Urban Survival: Free Daily Economic News Update Page

As I was munching my way through a bean burrito and coffee this morning, watching the deer munch on the scattered wild grapes around the property, it occurred to me that much of the past week's worth of trading has been driven by oil. The headlines I've come across, thanks in part to the work of Matt Savinar's www.lifeaftertheoilcrash.net site include some of the following gems:

The Energy Information Administration says prices will remain high (bureaucratese for as high as they are now) through the end of 2005. http://www.petroleumnews.com/pnads/119542792.shtml But why stop there?
In case the EIA hasn't noticed, those once-rich North Sea oil fields are quickly approaching tapped out status http://business.timesonline.co.uk/article/0,,8903-1173412,00.html which causes us to wonder if George & Tony will hatch some kind of weird pound carry trade to keep Britain's economy afloat as their oil runs out.
Another possibility is that the West will just go effectively steal more oil. One area of focus over the next five weeks or so will be the August 14th elections in Venezuela. which is the key supplier to the southern half of the U.S. http://www.counterpunch.org/petras07082004.html
Next we have the Sudan issuing warnings to the West of unspecified consequences http://english.aljazeera.net/NR/exeres/ECE390BB-77AF-41A0-AF3E-F6777F63FA6D.htm should any moves be pushed through to impose sanctions. Once again, the U.S. and Britain are teaming up to strong arm the country into putting down violence in the western Darfur region. Here's the "official" US EIA summary of the country. I figure it's a weekend and you have time to do a little background reading::

"Sudan's economic performance has been strong over the past few years. In 2001, the country's real GDP grew by 5.4%, though growth is estimated to have slowed to 3.6% in 2002. Meanwhile, inflation has slowed dramatically over the past few years, from an average 110% between 1991 and 1996 to 4.9% in 2001 and 6.7% in 2002. Exports have grown sharply since 1999, when the oil export pipeline was completed, turning the country's trade balance from negative to positive. Sudan's government has been negotiating the payment of its substantial debts to the International Monetary Fund so that the nation can improve its relations with the institution. Sudan's debt to the IMF was rescheduled in 2002, and the IMF deferred Sudan's arrears payments so that the nation can give priority to repaying loans from the Arab Fund for Socioeconomic Development. Some of those funds will be used to finance a new hydroelectric dam in Merowe. As part of the rescheduling agreement, Sudan agreed to reduce its military spending as well as make the management of its oil revenues more transparent

Despite its economic progress, Sudan still faces developmental obstacles, including a limited infrastructure and an external debt estimated to be around $15 billion in 2001, representing a debt-to-GDP ratio of just over 122%. Furthermore, the government remains embroiled in the long-running conflict with rebel movements in the primarily non-Muslim south of the country. This costly and bloody conflict has, over the past two decades, claimed (directly or indirectly through famine) as many as 2 million Sudanese lives. Sudan's new reliance on oil export revenues makes the country vulnerable to world oil price fluctuations, thereby making it necessary for the government to spend its revenues wisely.

The United States has been imposing economic sanctions against Sudan since November 1997, prohibiting trade between the two countries, as well as investment by U.S. businesses in Sudan. In February 2000, the sanctions were broadened to include a prohibition against U.S. citizens and companies conducting business with the Greater Nile Petroleum Operating Company (GNPOC), an international consortium of petroleum companies currently extracting oil from Sudan. The sanctions, however, do not apply to the foreign individual parent companies of GNPOC, which include Calgary-based Talisman Energy, Malaysia's Petronas, and the Chinese National Petroleum Corporation (CNPC). Since the September 11, 2001 terrorist attacks on New York and Washington, however, U.S.-Sudanese relations appear to have improved somewhat, as the United States is attempting to encourage Sudanese cooperation in the war against terrorism. However, Sudan reacted unfavorably to the passage of the Sudan Peace Act in October 2002, which outlines stiff sanctions, ranging from a downgrading of diplomatic relations to a UN arms embargo, that could be imposed on the Sudanese government if it negotiates in bad faith with the main southern rebel force, Sudan People's Liberation Army (SPLA).

OIL

As of January 2003, Sudan's estimated proven reserves of crude oil stood at 563 million barrels, more than twice the 262.1 million barrels estimated in 2001. Crude oil production averaged 227,500 barrels per day (bbl/d) during 2002, a figure that has been rising steadily since the completion of the export pipeline in July 1999. By 2003, oil output could surpass 300,000 bbl/d, with plans to reach 450,000 bbl/d by 2005. In August 2001, in recognition of Sudan's growing significance as an oil exporter, OPEC granted the country observer status at OPEC meetings.

