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Oil priced in Dollars...I hope this isn't a stupid question.
But isn't the fact that OIL is priced in US dollars means that anybody that wants to buy Crude Oil in the market has to buy US dollars if they don't have them????
I mean if Japan or Venezuela or China or anyone needs to buy Oil they need to sell their local currency and buy US dollars to do it????? Correct????
That creates "demand for US dollars"....Yes?????
Maybe the fact that Oil is rising is creating more demand for the US dollars all over the planet?? The seller of the Oil now has US dollars to do as he pleases with. Buy Us bonds or re-convert and sell them into another currency.
That article really didn't convince me that the rising prise of Oil hasn't artificially" increased the demand for US dollars as oil has risen. After the seller of oil recieves his US dollars he could do whatever he wants with them. But I think the fact that oil is priced in US dollars is helping us "somewhat" prevent a dollar collapse by this "incremental" demand by higher dollar prices for Oil.
I think that if Oil was priced universally around the world in any currency....That currency would be in demand to "buy" a vital and needed resource...OIL!!
I think the dollar would suffer from quite a bit less demand if it was priced in Chinese Yuan or something else.
COULD YOU IMAGINE IF OIL WAS PRICED IN GOLD??
"TO DA MOON" WITH GOLD IF THAT EVER HAPPENED!!!!!!!!!!
Rogue
No habeas corpus... CEO forecast is dim... Pat Robertson... Valerie Plame... Porter Goss... GM is bankrupt... engineering shortages... property usurpage... and more!
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http://www.theinternationalforecaster.com/trainwreck.php?Id=95
Our President and our government believe that they have the power to arrest citizens and hold them indefinitely denying us the rights of habeas corpus. In fact, they don’t have to arrest you. Under their interpretation of law they can detain you indefinitely without charges. Something that only occurs under despotic governments. It is occurring under our government against Americans and foreigners. They are kidnapping people off the streets all over the world and little is being done about it. We recommend that you contact your elected representatives and tell them how you feel about the issue.
In an effort to force oil drilling rich fields near the Arctic National Wildlife Refuge, Alaska’s director of oil and gas has demanded that Exxon Mobil drill their Point Thomson Unit, which they have been sitting on for 30 years, or lose it. Others involved are BP Exploration, Chevron USA and Conoco Phillips Alaska. This past week the state found Exxon Mobil in default.
The elitists may believe they can stay in power and change the future by manipulating markets. They are going to find out you cannot shape destiny and that the people in this world do not need them to tell them how to live. They do not need the future shaped for them by a corporatist fascist government, and they do not need manipulated markets. We do not need the mind control and psychological warfare directed at us by those in government, and by those who control government from behind the scenes. As we have told you before, these people have tried this again and again since the twelfth century and they have been perpetually unsuccessful. They may have retained power, but not the ultimate power that they desperately seek. Events always have happened to stop them and we believe that has happened. That is what Katrina and Rita are all about. From their point of view the wrong thing at the wrong time. From our point of view it’s the straw that broke the camels’ backs. The elitists have to come to terms with failure. A financial and economic system that faces collapse, which they have lost control of. The lies and disinformation won’t cut it anymore. Reality is going to be difficult beyond anything they or the public can imagine. All of you who do not want to deal with the truth and reality are going to be forced to do so. Inflation is headed to 15% and higher. You won’t find that in the media, but that is reality. Look at our money and credit expansion figures that we release every week. Do they look like monetary aggregates are decreasing? Of course not. They are still increasing in leaps and bounds. The elitist Fed still doesn’t get it, even though throughout history such methods have always been totally unsuccessful. Desperately they continue to inflate knowing that they are only buying time. Government and the consumer are hopelessly in debt and have no way out. The economy has been weakening for three months, inflation is increasing and the effect of Katrina and Rita to put the economy more off balance are now just really being felt. The BLS statistics on CPI and unemployment are totally laughable. Meanwhile, as of last week, the 30-year fixed mortgage rate is at 5.98%. In December, it could be 6 1/2% to 7%. Then we have an administration that is the biggest deficit spender of all time. Contrary to what experts might think about foreign central banks buying US Treasury and Agency debt, for now at least they will continue to see them spend $3 to $4 billion a day. Most of these banks will eventually stop, but the $4 trillion from the Postal Savings Plan in hand Japan will endlessly buy US debt – that is part of their partnership with the US. After that the Fed will monetize US debt sending inflation into the stratosphere. The spiral is already out of the Fed’s hands. From here on it gets nasty and gold and silver explode. You have just seen the end of the last dollar rally. If the ECB raises interest rates, in spite of a recession, due to inflation, the euro will at worst hold its own and perhaps it will rise back to 1.3666. The only reason in recent months the dollar has rallied is that interest rates have risen and there has been combined manipulation efforts by central banks. Economists, analysts and most newsletter writers are fixated on interest rates and they haven’t noticed a year-to-date and year-to-year increase of some 15% in credit. Can they be that dumb or do they almost all have a vested interest in deceiving the public in regard to what is really going on? Private foreign money sees this and is long gone. They also have not overlooked the fact that the US now has a corporatist fascist government.
Socialist governments are bad enough, but they usually tend to be passive. Fascist governments by their domineering nature are aggressive and eventually that has always led to their destruction. Their greed and their megalomania for control eventually destroys them via overreach. A word to the wise should be sufficient. Batten down the hatches. The storm ahead will be far worse and much longer lasting than Katrina and Rita.
The Business Council and Conference says less than 15% of CEO’s polled expect business conditions to improve over the next six months, from 40% in the previous survey in February. Only 27% expect improvements to continue in their industries, down from 43.2% in February. Twenty-one percent now expect pricing power to increase, down from 28% in February. Once we hit the bottom of this bear economic market we expect realized losses of $15 trillion at a minimum.
In case you hadn’t considered it we expect gasoline rationing in the future. This is another way of controlling the public - another concept of trading freedom for security.
If you don’t think the market is rigged you are dumb. Last Friday, the Dow was down 100 points with 20 minutes to go. It ended the day up 5 points, enough said!
In September, average hourly earnings rose 0.2% and weekly hours were unchanged at 33.7. Wholesale inventories rose 0.5%.
Sir Alan Greenspan retires from the Fed on January 31, 2006. Each time a Fed Chairmanship has changed, the transition has been difficult. The period is used by the elitists to make major changes. This time the change could be explosive with profound implications at a time when the economy and financial markets will be in a negative state of enormous change. The change of chairmanship couldn’t have come at a more inopportune time. The change is a very serious event. The investment community has given Sir Alan the aura of supernatural-god-like qualities. His departure will be difficult if not wrenching. Wall Street’s security blanket will be gone. Knowing that many on Wall Street will be bailing out of the market.
Another difficult and salient point is that the successor will be inheriting a current account deficit of at least 6.5% of GDP, which is more than four times the average external shortfall of 1.5% in the previous transitions in 1978, 1979 and 1987. There is no national savings, we have an energy crisis and debt, both governmental and personal, and it is out of control Foreign central banks will be reluctant to some extent to finance debt service and interest rates will as a result trend higher as inflation increases in spite of a slowing economy. George W. Bush is going to insist that the fellow elitists that control him allow him to have whoever shares the goals and objectives of his political agenda. If this happens, US and world markets are going to take a heavy hit. It also means a lower dollar, especially versus gold, and higher interest rates – perhaps much higher interest rates. Those rates in turn will eventually stem inflation, but due to the mega-debt will turn to deflation and depression. If Bush’s appointment agenda follows its previous path, his choice will seriously impair credibility and perception. This needless to say will compound problems. By the time the announcement is made for a successor, markets will be in free fall and gold and silver will be substantially higher.
There is now no question that televangelist Pat Robertson is a front man for George W. Bush. On a recent CNN program he again ranted that Venezuelan President Hugo Chavez Frias was setting up a Marxist-type dictatorship in Venezuela and spreading Marxism throughout South America. Pat also informed us Mr. Chavez is negotiating with Iran for nuclear material and he supplied $1.2 million in cash to Osama bin Laden just after 9/11. Robertson also informed us that Venezuela and Mr. Chavez is a nuclear threat to the US. Needless to say, Preacher Robertson provided no background and no proof. We expect George and the neocons will ignore the latest outburst if possible. If they have to answer they’ll deny any connection. Pat Robertson’s comments are terrorist and criminal, but nothing will be done about his comments. That is the way it works in a corporatist fascist state.
Due to the Valerie Plame affair and the acts of George and the neocons the CIA has been unable to recruit spies. No one wants to be left twisting in the wind. The outing of Ms. Plame has done irreparable harm to US clandestine operations and caused the death of over 100 of our undercover operatives. Valerie Plame was an exceptional officer who even worked under non-official cover. In other words if you are caught we do not know who you are. Yet, she and her operatives were betrayed by George and the neocons simply because they wanted payback because her husband exposed these criminals for what they are and that the excuse for war WMD was a scam. He exposed the liar in chief. If Patrick Fitzgerald proceeds with the indictments we believe the Nigerian forgeries will prove to be the work of VP Dick Cheney and Lewis Libby. The special prosecutor should also indict Senate Intelligence Committee Pat Roberts (R-KN) who adamantly refused to investigate the forgery used to start a war. Americans what you have witnessed is betrayal and treason.
The future of the CIA looks bleak under the leadership of Director Porter Goss. Conflict between top CIA managers and Goss’ inner circle are now coming into the open. All the best people have resigned, been forced to resign or are taking early retirement. The neocons have turned the CIA into a shambles. Goss is about to consider punishing individuals for failures that took place prior to 9/11. That is over four years ago. This is, of course, to deflect blame from the neocons.
Mr. Bush has directed the agency to hire several thousand more analysts and officers over the next several years. It will take a lot more than new employees to bring credibility back to the agency. Only time will tell how much damage these idiots have inflicted on our country.
Delphi, the nation’s largest auto supplier, is bankrupt. Production and 35,000 high paying American jobs are being moved to China. 12,000 retirees will receive one-third of their pensions from the PBGC, which is from us, the American taxpayer. You can thank General Motors for a failure that was planned 25 years ago. Delphi wants to cut the wages of 35,000 workers by two-thirds, or to $10.00 an hour to compete with China. Delphi employs 185,000 workers worldwide.
GM’s future liabilities will increase by $11 billion and in three years or less GM will file bankruptcy and their business will be sold off in segments to vulture investors.
In order to try to avoid bankruptcy Delphi wanted workers to take wages of $10 to $12 an hour instead of $26 to $30 that they make today. Delphi will also stop paying 4,000 workers who no longer have jobs to do. At the same time the company management increased the severance packages of its top 21 executives. Once again, corporate America cannot help itself.
They are consumed with greed. We see a disgusting spectacle of the people at the top taking care of themselves and at the same time demanding extraordinary sacrifices from their hourly workers. Delphi was the 63rd largest US company with annual revenues of $28.62 billion. Our Congress and the American people just don’t get it. There economy is being ripped out from underneath them. Their entire society is being destroyed and no one seems to care. The answer is protective tariffs and quotas and a reversal of our national policy of free trade and globalization.
The NASD has fined eight brokerage houses, including units of Prudential and Lord Abbett $7.8 million for taking kickbacks from mutual funds. In June, another 15 brokerages were fined $34 million for the same reason.
Complying with The Patriot Act is a major concern for the boards of financial-services firms, topping worries about the economy, off-shoring and financial disclosure requirements. Finance-services companies are now required under the Act to be able to identify their customers and improve their monitoring systems and reporting of suspicious activity. They have to spy for our government or they get charged.
Secretary of State Rice rebuked Uzbekistan for not answering the US regarding an international inquiry into the Andijan Massacre. The US was happy to overlook the event until President Islam Karimov kicked them out of Karshi-Khanabad. Miss Rice said they were out of step with the political trends in Central Asia. If you are not in lock step with the neocons you are liquidated. For the US this is payback Karimov rejected US and European calls for an “independent” inquiry. The US, under the guidance of Senator John McCain (R-AZ) has prevented a $23 million payment owed to Uzbekistan from being made. The usual financial extortion. In the meantime, President Karimov has been designated a dictator, and the neocons and the EU are arranging a coup to overthrow Karimov.
US District Judge Rosemary M. Collyer has for a second time stopped George and the neocons’ efforts to destroy the civil service system covering 160,000 employees at Fatherland Security.
Scandal again rocks Wall Street as the leading futures brokerage Refco, discovered the CEO Phillip Bennett owed the company $430 million, and that none of its accounting dating back to 2002 could be relied upon for their accuracy. Refco specializes in derivative brokerage services. An August underwriting by Credit Suisse First Boston, Goldman Sacks and Bank of America and its auditor Grant Thornton are in big financial trouble. Could this be the unforeseen event that will send markets into turmoil?
According to the Foundation for Taxpayer and Consumer Rights major oil companies have exported more than 90 million barrels of heating oil in the first half of 2005, an amount close to 50 times the volume of Northeast Heating Oil Reserve. Despite lack of capacity and increases in the cost of energy, major oil companies continue to export vital distillate fuels such as heating oil and gasoline. These shortages could be engineered to create rationing and people control in our nation.
HR3893, the Gasoline for America’s Security Act, has passed the House and is on its way to the Senate. It would preempt the historic rights of cities and towns to determine where facilities such as refineries can be located – more federal usurpation of our rights. If adapted, this bill would allow the federal government to put a refinery on any piece of federal land it wants or anywhere the oil industry thinks it will be profitable for them.
Lenders are still blacklisting black borrowers. Black Americans are three times as likely as whites to be signed up for high-coast sub-prime mortgages that often force borrowers into default. This is a serious matter and means redlining has not stopped.
Over the past two weeks gasoline prices have risen $0.10 a gallon to $2.91 nationwide for self-serve regular. In a special report from the Council on Foreign Relations, Prof. Menzie Chinn, a former senior economist for international financial issues on the White House’s Council of Economic Advisers under Presidents Clinton and G. W. Bush, argues that the federal budget and current account deficits, increasingly threaten US sovereignty and influence. “Failure to take the initiative to reduce the twin deficits will cede to foreign governments increasing influence over the nation’s fate.” “Perhaps equally alarming is it will lead to slower growth, escalating trade friction, and reduced American influence in political and economic spheres.” The report is entitled, “getting Serious About the Twin Deficits”, and it calls for urgent action on the serious challenges faced by the US economy, including reducing the fiscal deficit, increasing taxes, decreasing oil imports through the imposition of energy taxes or strict fuel efficiency standards; and managing a coordinated depreciation of the dollar vis-à-vis East Asian currencies. If that is accomplished it guarantees a bad recession. A deliberate dollar depreciation would have to be 40% versus Asian currencies. The Asians won’t do that. If they did agree, gold would go ballistic.
Our Army is so hard up for ground troops that they are deploying thousands of Air Force personnel to combat zones in new jobs as interrogators, prison sentries and gunners on supply trucks. They say the deployment is temporary, but we do not believe that. The military is struggling with 200,000 troops, including foreign troops and mercenaries. What they really need are 300,000 troopers.
Scott Ritter, a former US Marine and UN weapons inspector has compared British PM Tony Blair and George Bush to Nazi war criminals that started WWII. Their aggressive warfare in Iraq is similar to German actions in Europe 66 years ago. Both of these men could be pulled up as war criminals for engaging in actions that we condemned Germany for in 1946. Tony Blair and George W. Bush are guilty of the crime of planning and committing aggressive warfare.” He said, “The special relationship between Britain and the US left British honor as nothing more than a “disregarded mistress.”
He made these comments at Chatham House, the Royal Institute of International Affairs in London. He said intel from intelligence services was correct in stating Iraq’s missile program had been destroyed soon after the Gulf conflict in 1991. It was always the intention of the US to effect regime change. The origins of such a policy came from George H. W. Bush. He reported in 1992 Iraq had no missiles and his report was met with silence. He said get UK and US troops out of Iraq. “Iraq is a nation on fire – what feeds the fire is fuel, the presence of US and UK troops.”
We don’t know why Scott Ritter was asked to speak at Chatham House and we don’t know why this is significant. He has either been invited into the fold or he doesn’t understand what he is dealing with. The Royal Society is what the CFR was modeled on and Chatham House members are the Queens advisers and she is one of the top illuminists in the world. That Group knows far more about what is going on than Mr. Ritter because they plan it all. George Bush may be rogue, we don’t know, but we’ll soon find out.
The Local Law Enforcement Hate Crimes Prevention Act of 2005 establishes unity between federal and local law enforcement, thus creating the beginnings of a total police state. The ADL, the Anti-Deformation League, wants federal power to enforce its federal hate crimes agenda against Christians, talk show hosts, critics of Israel, pro-lifers and anti-war activists, etc. all over America. As journalists we are terrified of such a thought control law. That means we cannot report anything in that venue for fear of spending the rest of our lives in jail. That leaves all reporting open only to pro-Zionist interests. Once passed an Orwellian anti-hate bureaucracy and police state will follow. Anything deemed anti-democratic or hateful will be pursued real or imagined. We do not hate anyone. This is very harmful legislation.
Rogue
PRVB....Powder River Basin Gas. Looks very oversold here trading at .19 cents.
http://stockcharts.com/def/servlet/SC.web?c=PRVB,uu[w,a]daolyyay[pb50!b200!f][vc60][iut!Uc20!Li14,3]....
Don't know much about it other than it looks washed out on the charts and a possible buy. Someone must have mentioned it here or on the zip-code changer board before because I'm watching it in the VM watchlist.
Anyone like this one???
Rogue
PRVB....Powder River Basin Gas. Looks very oversold here trading at .19 cents.
http://stockcharts.com/def/servlet/SC.web?c=PRVB,uu[w,a]daolyyay[pb50!b200!f][vc60][iut!Uc20!Li14,3]....
Don't know much about it other than it looks washed out on the charts and a possible buy. Someone must have mentioned it here or on the Value microcap board before because I'm watching it in the VM watchlist.
Anyone like this one???
Rogue
Please "peruse" these articles with an open mind!
In light of all the chaos and destruction here and worldwide and now the supposedy pandemic bird-flu coming around.....I hope I can get a few to start wondering?????
http://toodumbtobepresident.com/SKULL_BONES.html
http://www.angelfire.com/pa3/tusk36/walrus2.html
http://toodumbtobepresident.com/NewWorldOrder.html
"All truth passes through 3 stages...
1st it is ridiculed,
2nd it is violently opposed,
3rd it is accepted as being self-evident."
Arthur Schopenhauer, German philosopher
Rogue
Colorado Residents Challenge Mining Laws By JOHN HEILPRIN, Associated Press Writer
Sun Oct 16, 2:40 PM ET
http://news.yahoo.com/s/ap/20051016/ap_on_re_us/mining_the_west
CRESTED BUTTE, Colo. - The ruddy slopes of 12,392-foot Mount Emmons loom over this town, drawing hikers, backcountry skiers and snowshoers. But to residents such as Jim Starr, they also stand for what is wrong with the nation's antiquated mining laws.
Those laws allowed the Bush administration to sell 155 acres of public land on the "Red Lady" to a mining company for less than $900. The land has deposits of molybdenum, a gray metal used to make steel, alloys and lubricants.
"It's a huge threat. If anyone did put a mine in there, it's hard to imagine that it would not destroy this area," said Starr, a lawyer and Democratic chairman of Gunnison County's board of commissioners.
The sale was made possible by an 1872 mining law that lets the government sell, for just $2.50 or $5 an acre, public lands that contain minerals. This land sale, known as a patent, gives companies absolute title to the property.
Since October 1994, Congress has voted each year to renew a temporary ban that prevents companies from submitting new patent applications to buy more government land at rock-bottom prices.
That left the Interior Department's Bureau of Land Management with 405 applications it had received before October 1994. Those applications came from companies looking to buy land managed by the BLM and the Forest Service.
John Leshy, who approved 68 of those patents as the Interior Department's top lawyer during the Clinton administration, said the law requires the government to give land away needlessly.
"The mining law was a cover for getting the land for non-mining purposes like hunting, fishing, brothels or a saloon. I don't think people need incentives to settle the West any longer," said Leshy, a University of California law professor and author of "The Mining Law."
The Bush administration and Congress have made a push to approve the remaining applications — approximately 200 — that were unresolved when President Bush took office. Under the Bush administration, 139 were approved and 50 remain to be considered.
The BLM's deputy director, Jim Hughes, said the patents convey property rights, but not a free pass to disregard environmental laws. He said private investment, mostly in the rural West, provides good jobs, but acknowledged that some oppose mining because of legitimate aesthetic values.
"As always, the BLM is sort of caught between the two and we have to make decisions on those competing interests," he said. "At the end of the day, we are told to follow the law. It's not an easy choice."
Getting a patent is not easy. Slightly more than one-third of the 405 applications were withdrawn or rejected by the Bush and Clinton administrations, often for lack of supporting paperwork.
Companies have to convince the Interior Department that the land has a valuable mineral deposit and it can be mined at a profit. Department officials say companies typically spend about $10,000 to $15,000 per acre trying to document that it is economically viable to mine there.
Once a patent is granted, officials say, the law does not let them challenge a company if it drops its plan to mine at a site that could be resold as valuable real estate.
The department acknowledges cases in which lands that companies had patented for mining were used for private, commercial development, such as at the ski resorts of Aspen, Breckendridge, Keystone and Telluride in Colorado and Park City in Utah.
At Keystone, developers fetched $11,000 an acre in 1989 selling off more than one-quarter of the 160 acres the government had sold. The land was never mined.
In Arizona, a Phoenix luxury hotel sits on 61 acres, part of an area that a businessman patented in 1970 for $153. He sold it to a developer for $400,000, plus a 1 percent share in future profits.
Congress has made numerous efforts to change the law, and not even the National Mining Association is a vigorous defender. Spokeswoman Carol Raulston said the trade group would support updating the law so companies pay "fair market value" for patents.
But advocates of overhauling the law have been thwarted by those resisting an end to the free-access approach to public lands upon which the nation was built.
This year, the chairman of the House Resources Committee, GOP Rep. Richard Pombo (news, bio, voting record) of California, tried to have the ban on new patents lifted. The committee's top Democrat, Rep. Nick Rahall (news, bio, voting record) of West Virginia, proposed sweeping changes, including a permanent end to such patents.
The remaining applications, mostly in Nevada, Arizona, California and Montana, involve selling 71 square miles of federal land in 11 states for just $130,000, according to Westerners for Responsible Mining, a coalition of 12 state and national conservation groups.
The lands' real value is $178 million, the coalition has estimated, based on figures from local assessors and real estate agents. Some $85 million of that total is in just one parcel — 3,000 acres near Arizona's popular Roosevelt Lake — that could be sold for $8,500, the coalition said.
Other patents, the coalition said, would allow the sale of 995 acres of California's Inyo National Forest, worth $7.5 million, for $3,100; 673 acres of California's Mojave National Preserve, worth up to $1 million, for $2,300; and 100 acres of Washington state's Mount Baker National Forest, worth up to $937,000, for $470.
At Mount Emmons, it is unclear what will happen. Phoenix-based Phelps Dodge Corp., inherited the applications from a company it acquired, but has said in court documents it wants to unload the property.
___
On the Net:
Bureau of Land Management: http://www.blm.gov
Westerners for Responsible Mining: http://www.bettermines.org
Rogue
Dr. Murenbeeld's gold price forecast for the coming year
October 14, 2005
I got to hear Dr. Martin Murenbeeld at the Denver Gold Forum earlier this month, and, as I said last year after attending his talk, he is hands down the best gold analyst I have ever come across.
At last year’s Denver Gold Forum, Dr. Murenbeeld forecasted three possible gold prices: a low price, a most likely price and a high price. He assigned a probability to each and then calculated the weighted average gold price as his forecast for the average gold price in the year ahead. His probability weighted average gold price forecast last year was $431 an ounce.
Dr. Murenbeeld always starts his presentations by reviewing his previous forecast to see if reality had the good manners to obey him, so it was impressive to see that from the date of last year’s conference to this year’s conference the average gold price was exactly $431 an ounce.
I’m going to skip to the end of his presentation and tell you that his probability weighted average gold price forecast for the next twelve months is $502 an ounce. Now, before you dismiss this number as too low, here is what it means.
