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Co-brand
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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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OUZILLY, FRANCE
WEDNESDAY, 5 SEPTEMBER 2001 |
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Today:
Black
Gold Outlook
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*** By gum, that ol' bull was right... better watch his
step...
*** Dow still below 10k... says the good Dr. - the
dollar has room to move... down, down, down...
*** Tech's future's is bright, but what about
profits?... the band gets hailed back for an encore...
heck, anything's possible...
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*** Let's see, Ol' Ferdinand - our latest bull market
indicator - was spotted in the north part of the field
in the early morning...but then he wandered back towards
the middle.
*** Sure enough, Ol' Ferdinand was right. Stocks soared
in the morning yesterday....but then came back, with the
Dow closing just 47 points ahead and still under the
10,000 mark.
*** The Nasdaq closed down 34 points.
*** For those who watch such things, this is not 'good
action.' Investors must have been so eager to get out
that they sold into the morning's powerful rally. But
who knows...we'll have to keep an eye on Ol' Ferdinand.
He's as good an indicator as any.
*** This morning, I note that the old bull is grazing in
the south section of the field, next to a group of cows.
Look for falling stock prices today. (I'll warn
Ferdinand that if he gets this wrong, he might soon be
filet mignon.)
*** On-line sales fell again in the 2nd quarter. On-line
retailers took in fewer dollars and a smaller share of
total retail revenues.
*** "The Internet is great for investors," wrote Doug
Casey two years ago. "But it will be a graveyard for his
capital." I reported Dr. Richebacher's comments
yesterday - noting that the entire technology sector was
losing money. And now comes a study done by former
Treasury Secretary Larry Summers that confirms Doug's
intuition.
*** "The paper, written along with economist Bradford
DeLong, was prepared for the weekend's top-level
gathering of central bankers and economists.
*** "The future of the technology is bright; the future
of the profit margins of businesses-save for those few
that truly are able to use economies of scale to create
mammoth cost advantages-is dim," it concluded.
*** "This means that in the long run, consumers will
reap large benefits from the technological revolution,
but that the path may be rocky for investors...Consumers
will gain, and shareholders will lose," the paper said.
*** Shareholders have already lost an amount equal to
half the nation's GDP. Between $4 and $7 trillion have
disappeared from stockholders' net worth since the crash
of the Nasdaq and the beginning of the bear market.
*** Yesterday, the Dow rose, but losses in technology
continued. Our 'river of no returns' stock, Amazon,
dropped below $9...Cisco slipped below $16.
*** The dollar rose handsomely yesterday - ending the
day up to 88 cents per euro. So far, the dollar has
resisted our efforts to guess when it might fall...
*** "The dollar will lose at least 20% to 30% of its
value against the euro," we recall Dr. Richebacher
saying over the weekend. Dr. Richebacher was right about
the tech sector and the Nasdaq. We think we will be
right about the dollar, too. Dr. Richebacher, of course,
has some thoughts on what you should do if you're
planning to profit from the situation... if you're
interested in hearing more, please see the special
report our staff has prepared, click here:
The Inevitable Crash Landing Of The US Economy
http://www.agora-inc.com/reports/RCLF/FastProfits/
*** Last night, we came to the end of the series of
conferences and seminars out here in Ouzilly. Thom, the
other musicians, and I got together and did a few songs
for the group. We sang 3 or 4 songs and then signed off.
'But the crowd cried out for more,' as Percy Sledge put
it. It was the first time we were ever asked for an
encore! Hmmm....maybe it's time to quit our day jobs and
go on the road.
*** But wait...what about all those hotels...the
booze...the drugs...the groupies? Hmmm, sure sounds
better than watching the stock market for a living.
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The Daily Reckoning Presents: A Guest Essay
Stepping up regulation, OPEC is making itself the
"energy Greenspan." But investors take note: Given
uncertainties in the Middle East, controlling prices
this winter may be an impossible dream.
BLACK GOLD OUTLOOK
by Jay Akasie
There is no apparent reason to expect higher crude oil
prices anytime soon. But neither is there any apparent
reason to expect them to slide. "Range-bound" is the
choice term among the black gold experts with whom we
spoke. This tepid and agreeable forecast may pan out.
Then again, tepid goes with oil about as naturally as
does water. Less-than-obvious reasons abound for a price
move, both in the near- and long-term. And investors are
well advised not to forget the Middle East, that mother
of all wildcards.
The late 1990s gave the world rock-bottom oil prices
while giving OPEC members serious economic stress.
Determined to exert more control, OPEC now meets about
as often as the Federal Reserve Board to regulate its
output and keep prices within its window of $22 to $28
per barrel.
Just this month, OPEC halted a modest oil slide by
announcing a million barrel-a-day cut effective Sept. 1.
"Being range-bound keeps OPEC countries very happy,"
says Jeffrey Pittsburg, an oil analyst at Pittsburg
Research.
Cutting output by one million barrels a day could be
just the catalyst to drive prices near $30, especially
by December, says Aaron Brady of Energy Security
Analysis, Inc. The world crude oil market is already
headed toward a deficit this winter, which the September
OPEC cut is bound to influence even more. Also on the
side of short-term higher prices is a large speculative
short position in crude oil. Brady points to a
Commitment of Traders report indicating that early this
month the Non-Commercials (speculators) had built up
their biggest net short West Texas Intermediate (WTI)
position since the collapse of oil prices in 1998.
