The Rude Awakening
Pittsburg, Pennsylvania
Tuesday, May 22, 2007 ------------------------- - Invitations to the global oil party and why the U.S. is not invited,
- The S&P falls a little short and a long way short simultaneously,
- Welcome to the backside of Hubbert's Peak and plenty more…
------------------------- Byron King, bringing you the naked truth from Pittsburgh, Pennsylvania… In the May issue of Outstanding Investments, my co-editor, Kevin Kerr, observed that China is establishing cozy relationships with many of the world's major oil suppliers. America is not. The Chinese are aggressively expanding their global geological footprint. They are investing billions of dollars in various foreign ventures, while also negotiating long-term supply contracts with countries like Canada, Russia and Venezuela. China's aggressive "eastward expansion" into the oil fields of Canada, South America and elsewhere may imperil America's future energy supplies…or at least, the PRICE of those energy supplies. At the same time, several oil-producing nations have become increasingly hostile toward Americans and toward private enterprise…and especially toward Americans who conduct the private enterprise of oil extraction. "You get a globalized world of investments, but not of natural resources," said the Deputy Minister of Energy of Venezuela, Bernard Mommer, in a speech earlier this week. "The natural resources belong to the people, and I do not know one people (sic) who thinks differently," he added. Deputy Mommer, a mathematician by training, is widely credited as the architect of the wide-ranging plan of Venezuelan President Hugo Chavez to nationalize wide segments of the Venezuelan economy. To date, the Venezuelan government has made long strides towards nationalizing large land holdings, some segments of the banking business, and industrial sectors including electricity generation, telecommunications, mining and oil production. Last September, Pres. Chavez cancelled all mining concessions, and announced a moratorium on awarding any new deals to transnational companies as part of a wider sector restructuring. Chavez noted, "Recently … we decided, after looking at this and looking at that, to cancel all mining concessions. We will not give more concessions to transnationals." This was a harbinger of things to come in the resource sector. Soon thereafter, Chavez launched a broad review of all energy and mineral contracts signed by Venezuela before he was elected to office in 1998, in an election marred with numerous claims of irregularities in voting. Chavez has stated that he thinks many of the previous resource deals "robbed" Venezuela of its natural resources. Of his nationalization efforts, Chavez has said, "(This) is to recuperate the national power, the sovereignty to manage our resources." Energy Deputy Mommer has amplified the pronouncements of his boss, Pres. Chavez, describing the development of a "new self image" within Venezuela. "We just behave like any developed country behaves," said Mommer. "We say 'no' to colonial arrangements," referring to Venezuela's recent announcement that it would no longer offer to participate in any process of international arbitration over disputes in business deals. Mommer said that Venezuela's legal system offers "sufficient security" to any potential investor. "If any company insists on that (arbitration), they will just have to leave. That's it," he stated. In discussing Venezuela's recent seizure of up to 60% of the ownership of several heavy oil projects in the Orinoco region, Mommer said that oil meant more to the nation than "just cash." He stated, "Let's be clear that we are talking about a natural resource that is national property, and I cannot find one community that is not of the opinion that it should not benefit from these riches." In summing up the recent oilfield takeovers, Mommer said, "The law established clearly that the national oil company needs to have control over these operations…We made this clear, and we took action. It is written in the law. There is nothing to negotiate."