Dr. Murenbeeld always includes three possible prices with the minimum probability assigned to any price being 10%. For the next year, an average gold price of $381 an ounce was assigned a 10% probability, $470 an ounce was assigned a 47% probability, and an average gold price of $565 an ounce was assigned a 43% probability.
Assigning such a low probability to a decline in the gold price and such a high probability to a substantially higher gold price is a very bullish forecast indeed. Keep in mind that this forecast is for the average gold price over the next twelve months, so by this time next year the gold price could be substantially higher than $502 an ounce and Dr. Murenbeeld’s prediction could still be spot on.
Why is he so bullish?
Devaluation of the US dollar
Trade data suggests that the US dollar is overvalued and uncompetitive. It shows that international trade is out of equilibrium -- the result of a distortion of the dollar’s exchange rate. Since markets always try to reach equilibrium, there is pressure on the dollar to decline.
The US trade deficit with China is growing particularly ugly; it is now over $180 billion annually. In 1993 China devalued its currency relative to the dollar by about 34%. Dr. Murenbeeld argues that the renminbi now has to appreciate by at least that much against the dollar. Given that anti-China sentiment is growing in Washington with talk of protectionist duties on Chinese imports, there is no doubt the dollar will fall against the renminbi.
The US also runs a record trade deficit with Europe, to the tune of $120 billion annually. I am no fan of the euro -- it is the ultimate fiat currency -- but the trade data clearly shows that the US dollar is overvalued even against the euro.
It follows from the large trade deficits that the US should also have a current account deficit. At the moment the current account deficit is a whopping 6% of GDP and a nominal $800 billion. This implies that nearly $4 billion is pushed onto foreign exchange markets each day. Will the world continue to absorb increasing amounts of US dollars? Dr. Murenbeeld thinks not.
To date more than 50% of the capital flows required to finance the current account deficit come from (mostly Asian) central banks that buy dollars in foreign exchange markets to prevent the dollar from falling, thereby keeping their own currencies and economies competitive in the US consumer market.
As interest rates have risen, private capital flows into the US have picked up, and these are particularly important in financing the creative real estate mortgage market in the US.
In 1987 the US current account deficit reached almost 3.5% of GDP and caused the dollar to fall by more than 40%. If history is a guide, the dollar could easily fall another 15% to 25% according to Dr. Murenbeeld. I think he’s optimistic, and that the dollar could actually fall much more.
US monetary inflation
It is well understood that a decline in the US dollar will lead to higher US dollar-gold prices. But we also have to consider US monetary inflation.
The US budget deteriorated from a surplus of $255 billion in 2000 to a deficit of $430 billion last year. Larger tax receipts subsequently reduced the deficit, but Katrina et al. will most likely absorb any increase in Treasury revenues and push the deficit further into negative territory.
But that is only part of the story. Total US debt (government debt, corporate debt and household debt) is now in excess of 200% of GDP. Last time the US had this much debt relative to GDP was during the Great Depression and the result was a sharp contraction of debt.
During past economic cycles both higher oil prices and rising short-term interest rates (relative to long-term rates) played critical roles in pushing the US economy into recession. Both these factors are now present while household debt is at record levels, the debt service burden is at a record high level and the US savings rate is negative.
Demographics now come into play as the first major wave of baby-boomer retirements is coming up. Dr. Murenbeeld estimates that the US government’s net financial liabilities (gross liabilities less assets) could double in the next 25 years, and that is assuming the budget deficit comes under control.
What is the government likely to do? It has, essentially, four choices: renege on promises, cut services, raise taxes and create more money. The first three options shift the financial burden to households and that means less consumption and slower economic growth. The last option (creating more money) reduces the real value of debt. Last year Alan Greenspan suggested that the pressure of rising budget deficits could force the central bank to create more money.
Creating more money increases prices, including the price of gold. Dr. Murenbeeld has a chart showing the correlation between the gold price and money supply of the G-7 nations. There is no question in my mind that the gold price in any currency is primarily a function of the differential inflation rate of that currency versus the inflation rate of gold.
Increased gold holdings as foreign exchange reserves
According to Dr. Murenbeeld’s figures, Asian foreign exchange reserves now exceed $2.2 trillion. In total these countries have 1,932 tonnes of gold, representing only about 1.68% of their foreign exchange reserves at a gold price of $450 an ounce. The Asian central banks have not publicly shown any willingness to add to their gold reserves yet.
Should they decide to diversify into gold the impact would be staggering. If only China and Japan adopted the same 15% of reserve policy of the European Union, then they would need to buy 17,000 tonnes between the two of them. That is more gold than the Bank for International Settlements, the IMF and all the signatories to the Washington agreement own in aggregate, and it would still amount to only petty cash for Japan and China.
Turning to OPEC nations: In 1970 it took 30 barrels of oil to buy an ounce of gold, and we know that gold was undervalued in 1970. Today it takes less than 8 barrels of oil to buy an ounce of gold. OPEC countries have not publicized any desire for gold, but when OPEC foreign reserves increased from 1973 to 1981 they added 270 tonnes of gold to their reserves. If OPEC were to bring their gold reserves up to 15% of their foreign exchange reserves they would need to buy more than 1,500 tonnes of gold and, again, it would be pocket change for them.
Gold is not only inexpensive relative to oil. When the gold price is compared to the S&P500 we see that there were three stock market bubbles during the past 100 years. In all three cases the S&P500 rose dramatically relative to gold and in all cases the ratio collapsed back to unity again. It is impossible to predict at what gold price, or what level for the S&P, the two will be at unity, but history does suggest they could again reach unity. If the S&P were to stay where it is then the gold price would have to rise to $6,000 an ounce. That is not very likely, since the same conditions that would cause the gold price to rise would probably bring stock prices down, so you can pick your own favorite number between $500 an ounce and $6,000 an ounce.
Paul van Eeden
Paul van Eeden works primarily to find investments for his own portfolio and shares his investment ideas with subscribers to his weekly investment publication. For more information please visit his website (www.paulvaneeden.com) or contact his publisher at (800) 528-0559 or (602) 252-4477.
Rogue
Prisser/Great Oil sands article about the "expected" SEC ruling.......
News from globeandmail.com
Canada beware: Our oil sands may be the new U.S. branch plant
ERIC REGULY
Let's connect the dots. U.S. Treasury Secretary John Snow visited Alberta in
July. Vice-President Dick Cheney is going in September. Meanwhile, the U.S.
Securities and Exchange Commission, headed by another Republican,
Christopher Cox, may be on the verge of relaxing its oil reserve reporting
requirements. If it does, the theoretical value of Alberta's oil sands will
soar.
The Republicans are evidently falling in love with the oil sands, located
right next door in friendly, OPEC-free Canada, complete with pipelines that
cross the border. The question is whether the romance will be consummated by
takeovers that would leave the oil sands industry largely in foreign hands.
A year or so ago, the Bush White House and its political agents seemed
oblivious to the oil sands. But that was before Russia and Venezuela removed
their "Welcome Yankee oil companies" signs from arrival lounges and before
oil prices went to the then unthinkable $70 (U.S.) a barrel.
Now, Alberta and U.S. energy security are uttered in the same breath.
Earlier this year, George W. Bush, with Paul Martin at his side, actually
mentioned the oil sands -- he called them the "tar sands" -- at the Three
Amigos summit in Texas. Since then, Alberta tourism brochures have cluttered
the "in" boxes of senior Republicans. Spencer Abraham, the former U.S.
energy secretary, spoke about oil at an investor conference in Banff in
June. Mr. Cheney will be highest-ranking Republican to traipse north. In
Ottawa, Mr. Martin can only dream of such attention.
For Alberta, the most lavish attention may be yet to come. The SEC is under
pressure to overhaul the reporting rules for oil reserves. The current rules
are highly restrictive. In essence, the SEC says an oil sands reserve can
only be booked as proven and commercially available if it comes with the
infrastructure to extract the gooey oil, known as bitumen. If the SEC adopts
a looser definition, the bitumen could be booked as a genuine reserve if it
could be extracted at current prices using available technology.
If that were to happen, Alberta's oil sands reserves would go from 12
billion barrels to perhaps 175 billion barrels, making it, in effect, the
next Saudi Arabia. Cambridge Energy Research Associates, a high-profile
consultancy in Massachusetts whose clients include companies with oil sands
investments, has been lobbying the SEC to relax the reporting requirements.
Don Coxe, chief strategist for Bank of Montreal's U.S. sister firm, Harris
Investments, predicts the SEC will comply.
If it does, oil sands investors will be beaming like babies with a new
rattle. That's because reserve life would potentially rise by several
decades, and values would be adjusted accordingly. You have to wonder
whether Total of France's purchase this summer of Deer Creek Energy, an
Alberta oil sands operator, was a bet on SEC reserve reporting changes. If
they come, Deer Creek's $1.35-billion (Canadian) purchase price might look
like a bargain.
Deer Creek may be just the start of a takeover frenzy triggered by the
global hunt for long-life oil reserves. Suncor, Western Oil Sands and
Canadian Oil Sands Trust (COS) are potential targets. COS looks especially
vulnerable because it has exceedingly big reserves and a low dividend yield
(1.7 per cent, or less than Exxon Mobil's dividend yield), the result of the
management decision to favour debt payments over high distributions to
investors. Some investors think COS would be less vulnerable to takeover
artists if it were to raise the payouts, which would boost the unit price
and presumably help deter value-conscious buyers.
COS seems a sitting duck at its current yield. It has a stock market value
of just under $11-billion. That seems hefty by Canadian standards. The top
five global oil companies, among them Exxon Mobil and BP, have a collective
stock market value of about $1.3-trillion (U.S.). To them, COS is a rounding
error. But not even oil giants like to overpay for assets. If COS values its
Canadian trust status, it would try to make itself more expensive.
Canada has a nasty habit of losing control over its big industries. Labatt
and Molson are branch plant brewers operated by auto pilot from afar.
Falconbridge, one of Canada's two largest mining and smelting companies, is
owned 20 per cent by Xstrata and may soon come under the Swiss company's
full control. Inco, once a giant among mining companies, now a second-string
name, may be next. The oil industry has a few big Canadian players,
including EnCana and Petro-Canada, but even more foreign ones.
The oil sands are one of the last great Canadian assets. Foreign companies
seem poised to pounce on it, and nothing, it appears, would make the
energy-crazed Republicans happier. Too bad Canadian investors don't realize
the value of the goo in their backyard.
ereguly@globeandmail.ca
Rogue
New oil sands refinery to be built.....first North American refinery to be built in 25 years!
http://www.greencarcongress.com/2005/10/alberta_governm.html#more
Rogue
Prisser/oil sands...there is an expected ruling coming very soon from the SEC that will allow the oil companies to account differently for their "reserve life". The expected result will be most if not all oil sands companies will be taken over by majors because of their long lived bitumen reserves. One has already....that was Deer Creek Energy (DCE.to) by Total.
Again fron Coxe's call......
"But, what it also tells you is BP, which is just making gigantic amounts of money and can’t deploy it upstream, is still faced with this problem “What do we do about our reserve life index?” So, I suspect that they’re waiting for the SEC decision before they make any kind of move toward the oil sands. Because the oil sands still are the quick fix for the reserve life index. Whatever you think about the price of oil, the magic thing you get when you have an economic oil sands property, is you get a gigantic increase in your reserve life index.
And that’s…given the fact that Big Oil’s reserve life index has declined for six straight years, and that they’re shut out of major new investments in Russia and Venezuela – by the way I see Venezuela this week is now looking to get a nuclear reactor, they are, you know, one of the seven biggest oil producers in the world, they’re now going to use the Iranian model here so people will take Hugo Chavez more seriously…oh boy – all of this tells you that the fundamental way to value the oil sands stocks is differently from the way you value most of the other components in the energy group. You look on them as to what they are worth to a strategic buyer, because they are the only substantial way to deal with reserve life index problems."
I own several of the oil sands companies. I think PBEGF.pk or PBG.to .......Petrobank Energy will eventually get "taken out" between $17 and $24 Canadian. As a stand alone company without a "takeover" I've seen valuation cases for $50 per share in 3 years or so. It's currently about $9 Canadian and has had a nice selloff so buying down here could be a good entry point.
Rogue
Len...This guy Don Coxe is pretty sharp. I peruse his call as much as I can, here's the latest transcript.....
Nesbitt Burns Institutional Client Conference Call for October 14, 2005
Don Coxe
Chicago
Hard Rocks Rock
Charts: Falconbridge, Inco, Phelps Dodge
Thanks for tuning in to the call, which comes to you from Chicago. The chart we faxed out was three stock charts which was Falconbridge, Inco and Phelps Dodge and we simply reiterated the title of our August issue of Basic Points, “Hard Rock Rocks”.
So I want to talk about the mining stocks today, but I’ve got to lead off by talking about the Refco effect because this does seem to be entering the market in various ways. To some extent what we’ve got to do is hypothesize from looking at some other charts. I’ve been out talking to the bond desk to hear what they have to say about what’s going on in their side of the market relative to the Refco situation. The repo market is very definitely effected, Refco being huge players in that market, but the TED spread’s at 36, which is certainly up from what it’s lowest levels have been but it’s not at the kind of level that indicates financial crisis.
What is very interesting to me is since it became apparent that Refco was in serious trouble, we’ve had a commodity sell-off. Except for one commodity, which has stormed up to a new high and that’s one for Auld Lang Syne. It’s feeder cattle. And that’s kind of fun!
Because Refco first got on to the headlines a long time ago, you may remember, as a result of the amazing cattle-trading skills of Hilary Clinton. And that was done through Refco. Since it was a private company back then it was a name that didn’t mean much to people. Anyway, feeder cattle, the star of this week as against pork bellies, which have been blasted.
So, that may just be a coincidental relationship, but it was something that struck me and I was amused. But if you look at the charts for copper, gold, natural gas, crude oil, particularly if you look further out in the…I looked at the December 09 futures of oil which you’ve heard me refer to many times, they’ve gotten hit harder than the spot price. And so that is also the kind of area in which you might have a situation where you had some forced liquidation of futures contracts as a result of problems in the system.
But, we don’t know this, but when you look at the screen – and I put up my commodities on the screen – and virtually everything is down. The only exception is soybeans, which are up two and three quarters cents and feeder cattle. It does suggest that there’s been some overall liquidation of commodities and of course that feeds over into the commodity stocks.
Whether this will all come to an end when they’ve stopped the Refco effect – remember that given the way in which the commodity futures exchanges function, it’s pretty hard for anybody to lose any money, specifically as a result of that, certainly in trading done through the exchanges. The risks to anybody dealing with Refco are in OTC deals that they would have done and Refco’s ability to act as counter-party.
Given their big presence in the repo market, what you will get is some distortions there, but the repo market is such a diverse market, our people on our desk say “Well you couldn’t draw any particular conclusions from that because there will be areas where there will be squeezes and area where there will be excess liquidation but no overall pattern indicating something really serious is happening in the system.”
However, this is a big deal. What’s also interesting is noticing the way in which the Refco people were able to use a hedge fund for some years in order to cover up what must have been their losses and this situation where at each quarter end all of a sudden they paid back the money as a result of moving money around on the books.
And the chutzpah then, when you had a four hundred million dollar item like that, of going public, in order to pick up the P/E ratio that you have, was…this was really an amazingly audacious play because what Bennett was gambling on was that nobody would notice this. He certainly got it past Goldman Sachs and the other underwriters, but it came to light now and the whole thing is imploding and there’s fraud prosecutions and the usual bit.
But to me, the Refco story is then, another illustration of the fact that when you have massive expansions of liquidity going on – you notice in their stories it goes back as far as ’98, ’99, which I thought was interesting because you’ve heard from me regularly about what I thought was the disasterous consequences of those two panics of Greenspan. One was at the time of Long Term Capital, of flooding the system and then Y2K. Well it turns out that in Refco’s case at least, that they got themselves into an overextended position as far back as then but they just found ways of rolling it forward until it finally had to be revealed.
But, because their main business is commodities, then, as a result I think that can help explain why it is that just about all commodity prices have sold off. Now, there are special factors and you can argue in each case, but I’m inclined to think that this move against the commodities and looking at what happened to the CRB index is a Refco effect.
Now, one of the things that happens with this is of course then the stocks sell off in response. We’re now talking about the mining stocks. And, oh boy, pulling up on the screen what the P/E ratios are now of these stocks! Now, the stocks, still, have done pretty well this year. Using the Investor’s Business Daily Metal Ores category, the diversified metal stocks – and that is, not the aluminums or the golds, rank number forty-four on a basis of six months performance, which isn’t bad.
They’re up eleven percent year to date which is certainly well ahead of the stock market. But that’s well off their highs. But, what’s happened, when you check the P/E’s – going through them, Phelps Dodge 6 ½, Falconbridge 12, BHP Billiton 12, Inco 11 ½, Rio Tinto 9, Freeport McMoran 12.
What’s happened is that although these stocks are up, the earnings have moved much faster than the stock prices on a year to date basis. So, what we have is the oddity then, that apart from the rather higher P/E on Falconbridge as a result of the bid from Inco, that the spread that we wrote about in August between the P/E for the big companies and the P/E’s for the smaller companies…this has narrowed in and everybody’s looking at low P/E numbers.
So, the market has chosen not to pay up for the earnings and a matter of fact, to discount the earnings of the mining companies, so that the stock prices have done well and the companies are clearly doing well, but the market is paying less for those earnings than it did a year ago, or even two years ago.
Now there’s two ways to interpret that. One is to say “Well, the market is quite justly saying these are peak earnings and they got nowhere to go but down, so the market is looking forward.” Well except it was doing that two years ago and one year ago, too, but even then it still had P/E’s at or above current levels.
So, all they’ve done is track the earnings. The other argument on this is that the people who are playing these stocks, particularly hedge funds, use them as a form of economic bet tool. Which is, that if they’re betting on a stronger global economy then they’ll buy the stocks and if they’re betting on a weaker economy then they’ll sell the stocks.
And so the fact that the P/E ratios on these stocks have narrowed in may be an expression of investors, perhaps lead by hedge funds, to say that they are forecasting a slowing of the global economy. And the argument there is that sixty dollar oil eventually will slow things down, regardless of what the Federal Reserve does or the ECB or for that matter the Bank of Japan. And that is an argument that is hard to rebut. Which is that the oil prices should be, to some extent, considered inversely-correlated to other industrial commodity prices.
Because there comes a level at which oil prices are just too high for the consumer’s pocketbook or indeed in some cases for the industries that need to use them. And then when you add in what happened to natural gas, you’ve got a situation where the money that’s being drained out of the OECD economies to pay for high oil and gas prices, which goes to a very large degree to economies that aren’t in the OECD. What that does is therefore, since they can’t translate those revenues into capital investments which produce total global growth offsetting the contraction in the OECD world, then what you have is a pouring of more money in to the bond market and creation of liquidity that way but it doesn’t translate into economic activity.
Now, I don’t know whether I’m convinced of that argument, but I regard it as a realistic argument, that the sheer scale of the move in oil prices and in natural gas prices, which has been sustained and is confirmed by the futures curve, is something that imposes a really heavy burden on the economy. I know there’s all these economic arguments that oil has been more expensive before, but the times they cite for that by comparison, oil just spiked and sold off and they also haven’t bothered to point out that each of those past cases we had a recession. So you had a combination that was a temporary squeeze anyway and you had prices of oil collapsing as a result of recession.
We may have a situation where, within your commodity portfolio, what you should be doing is looking at what your overall bet is.
When we move away, though, from the mining stocks and then go back to that same IDB listing – which I still find is the most useful one to show you what…these are stocks that are traded in the US, but it includes ADR’s and major foreign companies are traded – so this is actually a pretty good global ranking. The number one group for the last six months is US exploration and production. Number seven now, is the gold mining stocks. They’ve moved all the way up to number seven. But, their year to date performance is still only eight point three percent, but it means that because we’ve had this significant move in gold in the last few weeks, that on a six month basis, the gold stocks have done so well.
And we have to go now all the way down to number twenty-one to find Canadian exploration and production companies and number twenty-six the Canadian integrateds and that’s particularly Suncor and Imperial Oil, where we’ve had a significant sell-off in those stocks.
So, what does this tell you? Well, I think that the market is saying at this point, that it doesn’t believe that the high prices for oil can hold. Or, alternatively, it’s saying that the US companies, which are more levered to natural gas in the US, are the best way to play it. So when you take the US E&P companies, most of their drilling is being done for natural gas and so we aren’t looking at global prices there, because LNG is like four or five percent of the US consumption of gas.
So what they’re saying is take your bet on natural gas, which is a clearer cut case, and pull back your bet on purer oil, which is…since Suncor is about as pure an oil play as you can find out there, I think that that’s what might be happening, is that people are saying we don’t think the oil prices are going to hold, we’d rather put our money in to the natural gas companies.
Well, I will just reiterate my view that the clearest cut oil valuation situation remains the oil sands stocks and so, although I can’t predict and will not try to predict what oil prices are going to do week to month and I don’t have the insouciance of those who come out and flatly tell you, year by year by year going forward to the end of the decade what oil is going to do, I’m not that smart, all I can say is that if you should price the oil sands stocks on the basis that they are going to do something for the reserve life index of Big Oil and they will be priced that way and Big Oil has the money to do something about it which leads me to the big news of the week, which is what BP is doing.
Now BP has announced two very interesting deals this week. I should preface this by reminding you that I think the management of BP are very, very smart. Doesn’t mean they always get it right, but they’re very savvy people. And they’ve announced two big deals. One with Sinopec, to do refining and marketing in China, would you believe and the other with Hindustan Petroleum, to build a refinery to sell gasoline and products in India.
Now, why would they do this? My gosh, in both those countries, the refining business is a bad business to be in because you’ve got government price controls so that as crude oil prices go up you can’t pass along those costs. So, why do it?
Well, I look on this that BP is taking a very, very big bet that first of all this is going to be the parts of the world where gasoline demand is going to rise the fastest and in sheer scale that these are going to be the fastest growing markets in percentage terms. So they want to be there.
But secondly that the governments in those countries will be forced to let the price system eventually come to work. And by the time you get the refineries completed there will be passthrough. Or you could argue that it is a gigantic hedge for BP, that they’ve been investing heavily upstream for the last eight years with great success, particularly the TKN in Russia, and what this gives them then is if oil prices should fall, that would mean that the government price controls wouldn’t be as important and they would make money on the marketing side.
I look on it as actually having a few other aspects. First of all, both India and China get their crude oil primarily from the Middle East. And what we’ve seen is this pattern that any new production that comes on in the Gulf region tends to be heavy crude. And remember that heavy crude can’t be refined by a lot of refineries and it’s therefore the one in which the most refinery investment is needed.
So in effect what BP will undoubtedly be doing is building refineries designed to handle heavy crude. They’re not expecting more Saudi light or Dubai light to have come into the market. They will have made their own analysis, as we have, of the data from Saudi Arabia to say light crude is going to be a diminishing source of the total available crude for the world.
But, what it also tells you is BP, which is just making gigantic amounts of money and can’t deploy it upstream, is still faced with this problem “What do we do about our reserve life index?” So, I suspect that they’re waiting for the SEC decision before they make any kind of move toward the oil sands. Because the oil sands still are the quick fix for the reserve life index. Whatever you think about the price of oil, the magic thing you get when you have an economic oil sands property, is you get a gigantic increase in your reserve life index.
And that’s…given the fact that Big Oil’s reserve life index has declined for six straight years, and that they’re shut out of major new investments in Russia and Venezuela – by the way I see Venezuela this week is now looking to get a nuclear reactor, they are, you know, one of the seven biggest oil producers in the world, they’re now going to use the Iranian model here so people will take Hugo Chavez more seriously…oh boy – all of this tells you that the fundamental way to value the oil sands stocks is differently from the way you value most of the other components in the energy group. You look on them as to what they are worth to a strategic buyer, because they are the only substantial way to deal with reserve life index problems.
So therefore, what BP has signaled to us here is that they see that demand is going to rise for refined product in India and China and they want to be there, even though at the moment it’s uneconomic to spend the money. So they’re going to finance a 180,000-barrel a day refinery in Punjab and by the time that comes onstream the world will have changed.
But, what they’re going to do, I believe, then, is try to bolster their upstream when they know that can be done in terms of accounting rules. So I’ll still stick with the forecast that that SEC ruling is important and it should be coming any day now.