Petroleum exploration in Sudan began in the early 1960s. The activity was originally concentrated offshore in the Red Sea. The only significant offshore discovery was Chevron's Suakin gas discovery in 1976. Chevron's exploration in the 1960s and 1970s led to several oil finds in southern Sudan near the towns of Bentiu, Malakal and Muglad. Chevron abandoned its concessions in Sudan in 1985, due to their location in an area where fighting was taking place between government and rebel forces. The French firm, Total (now TotalFinaElf), also suspended its onshore exploration activities, but retained the rights to its concessions. The Sudanese government sub-divided Chevron's concessions into smaller exploration blocks, and Canadian independent Arakis Energy (Arakis) acquired the portion of Chevron's concession north of the town of Bentiu in 1993.

Greater Nile Oil Project

Arakis began development of the Heglig and Unity fields within its concessions, and started production on a small scale (around 2,000 bbl/d) in 1996; this oil was processed and consumed within Sudan. The remote location of the field, aproximately 930 miles from the Red Sea coast, meant that it would require a very substantial capital investment to transport the oil to a seaport. To attract the necessary capital and spread the risks, Arakis entered into a consortium in December 1996 with the Greater Nile Petroleum Operating Company (GNPOC), consisting of the China National Petroleum Corporation (CNPC) (40%), Petronas of Malaysia (30%), Sudanese national firm Sudapet (5%), and Arakis (25%, and the field operator). Construction on the pipeline from the fields to an export terminal near Port Sudan began in May 1998 on an accelerated schedule. Originally built to move 150,000 bbl/d, the pipeline has a current capacity of 250,000 bbl/d and can be expanded to 450,000 bbl/d.

Arakis' involvement in Sudan, even after the formation of the GNPOC consortium raised $700 million, remained hindered by a lack of capital. U.S. sanctions against Sudan prevented investment in the project by U.S. corporations and persons, and the high-risk nature of investment in Sudan also had an effect. In October 1998, Arakis agreed to be purchased by another Canadian independent, Talisman Energy, for $277 million in Talisman stock. The Talisman acquisition provided an infusion of capital which allowed the project to be completed on schedule in 1999. In July 1999, the pipeline began filling with crude, and the first cargo of "Nile Blend" departed the export terminal in early September 1999.

Production

The fields in the Muglad area produce crude oil with a 33 o to 42o API range, with only 0.5% sulfur content. The crude is highly parafinnic, which requires heating to maintain flow in the pipeline. Recoverable reserves from the Heglig and Unity fields have been estimated at 660 million to 1.2 billion barrels. The area around these two fields also is suspected to contain oil, but estimates of reserves vary. The Swedish firm, Lundin Oil (partly bought out by Talisman in June 2001), reported a discovery at the "Thar Jath 2" exploration well in the adjacent Block 5A in March 2001, with oil flows of 2,000 bbl/d. Petronas, the Austrian firm OMV, and Sudapet have minority stakes in the block. In July 2000, Petronas was awarded a 40% share in Block 5B, and in October 2000, Petronas agreed to raise Sudan's oil output by 50,000 bbl/d by mid-2002. The increased production will result from Petronas' development of two untapped oil fields in Monga and Bambo in the Mujlad Basin of western Sudan, plus the construction of three additional oil pumps along the pipeline. In March 2001, OMV announced that it had found oil at its exploratory well, Jath 1." Since January 2002, production has been hampered somewhat by the decision by Petronas, Lundin Oil, and other members of the Greater Nile Oil Project, to temporarily suspend drilling operations on Block 5A due to safety concerns regarding personnel and drilling sites. The suspensions seem unlikely to be lifted until a cease-fire between the government and the SPLA can be negotiated and maintained. Once an agreement has been reached, restarting production is likely to take three months.

In October 2002, Talisman Energy agreed to sell its oil assets in Sudan to ONGC Videsh, which is a subsidiary of Oil and Natural Gas Corporation, the Indian state oil company. The sale was supposed to have been completed by the end of December 2002, but has been delayed by one month. ONGC Videsh will pay $758 million for Talisman's holdings, including a 25% interest in the GNPOC.

Broadened U.S. sanctions imposed against GNPOC in February 2002 reportedly had little impact on production or distribution of Sudanese oil. In September 2002, Sudan's Minister of Energy and Mining announced that a number of firms, including the British Vitol Group of Companies, had expressed a desire to invest in oil projects in Sudan. Petrel Resources (PLC) is also considering some projects in Sudan, and reported that it had a joint venture proposal with Sudapet, Sudan's state oil company, to explore a block on the Red Sea. In August 2002, a memorandum of understanding (MOU) was signed between Canadian oil firm Roland and Sudapet, to cooperate in the drilling of Sudanese oil. No specific block was mentioned in the agreement.

Petrodar, a consortium that was granted a production agreement by the Sudanese government in the Melut Basin in November 2000, is said to be ready to begin development work on blocks 3 and 7 in 2003. The consortium is currently carrying out exploration and drilling work on those blocks, which are a total of 44,700 square miles in size, and contain the Adar Yeil field, which produces 5,000 bbl/d. The consortium is comprised of Qatar's Gulf Petroleum Company (46%), China National Petroleum Company International Ltd.(41%), the Sudanese company Al Thani (5%), and Sudapet (8%).