There you have it. There is nothing to negotiate. Welcome to the back side of Hubbert's Peak. The global energy markets are changing rapidly…to the detriment of American energy consumers. --- Special Oil Investment report ---
The Full-on Oil War of 2007: Tue May 22 05:51:51 2007. US/Eastern Bloody New "Backlash" Set to Rocket Oil Past $150… and Send Gas Soaring to Over $6 per Gallon For Byron King's Full Report, click here: Outstanding Investments Oil Investment Report ---------------------------- Advantage: China
By Kevin Kerr It seems like a weekly occurrence that another deal is struck between China and another key energy-producing country. Meanwhile, U.S. relations with those countries continue to erode. The countries that will likely be the "energy elite" in the coming 50 years certainly don't include the United States. In fact, the U.S. isn't even on the guest list. Meanwhile, America is losing its "preferred customer" status with many oil producing nations. Now the U.S. is seen as a third-rate customer that is taking a back seat to China and others. As Chinese officials jet around the globe cutting supply deals with oil producers in Russia, Venezuela and various Middle Eastern countries, the world's oil supply lines are being locked up. And that's not the only problem. Some of the world's most prominent oil exporters are thumbing their noses at the U.S. "The United States, as a power, is going down and China is going up," says Hugo Chavez, the president of Venezuela. "China is the market of the future." Chavez was speaking in Caracas when he said that Venezuela will diversify its oil exports to ease dependence on the U.S. market. Historically, Venezuela has shipped about 1.5 million barrels a day. Chavez announced again that Venezuela's goal is to boost oil exports to China to 1 million barrels a day by 2012, from about 150,000 barrels today. Guess where all that oil will come from. Even more distressing is that as Chavez now nationalizes every aspect of the country, especially projects that had significant U.S. investment, he announces that Venezuela and China plan to form joint ventures to drill in the South American county's heavy crude belt and even build three refineries, all for oil for export to China. The venture was announced between the state-run oil company Petroleos de Venezuela SA and China National Petroleum Corp. The partnership deal may also include building tankers to ship the Venezuelan crude to China. China has struck similar deals with Russia in recent months, as well as with a couple of Africa nations. All of this activity is vital to Chinese interests and its economy's increasing reliance on fossil fuels. Just a decade ago, there were almost no privately owned cars in China. Fast-forward to 2005 and there were almost 24 million. It's hard to imagine, but China now has more car brands than the United States. The Chinese car market has just surpassed Japan and is now the second largest market in the world, after the United States. Some analysts estimate another 20-25% growth in 2007. While China is busy striking strategic oil partnerships around the globe, the U.S. is still mired in problems with Iraq, and now even facing possible conflict with Iran. With no clear energy policy being presented by any presidential candidate, it seems as though the U.S. will continue to be pushed aside in the ongoing deal making and strategic oil alliances. All of this bodes very badly for energy prices going forward, as the situation is likely to get much worse before it gets any better. At a time when the U.S. should be encouraging more global partnerships and foreign investment, the opposite seems to be happening. As these other countries' new relationships develop, it's almost certain the pinch from oil prices here at home will be quite painful and hard to ignore, maybe starting as soon as this summer driving season. [Joel's Note: The days ahead will be exciting for some, painful for others. A global shift is underway, including the largest migration of humans in history (from rural to urban areas of China) and resources are following. Kevin will be keeping a close watch on opportunities arising in the energy markets from his perch in New York and from his property in Estonia, where he has a front row view of the historic power shift. In addition to monitoring the energy sector on a macro level, Kevin also uncovers trading opportunities in the ags and metals. To learn exactly how his service (one that returned an average of 96% last year on all closed positions) works, follow this link: Resource Trader Alert - A Sterling Example ---------------------------- Did You Notice: A New High…Sort of
By Dan Denning The S&P 500 missed a record closing high by two points yesterday (but remember, for foreign investors, the new high in dollar terms is illusory…the real return is negative for euro-based investors…who still haven't made any money since 2000). What's astonishing about this long climb back from the depths of the post-2000 bear market is that it took $40 billion in takeover activity and seven years for the index to make a new high. And if you check the tables that show the sector performance, IT and technology stocks are still down over 50% from their 2000 highs. They've never really recovered.
Shows you how important it can be to get the secular trend right…or to be in the right asset class, as we say. In other words, in 1982 it was good enough to own the S&P. But that was a bad strategy in 2002. You didn't want to own "the market." You just wanted to own those sectors of "the market" that were going up the most. (This, by the way, is what has made ETFs so popular to U.S. investors and institutions…They let you "thin slice" the market into smaller, better performing sectors, isolating out performance.)
But what does this S&P flirtation with a new high tell us about today's economy? If the stock market leads the economy, and the broadest measure of American stocks is on the verge of making a new all-time high, should we be buyers? Is the stock market telling us that corporate profits are fine, that the economy is fine, that commodity prices are looking toppy, and that global growth will be a lot more reliable and stable than bears predict?
Well, the market COULD be saying all those things. But you have to take what the stock market says with a grain of salt, especially when it speaks under the influence of so much credit. It's not a sober market. The S&P is showing a lot of "liquid courage." But if all that courage comes from money borrowed at low interest rates…then a new high will be as fleeting as…well, any kind of high that comes from substance-abuse - no matter whether the abused substances be drugs…or derivatives…or leveraged. -------------------------- | 
