Fareed Zakaria GPS – CNN 08-23-15

Salient to Investors:

Fareed Zakaria said:

  • The last time oil fell more than 50% in less than a year, in the 1980s, the Soviet Union collapsed.
  • Saudi Arabia wants to put American shale and tight oil producers out of business, but they have survived using technology and smart business practices.
  • Major oil-producing countries everywhere face a fiscal reckoning.
    • Oil is 96% of Venezuela’s exports, so its economy is expected to shrink by 7% in 2015.
    • Russia’s economy is expected to shrink by 3.4% in 2015 as oil and gas revenues are 50% of its budget.
    • Oil is 90% of Iraq’s budget. With limited resources, Iraq’s Shiite government is hard-pressed to pay the Sunnis.
    • The IMF estimates that Iran needs almost $100 oil to balance its budget.
  • Cato Institute says Chile, Canada, Sweden and Germany are all freer than the US, which was 20th versus 17th in 2008.
  • The NOAA says half1, 2015 was the warmest period on record. NASA says July was the hottest ever recorded.
  • In 2015, Gallup found that only 8% of American full-time workers work less than 40 hours a week, 42% work 40 hours, and 50% work more than 40 hours a week.

Nick Butler at Kings College says we are in for a longer and more sustained period of low oil prices than occurred in the late 1980s; because of the perfect storm of substantially increased supplies. Revenues of Gazprom, which finances Putin’s clique, is estimated to fall by almost 30% in 2015.

Leonardo Maugeri at Harvard says there is no way to stop falling oil prices to possibly $35 in 2016, largely because Saudi Arabia will keep pumping in the hope it hurts everyone else more than itself.

General Wesley Clark said:

  • Putin wants less US pressure on Ukraine in exchange for cooperation on Iran.
  • The territorial integrity of Ukraine is non-negotiable.
  • NATO bases should be in the east. The US created NATO and has always been its leader.

Radek Sikorski said:

  • Putin has largely misspent the oil boom’s money, but has invested heavily in his armed forces.
  • Putin should be told that the NATO area is out-of-bounds for Russian military adventurism.
  • NATO bases should be where they are needed, in the east.

Larry Cohler-Esses at The Forward said:

  • Iranian hard-liners rigidly compartmentalize Jews who they consider people of the book under Islam from Zionists.
  • Iran has between 9,000 and 20,000 Jews versus 80,000 to 100,000 before the revolution in 1979.

Derek Thompson at the Atlantic said:

  • The grand narrative of technological change in economics is creative destruction. 200 years ago we were an agrarian economy, 60 years ago a manufacturing economy, and now a services economy. Youngstown, Ohio experienced something very much like the end of work when an enormous steel mill shut down in September 1977. People are still leaving.
  • Many jobs can be replaced by technologies right on the horizon.
    • Driving is the most common occupation among American men, so self-driving automobiles are a serious threat to employment in the US.
    • The four most common occupations in the US economy are retail salesperson, cashier, food and beverage worker, and office clerk, all of which, according to Oxford university, are extremely automatable.
  • Government today could not enact universe basic income – a government check for everybody – which is absolutely essential for people to use technological change and technological unemployment to push toward a better future.

Zeynep Ton at MIT said:

  • Corporate America should not be cutting staff, salaries and benefits to improve the balance sheet, just the opposite. The trade-off between low prices and good jobs is actually forced trade-offs.
  • Most retail companies see labor as a cost so try to have as few people as possible on the selling floor. Under-staffing creates lots of problems: long checkout lines, products are in the wrong place, inaccurate prices, all of which increase costs and lower service. By investing in people, Toyota lowered costs and increased quality at the same time.
  • Investing in workers and making smart decisions drive great value for companies and their investors.
  • A good jobs strategy requires a long-term view, and people are wired to emphasize the short-term at the expense of the long-term; like smoking and not exercising.
  • Many companies do not see the whole picture and are stuck in silos and therefore mediocrity; they can still make money that way.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://www.cnn.com/TRANSCRIPTS/1508/23/fzgps.01.html


Central Banks Have Shot Their Wad – Why The Casino Is In For A Rude Awakening, Part I – David Stockman’s Contra Corner 07-25-15

Salient to Investors:

David Stockman writes:

The central banks have shot their wad after increasing their aggregate balance sheet from $3 trillion to $22 trillion over the last 15 years, which falsified financial prices.

