Iran’s Latest Threat, Boone Pickens’ Wisdom, The World Needs Pipes, Another Bank Implodes, and More!

by Addison Wiggin & Ian Mathias

  • Oil pauses latest decline… the display of military might that shook the energy market
  • T. Boone Pickens on a source of energy in the U.S. more abundant than anywhere else in the world
  • Chris Mayer’s latest opportunity amid global crises
  • After 99.2% drop in share price, another mortgage lender looks ready to kick the bucket
  • SEC’s keen eye for the obvious: Ratings agency conflicts cited

  So much for oil’s recent pullback:

That’s one of many shiny new medium-range missiles that were test fired in Iran last night. In spite of President Ahmadinejad’s recent downplaying of possible U.S. or Israeli conflict, the Iranian powers that be decided to unveil a new missile overnight that could easily strike both Israel and U.S. bases in the Middle East.

We won’t pretend to know Iran’s intentions, but it’s safe to say the latest chest thumping halted oil’s latest sell-off. Light sweet crude is up $2 this morning, to $138.

  The U.S. "is the Saudi Arabia of wind power,” legendary energy man T. Boone Pickens told CNBC yesterday. According to Pickens and his team, the Great Plains region of the U.S. is “home to the greatest wind energy potential in the world — by far.” Even has a fancy map to prove it:

T. Boone officially unveiled the “Pickens Plan” yesterday… his attempt to bring the U.S. energy crisis into the dialogue of the coming presidential election.

“We import 70% of our oil, at a cost of $700 billion a year — four times the annual cost of the Iraq war,” he told reporters yesterday. As you might guess, Pickens suggests the U.S. turn to wind and natural gas as viable alternatives… two industries in which he’s invested billions of dollars.

“North Dakota [wind] alone has the potential to provide power for more than a quarter of the country. Building wind facilities in the corridor that stretches from the Texas Panhandle to North Dakota could produce 20% of the electricity for the United States, at a cost of $1 trillion. It would take another $200 billion to build the capacity to transmit that energy to cities and towns.

“That’s a lot of money, but it’s a one-time cost. And compared to the $700 billion we spend on foreign oil every year, it’s a bargain.” If you want to learn more, check out pickensplan.org … it’s a good read.
 

  But Pickens is probably too late with his plan… Congress has already figured it all out:

Speaker of the House Nancy Pelosi asked President Bush to release oil from the Strategic Petroleum Reserve yesterday. In a letter to Bush, Pelosi suggested he “draw down a small portion" of the SPR "to help reduce record prices that are helping push the economy toward recession."

Hmmm… and all this time we thought the SPR was designed to prevent an emergency disruption in oil supplies.

“It’s unfortunate that the only place Democrats in Congress can find to explore for more resources is the Strategic Petroleum Reserve," fired back White House spokesman Scott Stanzel. "It is time to put aside these politically motivated Band-Aids offered by the Democrats and do something that will improve our energy security in the future, like expanding access to American energy in" the Arctic National Wildlife Refuge (ANWR) and Outer Continental Shelf (OCS).

Our best guess? Neither solution is likely to happen soon. On a coincidental aside, the latest Rasmussen survey shows only 9% of American’s believe Congress is doing a “good” job. Such a score marks the worst congressional approval rating in the poll’s history

  With or without OCS drilling in the U.S., the world “needs miles and miles of offshore pipelines to bring oil to market,” notes Chris Mayer. Always finding opportunity in times of duress, Chris recently set his sights on the pipeline industry… check out this chart, for starters:

 

“According to Quest Offshore, between 2007-2011, the industry will have laid down 35,000 miles of pipeline. That’s a lot of steel. And a lot of pipelay barges to do the work. And crews. It’s a demand that should continue for years to come, even if the oil price comes down.

“That’s only part of the story, though. Here’s the other: the existing miles of pipelines that are getting old. We’ve often talked about the creaky infrastructure surrounding everything from roads and bridges to water and power supply. Matt Simmons, the oft-quoted energy analyst, likes to say, ‘Rust never sleeps.’ The average age of the world’s offshore jackup fleet — over 400 rigs — is over 24 years.

“It’s a massive opportunity. The offshore boom, and Brazil’s latest offshore scores, only adds to the urgency of it all. I’m looking now at some of the companies that will participate in the big offshore infrastructure build-out. They also benefit from replacement work.” Want the names of those companies? Better subscribe to Capital & Crisis.

  The U.S. dollar backed off a bit today, also helping crude oil reverse its course.

Once again, European Central Bank President Jean-Claude Trichet is making today’s market. The ECB chief said today that eurozone inflation is rising at a “worrying” rate and will likely “remain well above the level consistent with price stability for some time, moderating only gradually in 2009.”

With that, much of the stir he caused last week was reversed, and the dollar index fell down to 72.5. The euro ticked up a cent versus the dollar, to $1.57. The pound is back to $1.98, and the yen is still at 107.

