Posted on 12/18/2002 5:04:31 PM PST by rohry
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Effects Are Felt From Venezuela's Turmoil The Paris based International Energy Agency (IEA), an advisor to 26 oil-consuming nations, expects the U.S. will be forced to tap its Strategic Petroleum Reserves this winter. Venezuela, the worlds fifth largest exporter of oil, currently supplies 13 percent of U.S. oil imports and is in a state of chaos. Much of the states oil production, Petroleos de Venezuela (PDVSA), is shut down. This has taken 2.3 million barrels of oil exports off the market. Most of that oil goes to the United States. At the present time striking workers in the state are playing a waiting game against the government of Hugo Chavez. At the same time that Venezuelas oil exports have been shut down, OPEC has made a decision to lower output by as much as 1.7 million barrels a day starting January 1st of next year. So at a time when Venezuelas oil exports have been shut down, when colder winter conditions confront the US economy, and the U.S. prepares for war against Iraq, the US economy will face higher energy prices. This will act as another tax upon the economy slowing down economic activity. Previous recessions in the US have been associated with rising energy prices. This neglect of the US energy infrastructure over the last decade is going to take a big economic toll over this next decade. Unfortunately there isnt much the US can do in the short run but tap its Strategic Petroleum Reserves and rely on foreigners to make up the difference. This will be the second energy crisis in the three years with many more to come as US production decline curves accelerate. According to the IEA world energy demand will grow by two-thirds in the next three decades. Fossil fuels will continue to dominate the energy mix. Auto manufacturers are working on cars that will be powered by fuel cells but conversion to fuel cells will take decades. Hydrogen and other forms of energy are a long way off from replacing fossil fuels. Times Have Changed Any nation that must borrow daily to meet its economic and consumption needs, import most of its energy, raw materials and manufacturing goods is a nation that is in economic decline. A nation that is this dependent on import goods, energy and capital is a nation that is subject to the inflationary whims of its currency. You cannot print and borrow your way to prosperity as many in the economic and financial community suggest. That is why I believe we will see both a deflationary and an inflationary storm front as the US confronts its next economic crisis. We will see deflation with all areas related to credit---the financial markets, both stocks and bonds, housing and related goods such as furniture, autos, and luxury goods from furs, jewelry, planes and yachts. The US will see inflation in all imported goods such as energy and other raw materials, manufactured goods, and the cost of capital. This will result from a dollar that depreciates and may indeed become worthless if the Fed continues on its present course of expanding the monetary base by over 20 percent a year. What may come to the US may be similar to what is now happening in Argentina. Today's Market The earnings warnings came with a wide swath of companies ranging from Micron technology, Bank of New York, Blockbuster and FedEx. Wall Street earnings expectations are still too high. Analysts will have to make major revisions to their estimates so that when companies report actual earnings they will come in better than expected. This is what needs to be done if Wall Street is going to be able to hype the markets. Current expectations for pro forma earnings are at 14.7 percent, down from 19.9 percent at the beginning of the quarter. Oracle reported earnings after the market closed. Wall Street and the financial media went gaga over the companys numbers, which were better than expected. This may be enough to ignite a rally tomorrow. Oracles sales declined year-over-year for the seventh consecutive year. Sales fell from $2.38 billion to $2.31 billion. Net fell from $549 million to $534.9 million. The spin will be that they beat estimates. It will be interesting to see if investors fall for this hype tomorrow when the markets open. Futures trading is up and Oracles shares rose in after hours trading. Their sales and earnings continue to decline each year but they keep beating estimates. It now appears that with less than two weeks of trading left for the year, the major indexes will post their third year of consecutive double-digit losses, something we havent seen since 1930-32 and 1972-1974. Two shares fell for every one that rose on the NYSE. Volume picked up by 134 million shares on the NYSE to 1.383 billion. The