Finally, before we get to the questions, there’s the question of the overall stock market, which has really been struggling. And it’s struggling with bad inflation news, I mean the CPI number in the US was a horror. But what we do these days of course is we’re down to core CPI, which doesn’t move.
And so what has happened though is that the market is now discounting a four and a half or even starting to discount a four and three quarter Fed funds rate. We’re looking at a situation then where the US yield curve is going to be as flat as Kansas within a few months. If the long end, that is the 10 Year and 30 Year hold where they are. And then we’ll be in an inverted yield curve shortly after that if the Fed keeps going. And if the long end does not move.
Well, no matter how you play around with it, if you get an inverted yield curve, then the odds are so high for recession coming within a few months thereafter, that that’s something that has a significant impact in the valuation of the commodity stocks. Because what you’d be looking at then is that investors, at least, would worry that if the US is going into recession, that China’s growth rate would perhaps really plunge. Might even fall to two or three percent.
So, I think that to that extent, what’s happening in the bond market is something that is bedeviling the stock market. And that the Fed has really no choice about this because we’ve still got the housing bubble and we’ve got a lot of pass through in terms of energy costs. And that problem isn’t going to go away soon. And so that’s one thing the market is struggling with.
Had some phone calls from people this week asking whether I think, for the first time that the Avian Flu story is starting to come into the market. Because it’s getting closer. This week we got confirmed in Turkey and they’re still perhaps-ing it for Romania. What’s also happened is what was a page sixteen story is now a page one story. In the last week, we’ve had the Avian Flu story on the front page of the Wall Street Journal, the New York Times, the Financial Times, Investors Business Daily and in our local Chicago Tribune today. And by the way, the stories they’ve had in those papers are scarier than what we published back in August. And we got the National Geographic sitting on the newsstand with a very scary cover story. And this week USA Today, a very scary story, front page, above the fold.
Now the European press has always given more coverage to the Avian Flu story than we have. So, you could make the case that this is now starting to effect investor sentiment, that some people will say, “Well, boy, with all the other things I’ve got to worry about, I’ve got to start factoring that in.” We’re not going to take that position because it still is a situation where the chances that you will have this virus recombining and give you human-to-human transmission are not within a small mathematical number for a short-term view of the market.
If you’re talking about the next two years in the stock market, then you can say that there was some significant probability that this could happen. But anybody who’s selling stocks now, just because they’re adding this into it is, I thing, getting a bit impatient.
Nevertheless, when you see gold decoupling as it has from the Dollar, what it tells you is that there’s something else going on out there than we’ve had up to date. It could be that it’s Refco. It could be that there’s other financial problems arising from what’s happened with oil prices. We’ll find out that somebody got overextended.
It could be that the market really does think that we’re going to start having big inflation numbers that we won’t be able to strip out the energy component and that core CPI will be going up. I don’t know, but when we have a widening of the TED spread from the 26 to the 36 range, we have some widening of swap spreads, we have somewhat of a level of disorder in the repo markets and sectors of it, what we’ve got is a higher level of risk perceived within the financial system. So it makes sense that gold moved up. But, it’s interesting that, notwithstanding that it moved up and it looked like it had broken out, it’s sold off sharply then and that could be Refco then in the sense of forced liquidations going into a weekend. We won’t know until long after this event is over.
So does this change my view on the markets? No. You know we’ve been near the bottom end of our range in Basic Points for what we recommend equity exposure all the way back to March and so we’ve toughed it out at a time when there was much more optimism, so we’re not going to change the asset mix now. We’re still in a situation where corporate earnings are enormous, where we’re still getting economic growth and where the only things that could really get in the way of the economic growth would be in effect the high commodity prices and that’s what we’re recommending that you own, is the stocks of the companies that benefit from that.
So you’ve got an automatic hedge built into your portfolio if you’re overweight the energy group. And in the mining group, what we’re now talking about is a group that collectively has a P/E ratio that’s such a huge discount to the market, that’s generating enormous amounts of cash, the financial strength of these companies is dramatically higher than it was two years ago when the P/E ratio was about where it is now.
So, therefore, my attitude is, notwithstanding all the excitement out there and all the fear and all the things that could go wrong out there, we’re standing pat. And so, what will change our minds? Certainly if the TED spread should jump out above 50, that would be something significant. And if something like that is happening, we would move up the time of the conference call.
So, that’s it for now, any questions?
Thomas F: Don, do you see any relationship between the Refco debacle, such as it’s been described and possibly the forced liquidation of energy stocks among others to cover positions in customers of Refco?
Don Coxe: Well I don’t know…you see, I’m assuming that Refco forced liquidation would be in the commodity futures themselves and actually the commodities themselves as opposed to the stocks. But, I don’t know enough about it to know how big a factor they were in terms of stock positions of clients. So, I can’t comment on that.
To me, it’s certainly more than a coincidence that we’ve got all these commodities selling off with a few exceptions where they’ve suddenly spiked higher which would indicate somebody’s massively short. And Refco, you know, this is exactly seven years ago that the Long Term Capital Management story was unfolding and at that time very few of us had even heard of Long Term Capital Management.
Well, for a lot of people, the only time they’ve heard of Refco was when they heard about it as being the source of the fabulous cattle profits of Hilary Clinton but other than that they hadn’t heard. So, this is a story we’re going to be hearing about every day. And frankly, if the company hadn’t gone public, a lot of other people would never have heard of it because they aren’t involved in the futures market.
But what you had here was the astounding situation of taking this company public in August, at a time there was $430 million that was being covered by a hedge fund which turned out to be controlled by the CEO of the company. Wow!
So as this is unfolding, what you’re seeing is taking it public was actually a scheme to try to keep the company going because they could use the P/E ratio there, the money raised to try to cover their internal financial problems. But it eventually came to light. Now this is…I have never seen a gigantic company, this private company goes public in order to prevent itself from going broke. That…you know, you think you’ve seen it all and something else comes along. That’s part of the fun of this job. Thank you.
Any other questions?
Alex M.: I wonder if you might comment on the Fed moving up the short-term rates and therefore, seemingly putting upward pressure on the US Dollar and how that’s going to have an effect, certainly on budgets and certainly trade deficits and where you see that playing out in the financial markets.
Don Coxe: Well, what’s not too clear is the exact effect on the Dollar. There’s no question that what the Fed is doing here is taking the pressure off China and Japan to support the Dollar. But what we call synthetic liquidity is still at work, which means that the hedge funds can borrow in Euros or Yen and buy the 10 Year note so that that mechanism’s out there where they aren’t borrowing any more in Fed funds because they’re much too expensive. So the support that they’re giving to the Dollar by the Fed tightening is unquestionably something that helps stabilize markets, but it doesn’t help their trade deficit. On the other hand, if they weren’t doing that, China and Japan would probably be protecting the Dollar anyway because they’ve been doing that ever since January 2002, under their currency scheme.
So it’s not clear to me on a net basis what the Fed tightening does for the Dollar, but it’s certainly does show that the Fed is trying at least in the last few months of Greenspan’s tenure to be responding to the real risks out there and they’re saying we can afford to do this if the financial system is strong enough. It’s interesting that the Refco collapse is the first big one we’ve had since the Fed tightened. There’s always somebody that goes down. If this is all we lose in this, then it means the financial system is remarkably strong. So that’s an occasion for dancing in the street, not for liquidating stocks.
Thank you for tuning in, we’ll talk to you next week.
--
Don Coxe Profile from the BMO websites:
Donald G. M. Coxe is Chairman and Chief Strategist of Harris Investment Management, and Chairman of Jones Heward Investments. Mr. Coxe has 27 years experience in institutional investing, including a decade as CEO of a Canadian investment counseling firm and six years on Wall Street as a 'sell-side' portfolio strategist advising institutional investors. In addition, Mr. Coxe has experience with pension fund planning, including liability analysis, and tactical asset allocation. His educational background includes an undergraduate degree from the University of Toronto and a law degree from Osgoode Hall Law School. Don joined Harris in September, 1993.
Don Coxe Weekly Conference Call – Current
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Basic Points – Archive
Basic Points is a monthly publication of opinions, estimates and projections prepared by Don Coxe of Harris Investment Management, Inc. (HIM) and BMO Harris Investment Management Inc.:
Rogue
Emergency Declared After Anti-Nazi Riots By JOHN SEEWER, Associated Press Writer
1 hour, 4 minutes ago
http://news.yahoo.com/s/ap/20051016/ap_on_re_us/nazi_march
TOLEDO, Ohio - A crowd protesting a white supremacists' march Saturday turned violent, throwing baseball-sized rocks at police, vandalizing vehicles and stores, and setting fire to a neighborhood bar, authorities said.
When Mayor Jack Ford and a local minister tried to calm the rioting, they were cursed for allowing the march, and Ford said a masked gang member threatened to shoot him.
At least 65 people were arrested and several police officers were injured before calm was restored about four hours later.
Ford blamed the rioting on gangs taking advantage of a volatile situation. He declared a state of emergency, set an 8 p.m. curfew through the weekend, and asked the Highway Patrol for help.
"It's exactly what they wanted," Ford said of the group that planned the march, which was canceled because of the rioting.
At least two dozen members of the National Socialist Movement, which calls itself "America's Nazi Party," had gathered at a city park to march under police protection. Organizers said they were demonstrating against black gangs they said were harassing white residents.
The violence broke out about one-quarter of a mile away along the planned march route shortly before it was to begin. One group of men pounded on a convenience store, and others overturned vehicles. There was a report of a shooting but police hadn't found a victim, Police Chief Mike Navarre said.
About 150 police officers chased bands of young men through the area. Officers wearing gas masks fired tear gas canisters and flash-bang devices designed to stun suspects, but the groups continued throwing rocks and bottles. Several officers and firefighters suffered minor injuries, Navarre said. At one point, the crowd reached 600 people, officials said.
Finally, police marched shoulder-to-shoulder down the street shouting to people to stay inside, and the crowd of several hundred broke up.
At least 65 people were arrested on charges including assault, vandalism, failure to obey police and failure to disperse, Navarre said. He said the white supremacists had left hours earlier.
"We frankly could have made a couple hundred arrests easily," Navarre said. "We just didn't have the resources on hand to arrest all of them."
The mayor had appealed to residents the night before to ignore the march. He said the city wouldn't give the Nazi group a permit to march in the streets but couldn't stop them from walking on the sidewalks.
When the rioting began, Ford tried to negotiate with those involved, but "they weren't interested in that." He said people in the crowd swore at him and wanted to know why he was protecting the Nazis.
They were mostly "gang members who had real or imagined grievances and took it as an opportunity to speak in their own way," Ford said.
"I was chagrined that there were obvious mothers and children in the crowd with them," he said.
Thomas Frisch, 76, said a large group of men destroyed the exterior of a gas station next to his home of 30 years.
"A whole big gang started to come in here. Next thing you know, they're jumping on the car. Then they overturned it. Then they started on the building, breaking windows, ripping the bars off," he said.
Louis Ratajski, 86, and his nephew, Terry Rybczynski, left Jim & Lou's Bar as a crowd gathered in front pelting police with rocks and breaking the windows. They climbed down a fire escape from the apartment where Ratajski lived over the bar and only later saw the fire on television.
"I was shaking. I feared for my life." Rybczynski said.
Keith White, a black resident, criticized city officials for allowing the march in the first place.
"They let them come here and expect this not to happen?" said White, 29.
A spokesman for the National Socialist Movement blamed police for losing control of the situation.
Rogue
Canada Uses China's Oil Thirst As Leverage In US Dispute
TORONTO (AP)--Canada's Prime Minister Paul Martin told some New York executives last week that Washington's refusal to adhere to Nafta rulings on lumber tariffs was threatening North American trade relations, and he reminded them that China was thirsty for the Canadian oil and natural gas that pours into the U.S. each year.
This week, Natural Resources Minister John McCallum was in Beijing to meet with the presidents of China's two largest state-owned oil companies, and he said that Beijing wanted more of Canada's energy sources.
"Clearly they are ambitious in their thinking," McCallum told The Globe and Mail. "They are definitely, seriously interested."
It appears Ottawa's new strategy in dealing with the U.S. is to pressure it into returning some US$4.2 billion in punitive softwood lumber tariffs - or risk losing endless access to Canada's robust energy supplies.
Yet analysts on both sides of the border say the new angle of playing the China card is mostly posturing ahead of elections faced by Martin's minority government early next year. Canadians love to rail against U.S. global dominance and take great pride in their politicians standing up to Washington.
Martin telephoned President George W. Bush on Friday and warned him that Ottawa would wage its battle over lumber tariffs in the U.S. courts if necessary, while Bush countered that a negotiated settlement was in their best interest.
"(Martin) told the president that we view it as a shame that we should have to take the U.S. to court in its own country to make that point," said Martin spokeswoman Melanie Gruer. "But we're more than prepared to do so - and we will do so."
The Bush administration imposed the tariffs in 2002, accusing Canada of subsidizing its lumber industry. Most U.S. timber is harvested from private land at market prices, while in Canada, the government owns 90% of timberlands.
North American Free Trade Agreement panels have twice found in favor of Canada. But Washington has ignored the Nafta rulings, pointing to a preliminary World Trade Organization ruling that said the U.S. had complied with international law when it imposed the tariffs.
Ottawa says Nafta trumps WTO and that Washington should dump the tariffs and pay up.
"Forgive my sudden departure from the safe language of diplomacy, but this is nonsense. More than that, it's a breach of faith," Martin told the Economic Club of New York on Oct. 6. "Countries must live up to their agreements. The duties must be refunded. Free trade must be fair trade."
He mentioned several times in his speech that China was eager to buy Canadian lumber and tap into the bounty of western Alberta province, where oil sands now produce more than 1 million barrels of oil a day, a figure expected to reach 2.7 million by 2015.
Canada, the world's third-largest producer of natural gas and ninth-largest of oil, is the leading supplier of crude and refined oil products to the U.S., according to the Canadian Association of Petroleum Producers. Canada exports 2.1 million barrels of oil each day and provides 10% of the oil consumed by Americans each year.
"In terms of trade - in terms of our prosperity - clearly the opening of China and India present opportunities which both of us, as sovereign countries, will seek to exploit," Martin said.
While Americans earlier this year blocked a bid by China to buy Unocal Corp., claiming it could threaten U.S. national security, Canadians are eager for oil deals with China.
The state-controlled China National Petroleum Corp. announced in August that it would pay $4.2 billion for Canada-based PetroKazakhstan Inc. In April, CNOOC bought nearly 17% of Calgary-based MEG Energy Corp.
Stephen Clarkson, a political economist at the University of Toronto, noted that many Washington eyes were on Canada last month, when President Hu Jintao spent most of his first North American tour in Canada.
"Now that the U.S. sees China poking its nose around Canada's oil sands, we have the White House's attention," he said.
Christopher Sands, a Canada policy expert at the Center for Strategic and International Studies in Washington, believes Ottawa has actually turned its sights on those in Congress who fear China as a potential enemy.
"It sounds good, it sounds like talking tough. And there is definitely a constituency within the United States, particularly the Congress, that believes China is the new Soviet Union, the new enemy. But it only becomes the enemy if we make them one," Sands said.
At the end of the day, Clarkson said, the lumber dispute wasn't a big enough issue to jeopardize U.S.-Canadian relations.
"I think there's an awful lot of posturing in Canada's responses to the United States, starting with Iraq," he said. While Ottawa may have infuriated Washington by refusing to join the coalition forces that invaded Iraq, Canada in its typically understated way sent warships to the Gulf and soldiers to Afghanistan, which in turn support U.S. troops.
"Claims to virginity are hard to accept, because we are fully involved in the American military through Norad," Clarkson said, referring to the North American Aerospace Defense Command, the joint U.S.-Canadian military operation dating back to the Cold War that monitors missiles, aircraft and space objects and warns of threats to the continent.
Rogue
ENERGYOil patch veteran plans a pipeline to Gulf Coast$3-billion line would carry oil sands crudeBy DAVE EBNER
Saturday, October 15, 2005 Page B7
CALGARY -- An upstart company captained by an oil patch veteran has unveiled a dramatic proposal for a $3-billion pipeline to connect the Alberta oil sands directly to refineries on the Gulf Coast of the United States -- but the idea faces stiff competition.
The plan was announced yesterday by Altex Energy Ltd., a privately held firm run by Jack Crawford, who helped lead the building of the $5-billion, 3,700-kilometre Alliance natural gas pipeline from northern B.C. to Chicago in the 1990s.
Now, Mr. Crawford wants to build a 3,000-kilometre line to Texas, which could carry at least 250,000 barrels a day of oil sands output.
"It's going to take some discussion. This is a new concept," Mr. Crawford said. "I think our concept is being taken quite seriously by shippers [oil producers]."
The proposal is just one among several multibillion-dollar ideas to move oil sands crude that have been put forth by Enbridge Inc., TransCanada Corp. and Terasen Inc., which is being taken over by Kinder Morgan Inc.
New lines are being proposed because Canadian oil production is predicted to rise by roughly one million barrels a day to more than 3.5 million within the next decade, bolstered almost wholly by oil sands expansion.
The current pipeline leader is Enbridge, and yesterday it said its $4-billion Gateway line from Edmonton to the British Columbia coast will terminate in Kitimat.
Enbridge is Mr. Crawford's primary competitor and the company said it isn't particularly worried about the latest pipeline proposal in an increasingly crowded field.
The 400,000 barrel-a-day Gateway is needed to open up Asian markets for Canadian producers, said Patrick Daniel, Enbridge president and chief executive officer. Second, Mr. Daniel said that Enbridge's Spearhead line from Chicago to the refinery hub in Cushing, Okla., will be ready to ship 100,000 barrels of oil a day by next March.
A final connection through an Exxon Mobil Corp. pipeline to the Gulf Coast should be ready by the summer, Mr. Daniel said. "These are here-and-now projects,"
Mr. Crawford said his Altex line could be shipping crude in 2010.
However, there are significant hurdles to overcome, such as the complex regulatory process the proposed line would face considering that it would travel through several U.S. states.
"The biggest risk is whether they really have the financial capacity to do it," said analyst Brian Purdy of FirstEnergy Capital. He added that Mr. Crawford has a strong reputation based on the Alliance line.
Calgary-based Altex is being funded by Kern Partners Ltd., a Calgary-based private equity firm. Mr. Crawford said Altex will need to raise a significant amount of money and may at some point go public.
At present, most Canadian crude oil goes to the Chicago area, carried on Enbridge's main line.
Altex emphasized yesterday that its proposal is a direct route to the Gulf Coast, only about two-thirds the distance of the connection Enbridge is working on.
Rogue
Suncor's Oil-Patch Advantage
Rogue comment....Take a look at PBEGF.pk or PBG.to for solid value in oil sands and a very likely takeover candidate. Would probably "go out" at at least $17 Canadian in a buyout. Currently trading around $9 Canadian.... long-term it has much more potential than the highly possible buyout price.
By ANDREW BARY
WITH THE SHARP RISE IN OIL AND GAS PRICES, Canada's oil sands have become one of the world's hottest areas for energy development. The enthusiasm is based on huge potential reserves -- as much as 175 billion barrels of oil in a friendly region of the globe.
The oil-sands opportunity hasn't gone unnoticed by Wall Street and Toronto's Bay Street, although the story isn't widely known by individual investors.
Shares of the leading tar-sands companies, Suncor Energy (ticker: SU), Canadian Oil Sands Trust (COS.UN.T) and Western Oil Sands (WTO.T), have risen sharply in the past year. The recent pullback in energy stocks could provide an attractive entry point for industry leader Suncor, whose Big Board-listed shares trade around 50, down from the record 62 hit last month.
The bull case is that Suncor, based in Calgary, Alberta, potentially controls 11 billion barrels of oil reserves, enough to last for decades -- and that the increase in energy prices makes lucrative the formerly unprofitable production of crude oil from oil sands. Back in the late 1970s, Canada's tar sands were touted as a North American Saudi Arabia, but that hype ended with the crash in crude prices in the 1980s.
Suncor projects a doubling in its oil production within five to seven years, to more than 500,000 barrels a day. That lofty goal sets the company apart from other energy companies. If it hits its target, Suncor could be rewarded with a gusher of free cash flow.
IT COSTS ABOUT $20 A BARREL to transform bitumen, the tar-like heavy oil found in abundance in northern Alberta, into conventional crude oil that can be pumped to refineries in Canada and the U.S. When oil prices stood in the $20-to-$30-a-barrel range, the oil sands had limited appeal. But with crude trading above $60 a barrel, the economics of the oil sands become compelling.
Suncor's fans say the stock, which has doubled since early 2004, is worth $80-plus and that the company could become a takeover target in a consolidating energy industry. Among potential buyers: BP (BP), Italy's Eni (E), or an Indian or Chinese oil company. Suncor's equity-market value is sizable at $22 billion, making it Canada's eighth largest company by market capitalization. While Suncor has said it wants to remain independent, it certainly would be digestible for the industry's giants.
Bulls say Suncor's current share price discounts future oil prices of $40 a barrel. Suncor now produces about 260,000 barrels a day from its facilities in the Athabasca region of Alberta, the oil-sands industry's center.
Suncor was hampered in January by a fire at one of its two upgraders -- huge refineries that supercook the bitumen to transform it into various grades of crude oil. But full production was recently restored. Suncor is spending $2 billion a year to expand its production to 350,000 barrels a day by 2008 and 500,000 to 550,000 barrels a day by 2010 to 2012 -- about double current output. That's why Morgan Stanley energy analyst Lloyd Byrne finds Suncor "a terrific long-term asset." He adds that Suncor is unique among large energy and production companies because of its goal of doubling production in the next five years.
Most energy companies are struggling to generate any growth in production. Byrne says that assuming oil holds at $50 a barrel over the long term, Suncor could fetch above $80 a share.Suncor is one of Alberta's three major oil-sands producers; the others are the Syncrude consortium, in which Canadian Oil Sands Trust is the largest owner; and Athabasca, controlled by Shell Canada, Chevron Canada and Western Oil Sands (see table, Oil-Sands Operators). Among the projects under development are one by Canadian Natural Resources and another via a partnership of Nexen and OPTI Canada.
REFLECTING GROWING INTERNATIONAL INTEREST in the oil sands, French oil giant Total has a $1 billion deal to buy Deer Creek Energy Ltd., which controls an oil-sands deposit. BP, which sold its oil-sands property to Canadian Natural Resources in the late 'Nineties, is now without a presence in the region. This has helped spur talk that BP may be interested in Suncor.
Suncor's appeal is that, assuming it can successfully double its oil output, it should be able to produce a copious amount of free cash flow starting around 2010, while exploiting a resource with a potential life of 50 years. Unlike traditional oil companies, Suncor doesn't need to spend billions a year on exploration. And its reserve base in Alberta's oil sands looks more valuable as the cost and difficulty of finding new sources of conventional oil and gas continue to grow.
Tables: Oil-Sands Operators
Long-Term PlayAmong the risks for Suncor: a sharp drop in crude prices, construction delays on upgrading facilities and environmental issues. And Suncor still needs government approval for a third upgrader. To address the risk of lower oil prices, Morgan Stanley's Byrne suggests that Suncor use crude-oil options. A multiyear put option struck at $50 a barrel -- which would protect Suncor against a price drop below $50 -- might cost a few hundred million dollars a year.
An options or futures hedging strategy would ensure Suncor ample cash flow for its heavy capital-spending program in the next few years and additional cash that could go toward raising its currently meager dividend yield of 0.4%, or for repurchasing stock. The company has a modest debt load of $2.5 billion. And it has resisted hedging strategies, saying that it doesn't need them.
Producing crude from oil sands is dirty: The bitumen typically is strip-mined, then separated from the surrounding sands in a process that produces waste water that sits in giant pools. Suncor is starting to use a more environmentally friendly technology that uses steam to liquefy bitumen that's too deep to be strip-mined. Once separated, bitumen needs to be heated, usually with natural gas, to produce crude oil. Environmental critics decry the strip-mining, its ugly aftereffects and the energy-intensive upgrading process, which produces greenhouse gases and other emissions.THE BOTTOM LINE
The stock, which has doubled since early 2004 to 50, may be worth 80. And in a consolidating energy industry, Suncor could become a takeover target by, say, BP.The bullish scenario: If Suncor produces 500,000 barrels of oil a day in 2010 and oil stays at $60 a barrel, the company could produce after-tax income of $30 a barrel, or $5 billion-plus annually. We're assuming operating costs of $20 a barrel, including royalties to the Alberta government, and depreciation. We've also factored in a $5-a-barrel discount to benchmark crude for Suncor's oil and $5 a barrel in taxes. Coming technology improvements could cut these costs.