In June 2000, Sudanese officials announced plans to begin oil exploration in northwest Sudan, the Blue Nile Basin in southeastern Sudan, and the Red Sea area in eastern Sudan. Oil exploration in Sudan previously was limited largely to the central and south-central regions, which, according to Khartoum officials, represent only 15% of the national oil reserves. Sudanese Energy Ministry representatives place estimated total reserves in the country at 3 billion barrels and estimated proven reserves at 700 million barrels. Government spokesmen said that unnamed Japanese, European and Middle East companies had expressed interest in the new oil concessions.

Development of Sudan's oil resources has been highly controversial. Numerous international human rights organizations have accused the Sudanese government of financing wide-scale human rights abuses with oil revenues, including the mass displacement of civilians living near the oil fields. The SPLA has declared that it considers oil installations a "legitimate military target," as oil development has provided the Sudanese government the financial resources to expand its war effort. The SPLA says it destroyed the main oil well on the Heglig oil field in September 2002. In November 2001, southern rebels claimed to have ambushed an army convoy traveling near GNPOC facilities, and stated that such attacks would continue until "oil exploration, exploitation and development come to a halt." In August 2001, an attempt by rebels to blow up Sudan's oil export pipeline was thwarted, but rebels claimed to have killed 42 government soldiers in an attack earlier in the month, and also to have inflicted "extensive damage" to oil facilities at Heglig. The government and a representative of Talisman Energy both denied the latter claim. Rebels also claimed to have launched a successful attack on oil facilities in Bentiu in mid-October 2001, but this claim also was refuted by the government.

Refining and Downstream

Sudan has been self-sufficient in producing petroleum products (except jet fuel) since the June 2000 opening of the 50,000-bbl/d Khartoum Oil Refinery in the Jayli area, 30 miles north of Khartoum. The Khartoum refinery, built and jointly operated by CNPC, produces benzene and butane gas for domestic consumption and export, as well as gasoline for local consumption. A portion of the surplus gas eventually will be used in the production of electricity, according to government officials. The Khartoum refinery is expected to save the Sudanese government over $100 million per year in refined petroleum product imports. Following the opening of the Khartoum refinery, the price of gasoline was reduced considerably throughout the country and the price of gas cylinders, which Sudanese use for cooking, dropped from $5.30 to $2.60.

In January 2003, the Sudanese government announced plans to expand the capacity of its oil refineries, at Khartoum and El Obeid. Output at the Khartoum refinery will be increased by 80%, to 90,000 bbl/d, while output at the El Obeid refinery will increase by 50%, to 15,000 bbl/d. According to Sudan's Energy Minister, the country is currently conducting a study on the feasibility of expanding its third refinery at Port Sudan, which is located near the Red Sea. The Port Sudan facility is Sudan's second largest refinery and has a current capacity of 21,700 bbl/d. A petroleum products pipeline runs from the Port Sudan refinery to Khartoum. A fourth facility located in central Sudan near El Obeid has a capacity of 10,000 bbl/d.

Also in January 2003, Sudan agreed to begin providing Ethiopia with approximately 3,100 bbl/d of oil, with exports expected to begin before February 2003. Plans call for Ethiopia to eventually import as much as 60% of its oil needs from Sudan, which will save Ethiopia an estimated $7 million per year. Sudan has also agreed to provide Ethiopia with approximately 15.5 square miles of land on which to build a storage depot for its fuel imports. In August, 2000, the Sudan's National Petroleum Company (NPC) announced plans to lay pipelines to supply Eritrea and Ethiopia with petroleum derivatives from the Khartoum refinery. If approved, the pipelines would pass through Sudan's Gezira, Sennar and Gedaref states. NPC is also studying the feasibility of running another pipeline to export crude oil from the Adar Yeil oil fields in southern Sudan to Ethiopia.

It was reported in March 2002 that Malaysian state company Petronas and its affiliate Engen have plans to buy Mobil Oil Sudan's oil distribution network in Sudan. Mobil Oil Sudan currently has a 20% share in the country's oil product market. Petronas is already involved in Sudan's oil market through its 30% share in the GNPOC consortium. Although the deal has yet to be finalized, Africa Intelligence reported that the sides were close to a successful conclusion in September 2002.

Sudan also has plans to export oil to fellow members of COMESA (the Common Market for Eastern and Southern Africa), including neighboring Kenya. Exports may be delayed, however, by concerns over human rights issues in Sudan, and some Kenyan officials have called for a boycott of Sudanese oil. In April 2002, Sudanese and Kenyan government officials announced that they are working on logistics for the construction of a new pipeline that would link oil fields in Sudan to the Kenyan port in Mombasa. Under COMESA, trade within the zone is not subject to tariffs, which means that Sudanese oil likely will be cheaper for COMESA members than other alternatives. "
Source: http://www.eia.doe.gov/emeu/cabs/sudan.html

Oh yeah, did I mention Australian oil production is dropping? http://melbourne.indymedia.org/news/2004/07/73418.php
All of which led Elizabeth Sullivan of the Cleveland Plain Dealer to add it all up to "Skids are Greased for Oil Crisis" http://www.commondreams.org/views04/0708-07.htm
And all this is before the reports from the Gulf Coast and Pacific Northwest that possible sleeper cells are planning attacks on U.S. oil refinery infrastructure.

