Bill is off trekking around the Andes somewhere, so let's go to Joel
Bowman, with a few words from Taipei, Taiwan...
Dollar up, gold down. There's something we haven't written for a while. An
ounce of our favorite metal dipped another $7 yesterday after falling $13 on
Monday. It was the fourth straight session gold was in the red. Meanwhile
everyone's favorite whipping currency, the greenback, consolidated gains won
earlier in the week after sluggish consumer confidence data eroded risk
appetite.
One day does not a trend make, dear reader, but it does us give pause for
thought. What if we dollar bears are wrong about the greenback's fate? What
if all these column inches spent bashing the buck - and the frauds at the
Fed in charge of protecting it - all come to naught?
"Nonsense!" we say.
Mankind will eventually bury the greenback in the cold, hard ground,
alongside every fiat currency that ever went before it. The only question,
it seems to us, is when the first shovel of dirt will be thrown. Traders
from New York to New Delhi are gathered around the open pit, but they may
have to wait, at least for a while. Just to be on the safe side, we've
bought (and
urged readers to buy) a golden shovel, but for now we're
content just leaning on it.
Here in the Far East, the dollar is a particularly curious entity. Once upon
a time, the mighty greenback was the best show in town, the "must have"
ticket for the rocking Asian economies. China, Korea and Japan all amassed
gargantuan stockpiles. The three hold about US$4 trillion (with a "T") in
foreign reserves, much of it in US Treasuries. Even Taiwan - an island
one-third this size of Tasmania but with a population equal to Australia -
has stashed away the equivalent of US$332 billion in foreign reserves.
But that was then. This is now. And now everyone knows what all those
dollars - and the men who stand behind them - are really made of...paper and
promises, promises and paper. And now that the game is up, everyone is
betting on a dollar collapse. But that presents a problem, and an
opportunity, in itself...
"Whenever you find yourself on the side of the majority," Mark Twain once
observed, "it is time to pause and reflect."
Right now, every necktie on television is betting against the dollar. The
Powershares DB US Dollar Index Bullish and Bearish Funds - which measure the
sentiment for and against the greenback versus a basket of six major
currencies - are showing dollar bearishness in the extreme. But what if this
"recovery" is not all it's cracked up to be? What if equity markets suddenly
start resembling reality - even for a short while? If risk appetite
contracts, even marginally, might we see a rally in short term
Treasuries...just like we did last time? And just how quickly will currency
traders be able to cover their short dollar positions if such a scenario
unfolds?
We don't know the answers, dear reader. We only observe that the larger the
mob, the more likely it is to be galloping in the wrong direction.
So are we dollar bears, or bulls? The answer, dear reader, is both - the
former over the long haul...but the latter before then.
Dan Denning, our friend and colleague on our Australian DR desk,
puts it thus: "Though we are confirmed US dollar bears, the dollar is
looking oversold. Stocks are looking overbought. And frankly the reflation
of all asset markets (bonds, stocks, commodities, and real estate) is
looking over cooked... Watch out!"
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The 5's Ian Mathias sent along a few thoughtful
observations during yesterday's choppy trading action...
We're not surprised to see an indecisive market today. Not only do traders
have to decide the fate of this long-running bear market rally, but there's
a cacophony of economic data squawking around this morning. Roll the
videotape:
Good news... Looks like home prices are on the mend, eh? S&P reports that
its home price index improved in August for the seventh month in a row. The
headline chart has a nice look to it. At face value, home prices appear to
be soaring up as violently as they crashed. But as with all things
economic... It's all how you spin it.
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Oh...bummer. The same index simply plotted against time and its month-
to-month value tells basically the same story it's been telling all year:
Unless you bought your home before 2003, chances are it's worth less today.
Kind of hard to dispense a bunch of "conviction buy" ratings with that in
mind.
The latest consumer confidence details offer a similar perspective. The
Conference Board reported this morning that its index of consumer confidence
declined just a bit thus far in October, from 53 to 47. That's not great
news for the Street even at face value, as the consensus was looking for a
very small improvement.
The fine print, unfortunately, doesn't offer any silver lining. In fact,
check this out:
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The Conference's Board's gauge of consumption attitudes is supported by two
subindexes: one that gauges how people feel about the present situation and
one that somehow charts its future expectations. The present index, aka the
only one worth trusting (if the crowd was any good at seeing what was
coming...well...we wouldn't be in business) just hit a score of 20.7. That's
the lowest it's been throughout this entire crisis. In fact, you'd have to
go back 26 years for a score that low.
Today's essay is up next, but first...
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The Daily Reckoning
Presents: |
We've been a bit Peak Oil crazy this week, dear
reader...but it's not all $700 barrels of crude and horror stories at the
pump. There's also huge potential for savvy investors to be on the RIGHT
side of the trend.
In today's column, therefore, Byron King presents some of the many exciting
opportunities the next global oil shock will present those in the know.
Please enjoy and send any comments to the address below...
Peak Oil - The Rewards
By Byron King
Pittsburgh, Pennsylvania
We should expect a global oil shock by 2012...at the latest. But an oil
shock doesn't have to be completely shocking. Why not beat the rush and get
ready for the shock now. You might even make a few dollars in the process.
Our story begins with "Peak Oil" - the belief that conventional production
of crude has already peaked, and has already slipped into an irreversible
decline. As "Peak Oil" moves from mere theory to indisputable fact, the
global economy will face wrenching changes. But the vigilant investor will
gain an opportunity to profit along the way.
