Dollar Drops, What’s Really Behind $92 Oil, Rising Beer Prices, African Opportunity, and More!

by Addison Wiggin & Ian Mathias

  • U.S. markets rally… how does $1.2 billion in losses translate to a 32% gain?
  • Dollar gets devastated… the latest record lows
  • How gold could hit $850 this week
  • Oil prices continue to soar… Byron King on the real reason for $92 barrels
  • Beer prices set to rise… which brews will cost 10% more by 2008
  • Chris Mayer on the incredible resource opportunities in Africa

Consumer sentiment fell to 80 in October — a 17-month low. The monthly Reuters/University of Michigan survey puts October’s score 2 points below September’s.

The U.S. markets could not care less. The Dow closed up 1% on Friday. The S&P 500 and Nasdaq both gained even more.

But traders aren’t really interested in fundamentals these days.

Case in point: Microsoft announced a 23% jump in profits on Friday. The company beat analysts’ expectations by over $1 billion in profits. The stock rose 10%.

Fair enough.

Countrywide reported $1.2 billion in third-quarter losses on Friday. The announcement beat the market’s anticipated loss by $1 billion. But just like the Microsoft announcement, traders started pushing “buy” buttons… by the end of the day, CFC stock was up 32%.

Who said markets are efficient… or rational?

The euro, which traded near $1.44 on Friday, ran past $1.44 overnight in Asia.

“Wow!” exclaims EverBank’s currency man Chuck Butler. At $1.44 a euro, just short of $2.06 a pound, 92 cents for an Aussie and the loonie a hot-and-bothered breath away from $1.04… the dollar is truly hurting.

As we glance at the dollar index this morning, sigh: 76.7 — the index’s first foray into the 76 range and yet another all-time low.

On Wednesday, things get really spooky for the dollar. The Fed will host a special Halloween edition of the FOMC and choose what to stick its fangs in next — the carotid… or the jugular.

Futures listed on the Chicago Board of Trade suggest an 86% chance that Chairman Bernanke and company will cut rates 25 points, to 4.5%… and a 14% chance of a 50 point cut… oy.

“We do believe in a strong dollar,” Vice President Dick Cheney told Larry Kudlow in an interview last week, “but we think that the key is that it be allowed to adjust based on market forces out there, and that’s exactly what’s happening.”

You think?


“Arghh! See you in hell, puny greenback…”

Gold traded as high as $793 in Hong Kong this morning.

“The gold market is surely moving fast,” comments our gold adviser Ed Bugos. “Last Monday, December gold touched down at $749, and then bolted straight back up to a new 27-year high, just shy of $790 by Friday. I’m still worried you’ve got fickle traders in there that’ll sell gold on any sign of a correction in stock or oil prices, or any bounce in the dollar. But gold $1,000 is inevitable, and imminent — by the dance of the ticker.

“We could see the 1980 high [$850] in a week.”

Crude oil prices spiked above $92 per barrel on Friday. In January 2007, just nine months ago, oil was trading at $62 per barrel.

“What is with the 50% price rise in less than one year?” our Byron King wants to know. “Is it just all about the U.S. and Iran talking smack at each other? At $92 per barrel, is every barrel of oil in the world really carrying a $30 ‘war risk’ premium?”

Not likely.

“The Energy Information Administration announced a drop of 5.3 million barrels of oil in inventory, versus market expectations for a 300,000 barrel increase,” notes Byron. “That is a 5.6 million barrel net difference, on the negative side. There is a severe oil shortage before the winter driving and heating season in the Northern Hemisphere.

“Compare this 5.6 million barrel shortfall with Iran’s total daily oil output of about 3.7 million barrels. Really, which is more important: the 5.6 million barrel supply shortfall or the tensions between the U.S. and Iran?”

“Africa holds some 99% of the world’s chrome resources, 85% of its platinum, 70% of its tantalite, 68% of its cobalt and 54% of its gold,” reports Chris Mayer in the latest Whiskey & Gunpowder. “Africa has vast resources of timber and bauxite. Diamonds, too, with nearly half of the world’s production.

“Specifically, I think Africa will play a more important role in slaking the thirst of the West’s oil-guzzling economies. It’s already more important than you may realize, as I wrote in the September issue of Capital & Crisis. The U.S. already gets about 18% of its crude oil from Africa, mainly from Nigeria, which makes up about half of that total. Some estimates say we’ll get 25% or more of our oil from Africa by 2015.

“If Africa is going to make up 25% of U.S. oil supplies, that implies a lot more growth and interest and money in African oil assets. In particular, West Africa — that band of countries snaking along the Atlantic Coast — Nigeria, Chad, Cameroon, Gabon, Equatorial Guinea, Sao Tome and Principe, Congo and Angola.