Most of that $5 billion would be free cash flow, since Suncor's capital spending largely would end once its third upgrader is completed. Maintenance capital-spending could run at $500 million annually. Suncor's torrent of cash probably would support a high dividend to shareholders. The cash flow could be further enhanced if Suncor converted to a tax-advantaged royalty trust, as has a large chunk of Canada's oil industry. This could boost Suncor's value by 30%, according to a research note from Scotia Capital analyst Greg Pardy.
Bulls caution that Suncor isn't a 2005 or 2006 story. "You shouldn't focus on next quarter's earnings. It's a multiyear play," one large investor tells Barron's. Suncor shares do look rich relative to much of the industry based on projected 2005 and 2006 profits. Suncor trades for more than 30 times estimated 2005 profits of $1.60 a share -- earnings depressed by the early-year fire. Suncor fetches about 12 times projected 2006 earnings of $4 a share.
Suncor's price-earnings multiple is high relative to those of integrated oil companies like Chevron and BP, as well as U.S. exploration and production outfits like Apache and Burlington Resources, which have 2005 P/Es of 10 or less. Yet Suncor is possibly trading for just four to five times 2010 or 2011 profits, with reserves that could last well into the 21st century.
Suncor stock may bounce around based on gyrations in energy prices. Yet if oil remains above $50 for a prolonged period, there are few better energy plays.
[End of article]
Rogue
PBEGF.pk...Agressive buying coming in. 1st target $10 Canadian
Oil sands will be "hot" again.
Rogue
Oil in Confusion as "Demand Destruction" Claims Questioned
By Adam Porter
14 Oct 2005 at 11:22 AM EDT
PARIS (ResourceInvestor.com) -- A fall in U.S. demand prompted a bearish week on the crude markets. Oil was unable to break out past $64 and fell back into the low sixties. In doing so some analysts reported a possible case of “demand destruction” from U.S. consumers. Is a fall back in the price of oil a worrying economic indicator for the U.S.? Or are other factors at play?
Over the last month demand for gasoline in the United States has actually fallen. In contrast to the bullish environment for the last three years there was a year-on-year fall for U.S. (motor) gasoline. In the four weeks up to October 7th U.S. demand fell by 2.4% to 8.8 million barrels per day (mbpd) compared with the same time last year.
This has patched into the market feeling right now. As US demand was seen to be falling the strikes and blockades in France were also coming to an end. Gasoline supplies, from Europe to the U.S., are arriving in the post-hurricane clear up. All this plus Saudi King Abdullah saying that the oligarchic desert state are now pumping over 10 million barrels of crude oil every day.
Yet all these factors may be a sizeable misreading of the situation. Frederic Lasserre energy analyst at Societe Generale in Paris, speaking to Resource Investor, notes that the market remains in the state of flux.
“The main explanation for the fall in the price [of crude] is the idea of ‘demand destruction’ in the USA,” he explained. “But it is really very difficult to say that, it is way too early to assess whether or not that is happening.”
The lingering after effects of hurricanes Katrina and Rita still seems to be confounding smooth price predictions. The fall in demand may well still be a symptom of the dual tempests.
“You can say that in the period after the hurricanes struck there was a kind of physical rationing in the USA. There was an actual physical problem for some American consumers to get hold of gas for their cars that appears as a cut in demand. IN fact in reality it was a serious plunge in deliveries that consumers could access,” said Lasserre.
Another problem for the crude market going forward is the lack of distillate stockpiles. Heating fuel is emerging as the next bete noir for the crude market.
“In Europe the refining capacity is net long on gasoline,” explained Lasserre. “Europe has more than enough gasoline to meet its needs, so it was able to export it to the United States. In the USA the refineries were all producing gasoline to meet the shortfall. But now the situation is very different with heating fuels. Here no one is net long and Europe cannot push any towards the US market.”
As Resource Investor has already noted, the crack spreads – the difference between crude and certain refined products – has been fluctuating wildly. Most notable was the crack between gasoline and crude. Now it seems that the crack between crude and heating oil is the next to play up.
“You can see very clearly that the emphasis is about to move,” Lasserre continued “The crack between crude and gasoline was running at $20, now it is down to $10. But the crack between heating fuels and crude is now the one sitting at around $20.”
Lasserre went on to explain how some of the price flexibility inherent in gasoline may be less so in heating fuels.
“As we move into winter the driving season comes to an end. Gasoline stops being a problem. But now distillates are becoming the problem. You can expect some price elasticity [with petroleum/gasoline] as people can cut back on the number of car journeys they make. But with heating fuels that is much harder, if you are cold in winter you need to heat your home,” he said.
“That is why the downside on crude will be limited. There is very little chance of it moving significantly lower. There is plenty of crude on the market now, but very little product. That is the reason the outlook for distillates is so severe,” he concluded.
Rogue
PBEGF.pk....Canadian oil sands may see interest/bidders from China?
From another board...
Oil thirst from China adds fuel to trade tussle
Ottawa touts Beijing's huge energy needs as opportunity to move from U.S. market
Friday, October 14, 2005 Posted at 4:29 AM EDT
From Friday's Globe and Mail
BEIJING — China's investment appetite for the Alberta oil sands has climbed so strongly that it could be importing 400,000 barrels of oil a day from Canada within the next seven years, Natural Resources Minister John McCallum says.
The Chinese oil ambitions in Canada, which intensified yesterday when Mr. McCallum met two of China's most powerful oil executives, are a key element in the Liberal government's aggressive push to diversify Canada's energy sales away from its traditional U.S. markets in the aftermath of the softwood-lumber dispute.
Despite denials from Ottawa, the government's new strategy of pitching oil to China is widely seen as a pressure tactic against Washington after its refusal to comply with the NAFTA softwood ruling. The Americans are ignoring a ruling by a North American free-trade agreement panel that U.S. tariffs on softwood lumber are illegal under U.S. trade law.
The New York Times this week described Ottawa's campaign as "a series of subtle threats" against the administration of President George W. Bush.
Mr. McCallum held meetings in Beijing yesterday with the presidents of two of China's biggest state-owned oil companies. "They expressed strong interest in investing in the oil sands," he said in an interview. "Clearly they are ambitious in their thinking. They are definitely, seriously interested."
He said the companies, PetroChina and CNOOC Ltd., were "very positive" in their response to his pitch to invest in Canada. They are likely to get a more welcoming response from Canada than from the United States, where CNOOC's bid to acquire the American oil company Unocal was blocked by an angry political reaction.
Mr. McCallum said he received the 400,000-barrels-a-day estimate yesterday from Chinese and Canadian investors in Beijing, who called it an "ambitious but realistic target" for China's aspirations in the Canadian oil patch.
If the prediction is accurate, China's oil imports from Canada by 2012 will reach one-quarter of the current level of American oil imports from Canada, allowing Canada to make a substantial cut in its dependence on the United States, which buys about 85 per cent of Canada's oil exports.
"That would certainly be a very good beginning," Mr. McCallum said. "That's definitely significant."
He said he was able to obtain his meetings with the presidents of PetroChina and CNOOC at relatively short notice -- another sign of their strong interest in the Canadian energy sector.
Moving oil-sands crude of any significant volume to China will be challenging and hinges on a new pipeline to move the crude oil to the coast....
Enbridge has said 300,000 barrels could end up in Asia and it is possible all 400,000 barrels will go there, rather than send some to California as is now envisioned...
Mr. McCallum is planning to invite Chinese Vice-Premier Zeng Peiyan to tour the Alberta oil sands and visit the new Prince Rupert, B.C., port facilities that could serve the Chinese oil market. He said Mr. Zeng, who would be the highest-ranking Chinese official to visit the oil sands, is likely to accept the invitation. He is the senior cabinet minister with responsibility for the energy sector.
Chinese officials have confirmed their strong appetite for increased oil imports from Canada. In the Chinese media yesterday, a senior Chinese diplomat in Ottawa was quoted as saying that China and Canada "should go deeper in their co-operation on energy and resources and build a long-term stable relationship." The diplomat, Liu Guosheng, said current investments in the Alberta oil sands are "a good start" toward bigger deals.
In his meetings in Beijing yesterday, Mr. McCallum called for quick implementation of the Canada-China "strategic partnership" that was announced last month by Prime Minister Paul Martin and Chinese President Hu Jintao.
"What I said to all the Chinese officials is that I'm here to get moving as quickly as possible on the strategic partnership," he said.
"It's one thing to sign a piece of paper and another thing to put it into action, and it's our intention to put it into action as quickly as possible. We're keen to increase our trade and investor relations with China in the energy sector and we're keen that they invest in Canada and we're hoping to increase our energy exports -- and they responded very positively."
China is likely to increase its oil imports from Canada by acting as an investor, rather than simply as a customer, Mr. McCallum said. This could include takeover bids and greenfield investments, as well as other forms of investment.
"They do not feel limited by how much economically can be sent to China. They could well make investments for sale in third markets. They're also interested in joint ventures or minority holdings or strategic alliances with Canadian companies. They could team up with Canadian companies in joint ventures to enter into production which isn't necessarily destined for China."
********************************
My earlier comments on this:
Canada has what the U.S. and China wants, and they send Snow and Jintao to Ottawa to feel things out. VP Cheney is scheduled to go this month but Katrina cancelled that trip. Canada is holding some powerful cards here (more so since the shut-ins and set backs of gulf hurricanes) and it will act in its best interest. Wouldn't you? There will be bidding, maneuvering, politics, promises and back room threats to work it all out. How it turns out no one knows. Meanwhile, the target of two most voracious appetites in the world, U.S. and China, becomes more valuable...
The real story is about Canada and all the industries and companies that will prosper, indeed, have been prospering before the oil sands heated up with all this attention. This battle between China and the U.S., if it comes to that, is just an interesting sideshow that will drive up prices, IMO, like bidding on a nice house in a hot neighborhood.
Rogue
Oil Discoveries Sorely Needed, Press Members Told
By Russell Ray, Tulsa World, Okla.
Oct. 12--Don't be surprised if oil prices top $100 a barrel in the near future, oil and gas investor Dale Steinkuehler said Tuesday.
Steinkuehler, speaking during the Page One luncheon at the Tulsa Press Club, said world oil supplies are so tight that any major disruption in production could send crude prices to triple digits.
"Over the last 40 years, we've had increasing demand, but the real culprit has been diminishing discoveries," said Steinkuehler, president of Tulsa-based Ensaga Energy LLC.
Oil discoveries have been declining "precipitously" since the 1960s, he said.
What's more, the economies of China and India continue to grow, which could lead to serious supply problems in the United States.
"Should their GDP (gross domestic product) increase even slightly, oil demand will increase materially," Steink uehler said.
Under the best-case scenario, the International Energy Agency expects world oil production to remain flat for several years, while demand continues to rise, Steinkuehler said.
The key to meeting world oil demand will be making discoveries, he said.
Questions persist surrounding Saudi Arabia's Ghwar, the world's largest oil field. Some contend Ghwar, which produces 5 million barrels a day and accounts for half of Saudi Arabia's oil production, is in decline.
"If it gets sick, we're in trouble," Steinkuehler said. "It's the canary in the mine shaft."
To reduce the risk and cost of finding oil supplies, Steinkuehler touted the use of electromagnetic analysis to locate reservoirs. The technology, which can be used in Oklahoma and overseas, reduces the risk of drilling a dry hole.
"It results in material financial savings," he said. "We need to find lots of oil to meet demand in China and India, and we need to do it as practical as possible."
Steinkuehler pointed to a Goldman Sachs report that said oil could spike as high as $105 a barrel. The report, which was heavily criticized, was released well before prices surged above $70 a barrel in the wake of Hurricane Katrina.
"Today, I believe we would acknowledge that is a real possibility," he said.
-----
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Story from REDNOVA NEWS:
http://www.rednova.com/news/display/?id=269459
Published: 2005/10/12 15:00:35 CDT
Rogue
Gold/Gold stocks....I recently sold out of virtually all my gold/metal stocks and booked some profits. I have some pullback objectives for physical gold futures to meet and then I'll take a look again.
I hope to post a few of my "20-bagger" potential junior golds on this board sometime soon. There could be some real fireworks in that area when the time is "ripe".
Rogue
CHAR....Chapparral Resources. I'm still "out" of this one even though it was a favorite of mine for the pick six stock contest.
I sold out after the "BUY-UNDER" news for NLG.to.....CHARS majority owner by the Russian "mob". I have yet to re-enter the position. I added some more NLG.to thinking it has "potential" to be acquired eventually for more than the proposed $2.57 Candian price....possibly north of $3 Canadian.
http://stockcharts.com/def/servlet/SC.web?c=CHAR,uu[w,a]daolyyay[pb50!b183!f][vc60][iut!Uc20!Lh14,3]....
If that happens THAT would be bullish for CHAR. Currently the "six month average price" for CHAR lies at $3.20. It has been heading that way and I think risk is to that level or below if Lukoil roughs up CHAR shareholders as much as they did my position in takeover candidate Nelson Resources.
It sucks getting the "takeover" candidate all figured out(NLG.to) and getting in "expecting" an eventual take-over and barely breaking even! Damn those Russian thieves!
Rogue
Bobwins/PBEGF/PBG.to....Petrobank Energy and Resources. Bought some more yesterday too. This is a value "asset" play with great long-term potential in the Oil/sands/heavy oil area.
http://stockcharts.com/def/servlet/SC.web?c=PBG.TO,uu[w,a]daolyyay[pb50!b200!f][vc60][iut!Uc20!Li14,....
Short term it looks ready for a pop from this price area to the $10 Canadian level. That's my price objective for my
trading shares. It's extremely oversold here and stochastics are poised to turn up and rally here.
My core position would like to see $17-$24 Canadian realized per the value placed on the buyout of DCE.to ...Deer Creek Energy by French oil giant Total. This could happen anytime since there was a bidding war for DCE and thee are bidders "looking" still. Long-term it could be another Suncor(SU). Check out that chart! PBEGF has that much potential from what I've heard. PBEGF is almost my largest position now.
It appears to be under great accumalation on this past 2 week selloff. The Chaitkin Money Flow has stayed solidly in the green....leading me to believe smart money is accumalating cheap shares for much better prices down the road.
That's what I'm doing now.....
Rogue
The march towards fascism continues unabated.....even "accelerating" under Bush. I cringe everytime he wants to use the milatary to "solve" some sort of problem in our country and around the world. He(his puppet masters) seems hell bent on destroying what's left of the Bill of Rights. Truly frightening.
I remember famed economist Milton Friedman talking about this HUGE problem of government spending as a percentage of GNP at least 10 years ago.
Here's an interesting link....
http://mwhodges.home.att.net/regulation.htm
Rogue
The Vampire Economy: Italy, Germany, and the US
Rogue comment....As we march toward fascism in this country under the guise of "conservative Republicanism"(LOL!)......I though all would enjoy this article.
by Jeffrey Herbener
[Posted on Thursday, October 13, 2005]
http://www.mises.org/story/1935
What is the link between fascism and socialism? They are stages on a continuum of economic control, one that begins in intervention in the free market, moves toward regimentation and greater rigidity, marches toward socialism as failures increase, and ends in dictatorship.
The fascist system, wrote Mises, "clung first to the same principles of economic policies which all not outright socialist governments have adopted in our day, interventionism. Then later it turned step by step toward the German system of socialism, i.e., all-round state control of economic activities."[1]
What distinguished the fascist variety of interventionism was its reliance on the idea of stability to justify extending state power. Big business and labor eagerly allied with the state to obtain stability against what Murray Rothbard called business fluctuations, the ups and downs of particular markets that result from shifting consumer demands. They naïvely thought that state power could supplant consumer sovereignty with their own producer sovereignty over their industries while maintaining the greater productivity of the division of labor.
At first, the fascists used state spending, mainly for war, to eliminate business fluctuations. Only after they became dependent on the state did the leaders of big business and labor realize that they had merely traded consumer sovereignty for state sovereignty. Soon after they learned which one was the more exacting taskmaster.
To extend their control, the fascists bolstered fiscal expenditures with debt and monetary inflation. Not only did they hope thereby to dominate more and more industries with their expenditures, but also to boost public support for their regimes by generating economic prosperity. Instead, their reckless spending and inflating set in motion the boom-bust cycle. They took the depression as an opportunity to extend their power further by socializing investment with regulations while claiming that such measures would stabilize the business cycle.
The fascists found a readymade theoretical justification for stabilization policies in the work of John Maynard Keynes.[2] Keynes claimed that the instability of capitalism emanated from the free play the system gave to the "animal spirits" of investors. Driven by bouts of over-optimism and over-pessimism, investors alternate between bullish spending and bearish hoarding sending the economy into fits of boom and bust.
Keynes proposed to eliminate this instability with state control over both sides of the capital markets. A central bank with the power to inflate the money supply through credit expansion would determine the supply of capital funding and fiscal and regulatory policy would socialize the investment of capital.
In an open letter to President Roosevelt published in the New York Times on December 31, 1933, Keynes counseled this plan:
In a field of domestic policy, I put in the forefront, a large volume of loan expenditure under government auspices. I put in the second place the maintenance of cheap and abundant credit. . . . With these . . . I should expect a successful outcome with great confidence. How much that would mean, not only to the material prosperity of the United States and the whole world, but in comfort to men's minds through a restoration of their faith in the wisdom and the power of government.[3]
Keynes was even more enthusiastic for the spread of his faith in Germany. In the preface to the German edition of the General Theory, published in 1936, Keynes wrote:
The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.[4]
State control of money, credit, banking, and investment became the blueprint for fascist stabilization policy. Thus, the expansion of state control under fascism followed a predictable pattern. Debt and monetary inflation paid for state spending. The resulting expansion of credit led to the boom-bust cycle. The financial collapse of the bust resulted in stricter regulation of banking and socialization of investment, which permitted more monetary inflation, credit expansion, debt and spending. The consequent decline in the purchasing power of money justified price and wage controls, which became the focal point of all-around state control. In some cases more slowly and in other cases more rapidly, fascism followed this path toward central planning.
Italian Fascism
The Italian Fascists began spending and inflating to co-opt big business soon after the March on Rome in 1922. Industrial profits and production jumped during the consequent boom which lasted until 1926. Protectionist measures were also enacted during the boom to give an added benefit to steel, iron, automobiles, and shipbuilding. Under pressure on the lire to devalue in 1926, the Bank of Italy reversed course and the boom collapsed. By 1927, prices and wages were falling but not sufficiently to prevent widespread bankruptcy and depression. Businesses failed by the thousands in the 1930s.
From 1928–1932 production was cut by one-fourth and national income by one-third, and by the end of 1934 one-third of capital capacity sat idle and over one million workers were unemployed. The state progressively intervened to stave off the ill effects of its monetary inflation and extend its control. It bailed out big businesses and banks, fostered mergers and acquisitions, cartelized the remaining, now larger enterprises, and renewed spending, mainly for war.
Annual state expenditures in the early 1930s were double their levels of the early years of Fascism. As tax revenues failed to keep pace, deficits ballooned. Banks also combined and associated more closely with big industrial concerns under the supervision of the state. To rescue the big banks, which had accumulated significant holdings of industrial securities during the boom, the state nationalized their holdings in 1931 and issued new securities, backed by the state, to provide a source of new credit for the banks.
The state also created new and invigorated old credit institutions outside the banking system to provide added channels for credit. It appointed a majority of the boards of these new credit institutions and provided them with their funds by direct subsidies and by guaranteeing their industrial investments with state bonds. Private parties would invest in the state-guaranteed bonds of these new institutions that would then invest the funds in favored businesses.
Although the domestic purchasing power of the lire was rising in the early 1930s, the Italian state still overvalued it in foreign exchange. The resulting trade deficit and gold outflows led the state to limit imports and impose foreign exchange controls. When even the highest tariff rates in the world failed to close the trade deficit the Fascists adopted an import quota system enforced by licensing importers.
The burgeoning state control of business swelled the state bureaucracy and led to widespread centralization and corruption. Small businesses were left to fail and have their assets swallowed up by big businesses and big banks. Nearly 100,000 businesses failed from 1926–1935 in Italy, almost fourfold the number that failed in the previous ten years. By 1935, Mussolini boasted that fully three-fourths of Italian businesses rested on the shoulders of the state.[5]
The Ethiopian war in 1935 demonstrated the extent of Fascist control.[6] Annual war expenditures were fourteen times larger during the war years than previously. To meet these extraordinary expenditures, the Fascists resorted to monetary inflation and capital confiscation. Beginning in July, the gold reserve against the Bank of Italy's notes was progressively relaxed. Even as the gold reserve sagged, from 5.25 billion lire in June of 1935 to 3.93 billion lire in October, the money stock rose to 15.27 billion lire. In the next few years, monetary inflation accelerated as the Fascists monetized the national debt which stood at 1.8 trillion lire by 1938. To curb the decline in the purchasing power of the lire, the Fascists resorted to price and wage controls which paved the way for all-around planning.
Confiscation of capital began in May of 1935, when banks, businesses, and individuals were required to turn all their foreign issued stocks and bonds over to the Bank of Italy. By September, the state had compelled renters in cities and towns over a certain size to buy state bonds in amounts proportionate to their rents, all Italians to exchange their foreign credits for state bonds, businesses to invest all profits in excess of 6% in state securities, and investors holding heavily depreciated state bonds to exchange them plus liquid capital for a new issue of bonds at par value.
Carl Schmidt, in 1939, summarized Italian Fascism with these words:
Fascism rose to power as a preventive reaction, defending the pecuniary and sentimental interests of the propertied and quasi-propertied groups of towns and country from the spectre [sic] of revolution. . . . It not only sought to safeguard existing property rights, but also fostered further industrialization and concentration of business enterprise. . . . Yet, Fascism could not solve the basic difficulties of Italian capitalism. The deepening economic crisis in later years forced business enterprise to rest more and more on the support of the State. As the economic role of the State grew, a subtle shift of spirit and purposes took place. Governmental support of the going economic order called for an increasing army of intruding officials, for a bureaucratic formalization of business affairs. And the bureaucracy developed ends of its own, associated with holding and enlarging its security and power. . . . Thus, despite all formal pronouncements . . . Fascism seemed to be evolving into a tyranny over all but a very few of the Italian people.[7]
The Original Vampire Economy
Fascist Italy defined the fascist style of interventionism: state control of the economy by fiscal and monetary policy and regulation. Nazi Germany, in contrast, illustrates not so much the fascist style, but how the fascist episode culminates in all-around state control of the economy.
Concerning the socialization of investment under Nazi Germany, Günter Reimann wrote in 1939:
Backed by the General Staff of the army, Nazi bureaucrats have been able to embark upon schemes which compel the most powerful leaders of business and finance to undertake projects which they consider both risky and unprofitable. The building-up of the German war economy takes precedence over everything, including the opinions of private capitalists and their scientific research staffs. . . . The viewpoint of private investors and industrialists who think of the ultimate safety and soundness of investments has been disregarded.
This is particularly true of the big industrialists who earned huge profits from the armament boom and who have large amounts of capital to invest. Their liquid funds do not escape the attention of State commissars, who are searching for means to finance new State-sponsored plants.[8]
Lured by enormous profits in war production, big businessmen in one industry after another came under state control. Neither political connections nor social status protected industrialists from state predation. The Nazis coerced them into investing war profits to build factories for unprofitable projects such as synthetic rubber, low grade iron ore, and other ersatz production. State and Army commissars insisted on rapid expansion of plant capacity, ancillary investments related to war production, and the use of obsolete, discarded machinery.[9]
Along with directing investment at the point of bayonet, the Nazis confiscated the profits of industrialists and directed them to new construction. In addition to malinvesting capital, these policies retarded maintenance of existing capital capacity. The state even forbade private investment to increase or replace existing profitable capital capacity. Prohibitions against new entry were enacted as well as closing down existing plants. And in the shrinking realm of private investment, the capriciousness of state bureaucrats could throw investment plans into disarray. The myopia of state planners led to the neglect of investment to maintain and improve what would become important wartime industries like the railroads.[10]
Reimann summarizes the situation with these words:
The flow of capital is no longer regulated by a capital market which directs it into industries that are particularly profitable. The State has supplanted the capital market. It compels private capitalists to make investments in a future wartime economy and creates economic conditions which cause old investments to decline in value.[11]
Faced with the dearth of profitable opportunities in the shrinking market economy, investors turned to what they thought would be safe-havens from state power such as real estate and precious metals and gems. Thus, even the capital not consumed by the state was directed away from the capital structure.[12]
As part of the drive to bring capital markets under their control, the Nazis made bankers mere functionaries. Like their counterparts in industry, big bankers eagerly entangled themselves in the web of state power by accepting bailouts to avoid bankruptcy during the banking crisis in 1931. By the time the Nazis came to power, the state owned a majority of the shares of the big banks.
