by Addison Wiggin & Ian Mathias
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Oil $119… how emerging nations changed the near- and long-term oil outlooks overnight
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China’s coming energy crisis… coal reserves at stunning lows
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Dollar in the dumps… euro hits record, another currency races toward dollar parity
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Corn back near all-time highs… Kevin Kerr on “one of the best buying opportunities in 2008”
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Financials quietly raise over $20 billion to shore up balance sheets
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Plus, “the death of Hollywood” and how emerging tech will transform the entertainment industry
Oil climbed to a dime short of $120 yesterday, another record high. More dollar weakness and a cold shoulder from OPEC helped give crude a boost.
But likely caving to pressure from, well, everyone in the West, OPEC head Abdalla El-Badri told reporters this morning the cartel intends to increase production capacity 15%… by 2012. The price dropped back to $117 per barrel within minutes.
It’s going to have to increase production, if it can. Sometime this year, predicts the International Energy Agency, for the first time, the combined oil usage of China, India, Russia and the Middle East will surpass the great oil glutton that is the USA.
Americans, says the IEA, will likely consume around 20 million barrels per day this year.
China’s coal inventory has shrunk to a 12-day supply.
According to the Chinese state media this morning, the country’s reserves are down to 46 million tons. That’s less than two weeks’ supply for the whole county. Some regions, like the Hebei province, are reporting reserves down to less than a week.
Currently, 70% of China’s energy is generated by coal-fired power plants. Luckily for them, there aren’t any gigantic global events happening in the near future that will attract millions of extra tourists and put an incredible strain on the nation’s power grid.
Wait, uh-oh…
U.S. gas prices inched up to yet another record high today. The AAA national average now reads $3.53. The trend here is about as clear as day: Energy isn’t getting any cheaper.
That’s a 50 cent rise in the national average gas price since February. Ouch!
As we forecast on Monday, the euro struck $1.60 last night. We assume you called your broker early this week, opened up a huge leveraged euro position and are now filthy, stinking rich. Congratulations.
The euro pushed past the psychological stumbling block at $1.60 by more refreshingly honest and easy-to-understand language from the ECB. “If needed,” Christian Noyer, an ECB governor said, “we will move interest rates.” Noyer insisted that the ECB would take the “necessary” steps to bring the eurozone inflation rate below 2% by 2009.
After striking $1.60, the euro has backed down a bit on profit-taking. As we write, it trades for $1.59.
The dollar got smacked around by the rest of the world’s tradable currencies, as well. The dollar index sank a bit deeper into the 71 range. The pound regained its footing at $1.99. And the loonie is just a hair short of parity with the greenback again. And…
“The Aussie dollar reached a 24-year high overnight!” rejoices Chuck Butler, always keeping an eye on the world’s lesser-traded currencies. “Here’s the skinny: Australian consumer inflation posted the highest level it had seen in seven years. The Australian dollar is trading well into the 95 cent handle now… and looking quite perky. Inflation in Australia is still on the rise, leading traders to believe interest rates aren’t going lower. They may, in fact, be going higher!”
Yikes… first the Canadian dollar, then the Swiss franc and now maybe the Aussie? Could we have three currencies reach historic parity with the dollar in under a year? If you’d care to place a bet, we recommend EverBank’s World Energy CD. Click here to learn about its bundle of the loonie, krone and Aussie in one certificate of deposit.
As you may know, we updated our book The Demise of the Dollar this January. We didn’t intend to. But the first edition was a forecast and written mostly in the future tense. Then, starting with the Bear Stearns announcement mid-July last year, many of the things we suspected would happen… began to happen. And the first edition of the book got old fast.
Now that the new edition is out, the PR folks are having a field day. Here’s an interview we did with the Central Valley Business Times in Stockton, Calif., on Friday.
Sunday, we were supposed to do an interview with The Voice of Harlem in New York City, but Bill Cosby kept telling stories beyond his allotted time and we got bumped. Just as well, really: We have company in the house and didn’t relish the idea of lamenting the demise of our currency on a Sunday afternoon anyway.
Corn futures shot back up to near record highs yesterday after a particularly gloomy USDA report. As it turns out, the government told traders what Kevin Kerr has been telling you since last week… there isn’t enough corn in the ground.
According to the USDA, only 4% of the entire U.S. corn crop has been planted. This time last year, 9% was in the dirt. And looking over the previous five years, by this time, an average of 17% of the corn crop had been planted.
“All my intel and contacts tell me the same thing, over and over,” says our Maniac Trader. “I have very muddy shoes here at home to confirm it, too… it’s just too wet, too cold to plant corn.
“At 4%, April 22 corn is in the danger zone of low yield. Think things are bad now? Wait a few months. Yesterday may have been one of the best buying opportunities for the rest of 2008.”
The USDA report shot corn futures back up to $6.10, 13 cents short of the record high set last week.
