The Daily Reckoning - The Hard Truth About Crude (John Myers)

verfasst von Firmian, 14.01.2004, 19:44

-->The Hard Truth About Crude

The Daily Reckoning

London, England

Tuesday, 13 January 2004


---------------------

*** Leopards on the streets of Bombay... flesh eaters in
Rotenberg... O'Neill in the news, insulting the blind...

*** Techs lure investors to their destruction... Erring on
the side of recklessness and feckless, the big rally
continues... eerie parallels to Japan, reprise...

*** Long-term fiscal crisis..."No-Job Recovery"... debt
reaches $119,442 per person... the French
rock... and... where's Mogambo?!?

---------------------

The Times of London is full of absurdities and
grostequeries today. How delightful!

"Killer leopards terrorize Bombay," says one headline.

"Cannibal told of victim's 'appetite,'" begins the
continuing coverage of the flesh-eater's trial in Germany.

Another article tells of the latest money-making scheme in
Argentina."Bodysnatchers bungle ransom for remains," says
the headline. Instead of kidnapping a live victim,
criminals are now digging up the bones of relatives and
demanding ransom money to give them back. These mugs got
the wrong bones.

And there on page 11, next to a photo of giant retired sumo
wrestler Konishiki and his bride is a photo of former
Treasury secretary, Paul O'Neill. As Addison alluded to
yesterday, we made fun of O'Neill when he was in the
cabinet, but we've come to like the guy since he was booted
out. The man dares to think and says right out loud what is
on his mind.

What lands O'Neill on page 11 this time is what he said to
author Ron Suskind. President Bush seemed to him"like a
blind man in a room of deaf people," and he intended from
the get-go to topple Saddam Hussein. The weapons of mass
destruction and terrorist bugaboo were just jaw-flapping
and justification, according to the former insider.

His remarks are, of course, insulting and reckless. Blind
people should demand an apology; the only problem with them
is that they can't see. And as far as we know, no nation
has ever been truly harmed by a blind man, while many have
been brought to ruin by people with vision in both eyes.

It was Paul O'Neill, we recall, who wanted to know just how
far in the hole the U.S. government really was. So, he
hired a couple of economists to figure it out. The
resulting figure - $44 trillion - was so enormous that the
report was widely ignored.

Most people merely focus on the current indebtedness of the
American people.

Also in today's news is much discussion of unemployment.
The December numbers were a disappointment to everyone.
Overall, even in the Christmas shopping season, only 1,000
new jobs were added - most of them marginal.

"Contrary to popular spin," writes Stephen Roach,"the U.S.
labor market is not on the mend. In the final five months
of 2003, a total of only 278,000 new jobs were added by
nonfarm businesses - a gain that is easily matched in a
single month of a typical hiring-led recovery. Moreover,
literally all of the job growth that has occurred over this
period has been concentrated in three industry segments -
temporary staffing, education, and healthcare - which
collectively added 286,000 positions in the final five
months of last year. The"animal spirits" of a broad-based
hiring-led revival by U.S. businesses are all but absent.
Jobs may be rising in America's low-cost contingent
workforce (temps) and in high-cost areas that are shielded
from international competition (health and education), but
positions continue to be eliminated in manufacturing,
retail trade, and financial and information services."

"For this stage in a 'recovery,'" Roach elaborates,"we're
2.4 million jobs short - even when compared to the most
jobless recovery ever, 10 years ago.

"Factories dumped 26,000 American workers in December... the
41st consecutive month of decline. And the work week shrank
from 33.9 hours to 33.7... with average weekly earnings down
even in dollar terms."

Worse, the 'participate rate' is going down. This measures
the number of people who are actively working or looking
for work. When times get tough, a lot of people just decide
to give up; they are no long participating in the
workforce. Economists estimate that if these people were
added back into the unemployment numbers, the rate of
joblessness would be close to 10%.

The Fed can stimulate borrowing and spending, we conclude,
but not hiring. Low rates and E-Z credit terms lure
Americans to buy... but a large part of the spending finds
its way overseas, where the jobs are created.