Omnipotent Government: The Rise of Total State and Total War The Nazi Economy: $11
In 1933 the state declared its "control of all credit institutions" and began to license banks, collect information on debtors, and scrutinize banking operations. The state dictated to them what investments they were permitted to recommend to investors, namely government bonds and bonds of the enterprises subsidized by the state. Bankers were forbidden to express less than optimistic assessments of the state's financial condition. For investors who refused such advice and withdrew their capital from banks to invest on their own initiative, bankers were obligated to report their activity to the state. A large bureaucracy was formed to oversee banking, centered in the Reichsbank. By 1935, state spending had ballooned to the point that private investment decisions had been supplanted and banking was under the full sway of the state.[13]
State power was extended to the entire economy in the form of price and wage controls. Wage controls were imposed in 1933 with the purpose of holding down labor costs to boost profits during the depression and comprehensive price controls were added in 1936 to hide the effects of monetary inflation.
Hans Sennholz reports that by 1945, the Reichsbank's note issue was sixteen times larger than it was in 1933. And bank credit increased nearly sevenfold from July of 1936 to September 1944. By 1939 state debt had risen to 16 billion marks and the deficit had come to exceed the entire funds available in the capital markets. By 1935, war expenditures were more than half the total budget and by 1939 they exceeded 75% of the total. The price and wage controls enacted in response to the decline in the purchasing power of the mark formed an integral part of the Nazi system of total command over the economy.[14]
When debt and monetary inflation proved insufficient to feed its spending, the state freed itself from financial limitations by decree. It refused to make payment on its debt, confiscated funds from individuals and groups, cancelled private debts and reduced interest rates on private loans and transferred the resulting funds to the state.
As financial pressures from war expenditures mounted during 1938 and investors fled from banks to invest with other financial intermediaries, the state compelled all credit intermediaries, banks, insurance companies, and savings banks as well as municipalities to buy its debt. The stock market, too, was controlled by the state through the dominant position that banks came to hold in it after its collapse during the depression. Reimann estimated that by 1938, 80–90% of new capital was absorbed by the state. Thus, the Nazis built their war economy by consuming the capital stock constructed by preceding generations of German savers and investors.[15]
The New Vampire Economy
The fascist form of interventionism in America was built on the rump of state corporatism that emerged during the Progressive Era and the experience of state planning during the First World War.[16] The former culminated in the establishment of the Federal Reserve System to fully centralize state control of banks and monetary inflation and the latter set precedents for New Deal programs.
With the Fed in full swing, the Italian pattern during the Great Depression was seen in America, also.[17] Monetary inflation and credit expansion during the 1920s led to the bust which was used to justify greater state control of investment, through fiscal expenditures and regulation. Like Mussolini, Hoover used protectionism to favor certain producers, increased funding for public works programs, and bailed out key businesses. Federal spending more than doubled from 1929 through 1934 and nearly tripled for the decade between 1929 and 1939. From a modest surplus in 1930, the federal budget was in deficit in every one of the next fifteen years. In 1932 the deficit was 142% of tax revenue and in 1933 it was 130%. In four of the five years between 1932 and 1936, the budget deficit was more than 100% of tax revenues.[18]
After the stock market crash in October 1929, the Fed tried unsuccessfully to re-inflate and to bolster the credit markets. When its effort failed, Hoover strong-armed big banks into establishing the National Credit Corporation to bailout banks. Capitalized with $500 million from the banks and the power to borrow up to $1 billion with Fed assistance, the NCC operated as a stopgap measure until the rebirth of the War Finance Corporation from the First World War as the Reconstruction Finance Corporation.
Born in January of 1932, the RFC was chartered to issue $1.5 billion in debt and to lend to distressed businesses. The first $1 billion was dispensed by June and 80% of it went to banks and railroads. In July the RFC was authorized by the Emergency Relief and Construction Act to extend its credit to $3.8 billion and it dispensed $2.3 billion for the year, $300 million of which was lent to the states for their relief programs.
Hoover also induced insurance companies to put off foreclosing mortgages by subsidizing them through the Federal Farm Loan Banks. Authorized by the first Glass-Steagall Act in February of 1932, the Fed stepped up its purchases of Treasury securities in what proved to be another vain attempt to re-inflate the economy. Despite a 35% rise in bank reserves during 1932, the money stock fell by $3.5 billion. In July of 1932, Hoover added the Federal Home Loan Bank with $125 million of capital for mortgage loans.[19]
At least Hoover did not embrace the Swope Plan, which called for the forced cartelization of the economy under the direction of the federal government; that would have to wait for his successor.[20] While accelerating expansionary fiscal and monetary policy, Roosevelt conducted a regulatory blitz. The Emergency Banking Act of 1933 further cartelized banks, brought them under stricter federal regulation, and provided bailouts. The state eliminated competition among banks and from non-bank institutions by reserving to banks a uniform set of practices. The Banking Act of 1935 insulated the banking cartel by closing entry to unapproved competitors.
The Federal Deposit Insurance Corporation slowed the liquidation process of the depression and froze malinvestments in banking and the capital structure. To pave the way for more monetary inflation, Roosevelt abandoned the gold standard, abrogated gold contracts, and confiscated gold holdings. The Civilian Conservation Corps, the Emergency Relief Act, and the Works Progress Administration subsidized unemployment and misallocation of labor and distorted private charitable efforts.
The Agricultural Adjustment Acts put crop planting decisions in the hands of the state and subsidized disinvestment and malinvestment in agricultural production. The Tennessee Valley Authority malinvested capital, destroyed natural resources, and distorted energy markets. The Federal Securities Act put stock markets, the pinnacle of capital allocation in the market, under the regulatory arm of the federal government.
The National Industrial Recovery Act cartelized and bureaucratized the economy under federal control. The Home Owners Loan Act, the National Housing Act, and the Rural Electrification Administration malinvested capital in housing and electricity. The National Labor Relations Act and the Fair Labor Standards Act distorted labor costs leading to malinvestments and fostered unemployment. The Social Security Act forced people to "invest" in federal trust-fund bonds. As the Fascists had done, Roosevelt built public support for state intervention as necessary for stability and made war preparation the main outlet for the state's stabilizing expenditures.
The Roosevelt Myth The FDR myth: $18.75
While New Deal agencies owed much to First World War predecessors both in form and in personnel it took the Second World War to bring all-around state planning.[21] The Selective Training and Service Act of 1940 empowered Roosevelt to conscript labor and confiscate goods and factors for the war effort. In mid-1940, the Reconstruction Finance Corporation was authorized to issue debt and use it to purchase and operate production facilities, invest in equipment and machinery, and buy land for war production. The First and Second War Powers Acts in 1941 vested broad powers in the President to seize production facilities, regulate industries, purchase goods and factors, stipulate terms of contracts, allocate resources and expanded Fed inflationary potential by authorizing it to purchase debt directly from the Treasury.
The Office of Price Administration was charged with setting price and wage controls in the wake of the Fed's massive monetary inflation. Its General Maximum Price Regulation, issued in April of 1942, resulted in widespread shortages and rationing. Not content with the unsystematic application of controls, Roosevelt pushed through the Economic Stabilization Act in October of 1942. The Office of Economic Stabilization was charged to develop a "comprehensive national economic policy relating to control of civilian purchasing power, prices, rents, wages, profits, rationing, subsidies, and all related matters."
From 1940 to 1945 federal expenditures increased nearly tenfold and tax revenue rose nearly sevenfold. By 1942, the budget deficit was more than double all federal expenditures in 1940. In 1943, the deficit was two and a half times the deficit in 1942 and double the amount of 1943 tax revenues. The federal debt rose fivefold during the war and the Fed nearly doubled the money stock.[22]
State power was rolled back after the war, federal expenditures were cut in half and many of the agencies were disbanded and some of their functions ceased while others were transferred to remaining agencies, but the state assumed the role of stabilizing the economy. The Employment Act of 1946 pledged the federal government to "use all practicable means . . . to promote maximum employment, production, and purchasing power" in other words, to prevent downturns.[23] To stabilize the economy, the state has been working to restore the power it exercised during the war.
Let's recount how far down the fascist path we have traveled. The Fascists used state spending and regulation to direct investment into state-approved lines of production, war being chief among them. The federal government has 165 primary agencies, 141 of which have a significant affect on investment in the economy. Sixty-six impact investment by fiscal expenditures.
The departments of agriculture, commerce, defense, education, energy, health and human services, homeland security, housing and urban development, transportation, and interior are among the major sources of such federal control.
In 2005, the federal government spent approximately $1.3 trillion in these areas. And from 1945 to 2005, the federal government has spent $9.5 trillion on defense, $6.5 trillion on health care, $1.4 trillion on education, $1.2 trillion on transportation, $0.8 trillion on energy and natural resources, $0.6 trillion on agriculture, $0.5 trillion on science, space, and technology, $0.33 trillion on community and regional development, and $0.3 trillion on commerce and housing.[24] These expenditures have malinvested entire sections of the capital structure.
The other 75 federal agencies that affect investment do so by regulation. Examples here include the departments of labor, justice, and treasury, the environmental protection agency, the federal trade commission, the federal communication commission, the federal deposit insurance corporation, and the federal reserve system.
The cost of compliance with federal regulation has been estimated at $1 trillion a year without the Patriot Act and Sarbanes-Oxley.[25] The impact of the federal government's fiscal and regulatory policies is $2.3 trillion this year. This is nearly 20% of Gross Domestic Product and over 40% of Private Product Remaining.
The Fascists used a central bank and cartelized the banking system under its regulation for the purpose of monetizing their debt and expanding the supply of credit. The Fed owns $736 billion of the federal debt and depository institutions own another $1.4 trillion. Together they hold 27% of the $7.9 trillion federal debt. Of the $4.6 trillion of the federal debt owned by the public, depository institutions hold 30%. The fiduciary component of checkable deposits issued by depository institutions is approximately $582 billion, which is 8% of the total credit of $7 trillion intermediated by depository institutions.[26] As Joe Salerno has pointed out, monetary inflation and credit expansion cloak the capital consumption of state intervention and thus quell public outcry against it.[27]
The Fascists closed the windows of opportunity for investors to escape state control. As restrictions on banking mounted in the 1960s and 1970s, investors sought alternatives and entrepreneurs provided them. From 1950 to 1980, the share of total assets of all financial intermediaries held by banks fell from 52% to 36%. And the share of the short term credit market held by banks fell from 91% to 71%.[28] In response to the financial services revolution, the federal government moved to consolidate its control over financial intermediaries.
The Monetary Control Act of 1980 brought all financial institutions that offer checkable deposits under the regulatory authority of the Fed and imposed on them the uniform practices of all member banks. All depository institutions in America are regulated by three federal agencies, the Fed, the FDIC, and the Comptroller of the Currency. Combined they enforce more than 150 categories of regulations.
The Fascists used banks to collect information on clients' financial activity. Since the Bank Secrecy Act of 1970, the federal government has enacted eight additional anti-money laundering laws expanding its power to collect financial information on Americans. Banks must now form financial profiles of their customers and file suspicious activities reports to the state when they deviate from these patterns.
The Fascists dictated acceptable lines of investment. The federal government compels banks to make certain types of loans, as with the Community Reinvestment Act, and businesses to make certain types of investments, as with the Americans with Disabilities Act, environmental laws, and Sarbanes-Oxley. In other cases, the federal government coercively changes incentives banks have to lend into certain lines of production, as with the Fannie Mae and Freddie Mac.
The Fascists confiscated capital when fiscal pressures mounted. The confiscatory power of the federal government has been directed at drug war and RICO cases. The Patriot Act increased asset confiscation to abate money laundering and made anti-money laundering measures uniform across financial institutions.
Faced with a fiscal crisis and price inflation from their fiscal and monetary policies, the Fascists stepped up dictatorial and confiscatory powers and resorted to price and wage controls. Extraordinary federal expenditures for the Vietnam War and Great Society programs coupled with monetary inflation led to our last imposition of price and wage controls in the early 1970s. Certainly, the federal government will resort to greater dictatorial and confiscatory powers and stricter price and wage controls in the wake of the next fiscal and monetary crisis.
A political class that is willing to throw $250 billion into rebuilding a single city in the face of massive federal deficits is oblivious to the looming fiscal danger. As always, however, war spending is the biggest threat to the fiscal integrity of the state. If these fascist trends in America are not checked, they will lead to net capital consumption and the end of economic progress in America not to mention curtailing what remains of our liberties.
Jeffrey Herbener teaches economics at Grove City College. He delivered this paper at the Mises Institute's 2005 Supporters Summit. Jmherbener@gcc.edu. Comment on the Blog.
[1]Ludwig von Mises, Human Action, Scholar's Edition (Auburn, Ala.: Mises Institute, 1998), p. 814.
[2]John Maynard Keynes, The General Theory of Employment, Interest, and Money (1936); On Keynes's thought, see Joseph T. Salerno, "The Development of Keynes's Economics From Marshall to Millennialism," Review of Austrian Economics, Vol. 6, No. 1 (1992), pp. 3–64.
[3]John Maynard Keynes, "An Open Letter to President Roosevelt," New York Times, December 31, 1933 in ed. Herman Krooss, Documentary History of Banking and Currency in the United States, Vol. 4 (New York: McGraw Hill, 1969), p. 2788.
[4]John Maynard Keynes, "Forward," 1936 German Edition of The General Theory of Employment, Interest, and Money, translated and reprinted in James J. Martin, Revisionist Viewpoints (Colorado Springs: Ralph Myles, 1971), pp. 203–05.
[5]Carl Schmidt, The Corporate State in Action (London: Victor Gollancz Ltd., 1939), pp. 153–76.
[6]Gaetano Salvemini, Italian Fascism (London: Victor Gollancz Ltd., 1938), pp. 46–56.
[7]Schmidt, Corporate State, pp. 152–53.
[8]Günter Reimann, The Vampire Economy: Doing Business under Fascism (New York: The Vanguard Press, 1939), p. 125. Reimann, who real name was Hans Steinicke, passed away on March 8 of this year at the age of 100. After the war, he founded and operated the prestigious newsletter, International Reports on Finance and Currency.
[9]Reimann, Vampire Economy, pp. 125–36.
[10]Reimann, Vampire Economy, pp. 137–53.
[11]Reimann, Vampire Economy, p. 148.
[12]Reimann, Vampire Economy, p. 153.
[13]Reimann, Vampire Economy, pp. 154–61
[14]Reimann, Vampire Economy, pp. 170-173; Hans Sennholz, Age of Inflation (Belmont, Mass.: Western Islands, 1979), pp. 88–108.
[15]Reimann, Vampire Economy, pp. 164–67.
[16]On the Progressive Era, see Gabriel Kolko, The Triumph of Conservatism (New York: Free Press, 1963). On the First World War, see Murray Rothbard, "War Collectivism in World War I," in Ronald Radosh and Murray Rothbard, eds., A New History of Leviathan (New York: E.P. Dutton and Co., 1972), pp. 66–110.
[17]On the Great Depression, see Murray Rothbard, America's Great Depression (Kansas City: Sheed and Ward, 1963).
[18]Budget of the United States Government at http://www.gpoaccess.gov/usbudget/fy05/hist.html
[19]Rothbard, America's Great Depression, pp. 227–81.
[20]On the New Deal, see Robert Higgs, Crisis and Leviathan (New York: Oxford University Press, 1987), pp. 159-195.
[21]On the war economy of the Second World War, see Higgs, Crisis and Leviathan, pp. 196–236.
[22]Budget of the United States Government at http://www.gpoaccess.gov/usbudget/fy05/hist.html
[23]Higgs, Crisis and Leviathan, p. 227.
[24]Budget of the United States Government at http://www.gpoaccess.gov/usbudget/fy05/hist.html
[25]Government Regulatory Cost Compliance Report at http://mwhodges.home.att.net/regulation.htm
[26]St. Louis Fed: Economic Data at http://research.stlouisfed.org/fred2/
[27]Joseph Salerno, "From Kennedy's 'New Economics' to Nixon's 'New Economic Policy': Monetary Inflation and the March of Economic Fascism," in John Denson, ed., Reassessing the Presidency (Auburn, Ala.: Mises Institute, 2001), pp. 594–96.
[28]James Elliot Mason, The Transformation of Commercial Banking in the United States (New York: Garland Publishing, 1997), p. 8.
One does not make predictions about the market - the market can go up or down at any time. It is only the probability (of each move) that varies
#board-3736
Rogue
Buy Energy here???
From another board...
"Ross Healy says BUY energy stocks here. You can hear his interview on http://robtv.com/shows/past_archive.tv in a few hours. The show is marketcall
Don't sell the pullback before you hear this.
He also says buy the oil sands.
"bull market correction, not bear market correction".
The TSX has recovered 25% from its low today since he began speaking."
Rogue comment....watching the XLE Oil Index for a trade here from the long side.
Rogue
pbegf.pk/Petrobamk Energy.....Extremely oversold here like alot of energy. Probably a very good time to accumalate..... A "table pounder"???
Could be a takeover candidate ala Deer Creek Energy which was bought out by Total if you like "hot money"?? Buyout bid would come north of $17 Canadian vased on the same buyout parameters.
A smart poster on another board recommended Deer Creek at $11 Canadien and the final bid a few months later was $32. He's now recommending PBG as the next "potential" buyout candidate since there was a "bidding war" for DCE and the other bidders are still looking into the oil sands. The same poster thinks we can see $50 Canadian in 3 or 4 years WITHOUT a buyout! Win/Win situation!
Interesting on the entire selloff in PBEGF the past few weeks the Chaitkin Money Flow indicator has remained positive for accumalation. Someone(smart money?) has been accumalating.
http://stockcharts.com/def/servlet/SC.web?c=PBG.TO,uu[h,a]daclyyay[pb50!b200][vc60][iut!Uc20!Li14,3]....
So have I.
Rogue
Republican Congressman Slams Bush On Militarized Police State Preparation
Ron Paul says indictment story is far more damaging than media is portraying, avian flu martial law provisions aimed at gun confiscation
"Congressman Ron Paul has accused the Bush administration of attempting to set in motion a militarized police state in America by enacting gun confiscation martial law provisions in the event of an avian flu pandemic. Paul also slammed as delusional and dangerous plans to invade Iran, Syria, North Korea and China.
Ron Paul represents the 14th Congressional district of Texas. He also serves on the House of Representatives Financial Services Committee, and the International Relations committee.
Paul appeared on the Alex Jones show yesterday and raised some interesting points about the possibility of imminent indictments of top Bush administration figures.
"I think there's a lot more excitement coming and it's not going to be good for the Republicans," stated Paul.
"The things that I hear have to do with Karl Rove and Abramoff and that's much much worse than anybody would believe and it involves DeLay as well."
"And that type of an indictment will be much more serious than the indictment of shifting campaign funds around.....there's some political infighting which could make that really interesting."
On the subject of the police state, Paul stated,
"If we don't change our ways we will go the way of Rome and I see that as rather sad.....the worst things happen when you get the so-called Republican conservatives in charge from Nixon on down, big government flourishes under Republicans."
"It's really hard to believe it's happening right in front of us. Whether it's the torture or the process of denying habeas corpus to an American citizen."
"I think the arrogance of power that they have where they themselves are like Communists....in the sense that they decide what is right. The Communist Party said that they decided what was right or wrong, it wasn't a higher source."
Paul responded to President Bush's announcement last week that he would order the use of military assets to police America in the event of an avian flu outbreak.
"To me it's so strange that the President can make these proposals and it's even plausible. When he talks about martial law dealing with some epidemic that might come later on and having forced quarantines, doing away with Posse Comitatus in order to deal with natural disasters, and hardly anybody says anything. People must be scared to death."
Paul, himself a medical doctor, agreed that the bird flu threat was empty fearmongering.
"I believe it is the President hyping this and Rumsfeld, but it has to be in combination with the people being fearful enough that they will accept the man on the white horse. My first reaction going from my political and medical background is that it's way overly hyped and to think that they have gone this far with it, without a single case in the whole country and they're willing to change the law and turn it into a military state? That is unbelievable! They're determined to have martial law."
Paul opined that the martial law provisions now being promoted by the Bush administration were a direct response to people's unwillingness to relinquish their firearms, as was seen in New Orleans after Hurricane Katrina.
"I think they're concerned about the remnant, the remnant of those individuals who don't buy into stuff and think that they should take care of themselves on their own, that they should have their own guns and their own provisions and they don't want to depend on the government at all and I think that is a threat to those who want to hold power. They don't want any resistance to their authoritarian rule."
Paul opined that the government was on a delusional power trip that threatened the country.
"These guys are ready to start a war with Iran, Syria, North Korea or China. They can't possibly do that, it's so insane, we don't have the money, we don't have the troops, we probably don't even have the ammunition."
"But, if they are truly delusional they just might do something that's totally irrational."
Paul expressed his hope that finally some conservatives are waking up to the fact that the Bush administration is a trojan horse, especially after arch-liberal Harriet Miers was chosen by Bush to supposedly move the Supreme Court to the right, even though her record is atrocious and she has been involved in the past covering up for the Bush crime family's activities."
http://www.prisonplanet.com/articles/october2005/121005slamsbush.htm
Rogue
If anyone here is "brave" enough to face the evil truth of the "Agenda", another book for the coffee table!....
http://www.amazon.com/exec/obidos/tg/detail/-/0975290606/qid=1129175760/sr=1-1/ref=sr_1_1/102-975666....
Rogue
Katrina and Socialist Central Planning
***Rogue comment...A long but fantastic read!!!!!!!
by Llewellyn H. Rockwell, Jr.
[Posted on Monday, October 10, 2005]
Watching the Capitol Hill hearings on what went wrong after Hurricane Katrina provided a glimpse of what it must have been like in the Politburo in the 1950s. The Soviet bureaucrats would gather with the party officials and factory managers to figure out why grain production was down or why shop shelves were empty or why the bread lines were ever longer and the quality ever worse.
They gathered under the conviction that they had a workable system that was being rendered unworkable because of the incompetence of certain key players in the chain of command. No one was permitted to say that the command system itself was the problem; this would too contrary to the prevailing political ethos. Instead, they had to place blame on someone, as if all problems could be reduced to issues of obedience. It was always a scramble. Whoever was finally said to be at fault faced certain ruin.
To be sure, there was plenty of blame to go around. With rats in a maze, there is a sense in which they are all responsible for not having found the exit. If those rats could also organize into a hierarchy of control and hold trials, it would surely produce quite a show with many victims. But at the end of the day, the rats would be no closer to getting out of the maze. And so it was in the US Congress: the hearings produced a great show with no results that will make a difference for our future.
The Soviet system had to fully unravel before it became permissible to state what it used to be a crime even to think: you can't manage an economy. You can make every demand, issue a million commands, exhaust every financial resource in the state's account, elevate some people and demote others, dress up in a military costume and make grand pronouncements from a glorified pedestal, cut off fingers, toes, and heads, but in the end, you can't make the economy perform in a way that serves the people unless you let market forces work.
Not just the Soviets had to learn this. Authoritarian regimes from the beginning of time have attempted to defy the laws of economics, step on the interests of the merchant class, control and redirect the wishes of consumers and entrepreneurs, bend and kick prices and wages this way and that, and inhibit trade in every way. But they cannot finally overpower the driving desire on the part of people to control their own fate and not be subject to the slavery that is collectivism of all colors, whether red, green, or brown.
Someday, the US managers of crises will have to realize this same point. But for now, they are like Soviet bureaucrats scrambling to make an unworkable system function, and creating a scene that is as farcical as it is tragic.