In and of itself, this large short position is not
automatically significant. But if prices begin to move
higher for any reason, short covering could amplify the
move. "If OPEC is successful in driving back the price
up, then you'll have the additional effect of short
covering going on," said Gareth Roberts, chief executive
of Denbury Resources, a large oil and gas producer.
"It's OPEC versus the NYMEX. When OPEC says we're going
to shorten some production they're squeezing the shorts.
Something has to give somewhere."
Veteran oil analyst Tom Petrie, co-founder of Denver's
Petrie Parkman & Co., says that futures markets tend to
influence oil prices when supply and demand conditions
are tight. "There are times you can argue that the tail
wags the dog when it comes to the futures markets," he
says. "That's where OPEC's intervention can put a floor
under it. When times are tight, the great commodity
traders can have some influence. They certainly affect
perception and psychology, which can then enter into
OPEC's calculations and mindset."
If short-term trading can influence prices, so can long-
term demand trends. To be sure, sluggish economies have
slowed their demand for oil this year, but demand
nevertheless continues to grow.
Gasoline prices have inched up on news that inventories
dipped for the seventh week in a row. Scott Inglis,
managing director of First Energy Capital Corp., an
investment firm focused on the Canadian energy sector,
points out that talk of economic slowdown has not done
much to hurt gasoline demand in the U.S., which has
remained remarkably strong throughout the summer.
First Energy recently lowered its forecast for global
crude oil demand growth to 0.6% in 2001, down from its
long-predicted 0.8%. An Asian slowdown and higher oil
prices have dampened demand throughout the region. In
fact, all of the major oil-consuming markets are
discouraged by the fact that WTI prices have hovered
above $25 for more than 18 months, the first time that
has happened since the mid-1980s, according to Inglis.
But don't count out the emerging nations. A study this
month by the International Energy Agency shows that
crude oil demand by the OECD countries dropped 0.5%
year-over-year in May, and early data suggest that
demand might drop off even faster in June. But thanks to
rising developing world demand, the IEA predicts that
global oil demand will still grow by 0.5 million barrels
a day this year and 0.8 million barrels a day in 2002.
It is important to note that non-OECD oil demand has
consistently exceeded IEA forecasts. Acknowledging this
fact, the agency estimates that if past is prologue in
2001 and 2002, total world oil demand could rise an
additional 0.4 million barrels per day beyond the IEA's
current forecasts. In other words, expect an upside
surprise on the demand side.
Because OPEC, which accounts for more than 40% of the
world's output, is determined to monitor "range-bound"
prices, the expectation is that oil prices will hover in
the mid-$20s well into the winter. But Inglis says that
every time he forecasts oil prices, OPEC surprises him
with a cut to hold prices a bit higher.
The group of 11 has also been extremely proactive in
making cuts well ahead of when it needs to, he says.
"We're predicting $26.25 for the rest of this year,
which looks a little light now because of the recent
OPEC cutbacks," says Inglis. "But somewhere in the $27
range is probably where it shakes out."
A new era of constant OPEC supply-tinkering is a
response to a more unpredictable world, not the cause of
it, says Tom Petrie. "In making its changes more
frequently the idea is to diminish volatility, not
increase it," he says. OPEC has been successful of late,
but it's a delicate balance. Indeed, the regulation of
the bulk of the world's oil supply is in some respects
analogous to the regulation of money supply by the Fed,
according to Petrie. "In the same vain that Alan
Greenspan has become the master of gradualism, OPEC is
looking to do something similar," he says. "The
comparison is irresistible: The two life bloods of
economic activity are money supply and energy and OPEC
is in a sense the world's Fed for energy supply."
Denbury's Roberts says that OPEC used to take a stab at
what amount of oil the world would need for the year and
produce it at that rate. And the western world would
store the oil. By the time the Asian crisis hit in the
late 1990s, the perception that there was a world
oversupply drove prices down dramatically, a lesson OPEC
never forgot.
He, too, likens OPEC to a kind of Federal Reserve for
the world energy industry, meeting almost monthly to
tweak production numbers in an effort to keep crude oil
around the $25 per barrel mark. "What OPEC is doing for
the first time is trying to manage the inventories
around the world by adjusting their output," says
Roberts. "They've never done this before. It's most
unusual."
Just as forces in the near and long term have the
potential to jolt OPEC's precious target prices out of
range, so can a wildcard: growing violence in the Middle
East. Of OPEC's 11 member countries, five are in the
region and another three are fellow Muslim countries.
We say, expect the unexpected. Despite OPEC's
considerable influence, it's a reasonable bet that the
cartel will not maintain a perfect supply and demand
balance in the oil market. Most likely, oil prices will
test the high end of the target range sometime this
winter. Oil demand continues to surprise on the upside,
both short- and long-term.
Toss in a Middle East that is becoming less peaceful
every day and suddenly, oil looks like one commodity
that is better bought than sold at current prices.
Regards,
Jay Akasie
for The Daily Reckoning
Jay Akasie is a writer for grantsinvestor.com and a
regular contributor to The Daily Reckoning. As a reader
of the Daily Reckoning you are cordially invited to try
grantsinvestor.com for 30 days - free. Please click
here: http://www.grantsinvestor.com/agora.html
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| About
The Daily Reckoning: |
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Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
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