Circle July 16th on your calendar. That's the day after the European terrorists self-proclaimed "truce" runs out and we may expect terrorism to resume. Remember, they offered Europe until July 15th to renounce the U.S. - British "crusaders" and after that they would resume battle.

Assassins Target Forbes Editor

The Moscow Editor for Forbes has been shot dead by assassins outside of his office. Our condolences go out to the colleagues and family of Paul Khlebnikov who shed much light on who's who among Moscow's new billionaires: http://english.aljazeera.net/NR/exeres/28D06C61-6DF5-49AA-A14C-F08FE2C3C784.htm

Bush's "Bubble"

Good story about riding with the White House press: http://news.bbc.co.uk/1/hi/world/americas/3881795.stm

Observatory Going Down?

With another "object" rumored to be headed toward earth's vicinity due around July 20th or so, we noticed that the Arizona wildfires are fast approaching the Mount Graham Observatory. From FEMA's situation report two fire stories to watch:

Arizona's Gibson and Nuttall Wildfires Threaten Mount Graham Observatory
The Gibson fire, estimated at 15,899 acres, and the Nuttall fire estimated at 9,029 acres are approaching the observatory from different directions, but officials are hopeful they can save the facility. The Gibson fire is within a quarter-mile of the $200 million Mount Graham International Observatory, home to some of the world's most powerful telescopes. The observatory is nearly surrounded by defensive lines cut by bulldozers and reinforced with burned out areas and a sprinkler system. Crews hope to enhance the line if weather allows them to set more backfires. The two blazes were considered 25% contained, according to authorities, who said the firefighting effort had cost $5.8 million thus far. Elsewhere in Arizona, a fire had blackened 101,500 acres of the Tonto National Forest west of Payson, a town of some 14,000 people. The blaze was 25% contained on Wednesday and was not threatening any homes or communities. (Various News Source, Photo from the Tucson Citizen)

Alaska Fires Continue To Burn
Wolf Creek: 200,000 acres is zero percent contained. The fire is located 80 miles northeast of Fairbanks.
Eagle fire: 465,779 acres, unknown containment, and is located three miles northeast of Eagle AK. Solstice fire: 359,590 acres is five percent contained, and is located 57 miles northwest of Fort Yukon. Taylor fire: 506,378 acres, unknown contaiment, The fire is located 35 miles northwest of Tok. Boundary fire: 315,000 acres is 27 percent contained. The fire is 20 miles northeast of Fairbanks. (Various News Source, Photo from the Tucson Citizen)

That's 1.3 million acres burning in Alaska, but our interest in the Mount Graham (Nutall) fire(s) is that that one of the best tools to look for oddities in space is the Large Binocular Telescope being built at the observatory and due to come on line in 2005 which would join the Vatican's Advanced Technology Telescope. Odd because last year a "brush fire destroyed the Mount Stromlo Observatory in Australia, causing about $20 million in damage." according to http://www.azcentral.com/news/articles/0707wildfire-observatory-ON.html. Is Wormwood out there somewhere, or is there something we're not supposed to see? I'm also vexed by the question "Why does the Vatican have such an interest in space? Maybe they're out pushing the frontiers of science in other areas and I'm just not aware of it, but start gazing? There's only a few letters between astronomy and astrology..."

Inside Report Subscribers

This weekend, analysis of trends in program trading - vewee intewesting.... up by Sunday afternoon. Subscription info

Monday's News

What's on tap is an angry verbal battle sure to erupt between Fox News and rivals over a new documentary that allegedly shows Republican influence at Fox. http://www.drudgereport.com/foxf.htm All this will result in MoveOn and Common Cause launching an OUTFOX campaign.

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Friday

QSF - Quiet Summer Friday

There's a fair chance we might get through today in somewhat bored fashion. When you've chased down the news for as long as I have, you come to recognize a certain flow, almost a rhythm, that accompanies a day's events. Some days are what we called in the newsroom back when "great". These were the days when everything was going on at once, and a reporter had merely to open his or her eyes to land on a great story. Then there were slow days. "Slow:" days when we used to joke about our lingering suspicions that a local TV station was going out and rolling over cars on the freeway just to have film of something to put on the early show.

To be sure, we might see something pop today. Earlier this week on the George Noory show, a call-in guest related how an "always right" psychic source told him that today we would have a 7.2 earthquake in Afghanistan and that as a result of the quake, Osama bin Laden would be killed, but that news of his death would take a couple of weeks to reach the West. If we see a 7.2 quake between now and noon Eastern time, maybe there'll be something to it and maybe Osama will be dead...but we won't find out for a few weeks even if we get the predicted quake.