Consider first how the much-glorified Department of Homeland Security responded to the Katrina crisis. There is a mysterious missing day between the time the hurricane hit and the levees broke and flooded New Orleans. During this strange Monday, August 29 — a day in which there was a window of opportunity to prevent the meltdown of civilization — why didn't federal officials respond or even pretend to respond?
The head of the Department of Homeland Security, Michael Chertoff, said that he read in the Tuesday morning newspaper that, according to the headline, "New Orleans Dodged the Bullet." So, to his mind, there was nothing to do. This was his testimony. This is not exactly an awe-inspiring admission, but it speaks to a truth that few are willing to admit: government officials live normal lives. They do not partake of the mind of God. They get their news just like you and me. And they have far less information than the body of knowledge generated by the signaling process of the market economy and the private sector.
We might even say that they are in effect sub-normal in intelligence, because government officials stand outside of society, cut off from normal channels of information that the rest of us take for granted. They are isolated from markets and the regular pressures of life. They are not owners of what they control, and have no real stake in the value of their product. They are surrounded by some of the most peculiar people in the world, namely lifetime bureaucrats, power-mad politicians, and lobbyists on the make. This is their world and this is what they know.
Now, they enjoy the illusion of being better informed than the rest of us, so it would never occur to a high official to surf Google News to find out what is really going on. Thus was it apparently beyond the capacity of FEMA to find out that the National Weather Service had issued a flood warning soon after the hurricane hit. The National Weather Service in turn was only reporting what many private local media outlets were saying.
Certainly the municipal government of New Orleans got the message. It issued a warning to residents, and then all the officials packed up their stuff and headed to Baton Rouge. I suppose that this was the plan that the bureaucrats came up with after having received a $500,000 federal grant in 1997 to design a comprehensive plan for evacuation. Half a million dollars later, they agreed what the plan should be. Two words: let's go!
Now, we can learn from observing this. It is always the case that the government's first interest in a crisis is the protection of itself. The public interest is way down the list. Government employees have no ancient code that requires them to go down with the ship. The seafaring captain might feel disgrace if he lost his crew and passengers but returned safely to shore, but the government bureaucrat would see this as nothing but rational self-interest at work. From their point of view, public service is not a suicide pact.
If this is so, are we wise to expect government service at times of crisis? Well, here is where it gets complicated. They always promise that they will take care of us. On the day the Hurricane hit, for example, President Bush made the following announcement: "For those of you who are concerned about whether or not we're prepared to help, don't be. We are. We're in place. We've got equipment in place, supplies in place. And once the — once we're able to assess the damage, we'll be able to move in and help those good folks in the affected areas."
Well, given the calamity that followed, this statement by Bush might as well have been a Soviet propaganda poster about the glorious future of socialism.
If the only response by government were to turn and run, they could be accused of hypocrisy, but it would be better than the alternative of bad government that stayed to ruin the work that markets and private individuals do.
As the Hurricane approached, for example, Mr. Bush, along with nearly every office holder in the entire region, immediately announced that there would be no tolerance of so-called price gouging. What is and what is not gouging remain undefined by law, but there are still criminal penalties attached to doing it. If you raise your prices to the point where you attract a complaint, there is a good chance that you will be thrashed as a gouger.
And yet, we have to ask ourselves what the purpose of a price is. It is a signaling device that allows market players, including both producers and consumers, to adjust their economic behavior in light of supply and demand. If supply remains the same and demand rises, the price too will have to rise so the market can clear properly. Otherwise there will be shortages and surpluses that will prove to be a benefit to no one. William Anderson has called gouging rules a form of back-door price control, and he is right. They create victims, encourage economic dislocations, and foster black markets.
One might think that a Republican administration would understand this, but reflect on the fact that Iraq still has very strict price controls on gasoline, controls that were instituted by the US after Saddam was overthrown. Don't think for a minute that it is beyond the capacity of the Bush administration to do what the Nixon administration did, which was to believe that the laws of markets can be overridden by regulatory force.
Anti-gouging laws, to the extent they are obeyed, will create shortages. But in telling the sad tale of Katrina, I would like to begin not with a case of shortage, but with a strange case of surplus.
One week after the hurricane, FEMA ordered the Army Corps of Engineers to buy 211 million pounds of ice from IAP Worldwide Services of Florida. Trucking companies were notified of a grand opportunity since the government was paying the bills for delivery, and the dispatchers sent out the word. There is no space to explore the workings of IAP Worldwide, but I will observe that the company, which exists solely to get paid by your tax dollars as a federal contractor, has a new CEO who most recently held the position of vice president of national security programs for the notorious Kellogg Brown and Root. His name is David Swindle.
But back to the story of the ensuing chaos. One trucker picked up ice in Greenville, Pennsylvania, and was told to drive it to Carthage, Missouri. When he arrived in Carthage, he was told by a FEMA official to go to Montgomery, Alabama. After a day and a half sitting in Montgomery, he was told to go to Camp Shelby, Mississippi, after which he was sent to Selma, Alabama, after which he was sent to Emporia, Virginia, where he stayed for a week burning fuel, until he was sent to North Carolina, and finally to Fremont, Nebraska, where he dropped the ice in a government storage unit. That's 4,000 miles over two weeks.
This was hardly the only case.
The news media chronicled the stories of these truckers. A truck full of ice was sent from Dubuque, Iowa, to Meridian, Mississippi, then to Barksdale Base in Louisiana, then to Columbia, South Carolina, and finally to Cumberland, Maryland, where he waited for six days before being sent to Bettendorf, Iowa, where the ice was unloaded. Another truck was sent from Wisconsin to Missouri to Selma to Memphis, before finally dropping off the ice in a storage unit.
Lew's collected speeches: $25
Do you know how many drivers were enlisted in this incredible charade? 4,000. No one knows for sure how much ice ever got through or how much good it did, if any.
In one of the first incidents reported of what was to be two weeks of catastrophe, a group of volunteer fire fighters from Houston came to New Orleans wanting to help. They were told to wait. They waited 48 hours and were ordered to go back. A group of doctors from Maryland tried to get in but FEMA sent them on to the Red Cross, which said it could do nothing without the approval of federal health officials.
After the New Orleans mayor made a call for firefighters to come help, hundreds of volunteers were sent to Atlanta, where they were put in a conference room at the Sheraton hotel and subjected to seminars on sexual harassment and other bureaucratic matters. They were then told that their job would be to distribute flyers with a message on it: call 1-800-621-FEMA. Many or even most of these well-trained people caught on to the racket and left town. Those who stuck it out and headed for Louisiana were aghast that their first assignment was not to fight fires, which had been raging for a week, but to escort President Bush on his TV-laden tour of the area.
You can see all the photos on WhiteHouse.gov.
In fact, FEMA refused offers of help of all sorts, mainly because of issues of control. FEMA declined helped from Amtrak in evacuating people from New Orleans. The Chicago municipal government was trying to send volunteers from the fire department, police department, and hospitals. FEMA said no. The same happened to New Mexico, whose governor volunteered equipment and personnel.
FEMA prevented Wal-Mart from delivering three tank trucks of water, and the Coast Guard from delivering 1,000 gallons of diesel fuel. It even cut the communications lines for Jefferson Parish. The local sheriff ending up posting armed guards to protect the restored lines from FEMA — an interesting model that many communities around the country would do well to imitate in the future.
A chief medical officer for a large ambulance company says he was unable to find helicopters to pick up dying patients at the Superdome. He walked outside and discovered that two helicopters, donated by an oil services company, had been ordered to wait in the parking lot. Morticians attempted to donate their help. But FEMA said absolutely not, on grounds that they were not officially certified by FEMA to perform such services, so the bodies of the dead piled higher.
As for the National Guard, for days it would not allow reporters into the superdome where tens of thousands were trapped. People were hungry and thirsty, but the National Guard would not allow the Red Cross to deliver any food.
Here is the astounding statement from the spokesperson of the Red Cross: "The Homeland Security Department has requested and continues to request that the American Red Cross not come back into New Orleans… Right now access is controlled by the National Guard and local authorities…. We cannot get into New Orleans against their orders."
The Salvation Army attempted to rescue two of its own officers trapped in a building and on dialysis. They rented three boats for a rescue. But they were not allowed through, though to be fair the Salvation Army did not specifically name the government as at fault, but it did point out that all private efforts were running into similar kinds of obstacles, so the message was clear.
Meanwhile, the USS Bataan, a floating hospital for 600 patients, that had ridden out the storm, was still sitting empty by the third day, not permitted to do its job.
An astounding case of ineptness comes to us from the case of three Duke University students who drove to New Orleans to help but were turned away by the National Guard. They had seen the news and knew that they could help, and wondered why they should be pushed around by bureaucrats. Being college sophomores, they took a risk. They forged press credentials, with fake IDs and shirts and the works. They went back and adopted a haughty tone. The National Guard waved them through.
Then the students drove to the Convention Center. There they found thousands of sick, hungry, thirsty, and dying people in desperate need. They found a man who had welts all over his body. He was in a tree covered with fire ants as the waters rose, and there he stayed there being bitten repeatedly for up to 24 hours.
The boys picked him up along with three others and drove them to a Baton Rouge hospital. They made another trip there and back with more people before they began to become frightened of what the government might do to them. On one return trip, they observed 150 empty buses driving the other way — and they have a video to prove it.
One can only express astonishment at how the government treated the tens of thousands of people that it had herded like cattle into large public spaces. For reasons that are still unclear, the government couldn't get its act together on transporting them out even as the people themselves were forbidden to leave. Once the central planners decided to move all these people from the Superdome to the Astrodome, no means of transport arrived, even as aerial photos showed miles and miles of public buses available.
Indeed, the first bus to reach Houston was not driven or approved by the government. It was commandeered by 20-year-old named Jabbar Gibson, who drove it from the floods and picked up as many people as he could and drove all the way to Houston, a 13-hours drive! He beat the government's system by a day. Meanwhile, the tens of thousands of people who had been shoved into the Superdome on Sunday, before the floods came, were still suffering in that massive calamity by Friday and Saturday.
Perhaps the most astounding case of incompetence has received the least attention. It relates to a 500-boat flotilla stretching over 5 miles that left for New Orleans from Acadiana Mall in Lafayette. It involved 1,000 people who had hoped to rescue hospital patients and take them to safety. It consisted of private boaters, fishermen, hunters, and others who had spent their entire lives navigating the waterways of Louisiana.
Once this caravan arrived, they were turned away by the Department of Wildlife and Fisheries, now being run by FEMA. All five hundred boats were ordered out.
After pleading, some people were told that they could take the boats to a rescue operation launch site. They reported that at this site, there were 200 agents of the government standing around doing absolutely nothing even as people were dying in hospitals and thousands were desperate to get out. After three hours, even these few boats were told to go away.
Now, President Bush has been criticized for being out to lunch on all of this. Indeed, some staff members put together a DVD of the evening news coverage for him to watch on Air Force One, which was the only way they could get him to understand the depth of the crisis. The purpose of the action was not so much to help people, of course, but rather to stop the meltdown of the president's reputation.
In fact, by the time he actually arrived in Louisiana, food and medicine deliveries, such as they were, had to be halted on order of the White House, to make room for the presidential caravan.
Then there was the matter of the government's proposed cash gifts to the victims of Katrina. Most FEMA employees knew nothing about it when their phones and offices were mauled by people demanding their cash. FEMA's website registration for victims required Internet Explorer 6.0 and could not work with any other browser. Of course this is somewhat academic, since most of the victims had no computer access at all. But those who called the number were often told to go online to register. Most of the time, people couldn't get through on the phone or online.
In one particularly interesting detail, Katrina triggered the first use of the Department of Homeland Security's great accomplishment since it was created after 9-11: the National Response Plan, a 426-page central plan for dealing with a crisis on the level of the post-Katrina floods. Here is how the government describes it:
"The National Response Plan establishes a comprehensive all-hazards approach to enhance the ability of the United States to manage domestic incidents. The plan incorporates best practices and procedures from incident management disciplines — homeland security, emergency management, law enforcement, firefighting, public works, public health, responder and recovery worker health and safety, emergency medical services, and the private sector — and integrates them into a unified structure. It forms the bases of how the federal government coordinates with state, local, and tribal governments and the private sector during incidents."
What happened to the National Response Plan after the floods? It remained what it always was: a colorful PDF download, a thick book on the management shelves, an item in the Government Printing Office catalog, bird-cage liner, and many other things. One thing it was not was a national response plan that did all those glorious things listed above. As with all these plans from time immemorial, it was a dead letter.
As for the National Guard, it did what the military does best: it started harassing the residents. Working with the police, it began to enforce an order for everyone to evacuate. As the New York Times summarized the order: "no civilians in New Orleans will be allowed to carry pistols, shotguns, or other firearms of any kind."
The National Guard allowed themselves to be videotaped going from house to house, and mansion to mansion, knocking down doors, searching for weapons, handcuffing owners and humiliating them. They called them the "holdouts," a phrase out of Baghdad.
One storm trooper — that's a pretty good name for them — was asked whether he would shoot residents if they resisted. Yes, he said. He added, "It's surreal. You never expect to do this in your own country."
The police also broke into the offices of a heroic little company in New Orleans that did not flee. Its name is DirectNIC, an Internet Service Provider, and it was staffed by friends of the Mises Institute. Through careful preparations, good generators, lots of fuel, and vast amounts of courage, this company kept providing internet service throughout. For several days after the flooding, it was the only source of information coming out of New Orleans. They had a camera on the streets below, and ventured out to take pictures of the scenes. They were first to report the looting, the explosions, the fires, and to chronicle the craziness. They became so good at acquiring fuel that they military actually came to them for diesel.
Millions were logging into their feed, and for four of the most critical days the Mises Institute actually provided the group with an external server in order to make their broadcasts possible. They were showing what the mainstream media would not show and could not show. But late one night, there was a pounding at the door. The National Guard had seen lights in the window and demanded to know what was going on in this room. Though these young people had already been interviewed on MSNBC, Fox, and were the talk of the blogosphere, the troops knew nothing about them. Astounded and confused at what they saw, the troops allowed their pictures to be taken and went on their way.
I've provided a look at some of the terrible failures by the government — not only failing to do what it claims it will do, but actively working to prevent others from helping out. The cost to human life and prosperity is incalculable. But, one might say, at least the government is generous now in preparing to spend perhaps $250 billion to clean up and reconstruct what was destroyed.
But who will get this money and where will it go? Cynics could not be more correct: the first companies to receive the money were our old friend Kellogg Brown and Root, a current client of President Bush's former campaign manager and former head of FEMA. KBR is a subsidiary of Halliburton, the company formerly headed by Dick Cheney. Another winner is Bechtel, whose former head is now in charge of Bush's Overseas Private Investment Corporation. The top rebuilding priority: repairing government military bases in Louisiana and Mississippi.
If you work for one of these companies, you will do very well by this aid. As for the victims, everyone knows that what rebuilding they do will come from their own savings. You can expect no assistance from this monstrosity that taxes and controls you relentlessly on the pretext that it will protect you and care for you when no one else will.
Fortunately for people who lived in flooded areas, they did not face the crisis alone. The private commercial sector, along with thousands of religious charities, was there to help. Indeed, John Tierney of the New York Times was one of the few mainstream journalists to note that Wal-Mart improved its image after Katrina. Its stores in the disaster-stricken areas still carried generators in areas. Wal-Mart trucks rode into to areas immediately following the hurricane and gave away chain saws, boots, sheets, and clothes for shelters, plus water and ice. It alone had prepared for emergency with its own emergency operations center.
Chris Westley further noted that Wal-Mart gave $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals, and the promise of a job for every one of its displaced workers. After comparing FEMA's failures with Wal-Mart's successes, he concluded that the government emergency management ought to be abolished.
Tierney, meanwhile, drew the wrong conclusion. He says that the Wal-Mart CEO "is the kind of leader we need to oversee the tens or hundreds of billions that Washington will be spending on the Gulf Coast. Scott could insist on low everyday prices while still leaving the area as well prepared for the next disaster as Wal-Mart was for Katrina."
In fact, if Lee Scott were given a government job, it would only be a matter of time before he became just another Michael Brown, the disgraced former FEMA head. This isn't a matter of character. It is a matter of the maze in which you find yourself — the one made by the market so that it has large exit signs, or the one that is government's, that is, the one with no exits at all.
As Walter Block, Mark Thornton, and many others have shown, it was not the storm as such that did the damage, but the failure of the government levees. Combined with the levees-only river management strategy of the Army Corps of Engineers, the floods were a disaster waiting to happen. Just imagine if the town were private like your home or car. Insurance companies would have taken a huge role in risk assessment, not only charging more for higher risk but insisting on management strategies that reduce risk and rewarding those who adopt those strategies with better premiums. This works on the same principles as you home owners' insurance, which combines rules and incentives to reduce the likelihood of losses.
Government insurance, however, makes us less cautious and more willing to take risks. It prices coverage from losses far too low and creates an environment where disasters like flooding are waiting to happen. With programs like subsidized flood insurance, government is like a bad mother who pays her children to run with scissors.
Government ownership is even worse because there are no signaling systems in operation at all. It was also government that created a false sense of security for people in New Orleans, who were led to believe that the levees would hold and pumps would work. And when the floods finally did come, they were told the government would be there to manage the crisis.
But the government cannot manage crisis, as the response to Katrina demonstrated. The local government fled. The state government was dithering. And the federal government actively worked to prevent good things from happening. The thousands and millions of acts of private heroism that took place after Katrina occurred despite the government and not because of it.
And yet what lessons does the political culture want us to take from this? It is the same lessons we are instructed to learn after NASA spends and spends and still can't seem to make a reliable space shuttle. We are told that NASA needs more money. The public schools absorb many times more — thousands times more — in resources than private schools, and still can't perform well. So we are told that they need more money.
The federal government spends trillions over years to "protect" the country and can't fend off a handful of malcontents with an agenda. And so we are told that the government needs to start several new wars and erect a massive new bureaucracy and put sections of the country under martial law at the slightest sign of trouble.
So too, Congress can allocate a trillion dollars to fix every levee, fully preventing the last catastrophe, but not the next one. The real problem is the same in all these cases, not insufficient resources but public ownership and management.
Public ownership has encouraged people to adopt a negligent attitude toward even such obvious risks. Private developers and owners, in contrast, demand to know every possible scenario as a way to protect their property. But public owners have no real stake in the outcome and lack the economic capacity to calibrate resource allocation to risk assessment. In other words, the government manages irresponsibly and incompetently.
Actually, it was Mr. Bush who said one of the most sensible things, on September 2, 2005: "If you want to help, if you're listening to this broadcast, contribute cash to the Salvation Army and the Red Cross…. They're on the front lines providing help to the people who need help."
But it was two weeks later when his other instincts kicked in and he delivered a very different message, one that is deeply alarming. He said: "It is now clear that a challenge on this scale requires greater federal authority and a broader role for the armed forces — the institution of our government most capable of massive logistical operations on a moment's notice."
Interesting that his beloved military was not there at a moment's notice. It now cites its own failures as the great excuse to expand its powers. So the government will spend the next several years preparing for another Katrina that will never come, just as it spent the last several years preparing for another 9-11 that will never come. The next crisis will be something completely unexpected, and once again the government will fail. But we will be left with a government with some very bad habits, among which are declarations of martial law, mandatory evacuations, gun and price controls, and other totalitarian ways.
And given that that this is a Republican administration with its own internal culture, and its attachment to military means, we get what can only be described as the continuation of the fascist track: the militarization of the country under its own armed forces.
So far as I know, this passing remark by Mr. Bush has provoked no commentary in the national press. Commentators in the organized conservative movement have displayed an appalling deference to administration's priorities, with National Review consistently arguing for more spending and militarization, Rush Limbaugh calling for price gougers to be strung up, and even some free-market friends calling for billions to rebuild New Orleans as a way of showing terrorists that we won't let the weather get in the way of progress. On the last point, I kid you not.
Conservatives have been especially bad on tolerating egregious uses of the military. We need to reflect on what it means to have the military take over in the event of crisis. What kind of ideology promotes such things, and looks the other way when it happens? I think I know, and it serves as a reminder that not all threats to freedom come from the Left.
A clue comes from the neo-Nazi novel called the Turner Diaries, sometimes cited as the motivating force for the bombing of the Oklahoma federal building, which ends in what the author regards as a political utopia. After a world war that exterminates all non-whites, a military regime takes over the United States and centrally plans the economy under permanent martial law. All food and water are distributed on military trucks, all production takes place on a planned basis, and the merchant class is required to obey or be shot.
The author describes this race-based national socialism as if it is a system with an inherent appeal to the reader, and perhaps there are people economically ignorant enough and full of enough loathing for humanity and freedom to regard it as attractive. I do know that in our own times there are people waiting in the wings who long for power and who are drawn to the ideal of a militarized society and a centrally managed economy. Some call themselves conservatives, and they are as much a threat to civilization as those who call themselves liberals.
But let me end with several notes of optimism. The first is implied in all that I said above. The government cannot actually do what it promises, and there is a way in which we can only be thankful for that. It cannot succeed in managing a central plan. Its plans will always fail. The government tries to use its failures as an excuse for more power, but with every failure comes a substantial degree of public humiliation for the public sector, and that humiliation can provide a basis for the undoing of government authority.
Some people say that a loss of government authority will mean the breakdown of civilization. Actually it will create the preconditions for the reestablishment of civilization, and in a state of freedom that can happen very quickly. The aftermath of Katrina illustrated in a million individual acts of charity and enterprise that people can manage their affairs, even amidst the chaos.
The calamity following Katrina was an egregious display, one that gave the federal government a black eye. The Democrats will continue to use this to harm the Republicans, which is fine by me, but it is not just Mr. Bush that is suffering, but the whole apparatus of central planning by decree from above. A government that cannot manage a crisis should not be trusted to manage anything at all. Thanks to Katrina and its dreadful aftermath, I think it's fair to say that the age of not trusting government has returned with a vengeance.
It took decades for the rot to give way underneath the Soviet apparatus of central planning. But eventually the implausibility of the entire project was no longer possible to deny. It gave way under an intellectual reaction against the whole of socialism. We are seeing something like that take place today, as government fails in Iraq and New Orleans and in every place around the country and the world where it causes problems and creates no solutions.
The age of confident central planning is behind us. Right now, the state is just trying to keep its head above water. If freedom is to have a future, the time will come when it will sink to an ignoble end, and we will wonder how we ever believed in this myth called government crisis management.
The advocates of freedom and the partisans of private enterprise will be there with the intellectual equivalent of flotillas, barges, buses, helicopters, and the whole apparatus necessary to rescue liberty from every attempt to kill it. And when our City on a Hill comes to be, it will be privately built to withstand any flood.
Llewellyn H. Rockwell, Jr., is president of the Mises Institute and editor of Lewrockwell.com. Rockwell@mises.org. This speech was given at the Supporters Summit, October 7, 2005, Auburn, Alabama. Comment on this piece on the blog.
One does not make predictions about the market - the market can go up or down at any time. It is only the probability (of each move) that varies
#board-3736
Rogue
Katrina and Socialist Central Planning
by Llewellyn H. Rockwell, Jr.
[Posted on Monday, October 10, 2005].....
http://www.investorshub.com/boards/read_msg.asp?message_id=8081914
Did anyone else read that article besides me????? I thought it may have brought comments from some here about the author being a "wacko, looney or nuts" or something??
Am I starting to convince everyone here that thing's have gone seriously wrong in this country?
I thought it really "captured" the incredibly corrupt,failed and awful direction our government has gone in......
Like "central planning".....Is it by design that we are loosing our freedom and liberty???????
Rogue
Rogues message to all: Read the preceding article and tell me that my message is any different from the author of the long but EXCELLENT article??????????
This "system" we have here now in place is rotten to the core.....it doesn't work. The writer is "dead right-on" about this trend toward fascistic totalitarianism in our country today. Anyone paying attention here?....it's plain to see!
It(fascistic totalitarianism) will hopefully be "crushed" by the spirit of the individual yearning to be free!!!
After reading the preceding article....I URGE ALL OF YOU ON THIS BOARD to get your copy of Ayn Rands "The Virtue of Selfishness".
http://www.amazon.com/exec/obidos/tg/detail/-/0451163931/qid=1129114406/sr=2-1/ref=pd_bbs_b_2_1/102-....