Kevin told his Resource Trader Alert readers to buy a corn option spread back in January… when corn was trading for about $5.20. They’re up over 60% already. For Kevin’s next behind-the-scenes commodity play, click here.
Rice futures set another record high, as well. Now just below $25 per hundredweight, rice shot to a new all-time high on rumors that Thailand — the world’s largest rice exporter — might begin restricting exports.
“If a key exporter like this limits foreign sales of rice” said James Adams of the World Bank, which issued the report, “it would be very much like Saudi Arabia reducing oil exports.” According to Adams, Thailand is under serious pressure to follow the lead of nations like Indonesia, China, Egypt, India and Vietnam — all of whom have tightened or eliminated rice exports this year.
Skyrocketing oil and a weaker dollar set the tone in the stock market yesterday, too. AT&T, DuPont and McDonald’s all beat Street expectations in their earnings announcements, but only because weakness in the greenback has boosted their international sales.
For once, the market saw the forest for the trees, and with the exception of a handful of energy stocks, investors sold off. The Dow and S&P 500 shed around 0.8%, while the Nasdaq dropped 1.2%.
Once again, gold traders shrugged off the weak dollar/rising oil/falling stock market that sent gold through the roof earlier this year. The chart has flat lined this week… an ounce of the stuff will cost you $910-920 this morning.
Citigroup “successfully” diluted shareholder wealth yesterday in a $6 billion preferred stock fire sale. The bank has now raised some $36 billion since November to help offset $45 billion in losses in write-downs.
Elsewhere, Merrill Lynch raised about $10 billion in a “senior unsecured debt sale.” Goldman Sachs and commercial financiers CIT raised another $1.5 billion each yesterday through bond and convertible stock sales.
We have to wonder… if the financial sector is so near a bottom — as the world would have you believe — why does it need to raise so much money?
“We’re going to have some more bank failures,” John Dugan, the nation’s comptroller of the currency, said yesterday. “That will come back more to historical norms and may go above that with time. That is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn.”
Part of Dugan’s job is overseeing the nation’s 1,700 banks. Not exactly your dream job these days, we’d suspect.
In California, first-quarter foreclosures skyrocketed 327% year over year, reports DataQuick today. In a joint release with the L.A. Times, the bean counters at DataQuick estimate that over the past four months, 500 Californian homes foreclosed every day.
Over 47,000 homeowners gave their homes back to the bank during the quarter.
And get this… last week, we told you about the peril of the federal student loan program and Sallie Mae. This morning, we learn that the Bush administration has proposed to “solve” this problem by using taxpayer dollars to buy up billions worth of federally guaranteed student loans.
In a letter to Congress this morning, the executive branch outlined a proposal to buy student loans so that the government’s capital can be used to fund new loans.
Why not? The government’s already guaranteeing the mortgage, housing and financial industries with Treasuries… why not the education of the entire middle class, too? Oy.
“Hollywood as we know it is doomed,” writes our newest great, Patrick Cox. Given our experience with filmmaking… maybe this is a good thing.
“In the last few months, the same thing that happened to music has taken hold of with the film business,” says Patrick. “Today, most music is transferred outside of ‘legal’ channels. Peer to peer is routine and nobody has to buy music if they don’t want to. Some analysts say less than 20% of recorded music is paid for.
“With rapidly increasing bandwidth and processor power, movies are being transferred at an increasing rate. I know my kids’ friends routinely trade new movies — some that aren’t even in theaters yet — on flash cards.
“This doesn’t mean that movies won’t continue to be made. Nor does it mean that fortunes will not be made in the film biz. It does mean, though, that the old studios are going to lose to new players. More importantly, the revenues currently generated by the old studios are going to be inherited by others who understand the transformation we are experiencing.”
Patrick has his own theory on who will be “inheriting” the $150 billion U.S. entertainment industry. Check out The Emerging Capital Report to learn more.
“I need to relay my family’s story on rice,” writes a reader. “My wife and her family are Chinese. We house myself (Caucasian), my wife, our son and my wife’s sister and mother. I made the transition from potatoes to rice some time ago, having married into this family. We eat white rice daily; the rice steamer is never empty. When my wife heard me retell the stories of the impending rice shortage and Costco perhaps rationing rice, she just went into panic mode and we now have four 25-pound bags of rice on hand. We live in Seattle, the gateway to Asia, and the two local Costcos that my wife went to were low on rice, but they were not rationing it, yet.
“I would like to go ‘long on rice,’ especially since my wife has started to relay this story to the entire Seattle Chinese community. Isn’t this how panics start, anyway? Will I — or, worse yet, my wife — be selling rice out of the garage to the highest bidder? If I weren’t serious, I’d find this rather comical. Then again, we may just have to hang onto our ‘stash’ or begin bartering for gold, precious coins and gems.”
The 5: Now you’re talkin’.
Best regards,
Addison Wiggin
The 5 Min. Forecast
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