VIX rose 1.59 to 31.75 and the VXN rose 1.5 to 49.64. In final news, a major lawsuit was filed today by Blanchard and Co. of New Orleans, the largest retail dealer in physical gold in the United States on behalf of its clients against Barrick Gold and J.P. Morgan Bank for illegal manipulation of the gold market. The suit claims that Barrick and Morgan unlawfully acted to manipulate the price of gold. J.P. Morgan is the largest holder of gold derivatives in the United States. The suit charges the bank and gold company of making over $2 billion in short selling profits by working actively to suppress the price of gold. Blanchard says that since 1987 Morgan and Barrick have collaborated to inject additional reserves of gold into the market to profit from their short sales, using privately negotiated derivative contracts and concealing the addition of billions of dollars worth of physical gold with off balance sheet accounting. This was the same sort of practice used by Enron to hide its debts. The suit alleges that Morgan loaned gold to Barrick at approximately 1.5 percent, sold gold into the market and invested the money at 6.5 percent; then paid both the proceeds from the sales and the 5 percent difference to Barrick whenever it repaid any of the borrowed gold. Barrick is the single largest hedger of gold and has profited immensely from its derivative transaction. Overseas Markets Japanese stocks fell, sending the Topix index to an 18-year low. Exporters such as Sony Corp. dropped after U.S. retailers reported holiday season sales that were below or at the low end of their estimates. The Topix shed 1.9 percent to 815.74 and the Nikkei 225 Stock Average fell for the 10th day in 11, losing 2 percent to 8344.01. |
This is one of the main differences between the US in the 1930s and the US in the 21st century. During the 1930s the US was a self-sufficient nation. It was self-sufficient in manufacturing with large trade balances with the rest of the world. It was self-sufficient in energy. During World War II the US supplied all of its allies with fuel and was the largest exporter of oil in the world. The US was also self-sufficient in capital. It was the worlds largest creditor nation. Today we find ourselves at the opposite end of the spectrum. We are no longer self-sufficient in manufacturing. Much of our manufacturing base has headed overseas. We now import many essential goods from raw materials such as lumber to finished goods. We are no longer a creditor nation, but have become the worlds largest debtor nation sucking in 80 percent of the worlds available savings. We now need to import $1.5 to $2 billion of capital a day to keep our economy running. In the area of energy we must import nearly 60 percent of all our energy needs."
What does this say? We what?
For a complete list of earnings warnings, go here:
Richard W.
"What does this say? We what?"
Balance of trade...40% of federal bonds owned by foreigners...X% of stocks owned by foreigners...Y% of dollars owned by foreigners...
Need I go on?
No, one needn't go on. One could though, especially if running for high elective office.
Frightening...
Anytime you see FED governors out talking trash about burying the planet in dollar bills, you know that we're in trouble. If the FED is panicing, what the heck should we all be doing?
Richard W.
Kudlow and Cramer are trashing gold and declaring deflation dead. They are very good contrarian indicators. Those guys are two of the biggest clowns on TV.
Richard W.
....."if World War Two were to come again there wouldn't be enough domestic textile capacity to put all the boys in uniform"....so says my father-in-law who retired after almost 40 years in the Carolina's textile industry....and BTW anybody who's ever seen what happens to a small town when the mill closes down knows how devastating it is in human terms.....and in a larger sense what is the long term strategic outlook for a country when it's citizens no longer know how to weave cloth, or how to make steel, or how to build ships or how to grow food?....
Good luck to everybody!
Stonewalls
Richard W.
.....hope everybody's got their Christmas shopping done... I experianced long lines at the registers at my local mega-mall and the Post Office was madness on Friday.
Good luck to everybody!
Stonewalls the Ant
2) I thought Blanchard had made a big deal about how they were leaving the gold-selling business, circa 2000, all but apologizing for having recommended that its customers buy gold for an investment. Has that changed? If so, when did that change?
If we were to fall into really bad times, what will make chaos in this country different from other countries; is the civilian population is well armed. - Tom
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