I believe most(but not all) of her ideas can provide great answers to our societal ills today. A very provocative book of wisdom!
Rogue
=== The Gold Parachute ===
Or, how to stop worrying and save yourself from the president’s profligate spending and stubborn insistence on no new taxes.
By James J. Cramer
It’s dawning on wall street that George W. Bush may be the first president since Lyndon B. Johnson who believes that we can have a guns-and-butter federal spending policy without creating a serious inflation spiral, if not outright government bankruptcy. At least LBJ, to his credit, believed that there were limits to profligacy and that taxes had to be raised. Not President Bush. He’s making Johnson look like a fiscal conservative, what with his insistence on waging a war in Iraq that’s costing $177 million a day and rebuilding New Orleans by taking on a monstrous load of federal debt.
For the longest time, because Bush is a Republican, we on Wall Street simply didn’t believe that he could be a reckless spender. We knew only two paradigms: You either spent less and cut taxes or you spent more and raised taxes. Both courses at least presumed some sacrifice at some time. Not Bush’s plan. He’s gone on both the biggest spending binge and the lowest taxation course in U.S. history, which, alas, will produce gigantic liabilities down the road. Of course, he’ll be back on the ranch by the time his successor will have to deal with his inflation and currency debasement. Our only hope that financial disaster won’t strike sooner lies with the Chinese, who actually fund our deficit by buying our Treasuries—$242 billion worth, or 12 percent of all foreign holdings. If the Chinese decide to be good communists and stop buying our bonds, the Feds will have to raise rates to attract new investors and the reaper will be at our doorstep with interest rates more akin to those of South than North America. Right now, it’s not a problem. But in a year or two or maybe less, I perceive that the government will throw a bond auction and nobody will show, including the Chinese, until rates shoot up dramatically.
What if that happens? What if our fiscally clueless president really does keep spending at a rate that far exceeds what our government can take in at these low tax rates? What happens if the president’s acolytes and the Pollyannas in Treasury keep believing that we can grow our way, fairy-tale-like, out of this jam? You can bet that when you cash out your nest egg of nice U.S.-based mutual funds and solid common stocks, your dollars will fit nicely into a wheelbarrow designed specifically to cart worthless currency to the bank.
Or you can take matters into your own hands and build a portfolio around these five imminent-Bush-disaster stocks. Be the first on your block to immunize yourself against what may turn out to be the most financially reckless president in history with these anti-inflation equities designed to profit from our president’s unbelievably foolish Panglossian profligacy.
Any portfolio designed to counter government-mandated inflation has to be bedrocked in gold, and there is no gold outfit that can rival Goldcorp, known as Gigi on Wall Street for its GG symbol. Gigi is on pace to produce 1.1 million ounces of the precious metal this year, with a finding cost of $60 per ounce (significantly lower than the industry standard). While Gigi is wildly profitable with gold at $465—you didn’t know gold had shot up that much lately? Well, what did you expect with this deficit?—I figure gold could reach $1,000 if the Chinese stop buying our paper. Once the levee to the Treasuries breaks, the easy high ground worth gaining will be gold. Gigi’s got no debt and is incredibly well run—the only gold stock you will ever need. Oh, and like all the companies in this portfolio, it’s not based in the United States, so it’s less tied to the health of the U.S. economy and the strength of the dollar. What a godsend!
When paper gets debased, you can’t have enough minerals, gold or otherwise, in your stock basket. That’s why I think you should shell out $160 a share for Rio Tinto, the world’s largest mineral seller—it produces silver, copper, iron ore, coal, diamonds, and even zircon (what New York society may be stuck wearing if government spending stays unchecked). Minerals keep their value during periods of inflation, and Rio Tinto has become the chief supplier for China’s industrial revolution.
The world is running out of oil, of course, and the Bush policy of anti-conservation—his bold “drive less” initiative notwithstanding—assures us that we are going to pay full boat for oil for a long time to come. To my way of thinking, you want to be in an oil company that will be allowed to drill and find oil anywhere, which is something U.S. companies can’t necessarily count on, as the welcome mat increasingly gets yanked for Yanks. You need Total, the French Foreign Legion of oil companies. Whether it’s building nuclear power plants to generate electricity or steam to blast oil out of the ground in Canada, or drilling in Iran and Myanmar—two places we aren’t all that welcome—Total’s got your bases covered for the surge in crude.
For those of you who think the energy bill won’t produce anything but subsidies for a bunch of pals of Bush’s or, at best, heavily polluting alternatives to oil, may I give you Sasol? Using pioneering techniques, Sasol’s got the only gas-to-liquids technology that can save the Free World from our insatiable thirst. Of course, it can’t make enough of the darned stuff, but what it can make, it will be able to charge a fortune for. Added bonus: Sasol’s located in Johannesburg, so be sure to take your 2.6 percent dividend and leave it in Krugerrands in South Africa.
Finally, you’ll need some coal holdings, because when things get desperate you can count on this White House to sanction the use of so-called clean coal from Wyoming for everything. I like Fording Canadian Coal Trust because it yields 14 percent and has long-lived reserves that will certainly outlast this administration. It would help if you were domiciled in Canada, a nation also once known for its profligacy but now a beacon of fiscal sanity, because then you wouldn’t get dinged by Uncle Sam’s Canadian withholding tax (generally 15 percent). That way, you could take the dividend in the very strong loonie, long a laughingstock currency until this president decided that debasing the greenback is just one more acceptable casualty of making sure that the rich get richer with extremely low taxes. Thanks, Mr. President!
Look, I don’t know how bad things are going to get. Fortunately, you can do only so much damage to the deficit in three years’ time. But considering Bush has never vetoed a spending bill and would rather die than raise taxes, you have to believe we’d be just plain stupid to make a huge 401(k) bet on strictly domestic stocks. I’m not waiting until the Chinese decide to walk away from the Treasuries table. I’d start buying these stocks now, even if I were a Republican.
Rogue
Who Will Benefit From...
Continued Growth in China, India and Brazil?
Author: Monty Guild
Tuesday, October 11, 2005, 7:26:00 PM EST
GROWTH IN CHINA, INDIA AND BRAZIL BENEFIT ENERGY, GOLD AND NON DOLLAR INVESTMENTS.
ENERGY, GOLD AND NON DOLLAR INVESTMENTS ARE ALL BENEFICIARIES OF CONTINUED GROWTH IN CHINA, INDIA AND BRAZIL.
Today, world oil production and world oil consumption are roughly in balance [assuming production shut downs for recent hurricanes end soon]. World consumption and production of oil are each about 85 million barrels per day.
In a nutshell, world energy production is not rising, while world energy consumption is. The optimists have unrealistically been hoping that Saudi Arabia can go from 12 million barrels a day of production to 20 -25 million barrels a day over the next few years. This is unvarnished wishful thinking, and in my opinion, has a probability of less than 1%.
In 1985, world energy demand was 65 million barrels a day, and in 1950 it was 10 million barrels per day. The trend is up. The US may consume less due to higher prices, so too may every other developed country. However, in order to grow both India and China will each increase their oil demand by 6-8% in the next year. When you take into consideration all of the other nations who also want to grow, and thus consume more energy per capita, the trend is still higher. Consider the large populations in Russia, Brazil, Indonesia, and Latin America who want more energy. In our opinion, it is rational to expect continued growth of demand, even if demand from the developed world diminishes by a few percent per year.
What about supply? Can Saudi Arabia produce a lot more? We do not think so. Can other new supplies be found? Possibly, but only after large sums of money are expended, and much of this energy will be very expensive to produce. All of the previous points argue for higher energy prices. I have for some time, been predicting $100 dollar per barrel oil by 2008. I continue to hold that view.
Higher energy prices, higher prices for other commodities and a growing realization that inflation will again reassert itself are all reasons to own some gold and gold shares in your portfolio. Energy is a component of almost every economic activity. Gold is real money. Both should do well in the future.
CHINA HINTS THAT THEIR FOREIGN EXCHANGE RESERVES POLICY MAY CHANGE-THEY MAY BUY LESS U.S. BONDS AND MORE RESOURCES
Zheng Xinli Deputy Minister of China’s Central Policy Research Office recently said “I think that it is better that China should invest its huge forex reserves in “overseas energy resources” as reserves. Zheng made his remarks at an investment and energy conference. Note: China continues to buy up resources worldwide, most recently they purchased EnCana’s energy assets in Ecuador.
We are not alone is stating the obvious fact that China’s demand for raw materials has been driving China’s foreign policy. The September/October issue of Foreign Affairs magazine says the same thing. China is taking a very long-term view and in the longer term, they know will need a lot of raw materials.
ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT [OECD] EXPECTS RAPID CHINA GROWTH
China expected to grow at 9% plus in 2006 according to the OECD. If this is correct, China will continue to be a major force for the acquisition of raw materials, including energy, on a global basis. The OECD is predicting a growth of 8% in China’s demand for energy in 2006.
Some pessimists argue that China can’t grow that fast because the price of energy will stunt their growth. According to the OECD, energy intensiveness in China is higher than in the west but is declining. In other words, China is using energy more effectively, which will allow economic growth to continue. This is important. If China keeps growing, world energy prices and other commodity prices will stay higher for longer. We believe that China will keep growing rapidly at least for one or two more years.
CHINA IS MAKING ALL THE NEW TRADE AGREEMENTS AND IS ABLE TO NEGOTIATE NEW AGREEMENTS MUCH BETTER THAN THE U.S. AND EUROPE
China does not have to worry about appeasing labor unions and environmentalists so they are inking many new trade deals and have been doing so for years. This is one reason that China is growing so fast and the U.S. and Europe are lagging behind. In order for European or U.S. parliaments to pass trade bills, many interest groups must be appeased. China has no such problem. We look for China to continue to grow and the U.S. to continue to decline as a world economic power.
ECONOMIC DOMINANCE LEADS TO POLITICAL POWER
The key to U.S. economic dominance, and thus political power has been the U.S. education system, financial and accounting transparency, a durable and fair legal system, availability of capital, immigration, creativity, and the U.S. work ethic. Some of these advantages are being diminished rapidly. In my opinion, the problem areas are: an immigration policy that encourages uneducated illegal immigrants and discriminates against educated professionals who wish to enter the U.S. legally, and a deteriorating system of public secondary education that may eventually hurt the U.S.’s ability to compete.
If China, India and others can string together the positive characteristics of the U.S. that are listed above, for a prolonged period (maybe 5 decades), they can rise to world economic dominance and thus political dominance. It is however, easier said than done. Often repressive regimes have a problem with transparency, and fostering a legal framework that is considered fair enough to attract capital from foreign sources. In addition, hidebound, traditional nations typically do not like an open immigration that brings the best and brightest from around the world.
Democratic nations with a large percentage of undereducated but voting populace have a hard time making informed decisions about economic issues. Politically popular give aways and irrational economic planning often result.
Nations, which have a tradition of corruption, have a hard time ridding themselves of this scourge.
Some are quick to say that we will all be working for the Chinese or Indians in a few decades. It may come to pass, but may I point out that both countries have a lot of hurdles to clear before they are respected global political and economic leaders.
SUMMARY
In general, our thinking has not changed for over two years. We think that natural gas stocks, coal stocks, energy service providers, gold, gold stocks and energy related stocks in Brazil, India, Canada, Europe and the U.S. are attractive. We like the prospects for growth in Japan and Korea. We also believe that core positions in healthcare stocks in Japan, U.S. and Europe will be beneficiaries of powerful demographic trends
Rogue
from Clive Mound...( I agree somewhat with this analysis)..
Looking at the 6-month oil chart it is clear that, having broken down from this top formation, the price is likely to correct further back towards the 200-day moving average. The target projection from this formation is a $7 drop from the neckline at about $63, which would mean it dropping further to $56 area, which is where common sense would suggest the correction will end, as there is strong support here in the vicinity of the 200-day moving average. One of the principal reasons for this correction, technically speaking, is the large gap that has opened up between the 50 and 200-day moving averages, and in order for this to close up, oil will need to drop back for a while.
The important point to grasp - and the core message of this update - is that oil stocks have already largely discounted this correction in oil - this, and the speculative froth - was why they dropped back so severely. Therefore, it is viewed as being for the most part too late to sell oil stocks, if you didn’t sidestep this correction, then you are probably better off sitting it out now. Although oil may have $7 to drop, the OIX index may only fall back to the 500 area, which is only 25 points below the current level. A very important corollary of this observation is that, rather than thinking of selling at this time, you should be pinpointing the better stocks to buy at good prices in the coming weeks - taking advantage of the sudden big discount over prices just a week or so ago.
Rogue
Katrina and Socialist Central Planning
by Llewellyn H. Rockwell, Jr.
[Posted on Monday, October 10, 2005]
Watching the Capitol Hill hearings on what went wrong after Hurricane Katrina provided a glimpse of what it must have been like in the Politburo in the 1950s. The Soviet bureaucrats would gather with the party officials and factory managers to figure out why grain production was down or why shop shelves were empty or why the bread lines were ever longer and the quality ever worse.
They gathered under the conviction that they had a workable system that was being rendered unworkable because of the incompetence of certain key players in the chain of command. No one was permitted to say that the command system itself was the problem; this would too contrary to the prevailing political ethos. Instead, they had to place blame on someone, as if all problems could be reduced to issues of obedience. It was always a scramble. Whoever was finally said to be at fault faced certain ruin.
To be sure, there was plenty of blame to go around. With rats in a maze, there is a sense in which they are all responsible for not having found the exit. If those rats could also organize into a hierarchy of control and hold trials, it would surely produce quite a show with many victims. But at the end of the day, the rats would be no closer to getting out of the maze. And so it was in the US Congress: the hearings produced a great show with no results that will make a difference for our future.
The Soviet system had to fully unravel before it became permissible to state what it used to be a crime even to think: you can't manage an economy. You can make every demand, issue a million commands, exhaust every financial resource in the state's account, elevate some people and demote others, dress up in a military costume and make grand pronouncements from a glorified pedestal, cut off fingers, toes, and heads, but in the end, you can't make the economy perform in a way that serves the people unless you let market forces work.
Not just the Soviets had to learn this. Authoritarian regimes from the beginning of time have attempted to defy the laws of economics, step on the interests of the merchant class, control and redirect the wishes of consumers and entrepreneurs, bend and kick prices and wages this way and that, and inhibit trade in every way. But they cannot finally overpower the driving desire on the part of people to control their own fate and not be subject to the slavery that is collectivism of all colors, whether red, green, or brown.
Someday, the US managers of crises will have to realize this same point. But for now, they are like Soviet bureaucrats scrambling to make an unworkable system function, and creating a scene that is as farcical as it is tragic.
Consider first how the much-glorified Department of Homeland Security responded to the Katrina crisis. There is a mysterious missing day between the time the hurricane hit and the levees broke and flooded New Orleans. During this strange Monday, August 29 — a day in which there was a window of opportunity to prevent the meltdown of civilization — why didn't federal officials respond or even pretend to respond?
The head of the Department of Homeland Security, Michael Chertoff, said that he read in the Tuesday morning newspaper that, according to the headline, "New Orleans Dodged the Bullet." So, to his mind, there was nothing to do. This was his testimony. This is not exactly an awe-inspiring admission, but it speaks to a truth that few are willing to admit: government officials live normal lives. They do not partake of the mind of God. They get their news just like you and me. And they have far less information than the body of knowledge generated by the signaling process of the market economy and the private sector.
We might even say that they are in effect sub-normal in intelligence, because government officials stand outside of society, cut off from normal channels of information that the rest of us take for granted. They are isolated from markets and the regular pressures of life. They are not owners of what they control, and have no real stake in the value of their product. They are surrounded by some of the most peculiar people in the world, namely lifetime bureaucrats, power-mad politicians, and lobbyists on the make. This is their world and this is what they know.
Now, they enjoy the illusion of being better informed than the rest of us, so it would never occur to a high official to surf Google News to find out what is really going on. Thus was it apparently beyond the capacity of FEMA to find out that the National Weather Service had issued a flood warning soon after the hurricane hit. The National Weather Service in turn was only reporting what many private local media outlets were saying.
Certainly the municipal government of New Orleans got the message. It issued a warning to residents, and then all the officials packed up their stuff and headed to Baton Rouge. I suppose that this was the plan that the bureaucrats came up with after having received a $500,000 federal grant in 1997 to design a comprehensive plan for evacuation. Half a million dollars later, they agreed what the plan should be. Two words: let's go!
Now, we can learn from observing this. It is always the case that the government's first interest in a crisis is the protection of itself. The public interest is way down the list. Government employees have no ancient code that requires them to go down with the ship. The seafaring captain might feel disgrace if he lost his crew and passengers but returned safely to shore, but the government bureaucrat would see this as nothing but rational self-interest at work. From their point of view, public service is not a suicide pact.
If this is so, are we wise to expect government service at times of crisis? Well, here is where it gets complicated. They always promise that they will take care of us. On the day the Hurricane hit, for example, President Bush made the following announcement: "For those of you who are concerned about whether or not we're prepared to help, don't be. We are. We're in place. We've got equipment in place, supplies in place. And once the — once we're able to assess the damage, we'll be able to move in and help those good folks in the affected areas."
Well, given the calamity that followed, this statement by Bush might as well have been a Soviet propaganda poster about the glorious future of socialism.
If the only response by government were to turn and run, they could be accused of hypocrisy, but it would be better than the alternative of bad government that stayed to ruin the work that markets and private individuals do.
As the Hurricane approached, for example, Mr. Bush, along with nearly every office holder in the entire region, immediately announced that there would be no tolerance of so-called price gouging. What is and what is not gouging remain undefined by law, but there are still criminal penalties attached to doing it. If you raise your prices to the point where you attract a complaint, there is a good chance that you will be thrashed as a gouger.
And yet, we have to ask ourselves what the purpose of a price is. It is a signaling device that allows market players, including both producers and consumers, to adjust their economic behavior in light of supply and demand. If supply remains the same and demand rises, the price too will have to rise so the market can clear properly. Otherwise there will be shortages and surpluses that will prove to be a benefit to no one. William Anderson has called gouging rules a form of back-door price control, and he is right. They create victims, encourage economic dislocations, and foster black markets.
One might think that a Republican administration would understand this, but reflect on the fact that Iraq still has very strict price controls on gasoline, controls that were instituted by the US after Saddam was overthrown. Don't think for a minute that it is beyond the capacity of the Bush administration to do what the Nixon administration did, which was to believe that the laws of markets can be overridden by regulatory force.
Anti-gouging laws, to the extent they are obeyed, will create shortages. But in telling the sad tale of Katrina, I would like to begin not with a case of shortage, but with a strange case of surplus.
One week after the hurricane, FEMA ordered the Army Corps of Engineers to buy 211 million pounds of ice from IAP Worldwide Services of Florida. Trucking companies were notified of a grand opportunity since the government was paying the bills for delivery, and the dispatchers sent out the word. There is no space to explore the workings of IAP Worldwide, but I will observe that the company, which exists solely to get paid by your tax dollars as a federal contractor, has a new CEO who most recently held the position of vice president of national security programs for the notorious Kellogg Brown and Root. His name is David Swindle.
But back to the story of the ensuing chaos. One trucker picked up ice in Greenville, Pennsylvania, and was told to drive it to Carthage, Missouri. When he arrived in Carthage, he was told by a FEMA official to go to Montgomery, Alabama. After a day and a half sitting in Montgomery, he was told to go to Camp Shelby, Mississippi, after which he was sent to Selma, Alabama, after which he was sent to Emporia, Virginia, where he stayed for a week burning fuel, until he was sent to North Carolina, and finally to Fremont, Nebraska, where he dropped the ice in a government storage unit. That's 4,000 miles over two weeks.
This was hardly the only case.
The news media chronicled the stories of these truckers. A truck full of ice was sent from Dubuque, Iowa, to Meridian, Mississippi, then to Barksdale Base in Louisiana, then to Columbia, South Carolina, and finally to Cumberland, Maryland, where he waited for six days before being sent to Bettendorf, Iowa, where the ice was unloaded. Another truck was sent from Wisconsin to Missouri to Selma to Memphis, before finally dropping off the ice in a storage unit.
Lew's collected speeches: $25
Do you know how many drivers were enlisted in this incredible charade? 4,000. No one knows for sure how much ice ever got through or how much good it did, if any.
In one of the first incidents reported of what was to be two weeks of catastrophe, a group of volunteer fire fighters from Houston came to New Orleans wanting to help. They were told to wait. They waited 48 hours and were ordered to go back. A group of doctors from Maryland tried to get in but FEMA sent them on to the Red Cross, which said it could do nothing without the approval of federal health officials.
After the New Orleans mayor made a call for firefighters to come help, hundreds of volunteers were sent to Atlanta, where they were put in a conference room at the Sheraton hotel and subjected to seminars on sexual harassment and other bureaucratic matters. They were then told that their job would be to distribute flyers with a message on it: call 1-800-621-FEMA. Many or even most of these well-trained people caught on to the racket and left town. Those who stuck it out and headed for Louisiana were aghast that their first assignment was not to fight fires, which had been raging for a week, but to escort President Bush on his TV-laden tour of the area.
You can see all the photos on WhiteHouse.gov.
In fact, FEMA refused offers of help of all sorts, mainly because of issues of control. FEMA declined helped from Amtrak in evacuating people from New Orleans. The Chicago municipal government was trying to send volunteers from the fire department, police department, and hospitals. FEMA said no. The same happened to New Mexico, whose governor volunteered equipment and personnel.
FEMA prevented Wal-Mart from delivering three tank trucks of water, and the Coast Guard from delivering 1,000 gallons of diesel fuel. It even cut the communications lines for Jefferson Parish. The local sheriff ending up posting armed guards to protect the restored lines from FEMA — an interesting model that many communities around the country would do well to imitate in the future.
A chief medical officer for a large ambulance company says he was unable to find helicopters to pick up dying patients at the Superdome. He walked outside and discovered that two helicopters, donated by an oil services company, had been ordered to wait in the parking lot. Morticians attempted to donate their help. But FEMA said absolutely not, on grounds that they were not officially certified by FEMA to perform such services, so the bodies of the dead piled higher.
As for the National Guard, for days it would not allow reporters into the superdome where tens of thousands were trapped. People were hungry and thirsty, but the National Guard would not allow the Red Cross to deliver any food.
Here is the astounding statement from the spokesperson of the Red Cross: "The Homeland Security Department has requested and continues to request that the American Red Cross not come back into New Orleans… Right now access is controlled by the National Guard and local authorities…. We cannot get into New Orleans against their orders."
The Salvation Army attempted to rescue two of its own officers trapped in a building and on dialysis. They rented three boats for a rescue. But they were not allowed through, though to be fair the Salvation Army did not specifically name the government as at fault, but it did point out that all private efforts were running into similar kinds of obstacles, so the message was clear.
Meanwhile, the USS Bataan, a floating hospital for 600 patients, that had ridden out the storm, was still sitting empty by the third day, not permitted to do its job.
An astounding case of ineptness comes to us from the case of three Duke University students who drove to New Orleans to help but were turned away by the National Guard. They had seen the news and knew that they could help, and wondered why they should be pushed around by bureaucrats. Being college sophomores, they took a risk. They forged press credentials, with fake IDs and shirts and the works. They went back and adopted a haughty tone. The National Guard waved them through.
Then the students drove to the Convention Center. There they found thousands of sick, hungry, thirsty, and dying people in desperate need. They found a man who had welts all over his body. He was in a tree covered with fire ants as the waters rose, and there he stayed there being bitten repeatedly for up to 24 hours.
The boys picked him up along with three others and drove them to a Baton Rouge hospital. They made another trip there and back with more people before they began to become frightened of what the government might do to them. On one return trip, they observed 150 empty buses driving the other way — and they have a video to prove it.
One can only express astonishment at how the government treated the tens of thousands of people that it had herded like cattle into large public spaces. For reasons that are still unclear, the government couldn't get its act together on transporting them out even as the people themselves were forbidden to leave. Once the central planners decided to move all these people from the Superdome to the Astrodome, no means of transport arrived, even as aerial photos showed miles and miles of public buses available.
