet on commodity prices without having to enter the futures market.

It looks like it will now be easier for new money to hop aboard this commodity bull market.

Friday, September 01, 2006

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, how will this cycle play out? Will the recent move up to 200 end in a bust or will prices level off slightly before forming a new, higher plateau?

If the current move was to repeat the cycle of its recent forebearers, we'd see an approaching top and an ensuing move down towards the lows of the last cycle bottom. This would bring us down to the 110 level on the price index, back from whence we came.

On the other hand (now I'm speaking like an economist), we could have a slight retrenchment from the speculative price highs and a sideways market for the next couple of decades. Prices might fluctuate a bit but be rangebound at a higher level, say 180 and 205 on the index. After the WWII era peak, the index declined to a low of 100 on the price index and prices stayed mostly within the confines of 100 and 120 for the next 45-50 years.

Of course, both scenarios are simply repeats of what has happened before and we know that future events are not likely to be a simple replay of the past.

For those of you who are very bearish on the national price level of homes in the aftermath of the "housing bubble", I note that a line of support could be drawn in at around the 105-108 level by connecting the lows of the early 1950s with the lows of the 1980s. This level held the last decline of the 1990s (prices consolidated just above that trendline) and could be seen as major longer-term support. Watch out if prices breach that support to the downside!

But who knows, we could be in the midst of some demographicly-driven price rise, as was the case in the post WWII era. Then, returning GIs and their mates found a period of stability at home, which led to the creation of new families and kickstarted the Baby-Boom. This gave rise to the new trend for suburban housing and development, a trend that has since shaped the face of this country.

In recent times, mortgage lending has been extended to even the more marginal applicants and creative financing has allowed an ever increasing pool of buyers to own their own home (for a while anyway; recent foreclosure levels have risen dramatically). While the impending slowdown in housing will hit the most extended purchasers and speculators, maybe demand for houses will pick up as prices ease off.

We know that there has been a large influx of immigrants into the United States in recent years; some of those people will no doubt create demand for housing. However, I must note that this type of population influx did not keep prices from falling during the 1890s to 1920, and this period encompassed one of the "Great Waves" of immigration into the U.S.

Will foreign buyers of second homes in the U.S. create enough demand to keep prices high? Somehow, I don't think that will be enough to do the trick. As they say, only time will tell.

Related articles and posts:

1. Home prices continue to slide - Finance Trends Matter.

2. Skateboarders ride California foreclosure wave - Finance Trends.

Charts: paper vs. things

From the Financial Sense Market Monitor. An intermarket analysis of paper and things. Even some of the paper assets have been kept aloft nicely thanks to...that's right...an infusion of paper (easy money and credit creation that's occured worldwide over the past few years).