“West Africa has plenty of oil. Angola alone has proven oil reserves of over 25 billion barrels. (Interestingly, Angola is also one of China’s principal oil suppliers.) Also, in West Africa, new discoveries happen more frequently than anyplace else.

“Again, no doubt the oil is there. The question is getting to it profitably. That’s the
problem.”
Chris thinks he has found a company with the solution… read the latest Whiskey & Gunpowder to learn more.

The number of households with a million dollars or more grew by 14% in 2006, says a recent study by the Boston Consulting Group (BCG). At least 9.6 million families on this Earth have at least $1 million in assets.


The U.S. continues to have more millionaires than any other country. But take a look at China. That country’s millionaire population grew by 39% in one year alone. In the time it took Boston Consulting Group to tally the 2006 score, China’s market has grown about 120%.

A reader suggested we should drink more beer last week. Well, we’d love to, but like every other foodstuff on the planet, this one’s going up…

“I’m guessing, at a minimum, at least a 10% jump in beer prices for the average consumer before the end of the year,” said brewmaster Terry Butler of central Washington’s Snipes Mountain. According to an AP report this morning, beer makers are facing a steep headwall of rising prices… costs that will sooner or later be felt by consumers.

Hops acreage fell 30% between 1995-2006 in the U.S., where 25% of the world’s hops are grown. The effect of which is now being felt on beer makers, particularly those of “craft” beers (i.e., the good ones). Brewmaster Butler cited an over-100% increase in hops prices this year compared with last, and a 10-15% rise in barely prices. God forbid you enjoy a good wheaty hefeweizen… wheat prices have practically doubled this year, as well.

“Brewers are trying to take pricing up,” said Harry Schuhmacher, editor of Beer Business Daily. You’ve been warned…

“I smell blatant partisanship and baseless accusations here,” writes a reader.

“I don’t understand why you knock Rangel for proposing tax reform. We all want that, I thought? To irresponsibly throw scare tactics at us by quoting Paulson (another goose-stepping “Bushie” that will say ANYTHING to bash any Democrat strictly for the sake of maintaining power) that the plan would, “raise taxes in ways that … would hinder U.S.’s ability to compete in the global economy” — this is baseless speculation! Rangel’s proposal would raise taxes only on the rich (who are fast becoming the super-rich) and lower them on the 90%-plus of the rest of us!

“And in case you haven’t noticed … the last seven years have seen the U.S. lose its technological edge and its manufacturing base atrophy. We’re not competing — we’re selling our citizens out, creating credit bubbles, unnecessary wars and a mountain of debt.”

The 5 responds:
We smell someone who doesn’t read very carefully. And thrives on partisan bickering.

“Taxes are the price we pay for a civilized society,” claims a reader. “They’re like dues to a country club. The price of admission. If we are to have common goods — roads, national parks, a social safety net, public education or a war (which I oppose) — all have to be paid for. Rangel’s approach to reduce taxes on the majority of people while restoring the tax rates to the richest among us seems to me to be a good plan. Those of us who are fortunate enough to do well in this society have an obligation to pay our fair share.

“Would I change some of the places the money is spent? Of course. But I am happy to pay for the privilege of living in the U.S., though I hate the hassle and the paperwork.”

The 5 responds:
We can’t figure out which of your letters is more offensive or ignorant. You both have the idea exactly ass-backwards: Taxes are the price we pay for our FAILURE to be civilized. We do not exist to serve the government, but the other way around. If we want common goods, we should be civilized enough to provide them. But being civilized requires people to act. Most people would rather have the government do their dirty work. Consequently, we have the most asinine and labyrinthine tax code history has ever seen.

Besides, Rangel’s approach is just not smart. His theory of government requires you to punish people for being successful and to extract what he perceives to be someone else’s “fair” share at the point of a gun. It’s not likely to be a very popular plan. And he’ll have to make all kinds of concessions to get it passed. Hence the fetid pit of corruption Congress has become.

The Republicans in office are much more clever: They understand power. They spend money whenever they want — and do whatever they want with it — without asking anyone’s permission… and stick the bill on future generations. If you question them, they tie you up in court. It’s much easier. Those voters who’ll have to pay for their plans haven’t been born yet. They don’t complain as much.

“The longer I live, the more I am convinced that we keep sending far too many jackasses to Congress,” wrote our last reader.

The 5 responds:
Amen.

Best regards,

Addison Wiggin
The 5 Min. Forecast

P.S. Who, we ask you, is interested in limiting the power of the government… the power to tax, the power to borrow, the power to print money… the power to wage war… the power to spend?

Answer: No one.

The exercise of these powers — irresponsibly, mind you — is the root cause of “credit bubbles, unnecessary wars and a mountain of debt.” Who cares which of the parties has its finger on the trigger?

rspertzel

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