Indeed, the first bus to reach Houston was not driven or approved by the government. It was commandeered by 20-year-old named Jabbar Gibson, who drove it from the floods and picked up as many people as he could and drove all the way to Houston, a 13-hours drive! He beat the government's system by a day. Meanwhile, the tens of thousands of people who had been shoved into the Superdome on Sunday, before the floods came, were still suffering in that massive calamity by Friday and Saturday.
Perhaps the most astounding case of incompetence has received the least attention. It relates to a 500-boat flotilla stretching over 5 miles that left for New Orleans from Acadiana Mall in Lafayette. It involved 1,000 people who had hoped to rescue hospital patients and take them to safety. It consisted of private boaters, fishermen, hunters, and others who had spent their entire lives navigating the waterways of Louisiana.
Once this caravan arrived, they were turned away by the Department of Wildlife and Fisheries, now being run by FEMA. All five hundred boats were ordered out.
After pleading, some people were told that they could take the boats to a rescue operation launch site. They reported that at this site, there were 200 agents of the government standing around doing absolutely nothing even as people were dying in hospitals and thousands were desperate to get out. After three hours, even these few boats were told to go away.
Now, President Bush has been criticized for being out to lunch on all of this. Indeed, some staff members put together a DVD of the evening news coverage for him to watch on Air Force One, which was the only way they could get him to understand the depth of the crisis. The purpose of the action was not so much to help people, of course, but rather to stop the meltdown of the president's reputation.
In fact, by the time he actually arrived in Louisiana, food and medicine deliveries, such as they were, had to be halted on order of the White House, to make room for the presidential caravan.
Then there was the matter of the government's proposed cash gifts to the victims of Katrina. Most FEMA employees knew nothing about it when their phones and offices were mauled by people demanding their cash. FEMA's website registration for victims required Internet Explorer 6.0 and could not work with any other browser. Of course this is somewhat academic, since most of the victims had no computer access at all. But those who called the number were often told to go online to register. Most of the time, people couldn't get through on the phone or online.
In one particularly interesting detail, Katrina triggered the first use of the Department of Homeland Security's great accomplishment since it was created after 9-11: the National Response Plan, a 426-page central plan for dealing with a crisis on the level of the post-Katrina floods. Here is how the government describes it:
"The National Response Plan establishes a comprehensive all-hazards approach to enhance the ability of the United States to manage domestic incidents. The plan incorporates best practices and procedures from incident management disciplines — homeland security, emergency management, law enforcement, firefighting, public works, public health, responder and recovery worker health and safety, emergency medical services, and the private sector — and integrates them into a unified structure. It forms the bases of how the federal government coordinates with state, local, and tribal governments and the private sector during incidents."
What happened to the National Response Plan after the floods? It remained what it always was: a colorful PDF download, a thick book on the management shelves, an item in the Government Printing Office catalog, bird-cage liner, and many other things. One thing it was not was a national response plan that did all those glorious things listed above. As with all these plans from time immemorial, it was a dead letter.
As for the National Guard, it did what the military does best: it started harassing the residents. Working with the police, it began to enforce an order for everyone to evacuate. As the New York Times summarized the order: "no civilians in New Orleans will be allowed to carry pistols, shotguns, or other firearms of any kind."
The National Guard allowed themselves to be videotaped going from house to house, and mansion to mansion, knocking down doors, searching for weapons, handcuffing owners and humiliating them. They called them the "holdouts," a phrase out of Baghdad.
One storm trooper — that's a pretty good name for them — was asked whether he would shoot residents if they resisted. Yes, he said. He added, "It's surreal. You never expect to do this in your own country."
The police also broke into the offices of a heroic little company in New Orleans that did not flee. Its name is DirectNIC, an Internet Service Provider, and it was staffed by friends of the Mises Institute. Through careful preparations, good generators, lots of fuel, and vast amounts of courage, this company kept providing internet service throughout. For several days after the flooding, it was the only source of information coming out of New Orleans. They had a camera on the streets below, and ventured out to take pictures of the scenes. They were first to report the looting, the explosions, the fires, and to chronicle the craziness. They became so good at acquiring fuel that they military actually came to them for diesel.
Millions were logging into their feed, and for four of the most critical days the Mises Institute actually provided the group with an external server in order to make their broadcasts possible. They were showing what the mainstream media would not show and could not show. But late one night, there was a pounding at the door. The National Guard had seen lights in the window and demanded to know what was going on in this room. Though these young people had already been interviewed on MSNBC, Fox, and were the talk of the blogosphere, the troops knew nothing about them. Astounded and confused at what they saw, the troops allowed their pictures to be taken and went on their way.
I've provided a look at some of the terrible failures by the government — not only failing to do what it claims it will do, but actively working to prevent others from helping out. The cost to human life and prosperity is incalculable. But, one might say, at least the government is generous now in preparing to spend perhaps $250 billion to clean up and reconstruct what was destroyed.
But who will get this money and where will it go? Cynics could not be more correct: the first companies to receive the money were our old friend Kellogg Brown and Root, a current client of President Bush's former campaign manager and former head of FEMA. KBR is a subsidiary of Halliburton, the company formerly headed by Dick Cheney. Another winner is Bechtel, whose former head is now in charge of Bush's Overseas Private Investment Corporation. The top rebuilding priority: repairing government military bases in Louisiana and Mississippi.
If you work for one of these companies, you will do very well by this aid. As for the victims, everyone knows that what rebuilding they do will come from their own savings. You can expect no assistance from this monstrosity that taxes and controls you relentlessly on the pretext that it will protect you and care for you when no one else will.
Fortunately for people who lived in flooded areas, they did not face the crisis alone. The private commercial sector, along with thousands of religious charities, was there to help. Indeed, John Tierney of the New York Times was one of the few mainstream journalists to note that Wal-Mart improved its image after Katrina. Its stores in the disaster-stricken areas still carried generators in areas. Wal-Mart trucks rode into to areas immediately following the hurricane and gave away chain saws, boots, sheets, and clothes for shelters, plus water and ice. It alone had prepared for emergency with its own emergency operations center.
Chris Westley further noted that Wal-Mart gave $20 million in cash donations, 1,500 truckloads of free merchandise, food for 100,000 meals, and the promise of a job for every one of its displaced workers. After comparing FEMA's failures with Wal-Mart's successes, he concluded that the government emergency management ought to be abolished.
Tierney, meanwhile, drew the wrong conclusion. He says that the Wal-Mart CEO "is the kind of leader we need to oversee the tens or hundreds of billions that Washington will be spending on the Gulf Coast. Scott could insist on low everyday prices while still leaving the area as well prepared for the next disaster as Wal-Mart was for Katrina."
In fact, if Lee Scott were given a government job, it would only be a matter of time before he became just another Michael Brown, the disgraced former FEMA head. This isn't a matter of character. It is a matter of the maze in which you find yourself — the one made by the market so that it has large exit signs, or the one that is government's, that is, the one with no exits at all.
As Walter Block, Mark Thornton, and many others have shown, it was not the storm as such that did the damage, but the failure of the government levees. Combined with the levees-only river management strategy of the Army Corps of Engineers, the floods were a disaster waiting to happen. Just imagine if the town were private like your home or car. Insurance companies would have taken a huge role in risk assessment, not only charging more for higher risk but insisting on management strategies that reduce risk and rewarding those who adopt those strategies with better premiums. This works on the same principles as you home owners' insurance, which combines rules and incentives to reduce the likelihood of losses.
Government insurance, however, makes us less cautious and more willing to take risks. It prices coverage from losses far too low and creates an environment where disasters like flooding are waiting to happen. With programs like subsidized flood insurance, government is like a bad mother who pays her children to run with scissors.
Government ownership is even worse because there are no signaling systems in operation at all. It was also government that created a false sense of security for people in New Orleans, who were led to believe that the levees would hold and pumps would work. And when the floods finally did come, they were told the government would be there to manage the crisis.
But the government cannot manage crisis, as the response to Katrina demonstrated. The local government fled. The state government was dithering. And the federal government actively worked to prevent good things from happening. The thousands and millions of acts of private heroism that took place after Katrina occurred despite the government and not because of it.
And yet what lessons does the political culture want us to take from this? It is the same lessons we are instructed to learn after NASA spends and spends and still can't seem to make a reliable space shuttle. We are told that NASA needs more money. The public schools absorb many times more — thousands times more — in resources than private schools, and still can't perform well. So we are told that they need more money.
The federal government spends trillions over years to "protect" the country and can't fend off a handful of malcontents with an agenda. And so we are told that the government needs to start several new wars and erect a massive new bureaucracy and put sections of the country under martial law at the slightest sign of trouble.
So too, Congress can allocate a trillion dollars to fix every levee, fully preventing the last catastrophe, but not the next one. The real problem is the same in all these cases, not insufficient resources but public ownership and management.
Public ownership has encouraged people to adopt a negligent attitude toward even such obvious risks. Private developers and owners, in contrast, demand to know every possible scenario as a way to protect their property. But public owners have no real stake in the outcome and lack the economic capacity to calibrate resource allocation to risk assessment. In other words, the government manages irresponsibly and incompetently.
Actually, it was Mr. Bush who said one of the most sensible things, on September 2, 2005: "If you want to help, if you're listening to this broadcast, contribute cash to the Salvation Army and the Red Cross…. They're on the front lines providing help to the people who need help."
But it was two weeks later when his other instincts kicked in and he delivered a very different message, one that is deeply alarming. He said: "It is now clear that a challenge on this scale requires greater federal authority and a broader role for the armed forces — the institution of our government most capable of massive logistical operations on a moment's notice."
Interesting that his beloved military was not there at a moment's notice. It now cites its own failures as the great excuse to expand its powers. So the government will spend the next several years preparing for another Katrina that will never come, just as it spent the last several years preparing for another 9-11 that will never come. The next crisis will be something completely unexpected, and once again the government will fail. But we will be left with a government with some very bad habits, among which are declarations of martial law, mandatory evacuations, gun and price controls, and other totalitarian ways.
And given that that this is a Republican administration with its own internal culture, and its attachment to military means, we get what can only be described as the continuation of the fascist track: the militarization of the country under its own armed forces.
So far as I know, this passing remark by Mr. Bush has provoked no commentary in the national press. Commentators in the organized conservative movement have displayed an appalling deference to administration's priorities, with National Review consistently arguing for more spending and militarization, Rush Limbaugh calling for price gougers to be strung up, and even some free-market friends calling for billions to rebuild New Orleans as a way of showing terrorists that we won't let the weather get in the way of progress. On the last point, I kid you not.
Conservatives have been especially bad on tolerating egregious uses of the military. We need to reflect on what it means to have the military take over in the event of crisis. What kind of ideology promotes such things, and looks the other way when it happens? I think I know, and it serves as a reminder that not all threats to freedom come from the Left.
A clue comes from the neo-Nazi novel called the Turner Diaries, sometimes cited as the motivating force for the bombing of the Oklahoma federal building, which ends in what the author regards as a political utopia. After a world war that exterminates all non-whites, a military regime takes over the United States and centrally plans the economy under permanent martial law. All food and water are distributed on military trucks, all production takes place on a planned basis, and the merchant class is required to obey or be shot.
The author describes this race-based national socialism as if it is a system with an inherent appeal to the reader, and perhaps there are people economically ignorant enough and full of enough loathing for humanity and freedom to regard it as attractive. I do know that in our own times there are people waiting in the wings who long for power and who are drawn to the ideal of a militarized society and a centrally managed economy. Some call themselves conservatives, and they are as much a threat to civilization as those who call themselves liberals.
But let me end with several notes of optimism. The first is implied in all that I said above. The government cannot actually do what it promises, and there is a way in which we can only be thankful for that. It cannot succeed in managing a central plan. Its plans will always fail. The government tries to use its failures as an excuse for more power, but with every failure comes a substantial degree of public humiliation for the public sector, and that humiliation can provide a basis for the undoing of government authority.
Some people say that a loss of government authority will mean the breakdown of civilization. Actually it will create the preconditions for the reestablishment of civilization, and in a state of freedom that can happen very quickly. The aftermath of Katrina illustrated in a million individual acts of charity and enterprise that people can manage their affairs, even amidst the chaos.
The calamity following Katrina was an egregious display, one that gave the federal government a black eye. The Democrats will continue to use this to harm the Republicans, which is fine by me, but it is not just Mr. Bush that is suffering, but the whole apparatus of central planning by decree from above. A government that cannot manage a crisis should not be trusted to manage anything at all. Thanks to Katrina and its dreadful aftermath, I think it's fair to say that the age of not trusting government has returned with a vengeance.
It took decades for the rot to give way underneath the Soviet apparatus of central planning. But eventually the implausibility of the entire project was no longer possible to deny. It gave way under an intellectual reaction against the whole of socialism. We are seeing something like that take place today, as government fails in Iraq and New Orleans and in every place around the country and the world where it causes problems and creates no solutions.
The age of confident central planning is behind us. Right now, the state is just trying to keep its head above water. If freedom is to have a future, the time will come when it will sink to an ignoble end, and we will wonder how we ever believed in this myth called government crisis management.
The advocates of freedom and the partisans of private enterprise will be there with the intellectual equivalent of flotillas, barges, buses, helicopters, and the whole apparatus necessary to rescue liberty from every attempt to kill it. And when our City on a Hill comes to be, it will be privately built to withstand any flood.
Llewellyn H. Rockwell, Jr., is president of the Mises Institute and editor of Lewrockwell.com. Rockwell@mises.org. This speech was given at the Supporters Summit, October 7, 2005, Auburn, Alabama. Comment on this piece on the blog.
One does not make predictions about the market - the market can go up or down at any time. It is only the probability (of each move) that varies
#board-3736
Rogue
OIL...Isn't the "high" price of Oil also a monetary phenomena?
I mean....Oil is priced worldwide in US dollars, correct??
The are US dollars floating all over the planet because of our HUGE twin deficits....we're way out of control on that!!
The high price of Oil requires every nation that buys oil on the world market to buy US dollars first to acquire it(oil).
Doesn't that mean that the higher price of oil (up %300 in two years or so) means our "suspect" US dollar is benefitting by the "unusual" demand worldwide for US dollars to buy increasingly expensive oil.
Maybe that's helping keep our "house of cards" economy/currency afloat for a bit longer until reckoning day comes?
Just trying to get everyone to "think outside the box" of basic supply/demand for oil and consider the "monetary" angle of what it's priced in worldwide....US dollars!!
Any opinions welcomed!
Rogue
otcbargains.....I'll reply later in detail. But I HIGHLY RECCOMMEND to you and all to read Ayn Rands book..."The Virtue of Selfishness".
IT'S A MUST READ FOR ANYONE INTERESTED AT ALL IN POLITICS. If anyone "talks politics" and hasn't read that book.......they're "disadvantaged".
It's about 165 pages and it will challenge everything you ever believed and make you "think outside the box". Great book and some real "wisdom" from one of the greatest thinkers of all time.
Rogue
Extremely interesting site dealing with Bird Flu and alternative health issues....
http://www.knowledgeofhealth.com/
Very Provocative!!!!
Rogue
Cleverox....You really aren't very "clever" are you????
You stated...
"And there you have it boys and girls. Richard Russell in a nutshell. His message never varies"
I've been following Richard Russel for probably 20 years....he's as saavy old veteran if you didn't know that (over 50 years analyzing the markets). I think Hulbert rates him rate near the top for performance since he's been following advisors(over 20 years).
He hasn't always loved Gold and he hasn't always been bullish/bearish on the stock market. He's an excellent market timer and follows and comments on all asset classes. His newsletter is EXTREMELY interesting and well-written if you've never read it.....and judging by your snide comment,I'm sure you never have!
I'll give you a chance to redeem yourself after your "FOOLISH" comments..........
How about giving one of the VM boards a few junior gold companies that are poised to become "10 baggers" in the next year????
Rogue
Peak Oil? How about Peak Silver??:
Peak Silver
Edgar J. Steele
"To the Moon, Alice! To the Moon!"
--- Ralph Kramden, played by Jackie Gleason, to his wife (played by Audrey Meadows) on The Honeymooners.
Peak Silver is a concept whose time now has come. There really can no longer be any question as to whether we have reached the point of Peak Silver, save that suggested by silver's current market price. As we shall see, that price is an aberration which inevitably will be swept aside by the tidal force of massive market forces.
There can be no question but that whatever silver now exists, including the ever-more-difficult-to-extract ore still in the ground, is all the silver that ever will exist.
What's more, unlike gold, virtually all the silver ever mined has disappeared via usage, while almost all the gold ever mined still exists in usable form, not that anybody really uses gold for anything. In fact, silver today is a much rarer precious metal than is gold.
Go back and read that last sentence again. I'll wait for you right here.....Good. Now go read it again.
Silver's relative scarcity is a vitally-important concept that simply has yet to sink into the minds of almost everybody in the world today. Else, why does silver trade for only $7 and change per ounce, versus nearly $470 per ounce of gold? Stand by, because all that is about to change. First, though, let's make the basic general case for precious metals as an investment.
If used solely as a money substitute, gold (like silver, platinum and palladium) finds its demand extremely sensitive to price changes. In other words, the demand for precious metals as money is price elastic. When the price of precious metals goes up, demand goes down. Ergo, the demand for precious metals must have declined a lot, you might say, because their prices have soared in recent years. Wrong.
Why are today's gold and silver prices half again as high as just a few years ago (many would say gold is almost 100% higher, but they point to a very brief time when it traded at around $260 per ounce)? Because the international value of the dollar has fallen by a third in the same time frame, that's why. Gold and silver haven't gotten more expensive. They are still the same old prices, just dressed in new, inflation-adjusted dollars.
The price increases seen in both gold and silver amply illustrate my book's contention that they are "particularly good means of transporting wealth from one side of an economic meltdown to the other." (Defensive Racism, Ch 12 - Money's End Game: Depression II) The bad news, for those who haven't yet noticed, is that America's economy is in rapid meltdown right now, just as it has been for the past several years. The worse news: The modern meltdown has only just begun and now is showing signs of rapid acceleration, as America's mortgage, bond and stock bubbles, created by the Federal Reserve's (criminally) excessive easy money policies, have begun to burst.
I call what is happening today the "modern" meltdown because today's dollar already is worth something less than 2 cents in 1914 dollars. Prior to 1914, the dollar had been stable, with zero inflation, for well over a century. What happened in 1914? Why, the Federal Reserve System was created, so as to "stabilize the value of the dollar," if you can believe it! Look, I couldn't just make something this ludicrous up. Look it up for yourself if you don't believe me. But, this is both a digression and a topic about which books have been written, perhaps one of the best of which is Eustace Mullins' Secrets of the Federal Reserve. My own book talks about money, precious metals and the Federal Reserve system extensively in its latter chapters, too.
Today's dollar has only one way to go: down. And it is a lot further to the bottom than one might imagine, despite the perspective provided by 1914. As I said on August 15, 2005: "A falling dollar couldn't be a surer bet than it is right this moment, here at the very tippy-top of the fifth and most prodigious bear market rally for the dollar since it started caving three years ago (and subsequently lost 1/3 of its value through the end of 2004)."
Preserving your wealth is more than a good enough reason to convert as many of your assets as possible right now into the form of precious metals, especially the sort you personally hold, such as rare coins and bar and coin bullion. Mining stocks are more volatile, thus possess more upside potential, but also carry significant risk in the event of a complete collapse of the economy.
Also on August 15, I said the following about buying gold and silver: "Back up the truck, boys and girls. Do it now." Since then, leading American and Canadian mining stocks have risen 20%. The spot prices of gold and silver are up about 5% in the same time period.
If my wife would let me, I would sell the ranch, buy gold and silver with the proceeds, then rent for the next two or three years. Women.
That is the basic case for precious metals. Now for Peak Silver. Remember our mantra from above: Silver today is a much rarer precious metal than is gold.
Yes, there still is much more silver in the ground than there is gold - eight times as much. Historically, we have pulled about eight times as much silver from the ground as we have gold, a ratio which has declined only slightly with today's production. Called the "poor man's gold," silver typically has been the least expensive of all the precious metals because it also has been the most plentiful. That was before industry began to use silver in significant quantities, however.
Silver has almost countless modern industrial applications, with both technology and population increases driving demand higher every day. Silver's thermal and electrical conductivity is unparalleled, making it the metal of choice for micro-circuitry. Silver also plays a major role in the medical field, due to its natural antibiotic capability. What's more, silver is one of the few metals that does not corrode, making it essential in modern electrical switches of every sort (including your house and your car). And, yes, the photographic industry continues to consume about a quarter of all silver made available. Silver demand is increasing by leaps and bounds. What's little known is that silver demand has outstripped production for years.
During my lifetime (that's "modern times" to you, despite how you might feel about Bogart movies) we have been using silver a great deal faster than we mine it. Why hasn't the price of silver gone up before this (faster than necessary to counter inflation, that is)? Because the huge, above-ground inventories of silver built up prior to my lifetime (pre Bogie) were added to production in order to meet ongoing demand, that's why. Well, guess what? The stored-up silver now is gone. Just now, in fact. That, or those stores will run out within the next few months, depending upon whose figures you believe.
From here on out, we must live on current silver production alone, all while the non-investment demand for silver continues to grow. We either just passed or are about to reach the point of Peak Silver. In other words, never again will above-ground gold be more rare than silver. That's never again...as in NEVER AGAIN.
Nor will people be melting down their necklaces and heirloom cutlery at anything less than several times the current price of silver. The labor component of such trinkets simply is too high when compared to something like gold, which does see a great deal of jewelry turned in for reprocessing whenever its price jumps.
Owing to the huge industrial demand for silver, which simply does not exist for gold except in fashioning bathroom faucets for Arab oil sheiks, Peak Silver will reflect the price-inelastic demand generated by industrial applications.
The gold-to-silver price ratio also has risen well above the historic mean of 40:1 in recent years, suggesting that either gold will decrease in value or silver will increase. By many traditional measures ("bundle of stocks," "suit of clothes," etc.), gold already is grossly undervalued, due to government rigging of the price via the orchestrated sale and purchase of financial derivatives (again, see my book for a discussion of how gold derivatives temporarily can convert even gold into a fiat currency).
Before silver is done, however, not only should/will/must it revert to the historic gold/silver mean ratio, suggesting a commensurate price for silver of $62.50 per ounce once gold becomes fairly priced. However, silver's scarcity should cause it to surpass even gold's price. Even if I am dead wrong about any upcoming increase in the price of gold, today's gold price alone, when divided by 40, suggests a "mean-ratio value" for silver of $11.75, which is a tidy 60% rise over today's actual silver price!
Why does our government rig financial markets? For the money, of course. Your money. Maintaining monetary stability is a lie, because we had perfectly stable money before the Federal Reserve System was handed control of our money supply. The mark of perfectly stable money is zero inflation, as in no inflation whatsoever. People have forgotten that such is possible and now accept 3% inflation as normal, and seem to view what is about to happen as a temporary inconvenience. People have forgotten the lesson of Depression I.
Yes, what is about to happen is so significant that it will cause us to start numbering our economic depressions, just as we do our world wars. Speaking of which, if you think WWII following Depression I was just coincidence, then you probably don't realize that we already have seen the beginnings of WWIII, which truly is a story for another day.
Unlike gold, silver will not be confiscated. There simply is too little of it around and the dentists couldn't handle the workload. Remember that the Hunt brothers very nearly cornered the world silver market a generation ago. Today, the amount of silver available not only is less, due to the massive reserve depletion that has taken place, but the price is lower than before, even in inflation-adjusted terms (government rigging, don't forget). How low is the price of silver? Well, it is well within the power of a great many individuals (each of them, not all together) to purchase every last ounce of silver that exists above ground today.
This point bears repetition: Silver today is a much rarer precious metal than is gold. Recall our discussion above concerning the price inelasticity of the demand for oil. That goes several times over for silver. Per production unit of consumer and industrial goods and equipment, the consumption of silver is exceedingly small, so that industrial-demand-driven prices are very inelastic. In other words, the price of silver could triple and add but, perhaps, a penny (that's a dollar in future Greenspanbacks) to the cost of your next TV set. Even a hundred-fold increase in the price of silver would not affect the purchase price of most industrial and consumer goods by much. Or a thousand-fold increase, for that matter.
"To the Moon, Alice." That's where the price of silver is headed, now that we have hit Peak Silver. To the Moon.
As I said, back up the truck.
7 October 2005
Rogue