For the rest of the day's events, it's a calm between the storm and time to think about summer and enjoying the outdoors. Panama and I finished framing up a sundeck on the north end of the house yesterday and today I'll be spending most of the day on the business end of my electric screwdriver putting the 2X6 decking on. One tip here: If you are putting up a deck, use those new ceramic coated screws or the deck won't last very long. Pressure treated wood and old style galvanized fasteners don't get along that well, or at least so the local building supply peddler tells me. About the only other thing of interest might be Forbes.com's "Thought for the day".

Bank Run Pause

Good coverage today in the New York Times at this link. On the other hand, Russia's Alfa Bank reportedly had dropped some early withdrawal charges as they think the worst may be past. http://newsfromrussia.com/main/2004/07/09/54899.html. We'll just bide our time, because with international finance so intertwined, the trouble could reemerge half way around the world.

Half Past Human

Remember how I mentioned that keeping halal and kosher might be more complicated because of where all the pig proteins are going - a story from our colleagues at www.halfpasthuman.com? Story below.

Well, here's an interesting follow-up page if you were skeptical: http://www.mnpork.com/education/swine.php3 I think it's great that hog parts are used so extensively in everything from plastics to medicines. But it raises an interesting point: How is it that a terrorist can claim they'll get into heaven if their bombs spew out materials that might have pig proteins in them? Look at the list: cement, lubricants, plastics, putty, cosmetics, rubber, even floor waxes! I wonder what terrorists will think when they arrive at the pearly gates expecting to get in and are turned away for breaking halal?

For myself, I'll just explain that my grandmother taught me how to make a delicious leg of pork roast with gravy and mashed potatoes, the meat so tender that it will fall apart at a harsh glance. My only baggage related to pork is an inch or three extra around the middle. Yes, with apple sauce and yes, citron fromage for dessert..

Also: See the latest bot "hit" at http://www.halfpasthuman.com/HPHTOC.htm because:

"An astute and far too focused reader has sent in what she believes to be a bot hit from the May run. As always, our timing sucks, and if she is correct it is off by about a month as explained below.

First you need to know that the group in Iraq which is apparently a home grown movement of p*ssed-off humans, whose point of existence is to either run the terrorist master Zaquawi back home to Jordan, or to kill him, has called themselves the "Rescue Group". Further they apparently formed in June, and are continuing into July so that part of the ALTA report (pertinent extract below) is wrong, but the other....? well, you decide. Link provided at the bottom of the extract to the complete report for subscribers. "

Hmmm...

UN to Slam Wall

Check out the BBC story on Israel's wall around the West Bank: http://news.bbc.co.uk/1/hi/world/middle_east/3879057.stm Apparently the UN is going to come out slamming Israel on this. But will they tear it down? Oh no. Will that lead to sanctions against Israel by the UN? Probably not...not with all the influence of the US on their side.

Still Jiggering Votes

We noticed that Republicans were still at it yesterday - if a vote doesn't go your way, you simply change the voting rules. That's not the Grand Old Party I used to support. Here's what happened: The Patriot Act's latest (extended Gestapo-like powers) was up for a vote and more than a majority voted against it. So the Grand New Party kept the vote open for 23-minutes so they could twist arms so as not to embarrass George 43's campaign to extend his powers. Details at http://apnews.myway.com/article/20040708/D83MTBT80.html and of course, you know all the hype from Tom Ridge about an election terror plot http://apnews.myway.com/article/20040709/D83N1T7G0.html was aimed at lobbying the aforementioned Congress while, who knows, setting us up for something.

Florida Power Outages

I have an email from a reader in Florida who asked if all the power outages around Lake Okeechobee was some kind of plot to scare Floridians. No, I think I can assure him that it's just the unusual weather this year. More than 16,000 lightning strikes - check out http://www.rense.com/general54/1600.htm

GE Earnings

It will take me a little digesting to sort out GE's situation: They reported sales up 11% this year compared with last but profits only up a bit more than 3.4%. http://biz.yahoo.com/rb/040709/manufacturing_ge_2.html But, you can't tell everything from this. It could be the company has been making investments in R&D and new plant and equipment, so we'll need to see the details behind the numbers before inferring good or bad performance.

Owning GE is, however, because of their extreme diversification, almost like owning a mutual fund. If you have GE stock, you might not need a mutual fund...and if you have a mutual fund, GE might be redundant...something to ponder in your spare time.

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Thursday

Bank Runs in Russia!

How much clearer evidence does one require that we are replaying the economic landscape of the 1930's - with our own variations for times and technologies? Here's the Moscow Times version of Russian Bank runs beginning: http://www.themoscowtimes.com/stories/2004/07/08/002.html All of which dovetails perfectly with our prediction that a full-scale international economic lockup could result as an unintended consequence of the Yukos seizures. At Yukos today, folks are just waiting for the other shoe to drop as the Russian government (read: Vlad, student of George of Oil 2) goes after $3.4 billion in unpaid taxes: http://news.bbc.co.uk/1/hi/business/3875689.stm Russia's central banksters are quickly lowering rates to member banks to help keep others from failing: http://www.mosnews.com/money/2004/07/08/cbnormative.shtml

It doesn't take a genius to figure that bank runs anywhere will cause markets to be jittery...