It's still a reckless, feckless"No-Job Recovery," says
CNN."The greater the imbalances," concludes Roach,"the
more combustible the flashpoint - suggesting to me that the
day of reckoning could be sooner rather than later. Such an
endgame would be all the more treacherous for an
increasingly asset-based, wealth-dependent U.S. economy.
This key risk seems all but forgotten in the hubris of the
Fed's victory lap."

And now, over to Eric Fry, with more market news:

-------------

Eric Fry, mingling with the traders in Manhattan...

- Tech stocks sizzled again yesterday, while the rest of
stock market maintained its white-hot glow. The Nasdaq
Composite jumped 1.2% to 2,112 - its best level since July
2001 - while the Dow edged ahead 26 points at 10,485.
Month-to-date, the tech-powered Nasdaq is ahead more than
5%, while the stodgy old Dow has gained less than half a
percent.

- Clearly, the lumpeninvestoriat prefers sexy Nasdaq stocks
to the buttoned-up Dow variety. The Nasdaq's impressive
performance is not the only sign that the lumps' increasing
bullishness is beginning to look a lot like recklessness.
Friend, colleague and options professional, Jay Shartsis,
says that the recent action in the options market reflects
"brazen fearlessness."

- Shartsis notes that the prices of the S&P 100 Index (OEX)
puts and calls are trading near parity with one another.
"Normally, puts would be 3 or 4 times the price of calls,"
he says."So this near-parity pricing means no fear at
all." Another ominous options-based indicator, according to
Shartsis, is the fact that the 21-day dollar-weighted
equity put/call ratio just got down to 20 cents traded in
puts for every $1 in calls.

-"At the stock market bottom last March," he reports,
"that figure was about $1.20 in puts for every $1 in calls,
rather a high level of fear. Since then, this ratio has
been going down all year. I was surprised to see it drop
under 40 cents, and 20 cents is just unbelievable, a level
not seen since the height of the mania in 1999. I thought
quite a few more years would need to pass before such a
rare level of optimism was seen again! This is an important
indicator and it's flashing bright red right now. Can it
drop down to 10? Yes, but that's too remote a possibility
to bet on."

- And that's not all, says the bearish options pro. The
investors' sentiment numbers are"absolutely remarkable.
The latest readings should concern those who are bullish,"
Shartsis tells your New York editor."This morning's
research fax from Chris Cadbury is a wake-up call for
anybody who is bullish. On Wednesday, Consensus disclosed
81% bulls... Consensus last reported more than 80% bulls 7
years ago."

- Shartsis concludes:"It doesn't seem like a good bet to
stay long a market that has off-the-chart bullish
expectations, wildly overbought momentum extremes, enormous
distance from its 50-day moving average, unparalleled
bulletin board hysteria, etc. etc., and I stopped counting
how many days up without a pullback."

- When the stock market goes up every day, and investors
make money month after month, almost no one - except an
incorrigible bear - can imagine that the good times will
ever end. But they can - and do - end abruptly. So, even
while we are enjoying the good times on Wall Street, we'd
advise keeping a wary eye on the future.

- Here's some food for thought: The U.S. stock market is
tracing out a pattern that is eerily reminiscent of the
Nikkei's post-bubble trading pattern.

-"The Nikkei topped out at nearly 39,000 at the end of
1989," your New York editor remarked during his appearance
last week on CNNfn."31 months later it bottomed at 14,194,
then rallied 50% over the next 13 months to 21,281, at
which time it tumbled again to 16,216.

-"So far, the U.S. stock market's post-bubble trajectory
has been frighteningly similar," your editor continued.
"The S&P 500 topped out at 1,552 in March of 2003. 31
months later it bottomed at 768. Over the ensuing 14 months
it has rallied 47% to its current level. If the Nikkei's
precedent holds, the S&P's rally will end any day now and
the index will tumble about 24% between now and April."

- That's not all, dear reader; the Nikkei did not merely
rally 50% one time; it launched three distinct 50% rallies.
In 1995-6 it soared from 14,000 to 22,000, exactly like the
1992 rally. Then, from late 1998 to 2000 it jumped 50% from
13,000 to 21,000... on its way to 7,600 in April of last
year.

-"If the Dow were to chart a course identical to the
Nikkei's," your editor remarked on the air,"it would fall
to 8,000 by spring... on its way to 2,400 in April 2014."

