by Addison Wiggin – February 8, 2011
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Improbable: Nation that just banned foreign cooking on TV achieves fuel independence
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Unusual opportunity emerges for Western investors to “steal” oil from Iran
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Revealing chart correlates rising stocks with Fed’s easy money
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Goldman sees nothing worthwhile to buy, JP Morgan looks to scarf up clients’ gold
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Poster grandpa for meaningless government regulation… as the reader debate rages on
Over the weekend, the government in Iran ordered the nation’s TV cooking shows to cease showing foreign cuisine.
Seriously.
The word came down Saturday from the chief of the state broadcasting company. God forbid Iranians be exposed to pommes frites or spaghetti alla vodka… or, worse, hamburgers and hot dogs. Gasp.
Egypt may be grabbing headlines from the Middle East, but they’ve got nothing on some of the backward thoughts of their neighbors.
An Iranian news agency also reports that the country has stopped importing gasoline from Venezuela, resolving a decades old conundrum of the oil-rich state.
If Iran has the second largest pool of known oil reserves in the world, why have they been importing 840,000 gallons of gasoline a day from Venezuela? The answer in part is sanctions. The other part: The refineries are a mess thanks to decades of subsidies.
Iranians who drive cars have been able to fill their tanks for less than 40 cents a gallon since the government tried to appease citizens during the Iran-Iraq War back in the 1980s.
By 2007, gas subsidies made up 38% of all government spending. And the refineries were in such bad shape the government started rationing. By September 2009, the Iranians began importing massive quantities of gas from their friends in South America.
In mid-December last year, the government apparently read the writing on the wall and began to phase the subsidies out. This morning, gas in Iran is $1.60 a gallon for the first 15 gallons every month. After that, your average mullah is paying $2.80 a gallon.
Mission accomplished: In less than two months, overall gasoline consumption is down nearly 23%. “Iranian officials have told us since early 2010 that they had gained self-sufficiency in petrol output,” says Venezuelan ambassador to Iran David Velasquez, “and do not need to import the refined oil product.”
Heck, the Iranians are feeling so flush they just struck a deal to provide nearly 6 million barrels of gasoline to their next-door neighbors in Afghanistan, according to state-run TV.
Afghanistan’s NATO-backed government swears it is untrue.
For comparison, at 38% of all spending, Iran’s gas subsidy was the largest government expense of its kind in the world. Just behind it: Venezuela at 28% of all government spending. And hmmn, Egypt at 25%.
The Iranian oil ministry announced yesterday the opening of Phase 2 in its massive Darkhovin field — upping daily production from 3.6 million barrels a day to 3.7.
A consortium of companies led by Italy’s ENI ran the gauntlet of international sanctions to make it happen. The addition firms up Iran’s position as OPEC’s No. 2 exporter, after Saudi Arabia.
The U.S. Chamber of Commerce allegedly sided with the Iranian government in opposing still-tighter sanctions at the United Nations.
“The United States Chamber of Commerce may have some explaining to do,” says a breathless account by The Examiner. It cites a report by Iran’s Fars news service, saying “the U.S. Chamber of Commerce along with seven other institutions recently sent a statement to Iran and underlined the U.S. private sector’s opposition to such embargoes.”
Not so, says the Chamber. It did send a letter more than a year ago to two top White House advisers opposing broad sanctions under consideration by Congress.
“The unilateral, extraterritorial, and overly broad approach of these bills,” the Chamber said, “would undercut, rather than advance” the objective of limiting Iran’s nuclear program.
Ho-hum. Much ado about nothing, really. We recall one of the fiercest critics of Iran sanctions was Dick Cheney before he became vice president and while he was still CEO of Halliburton.
“The problem,” Cheney said at the time, “is that the good Lord didn’t see fit to always put oil and gas resources where there are democratic governments.”
“While everyone thinks of Iran for oil,” says Chris Mayer alerting us to a “special situation” at the heart of the matter, “not as many are aware of a neighbor’s oil riches.
“A recently discovered Turkish oil basin is believed to draw from the same oil source as the huge Iranian Zagros basin, like a huge sea of oil swimming under thousands of miles of desert. This unexplored region holds what could prove one of the biggest untapped oil deposits in the world.
“Even the leading oilmen in the U.S. and Europe have not fully explored it, as they’ve been distracted by the oil ‘boom’ in Iraq. Much more lucrative are the prospects of Iran’s neighbors… in a much more stable country.
Pursuing this opportunity is tantamount to “stealing” oil from underneath the Iranians, which may be as gratifying an oil investment as you could find. Chris is eyeing a Canadian firm priced under $3.50 that’s sitting on reserves potentially worth more than 50 times its present market cap.
“The projections come from today’s oil price,” says Chris. “If oil continues to rise from all the unrest in the Middle East, we’ll see even more upside.”
Chris just completed a new presentation that reveals exactly where this field lies, the big-name investors who’ve quietly moved in and the massive profit potential it holds. You can examine it here.
Stocks are flat this morning after reaching “2½-year highs” yesterday. Traders are unfazed by the news from China — another increase in interest rates aimed at curbing inflation.
If you suspected the Fed’s easy money (“quantitative easing”) has a lot to do with the rise in stocks, here’s a chart that confirms those suspicions. While many charts of economic statistics have gray bars representing recessions, this chart from Northern Trust has gray bars representing when QE is in effect.
But this morning an unlikely source may have raised its “crash alert” flag.
According to the Financial Times, Goldman Sachs is sitting on a $170 billion mountain of cash. They’re reluctant to invest in anything right now. Evidently, GS sees no bargains in the market. At least none as juicy as the $50 billion Facebook they’re offering overseas clients.