Crudele's Outlook

New York Post market watcher John Crudele has another slightly skeptical review of the markets today at http://www.nypost.com/business/24631.htm. Ok, maybe a little more than slightly skeptical. But then again, so is mine. Especially since I started work on the Inside Report for this weekend on program trading trends...

Retailing Soft

Blame it on something...OK, the weather will do... Retail sales turned soft in the second half of June: http://biz.yahoo.com/rb/040708/retail_sales_1.html. Tell us again about the recovery? Especially when an exceptionally well run organization like Wal-Mart has sales growth at stores open more than one-year of only 2.2%. Remember now, if the consumer price index is up 3.1% for the most recently reported year ( which it was, click here ) then 3.1% effective inflation less 2.2% sales growth means Wal-Mart actually slipped almost 1% for the year.

While Retail numbers are worth watching, we're looking at auto sales where several dealers have told us that rebates are coming back in order to keep sales alive. We notice that the Dow is dragging the transports down, http://finance.yahoo.com/q/bc?t=5d&s=%5EDJT&l=on&z=m&q=l&c=&c=%5EDJI no doubt because so many people were hypnotized by the choruses and Hosannas of "We're Recovering" - sure, you betcha. This is the 21-st Century, folks and if you want to see where the markets are going next, look at the techno-heavy NASDAQ which is leading everything down: http://finance.yahoo.com/q/bc?t=5d&s=%5EDJT&l=on&z=m&q=l&c=&c=%5EIXIC

Will Lay Sing?

Now that one-time Enron boss Ken Lay has been indicted, one of the big questions floating around is whether he will live to "tell all" about what he knows about Enron and George Bush et al. For a list of the key players in the still unfolding drama click over to http://biz.yahoo.com/ap/040707/enron_players_2.html. The Enron connection though is no doubt the number 2 or 3 worry for Bush these days - almost old news, but not quite. The Plame grand jury is still at work and by the web bots, due to pop with a big-name indictment in August. Still, with all Ken Lay knows about inner workings, we harbor lingering concerns that the real forces of evil might find him expendable. Read some old stories on the net and one might conclude the concern could be justified: http://www.rense.com/general20/murda.htm, http://www.angelfire.com/ny5/tradecencrimes/baxter.html

http://www.cbsnews.com/stories/2002/04/10/eveningnews/main505845.shtml

Fixin' to Get Ready

There's another troop withdrawal hype story floated in the NY Times about how the Pentagon is beginning to plan for the eventual withdrawal of U.S. forces (link) Let's see, 135,000 through the end of 2005, hmmm. Doesn't sound like "freedom" - sounds more like an occupation continuing to me. Meantime, four more of our bravest paid the ultimate price today: http://ap.tbo.com/ap/breaking/MGB1EQLSEWD.html

Message to the Media?

We've always held Sam Donaldson's work as a journalist in high regard. Naturally we were shocked when three bodies were found on his ranch in New Mexico. Donaldson is of course not implicated, but it's an odd story: http://abcnews.go.com/sections/us/WorldNewsTonight/donaldson_ranch_040707.html

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Big Picture Day

OK, the market is going to bounce, at least that's the message that we're supposed to believe in the futures action prior to the opening this morning. But will it hold? Likely not. The reason has to do with the "big p9icture" which is steadily deteriorating. Let's run through the examples:

Oil Problem

We know now that the financial problems of the Yukos oil company in Russia may interrupt supplies, that much came out yesterday. While Yukos supplies about 5% of Russia's oil needs, the larger problem is that supply/demand issues ripple around the world. This means that Yukos will put more pressure on Middle East producers, who have quietly admitted that the hype about the Saudi's increasing output was just so much election year campaigning on behalf of the Bush administration.

While that's old news to our readers, the latest squeeze on oil is coming from Nigeria where Total's subsidiary has turned off production because operations in the country are no longer safe: http://abcnews.go.com/wire/World/ap20040706_919.html That turns off another 235,000 barrels of oil per day plus nearly 190 million cubic feet of gas daily.

Even if you believe the fairytales about additional supply of oil being merely a "turn it on" proposition, they you need to quickly read the article posted last week in the San Mateo County Times that says even if you could find petroleum to ship around, you would have a very difficult time moving the oil because there is such a shortage of tankers... link

Not Just Oil

Besides having the problems with oil, there's the issue of electricity (our diesel generator ships today, not that I'm paranoid, mind you). But we notice that the fires out in the Phoenix area may cause power outages in that area later on today (link)

Oh Ship

Let's leave energy concerns for a moment and look at the global military stance today. We have just about every big ship that can get underway out at sea. This has prompted speculation that there might be a Chinese plan to blockade Taiwan in the near future - and that the U.S. wants to be tuned up for such an event: http://www.antiwar.com/orig/prather.php?articleid=2938 I think it's posturing and I hope I'm right because the alternative turns to flashes of brilliance brighter than the sun.