-------------

Bill Bonner, back in London...

***"Under Bush's leadership," says Laura Tyson, dean of
the London School of Economics, in next week's Business
Week,"the government has made a series of inconsistent
promises that, taken together, cannot be honored: promises
of future Medicare and Social Security benefits, promises
of substantial investment in military and homeland
security, promises of leaving no child behind, promises of
generous corporate subsidies and tax breaks, promises of
timely repayment of federal debt, and promises of tax rates
far below those necessary to cover other commitments.
[Not to mention Americans walking around on Mars... ]

"Something's got to give. But what?" Tyson's answer of what
lies ahead -"A long-term fiscal crisis."

*** Michael Hodges... on the hole America has dug for
itself:

"America has become more a debt 'junkie' - than ever before
with total debt of $34 trillion, or $119,442 per man, woman
and child. Sixty one percent - $21 trillion - of this debt
was created since 1990, a period primarily driven by debt
instead of by productive activity.

"Two great questions: Can the production of debt forever
replace the production of goods?

"Can Americans forever borrow their way to prosperity?

"One answer: NO WAY!!

"Total Debt in America is now over $34 Trillion, or
$119,442 per man, woman and child. Debt in the past decade
increased faster than ever in relation to national income,
and debt intensity last year increased even faster!"

*** A reader writes:

"On reading today's DR (1/6/04) I felt compelled to respond
to the reader who is taking you to task for missing the
run-up in the market. If my memory serves me well (and it
may not), early in 2003 I believe Marc Faber suggested gold
and silver were positioned to rise and he even dropped the
names of several mining concerns. Now it's possible I read
this in Strategic Investment, instead of the DR.

"In any event, among the suggestions were Pan American
Silver and CDE for which I am very grateful. Eleven months
ago I bought 5000 shares of PAAS and 10,000 shares of CDE.
The market value of those shares today is over $100,000
above my entry cost; PAAS has nearly tripled and CDE has
more than quadrupled and with every few cents that silver
rises, the stocks continue to skyrocket. My gold pick
(DROOY - suggested by Dan in SI) has not done nearly as
well, but there too I have a gain of close to $15,000 on
17,000 shares. I personally have never had any faith in the
stock market and prefer an investment I can hold in my
hand, live on or look at from my front door. I have been on
board with Bonner et al since the late 1980's and in the
course of that time I too missed the big stock market
bubble.

"But following the insight and vision of SI, I have instead
invested in land, timber, gold, silver, and some precious
stones. They are all still in my hand, under my feet or
within view - and I sleep well at night. I appreciate the
wit and effort put forth by the entire staff of the DR and
SI.

P.S. Having graduated right before the 'summer of love,' I
suspect Mogambo and I attended too many of the same social
functions - that's why I'm not sure if my memory serves me
correctly. It's a wonder it serves me at all."

*** Many readers are wondering... where is the Mogambo Guru?
Has he taken a much deserved vacation? Or merely taken his
own advice and headed for the hills? We don't know, dear
reader, but with any luck, an answer is forthcoming. Until
we find out, if you do happen to spot him... best approach
with caution.

***"You mean, you really go to dance parties with the
French?" asked an American who has lived here for 23 years.
"The French are so funny. Everything they do has to be
rationally thought out and planned, even when they dance.
The French rock... for example. It's modeled after American
rock and roll dancing... but it's completely different. It
looks a little like American dancing, but it's extremely
structured. Almost Pythagorean... Just look at their faces.
They have to really concentrate to get it right. You can
practically see them working out the geometry in their
heads as they dance."

"Well, we have never actually mastered the French rock," we
replied."But we weren't very good at American rock
either."

---------------------

The Daily Reckoning PRESENTS: Our resource man, John Myers,
ponders what to expect from black gold as"social and
political shock waves will be felt worldwide once oil
production peaks."


THE HARD TRUTH ABOUT CRUDE
by John Myeres

"The country is facing the most serious energy shortages
since the 1970s. Without a solution, the energy crisis will
threaten prosperity and national security and change the
way Americans live."

- Spencer Abraham,
U.S. Energy Secretary

Here are some facts you should consider when debating
whether oil is a profitable investment opportunity. After
reading these four bits of information, I'm sure you'll
agree there's money still to be made from black gold.