As I discussed in
yesterday's edition of The Daily Reckoning,
oil production seems all-but-certain to decline, despite the huge new
discoveries off the coasts of Brazil, Africa and elsewhere. In fact,
production is already declining rapidly from some of the world's largest
fields. Mexico's "Catarell" Field, like a kind of Peak Oil poster child, was
producing more than 2 million barrels a day as recently as 2005. But
production from this field is plummeting irreversibly toward 500,000 barrels
a day, as the chart below illustrates.
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The recent discoveries of deep offshore oil will certainly help slow the
decline of conventional crude oil production, but theses discoveries will
not come on line for many, many years.
But what about alternative energy sources? Won't they make up for the
shortfall of crude oil? No chance. Alternative energies might offset a tiny
sliver of falling crude oil production. But solar panels can't lift a fully
loaded Boeing 777 off a runway...nor even lift an empty Piper Cub.
So what about the many sources of "unconventional" oil and gas? Won't these
compensate for declining production from conventional sources? The short
answer is no.
Geologist Art Berman, for example, offers a decidedly negative view of the
latest "big thing" - obtaining large volumes of natural gas from "tight
shales." In a comprehensive review of production and flow rates from several
thousand wells drilled in the past decade in the Barnett Shale of Texas, Mr.
Berman presents a gloomy forecast.
Looking at a large sampling of Barnett wells, the overall data reveal that
initial gas flows decline rapidly. With some wells, the drop-off is as much
as 70% in the first year, with further declines of 20% in the second year.
This hardly dovetails with the happy talk about how "shale gas" will supply
US energy requirements for the next several decades, if not a couple of
centuries. It appears that most Barnett wells are short-term money losers,
with a few prolific wells carrying the bulk of capital expenditure.
According to Mr. Berman, the picture is not much better in other shale
plays, such as the Fayetteville and Haynesville shales. And similar gloomy
data are just now starting to come in on the embryonic gas play in the giant
Marcellus formation of Pennsylvania.
But this bad news does need to be ALL bad. As the world's mature and aging
oil fields slip into an irreversible decline, production from the world's
new offshore discoveries will become increasingly important.
Therefore, forward-looking investors can begin TODAY to make selective
investments in those sectors of the oil industry that will flourish during
the coming oil shock. I am particularly fond of the "deepwater" sector...and
have been urging my subscribers for several months to focus on the companies
that facilitate deepwater oil production.
Marcio Mello, the former "explorationist" from Petrobras (PBR: NYSE)
and now independent petroleum consultant, electrified the Denver meeting of
the Association for the Study of Peak Oil & Gas (ASPO) with his analysis of
several high-profile deepwater discoveries.
In a riveting talk that lasted well over an hour, Marcio detailed the
immense petroleum potential of offshore Brazil, as well as the Amazon Basin.
If Marcio's estimates are correct, Brazil may be the location of nearly 200
billion barrels of additional petroleum resources. That's well within the
range of current resource estimates for Saudi Arabia.
For good measure, Marcio described the petroleum potential of offshore West
Africa - another 130 billion barrels - as well as the Congo region, with 50
billion barrels or more.
Finally, Marcio described the "unknown potential of the US back yard, the
Gulf of Mexico (GOM)." Marcio offered remarkable insight into the deep
regions of the GOM, 100 miles and more offshore Texas and Louisiana. He
showed early work he performed on a number of GOM areas, including the site
of BP's (BP: NYSE) recent billion-plus barrel find at the
Tiber site.
If his analyses of the South American, African and GOM petroleum systems are
correct, the world has access to much more conventional oil than people
previously believed. But accessing and producing this oil will require a
trillion-dollar level of offshore, deepwater investment. It's a 30- to
50-year project.
"Deepwater" will be a BIG business.
Some of the companies that are well-positioned for the deepwater era of
crude oil production include Petrobras, Repsol (REP: NYSE),
BP (BP: NYSE) and StatoilHydro (STO: NYSE).
I am also a fan of subsea equipment builders like Cameron Intl.
(CAM: NYSE) and FMC Technologies (FTI: NYSE), plus
service companies like Halliburton (HAL: NYSE) and Baker
Hughes (BHI: NYSE).
These are a few of my favorite long-term plays for the long-term era of
deep-water development.
Regards,
Byron King,
for The Daily Reckoning
Joel's Note: If you're a little more adventurous, Byron has
some excellent small cap companies that really ought to rocket during the
coming oil shock. To be honest, his Energy & Scarcity Investor
service is not for novices but, if you're serious about capitalizing on this
trend, it's simply must have research. Interested parties can find
more information here.
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And finally today, Joel Bowman with The Daily Endnote...
Asian and European markets largely floundered overnight after Wall Street's
lackluster session yesterday.
Here in the Far East, Japan's Nikkei 225 dipped 1.35% by the close while
Hong Kong's Hang Seng and the Aussie All Ords ended down by 1.85 and 1.45%
respectively. China's CSI index was the only major measure to buck the
trend. It finished higher by 0.45%.
Back to the European measures and London's FTSE, Germany's DAX and France's
CAC 40 all finished lower by around 1.3% for the day.
In the commodity pits, crude had slipped back a bit last we checked. A
barrel of the world's goo was down about 60 cents to just shy of $79. Gold
was hanging on around $1,036 per ounce...but looking a little punch drunk.
And that about wraps it up for today. If you'd like to comment on anything
from today's issue, or indeed any issue, just drop us a line at the address
below.
We'll be heading back home to the Gold Coast, Australia, tomorrow...but
we'll be checking our email in airport lounges along the way.
Until next time...
Cheers,
Joel Bowman
for The Daily Reckoning
joel@dailyreckoning.com |