Market Stability

With the most recent reporting week showing that 70% of trades on Wall Street were computer program trades a week or so back, I'm working on a piece for subscribers to Inside Report called "The Crashless Depression" - because it may be that we could have a second Depression here in the U.S. without having an actual market crash. Why? Well, if 70% of the trades are being done by computer programs, the asymmetry of information perceived by humans that causes extreme market moves doesn't develop as quickly. Thus, computers following program instructions could just grind us all down. And oh yeah, the public is not directly in this market...

Street Name

When I was first starting off investing (when the account was with William Harper and Co. in Seattle) I used to make it a practice to keep by stock certificates rather than leave them in "street" name. Over the years, I got out of the habit, but a lot of people don't know about the $19-trillion dollar company that "holds the paper" for most stocks underlying those computer trades, mutual funds, and so forth. For a very enlightening read, click over to this LINK Thanks to "Trader Jim" for pointing out the link...good stuff, and yes, most people aren't aware of it, and most people don't hold certificates any longer. (Splits alone made that a miserable paper-pushing proposition...)

Mackenzie on Folly

My view of the markets is totally driven by the news and sources that I dig out on a daily basis, but lest you think I'm a lone Looney in Texas, go read John Mackenzie's latest called Reciprocal Folly. http://www.safehaven.com/showarticle.cfm?id=1725&pv=1 It's about like my view.

Cato Institute has an interesting piece written by a former VP of the Dallas Federal Reserve Bank that contains this nugget: "The Fed has signaled that it will follow a gradualist approach to raising the federal funds rate. If past is prologue, then what economists call the "equilibrium" interest rate will rise more rapidly than the Fed ratchets up the funds rate. (The equilibrium interest rate is one at which is there is no inflationary pressure.) If that occurs, inflation will accelerate. The answer to Professor White's question might then become more than an academic exercise." http://www.cato.org/dailys/07-06-04.html

I won't say "I told you so!" but I did forecast 13.9% actual inflation this year, and I don't see any reason to waiver from that. Milk and gas prices alone make me feel like a genius, forget those ancillary 26% real estate price inflations in the Los Angeles area.

Of course the jobless recovery here in the USA helping power India to a 7-8% real growth rate this year: http://news.bbc.co.uk/1/hi/business/3873089.stm. So while job creation here has sucked (putting it mildly) the outsourcing game continues.

I'm working with a client to redefine a small (>$2 million) company so that it can compete more effectively. The tack I'm proposing to their board is outsourcing everything that is not location specific (sales, accounting, etc.) basically everything except production and shipping to capture the benefits of telecommuting which most companies aren't taking advantage of. Yes, this is a shameless plug for my consulting services: http://urbansurvival.com/consult.htm But think what it does: saves gasline, reduces traffic, and best: Keeps jobs in America.

Sun Oddities

We've been saying since May a year ago that something was odd with the sun. Gee, how about this? The BBC says sunspots are more active now than they have been in over 1,000 years. http://news.bbc.co.uk/1/hi/sci/tech/3869753.stm and you know that sunspot activity typically means additional heating from the sun, right? So global warming is part manmade and part natural sun changes. But it gets better. Air crews are starting to worry about the increased radiation they're getting while flying: http://in.news.yahoo.com/040706/137/2etdf.html Speaking of rads...

Nuclear Hype

The overworked story of the day by the mainstream media may well be the 1.7 tons of enriched uranium that the U.S. has revealed as having been moved out of Iraq. http://english.aljazeera.net/NR/exeres/D0FC5873-EF9C-4CA2-9C19-B0B2B9537F6D.htm I note that in none of the stories I've seen so far is there any description of where these materials are coming from (I figure Iraq had some radiation sources in hospitals, for example). And, when they are counting up tons, is that in their containers or out? You know how heavy lead shielding is, right? And naturally, the word Iran keeps appearing in the same story. Why? Come on, why?

Could it be because Iraq is on the verge of disintegrating due to civil unrest and that the country is quickly becoming unmanageable except for pockets where the military has garrisoned itself? Could be what is between the lines at http://english.aljazeera.net/NR/exeres/0531A90B-3FDB-4E74-A3D0-AF067B3ED2F6.htm

Odor Eating Undies?

I have to hand it to the marketing people at JC Penny for coming up with the idea of odor-eating underwear: http://www.nypost.com/business/24550.htm. I don't know about you, but I've never worn underwear long enough that it had an odor problem that a shower and daily change wouldn't address. But, I suppose as personal hygiene sprays have proven, people in America are worried as much about scents as sense.