* The United States, with 5% of the world's population,
consumes more than one-quarter of the world's oil
production.

* The United States is guzzling oil at record rates. In
2004 the United States will consume 7.5 billion barrels of
oil.

* U.S. oil production is at its lowest level since the
early 1950s and is declining by more than 2% per year.

* Since 1970, U.S. oil reserves have fallen from 50 billion
to 20 billion barrels. By the end of this decade, the
United States will have less than 15 billion barrels in oil
reserves.

For these reasons and then some, my investment advisory,
Outstanding Investments, is bullish on oil prices over the
short term and throughout the rest of the decade.

In December, OPEC announced that it would not increase its
output quotas despite a wellspring of worries regarding the
region - specifically the situation in Iraq and the
political instability of Saudi Arabia. OPEC's refusal to
open the spigots comes at a time when North Sea and Russian
oil production is in decline. This coming year Canadian and
Chinese oil production will rise, but their output will not
nearly offset the decline in the two previously mentioned
regions.

Decline in oil production flies into the teeth of rising
world oil demand, projected to grow by about 1 million
barrels per day in 2004. Roughly one-third of this increase
will be the result of increased demand in the United States
along with China.

Given these supply and demand numbers, I believe that even
if a political calm settles in the Middle East, oil prices
will move above $30 per barrel by the second quarter 2004.

During the last two weeks of November, commercial crude oil
inventories in the United States fell by nearly 10 million
barrels. On the import front, evidence suggests that Middle
East exports to Asia are increasing, with the United States
importing more oil from Canada and Mexico. America's
neighbors are a stopgap for oil supplies, but neither
country has the wherewithal to keep the United States flush
with oil for any time to come.

Meanwhile, America's rotary rig count, which once totaled
more than 5,000 active in the early 1980s, stands just
above 700 today. Even with crude oil prices above $28 a
barrel, American oil companies have slashed domestic
exploration budgets because they understand one fact -
America is drilled out.

Since 2000, U.S. oil companies have replenished their
reserves by acquiring other oil companies, many of which
are headquartered in Canada. These Canadian companies have
significant reserves and will continue to provide an
expedient solution to America's brewing energy crisis.

In short, I believe U.S. buyouts of Canadian oil and gas
companies will continue. And we're looking into more
takeover candidates for OI recommendations.

But Canada is not a panacea that will cure America's oil
crisis. This was supported by some somber predictions at a
November energy symposium in Ottawa, Canada. According to
several of the industry's top experts, Canadian and
worldwide production of oil and natural gas will peak
sometime before 2020.

The only solution, said symposium speakers, will be higher
energy prices from the gas pump right on through to
household electricity.

University of British Columbia professor Bill Rees, a well-
known expert on the world's remaining oil and gas
stockpile, predicts that"social and political shock waves
will be felt worldwide once oil production peaks."

The consensus is that world production in both conventional
oil and natural gas could peak as early as 2017. America's
energy crunch could happen much, much sooner.


Regards,

John Myers,
for The Daily Reckoning

P.S. A December 2003 Energy Information Administration
release states that"without a substantial increase in
crude oil imports... it may be difficult to supply enough
products for current demand."

Translation: Crude oil, already expensive, will become more
costly in 2004 and considerably more expensive during the
second half of this decade as domestic production and oil
reserves decline.

OI Prediction: We look for crude oil to break above $40 in
2004 even without political or military calamity in the
Middle East. In the event of war, social upheaval or armed
revolution in the Persian Gulf, oil could spike to $50 per
barrel... and maybe even more.

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gesamter Thread:

• The Daily Reckoning - The Hard Truth About Crude (John Myers) - Firmian, 14.01.2004, 19:44
  • Dt. Fassung vom Investor-Verlag - Firmian, 14.01.2004, 19:46
    • Danke und schau Dir das Posting Sei Wachsam weiter unten mal an.... Gruss (owT) - Tofir, 14.01.2004, 21:19
      • Link dazu.../ Re: Danke und schau Dir das Posting Sei Wachsam - - Elli -, 14.01.2004, 21:33
      • hab' ich doch... - Firmian, 14.01.2004, 22:55