The coming deflation will bring a plunge in corporate profits and collapsing prices of vastly inflated risk asset classes. The Bloomberg commodity index will fall below the 100 index level as the cycle from asset accumulation and inflation to asset liquidation and deflation continues. The lagged effect of the project completion cycle causes excess capacity to continue to grow, meaning the plunge in commodity and industrial prices and profit margins has only just begun, and will fall for years to come. Production cuts and capacity liquidation in virtually every materials sector is being drastically delayed by the continuing availability of cheap finance, meaning prices and margins will be driven even lower than would otherwise be with excess capacity.

Central banks engineered massive household borrowing and consumption/housing spending in the developed economies which then ignited an export manufacturing boom in China et al which over-taxed the supply of raw materials as the commodity price boom peaked with $150 oil in July 2008. Governments and central banks then battled the plunge in consumer spending and liquidation of bad mortgages, excess inventories and over-stocked labor by triggering a second artificial economic boom in CapEx and infrastructure spending in China and the emerging markets. China’s total debt went from about 150% of its GDP in 2007 to nearly 300% of GDP today.

Central bankers drove interest rates towards zero to try to spur spending by the middle classes, already at peak debt, but instead generated a scramble for yield among money managers and capital outflows of $4-5 trillion into emerging market debt: the resulting tidal wave of capital investment caused a second surge of commodity prices which peaked in 2011-2013. The monetary expansion has left the developed world at peak household debt and the emerging markets drowning in excess capacity to produce commodities and industrial goods.

CapEx by the world’s top 40 miners rose from $18 billion in 2001 to $42 billion by 2008, paused during the financial crisis, and then rose to a peak $130 billion in 2013. New projects then halted, but big projects in the pipeline when commodity prices and profit margins began to roll-over in 2012, are being completed due to the sunk cost syndrome: thus on-line capacity continues to soar despite falling prices.

CapEx on oil and gas rose from $100 billion in 2000 to $400 billion in 2008 and to the peak at $700 billion in 2014. Lifting costs even for shale and tar sands are modest compared to the front-end capital investment so the response of production to plunging prices has been limited and will be substantially prolonged.

Steel capacity has doubled from 1.1 billion tons to over 2.3 billion tons during the past 15 years, far outstripping current demand. Excess capacity could easily reach 35%, or more than the combined steel industry of the US, Europe and Japan.

Thompson Reuters reports global CapEx for manufacturing, transport, construction, process industries and utilities rose from $450 billion in 1991 to $700 billion in 2001, a 4.5% annual rate, and to $2.6 trillion in 2013, a 12% annual rate.

Read the full article at http://davidstockmanscontracorner.com/central-banks-have-shot-their-wad-why-the-casino-is-in-for-a-rude-awakening-part-i/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Sunday+10+AM

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Urgent Warning: 6 Signs the Great Crash Is Upon Us! – David Stockman’s Contra Corner -7-16-15

Salient to Investors:

Harry Dent writes:

  • All the signs point to the end of the global bubble. The greatest trigger will be the bursting of the massive, unprecedented China bubble. China’s stock market loss of 35% in less than 30 days signals its stock bubble has peaked: a drop of 30% to 40% in short order is a clear sign of the first wave down in a major bust and the greatest sign that the next great global crash is imminent.
  • China’s stock market will bounce in the coming weeks and then crash again, with real estate and its economy to follow.
  • The Greek default proves that endless quantitative easing idiocy has proved unable to create sustainable long-term recoveries in highly indebted developed countries with poor demographic trends. Greece did the wrong thing by again kicking the can a little further down the road.
  • US stocks could be the last major market to make a new high before rolling over.
  • Oil prices will fall, killing the fracking industry, a $1 trillion investment with $600 billion of junk bonds and leveraged loans – much larger than Greece.
  • Emerging markets have led the global slowdown and are about to break to the downside out of a 4-month trading range.
  • Long-term rates for sovereign and Treasury bonds are rising despite governments stimulating and guaranteeing their economies. Rising long-term, risk-free rates hurt stock valuations and real estate even harder due to higher mortgage costs.
  • Gold will continue to fall but will have a minor bounce.

