Recently in Business and Finance Category

Chip Cummins, Bhushan Bahree, Shai Oster And John Fialka, staff reporters for the Wall Street Journal, wrote an excellent article Five Who Laid the Groundwork For Historic Spike in Oil Market (subscription required).

The oil shocks of the 1970s and 1980s happened for a simple reason: huge and sudden cuts in supply. After supply was restored, oil prices eased.

Today's energy crunch -- which has seen oil prices double since 2003 -- is different. Once again, supply shocks have played a role, including those triggered by hurricanes in the oil-rich Gulf of Mexico and the U.S. invasion of Iraq.

But the real cause is a profound shift in the global energy system that has been 25 years in the making: The world's thirst for oil has grown faster than the industry's ability to slake it. As recently as the late 1990s there were gluts. Now there is virtually no spare oil left.

I think people have not fully comprehended the seismic change in fossil fuel availability. Once plentiful, oil and gas are now scarce commodities, especially with China being a voracious consumer of nearly all commodities. In fact, China has just revised its GDP figures indicating that it grew its economy at nearly 17% in 2004.

Not only are consumers being affected by the prices they pay, but also geopolitical forces are reshaping the political landscape as some countries that have resources are using their resources to exert influence over others. This reshaping is prevalent in Eastern Europe and Latin America.

My belief is that we will see many interesting developments, both economically and politically, from higher energy prices in the years to come. This topic should definitely be front and center on your radar screen.

James T. Areddy, staff reporter for the Wall Street Journal, wrote an article China Sharply Revises GDP Figure (subscription required).

SHANGHAI -- The world's fastest growing large economy, China, has just gotten nearly 17% bigger. Beijing on Tuesday said it has recalculated the size of its economic output in 2004 to better reflect the activity of consumers, as opposed to manufacturers.

The impact is that China's gross domestic product was 16.8% larger in 2004 than previously known. China, therefore, ranked as the sixth largest global economy last year instead of seventh, moving ahead of Italy but holding behind France.

Wow!

Richard Lapper and Hal Weitzman in La Paz wrote an article Morales wins Bolivia poll in landslide victory in the Financial Times (subscription required).

Evo Morales on Sunday won a landslide victory in Bolivia's presidential elections to become the country's first indigenous leader.

The scale of the triumph, which was not anticipated by opinion polls, will cause consternation both in Washington and among foreign investors such as British Gas and Total.

The left-wing Mr Morales has pledged to decriminalise the cultivation of coca, the raw material for cocaine, and nationalise the country's gas industry. US right-wingers are also alarmed by his friendship with Venezuela's President Hugo Ch� vez and Cuba's Fidel Castro.

As part of my consulting, I had assisted Paul Precht in his analysis of the Bolivian oil and gas industry. As part of that exercise, I learned that Bolivia is in a difficult position. Its gas is not easily marketed because it is a landlocked country with no easily accessible markets. As I indicated in a prior article Is South America Sliding Into Crisis?, Chile during the War of the Pacific (1879-1884) took Bolivia's Pacific coastline. (See OnWar.com: War of the Pacific 1879-1884 and Wikipedia: Bolivian Gas War for further information.) If Bolivia wanted to export its gas outside South America, Bolivia would need to arrange terms for a pipeline to an LNG terminal at the coast in order to ship gas to other markets. But then it is competing with Venezuela and Trinidad on the Atlantic Coast and Peru on the Pacific Coast, both of which are already on the coast. Qatar is also an aggressive competitor with its LNG facilities. Thus, if Bolivia were to adopt an LNG strategy, it would be burdened with having one of the higher cost structures. Within South America, Bolivia can ship gas to Argentina and Chile, but relations with Chile remain difficult. And the markets are not sufficiently large to accept all Bolivia's gas. Thus, its markets are limited and transportation is expensive. Thus, the price of gas at the well-head in Bolivia is lower than the Bolivians would like.

Bolivia is already South American's poorest country. Unfortunately, with the policies mentioned in the Financial Times article, I anticipate that Bolivia will suffer even more hardship.

Have a look at Apollo Publication Corporation and its mission and key officers. And then have a look at a recent SEC ruling.

You will note that Apollo has received plenty of exposure as evidenced by the various news reports listed in a Google search. I think someone has a sense of humor.

Just after I had made a prediction on gold and silver prices yesterday, silver prices tanked. When I wrote yesterday silver prices were $9.13, and as of this writing, silver prices are, according to Kitco, $8.52. Slight difference, no?

We have all seen, I am sure, various news articles concerning the bloom coming off the housing market. Some have prognosticated that the consumer would no longer be as strong as she was before. Today, Best Buy Co., Inc (BBY) is off $6.20 to $43.61 for a loss of 12.4%. But not all retailers are suffering to the same extent, so be careful about extrapolating too far. I recommend you read Jeff Matthews' article Earnings Breakage?

Interestingly Enterra Energy Trust (Nasdaq: EENC, TSX: ENT.UN) got thumped early Monday morning, but it is almost back to where it left off on Friday. On the same oil and gas track, my bullish spread on EnCana (ECA) continues to do well, which is a rather pleasant surprise.

General Motors Corporation (GM) receives more bad news. This time Standard and Poor's cut its rating on GM. From the Wall Street Journal online S&P Cuts GM Credit Rating Further (subscription required).

In its statement, S&P said that despite GM's efforts to cut costs, "the benefits of such measures could be undermined unless its market share stabilizes without the company's resorting again to ruinous price discounting."

The latest downgrade, the third time S&P has cut GM's rating this year, comes as the agency expresses greater concern about a continued decline in GM's market share and its dependence on large trucks and sport-utility vehicles. Demand for larger SUVs has plummeted this year in the face of higher gasoline prices and increased competition from more fuel-efficient crossover vehicles. The agency said it is "now dubious" whether GM's new line of SUVs and trucks, set to be introduced next year, will return GM's North American auto business to profitability.

GM faces other challenges, including potential employee liabilities from former parts unit Delphi Corp.

The Fed just raised rates again. See Fed Statement here. The market is reacting very favorably with a gain of about 0.66% so far. I have not had time to read and analyze the statement, though the WSJ is out with an article Federal Reserve Increases Key Interest Rate to 4.25% (subscription required).

Lots of interesting cross currents to analyze and interpret.

Disclosure: I am long Streettracks Gold Trust (GLD) and long Pan American Silver Corp. (PAAS), and long and short calls on EnCana Corporation (ECA), and short GM stock.