  And as the dollar falls, gold is firming up nicely. The spot price rings in at $925 as we write.

  The U.S. stock market staged an interesting reversal of its own yesterday. After the flood of gloomy financial news Monday, stocks rebounded yesterday as speeches from Ben Bernanke and Hank Paulson soothed investors’ woes. Financial stocks led the way yesterday after their tag-team effort. Coupled with falling oil prices, index investors enjoyed a nice little rally. The Dow jumped up 1.3%, the S&P 500 rose 1.7% and the Nasdaq leapt a full 2.3%.

  But infamous mortgage bank IndyMac couldn’t manage to ride the rallying market’s coattails . The offshoot of Countrywide Financial looks to be gasping its last breaths… IndyMac admitted in a regulatory filing yesterday that it has all but shut down its lending operations. The famous Alt-A mortgage lender is simply out of money.

The bank suffered a “run” yesterday. Everyone and their mother raced to cash in their IOUs, pull out their savings and sell shares of IMB.

IndyMac shares went for $50 a pop in 2006… you could grab one today for 38 cents. Look for the lender to bite the dust soon.

  Ratings agencies such as Moody’s and Standard & Poor’s are in the hot seat today, as well. The SEC released results of a 10-month probe of the ratings biz today and… shocker… the government body found that the agencies failed to manage their conflicts of interest appropriately.

“Analysts appear to be aware, when rating an issuer, of the rating agency’s business interest in securing the rating of the deal,” read the SEC’s report, effectively suggesting that higher ratings were for sale.

  Elsewhere in the market, we learn that U.S. hedge funds just finished their worst first-half performance since at least 1990. According to industry analysts at Hedge Fund Research, the average hedge fund fell 0.75% in the first half of 2008, the worst performance since the group started keeping track 18 years ago.

Also, “only” 35 hedge funds opened up shop in the first half, 50% less than in the first half of 2007.

  Consumer credit soared to $7.7 billion in May, slightly more than expected, said the Fed yesterday.

The latest spike in consumer borrowing was almost entirely fueled by credit cards… consumers turned to plastic to the tune of $5.6 billion in May, also above expectations.

Total consumer credit, not including real estate debt, now exceeds $2.5 trillion.

  Last, some sad news… Sir John Templeton, legendary contrarian investor and tireless philanthropist, passed away yesterday. For a worthy tribute to Sir John, along with a few nuggets of his remarkable investment wisdom, be sure to check out today’s Rude Awakening.

  “Yes, the voters are largely to blame,” writes a reader in response to yesterday’s reader mail, “but what’s this about ‘whine from afar’? That reader should not confuse a personal desire to improve one’s life with a desire to improve the future of the USA, which is not incompatible. We Americans abroad also have to pay federal income tax and can help ‘vote the bas***ds out’ also!”

  “Many things take citizens abroad,” writes another. “Even Americans living abroad vote! If your solution is to vote at the polls and throw the bastards out, whiners living abroad can vote too…only we have one extra vote…voting with our feet!”

  “True, but voting them out and replacing them with whom?” asks a third. “Same, same and more of the same. People (you know, the common folk) have been talking for years. Sending e-mails, letters and phone calls to their reps. I am included here, and all the feedback from many others. We all receive the same form letter back stating our interest in the matters and they will all be looked at. End of story. Unfortunately, we must wait around till the next election time to vote them out, and by then, the damage is worse.

“We have no say how they spend our money. So now we just continually pay enormous taxes to bail out whom it (meaning the Fed Reserve) chooses to bail out and let our nation die. Leaving this forsaken dump is a much better choice, because the only way anything will ever get fixed is an all-out revolution.”

  “The statistic in yesterday’s 5  was unbelievable,” writes our last. “That ‘The Fed has now invested nearly $1.2 trillion of your (our) money in this credit crisis. Trillion… with a “T.”’ The current population of the United States (according to www.census.gov ) is 304.5 million people. Correct me if I’m wrong, but that means every man, woman and child in our great nation has footed $3,940 of the bill to bail out the country’s financial institutions. I wonder where my $3,940 is right now? Probably sitting on an overpaid analyst’s wall in the form of a flat-screen TV purchased with a fraction of last year’s bonus.”

The 5: That’s one way to look at it. Makes that stimulus check seem pretty silly, eh?

But we should make an important distinction. The money dolled out in these TAFs and TSLFs isn’t spent: It’s loaned. The TAFs offer banks short-term loans at rates below the Fed’s usual levels, while the TSLFs allow investment banks to trade illiquid assets for U.S. treasury notes.

So it’s very hard to say exactly how much money has been lost. But we still thought it was very important for you to know the Fed is willing to put us all on the hook… big time. And lest you forget, if we can survive this credit/housing crisis, these lending facilities will earn the Fed a multi-million, if not billion, dollar profit. Gives a new meaning to the idea of “socialized risk, privatized reward.”

Best,

Ian Mathias
The 5 Min Forecast

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