Indeed, “if asset prices remain at current levels,” reports the FT, “Goldman has said it could change gear and begin to sell portfolios.”
“Seldom has a larger red flag been raised for investors,” writes Peter Cooper, watching events from his perch in Dubai. “If Goldman cannot find anything worth buying, what chance for the rest of us?
“If the bank was really confident about the future, it would be out there buying so as not to miss the next rise in prices. You surely hoard cash only in the expectation of future bargains.
“Could it be that Goldman is secretly anticipating a big correction in asset values, a Phase 2 of the global financial crisis? If so, the bank is ready and waiting with money to invest when things look worse for the rest.”
Meanwhile, the other half of banking’s Terrible Twosome is now accepting gold as collateral for high-roller investors who want to borrow cash or securities short term.
“Many clients are holding gold on their balance sheets as an inflation hedge,” says JPMorgan Chase’s John Rivett, “and are looking to make these assets work for them as collateral.”
“I don’t recall the G-20 declaring gold a new currency,” remarks a tongue-in-cheek Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. “Yet JP Morgan Chase [has] effectively declared that gold is an alternative currency.
“In other words, gold is money.”
Why anyone would want to take perfectly good gold and hand it over to JPM in the hopes of leveraging it for paper profits is beyond us.
“Good luck getting it back,” quips Chris Powell of the Gold Anti-Trust Action Committee.
Gold is breaking out of the trading range where it’s been stuck since last week. The spot price just perked up to $1,365.
Silver is up nearly 2% and is just 5 cents shy of cracking $30 again.
A nugget for the “have we learned nothing?” file: Total credit card debt in the U.S. rose for the first time since August 2008.
The Federal Reserve’s monthly consumer credit report shows revolving debt (mostly credit cards) totaling $800.5 billion in December — up 3.5% from the month before.
From its peak of $973.6 billion in summer 2008, Americans either paid off or defaulted 18% of their credit card debt. As of August 2010, total credit card debt was smaller than total student loan debt. This latest report bucks that positive trend…
And behold, without even looking, we found the poster grandpa for mindless regulation:
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Dale Smith has been cutting hair in Oregon for more than 50 years. His license expired in 2006, and he forgot to renew it. Now because it’s lapsed for longer than three years… he has to go back to barber school and be retested.
“They never sent me no notice or anything,” Smith says. “I said, ‘That is ridiculous.’ I says, ‘I went through school once.’ And they said ‘that’s the rules.’”
The public-interest law foundation Institute for Justice is going to bat for Smith to help him get his license back. In the meantime, his scissors sit in the drawer.
“You asked rhetorically,” writes a reader on a similar tangent, “whether people who work for government are more pure and honest than business and industry leaders.
“This misses the point on why regulations are necessary to protect the public health and welfare, which includes the environment — air, water, etc. The biggest reason why it is stupid to let business self-regulate rather than be regulated by the government is simple: Business and industry have one overriding motive — to maximize their profit. Honest business people will even admit this. Protecting the public and the environment (unless they perceive it as in their economic self-interest) is just not their problem.
“Government is at least supposed to have a goal of protecting the public welfare, which includes making sure the environment is healthy. Regulation to protect people is the role of government, not the role of business.
“Business will sometimes make voluntary changes, but only after they realize that it is in their best interest; that is, it will help them stay in business and doing something will increase their profit more than not doing it.
“The biggest problem is not government regulation; it is the perception that regulation is bad for business and the economy, when actually adopting improved practices that reduce pollution/use of toxic chemicals/energy, etc., can save/make businesses more money than they cost to implement — and business has a horrible track record of doing things until after a similar industry has been forced to do so, and the positive results for everyone are known.”
“It’s creepy reading so many who believe the government must take a role in regulating business,” answers a third, “or it won’t get done.
“Friend, regulation is done reading the bottom line of the financials. Why not create a private agency, paid for by the consumers, not the producers, who publish public records of the relevant statistics for companies, like, say, how many injured employees each month or the quantity of chemicals released into the air or water; even the average wage of the nonmanagement personnel could be published.
“The data to be published would be — guess what — determined by what we collectively want to pay to have published. If a company balks at allowing access where needed for the proper info, it’s stated as such in the report. As public outrage develops and consumers speak with their wallets, the company listens. The company producing the best product for the cheapest price still wins the day.
“The sooner we as a nation force the numskulls who majestically march onto private property waving a federal badge back into the private business world by relieving them of their duty (abolishing these myriad agencies) the sooner the good ole USA becomes a producer economy again!”
The 5: There exists a working model for what you’re talking about: Underwriters Laboratories has been testing and certifying the safety of electrical equipment since 1894. No government agency, no bureaucrat, willed it into existence. Instead, it met the demand of the marketplace.
One caveat: If business is going to self-regulate, it has to be left to respond to the market. For instance, in the financial services industry, the banks that created new returns demanded by corporate and state pension funds — i.e., through mortgage-backed securities — cannot then be bailed out by government when those innovations fail… that’s when the whole paradigm collapses. Hence, the mess we’re currently in.
“I feel bad for your readers who cannot imagine how problems would be solved or prevented,” agrees a fourth “without a bureaucrat to do it for them.
“It’s like they’ve never heard of tort or criminal law and don’t know it’s possible for the little guy to use the law to defend himself, his property and his rights from big evil corporations without an army of multibillion-dollar government agencies wasting the resources of the nation.
“The only purpose of the FDA, EPA, OSHA, licensing and all the regulatory burden is to raise the cost of entry into industry and reduce competition, at our expense.”
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S.: The definition of special situation: If the reserves held by the Canadian company Chris Mayer is eyeing tap into the Iranian Zagros basin, as he believes they do, the market has undervalued the company by as much as 50 times. You can still get in for $3.50. Details here.