Read the full article at http://davidstockmanscontracorner.com/urgent-warning-6-signs-the-great-crash-is-upon-us/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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Iran looks to energy reserves for post-sanctions influence – BBC News 06-05-15

Salient to Investors:

Iran would be a superpower in global energy markets if reserves in the ground were the measuring stick – only Russia has more oil and gas reserves. The CIA reports proven natural gas reserves in 2014 (in cubic metres) in Russia were 47,800,000,000,000, in Iran 33,800,000,000,000, in Qatar 25,070,000,000,000, in the US 8,734,000,000,000, in Saudi Arabia 8,235,000,000,000.

Jamie Ingram at IHS said a nuclear deal with Iran has to happen this year because there is so much political will on both sides. Ingram said Iran is keen to compete with Russia, so Europe is a potential market.

Iran wants its power industry to use more gas and less oil so has ambitious plans to increase significantly gas production in the coming years.

The surplus of LNG in the world is pushing prices lower, and the US and Australia are set to increase exports massively in the coming years.

Valerie Marcel at Chatham House said the main hurdle in Iran’s gas export ambitions has always been price, so without a firm commitment from buyers, no pipeline infrastructure will be built.

Europe is looking to wean itself off Russian gas, while Iran is looking for diplomatic leverage that would make the re-imposition of sanctions far harder to countenance.

Read the full article at http://www.bbc.com/news/business-32899264

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Goldman Sees Global LNG Projects at Risk as Demand Growth Slows – Bloomberg 10-01-14

Salient to Investors:

Mark Wiseman et al at Goldman Sachs said:

  • LNG projects in Africa, Canada and Australia face delays or cancellations as global demand slows, US output increases, nuclear reactors restart in Japan, China’s success in shale-gas E&P, and economic conditions in ASEAN.
  • Global demand will compound at 5% annual by 2020, and 4% annual by 2025.
  • The window for US LNG is limited and the US will not be spared from the pull-back.
  • Papua New Guinea has the lowest risks as it expands LNG production.
  • Overseas, Papua New Guinea and East Africa may be the best placed regions to compete on cost competitiveness, while the industry has renewed its focus on capital discipline.
  • Expect strong demand growth in Asia led by China and ASEAN nations – due to strong economic growth, urbanization, and declining local gas supplies – with modest growth from India, South Korea and Japan.
  • China is driving increased gas use, especially in residential and industrial consumption, and transportation. However, gas-fired power generation capacity is not a high priority in China given the lack of competitively priced supply compared with other feedstock.
  • LNG demand in Thailand, Singapore, Philippines, Indonesia, and Vietnam will continue to grow.
  • Read the full article at http://www.bloomberg.com/news/2014-10-02/goldman-sees-global-lng-projects-at-risk-as-demand-growth-slows.html

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Deeper Saudi Oil Cuts Seen After Biggest Drop Since ’12: Energy – Bloomberg 09-17-14

Salient to Investors:

  • IEA said global oil demand growth in 2014 will be the weakest since 2011, as the US shale boom causes oil production from non-OPEC rises by the most since the 1980s. China will account for 11%, the US 21% of demand in 2014.
  • Mike Wittner at Societe Generale said we are swimming in crude and history shows the Saudis will do what is necessary to sustain prices above $100 a barrel – Brent may average $90 in Q4 if Saudi stops cutting.
  • Harry Tchilinguirian at BNP said Saudi will act to stabilize and sustain prices above $100 a barrels for their own self-interest and that of OPEC members in the Middle East, Iraq to battle the spread of IS in the north.
  • The median analyst expects Brent to average $107 in Q4 and $105 in 2015.
  • Julian Lee at Bloomberg News said Saudi will reduce production by a further 500,000 bpd in Q4.
  • There may be incentives for Saudi Arabia to let oil continue its decline, according to Bank of America Corp. and DNB ASA, Norway’s biggest bank.
  • Francisco Blanch at Bank of America said allowing Brent to fall below $85 could curtail the US shale boom as some producers would then lose money, which in turn would ensure continued U.S. reliance on Middle Eastern energy.
  • Torbjoern Kjus at DNB said Saudi has no need to manage prices above $90 – it benefits them to test where the limit is for US shale.
  • Energy Aspects said Saudi has the fiscal firepower to tolerate prices as low as $70 for 2 years without economic difficulty.
  • Seth Kleinman at Citigroup said Saudi should not just focus on price levels because of the significant oversupply and steep contango – the discount on immediate versus later deliveries, which encourages traders to stockpile crude, which can then return to the market outside of Saudi control and thwart their effort to stabilize prices.

Read the full article at  http://www.bloomberg.com/news/2014-09-16/deeper-saudi-oil-cuts-seen-after-biggest-drop-since-12-energy.html

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Drillers Piling Up More Debt Than Oil Hunting Fortunes in Shale – Bloomberg 09-07-14

Salient to Investors:

  • Most oil drillers are spending money faster than they make it; an average of $1.17 for every dollar earned in the 12 months ended on June 30, 2014.
  • Only 7 US-listed firms in the Bloomberg Intelligence’s E&P index made more money than it cost them to keep drilling. 56 index companies owed $190.2 billion at the end of June, versus $140.2 billion at the end of 2011. S&P rates the debt of 41 of the companies as below investment grade.
  • Tim Gramatovich at Peritus Asset Mgmt said the shale industry is absolutely going to blow sky-high.
  • Many companies use two sets of numbers to describe their outlook. Proved reserves to the SEC and resource potential estimates to investors and lenders. No one including the SEC regulates what companies say at investor conferences, in press releases or on their websites.
  • Ed Hirs at Hillhouse Resources said discrepancies between proved reserves and resource potential are common in the industry, and investors can get duped.

Read the full article at http://www.bloomberg.com/news/2014-09-08/halcon-s-wilson-drills-more-debt-than-oil-in-shale-bet.html

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Crude Oil and Natural Gas: Not Selling – Jim Rogers On The Markets 06-23-14

Salient to Investors:

Jim Rogers writes:

Do not sell any kind of energy, especially oil and gas, because of the many geopolitical risks ahead, and because the supply/demand situation means we will need more energy over the next decade or two.

Read the full article at http://jimrogersonthemarkets.blogspot.com/

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Energy Outlook: Crude Oil and Natural Gas – Jim Rogers On The Markets 06-22-14

Salient to Investors:

Jim Rogers writes:

The price of oil and natural gas and energy will surprise on the upside and for longer than expected because known reserves of oil are declining worldwide and no new elephant oil fields have been discovered in decades.

Read the full article at http://jimrogersonthemarkets.blogspot.com/

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Oklahoma Swamped by Surge in Earthquakes Near Fracking – Bloomberg 04-08-14

Salient to Investors:

Austin Holland at the Oklahoma Geological Survey said the state experienced its 109th earthquake of a magnitude 3 or higher on April 6, matching the total for all of 2013.

Reports have become more frequent from Texas to Ohio of earthquakes linked to wells that drillers use to pump wastewater underground.

The US Geological Survey said pumping fracking wastewater underground has been linked to a 6-fold jump in quakes in the central US from 2000 to 2011.

University of Oklahoma, Columbia University and the US Geological Survey link Oklahoma’s biggest recorded earthquake of 5.7 magnitude on Nov. 6, 2011 to wastewater wells.

Read the full article at http://www.bloomberg.com/news/2014-04-07/oklahoma-swamped-by-surge-in-earthquakes-near-fracking.html

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