Commodity Broker Humor

I get a call this morning from a commodity broker in LA: "You know what's nut? We have a Bush, a Colin, and a Dick and now two Johns are trying to figure out what to do next...ha ha ha...." Must be some subliminal programming in their CRT's...where's my coffee?

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Tuesday

Kerry - Edwards

As expected, John Edwards has been tapped to be the running mate of John Kerry for the Democratic presidential ticket. http://www.cnn.com/2004/ALLPOLITICS/07/05/kerry.vp/index.html . We told you some time back that word had circulated that Edwards was a Bilderberger selection according to the net rumor mill and a UPI story. http://washingtontimes.com/upi-breaking/20040606-103603-4126r.htm About 1,200 returns from what we call the "search engine oracle" about the connection between John Edwards and Bilderbergers (results). If you're a conspiracy theorist, you'll observe that the same search comes up with only 486 returns for the same search term with Hillary Clinton's name plugged in (results). Tow other names that were in the running were Richard Gephardt of Missouri and Iowa Governor Tom Vilsack. A conspiracy theorist might observe that Vilsack had only 21 returns for the same search (results) which means he had no chance in hell of being picked and it was all media hype because he's not "connected" to the "right" circles (results). Gephardt was not connected well enough either, with 44 returns (results) from the search. John Kerry? Oh he has 2,880 hits (results) which means to the casual conspiracy buff that he's not only connected but very connected to the power structure. George Bush has 5,810 hits. (results).

No, I don't buy into conspiracies, but when one looks at the search engine returns and the actual decisions, we observe that the occurrence of the word Bilderberg on web pages with specific names of politicians is 100% correlated, but whether it's a leading indicators, meaning get a Bilderberg connection and advance in national politics, or a lagging indicator, meaning get into politics and that will result in Bilderberg speculation is a matter for conjecture. It's also a matter for further study...

Market Opinion

We notice that the early Dow futures were down about 50-points, which is either post holiday relief or the markets turning confused about America's next president. Our expectation is that George Bush will excuse Dick Cheney (perhaps on health concerns) and will pick a moderate running mate. Yes, we'll apply the same search engine methodology to that field of candidates. Dick Cheney has 1660 returns, which means he's fairly close to John Kerry's stature in web land.

Herstatt Fears

If you didn't catch our Monday story on Russian oil giant Yukos defaulting on debt, click here and skim it. But while the rest of the world watches the oil picture, those who read UrbanSurvival know the real story is the banking behind the scenes. It's not a threat to the global economy for Yukos to go toes up at least not directly. But when a bank goes toes up, you run into something called the Herstatt Risk - which is where inter-bank promises get locked up because of one bank defaulting. It's named after the smallish German Herstatt Bank that almost wrecked the world economy back in 1974. Anyway, fast forward through the economic lecture http://www.riskglossary.com/articles/settlement_risk.htm to today and notice that Russia's Guta Bank has suspended operations. http://ap.tbo.com/ap/breaking/MGB6ZVXZBWD.html. Because of the fragile and totally interconnected nature of the global economy any time you read about a bank failure, remember it could topple the whole world.

Oil Watch

Two factors are driving the price of oil upward today: Russian oil giant Yuko defaulted on a $1 billion note over the weekend and Iraq's oil output is now halved because of attack by resistance forces over the weekend: http://apnews.myway.com/article/20040705/D83KR8K00.html There's been speculation in some Russian media that oil could hit $60 on world markets by the end of September which would surely precipitate a global economic crash.

China meantime, may be forced into slowing its accumulation of oil and other raw materials for industry because the country has quietly started running an international trade deficit: http://english1.peopledaily.com.cn/200404/20/eng20040420_140961.shtml with a good chunk of their troubles coming from the laggard economics of central China: http://english1.peopledaily.com.cn/200407/06/eng20040706_148650.html

Asia Aid Catastrophe

That's what's coming - five million new cases last year alone worldwide - a big problem addressed in a new UN Aids report: http://news.bbc.co.uk/1/hi/health/3867401.stm Thailand, which has been aggressively pushing condoms and health screening has dramatically reduced its infection levels.

Was Mugabe Right?

Zimbabwe's Robert Mugabe may not be the world's most even-minded fellow, but his refusal to pay back foreign debt to the international banksters was, as we noted previously, not a bad call. Today we're seeing a special advisor to UN Secretary General Kofi Annan say essentially the same thing: Africa won't make progress unless the $201 billion of foreign debt is relieved (forgiven) by Western creditors. http://news.bbc.co.uk/1/hi/business/3869081.stm That, naturally won't be allowed to happen. Western-style Corporate Colonialism depends on economics as the means to continued exploitation. But hey, it's a nice gesture suggesting it.

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Update:

Saudi - OPEC Output Hike: A Lie?

There are reports today that Saudi Arabia and OPEC may not be able to increase oil output the promised 500,000 bpd that had been so loudly hyped about three weeks back, but which we alerted you would likely not be possible: http://futures.fxstreet.com/Futures/news/afx/singleNew.asp?menu=latestnews&pv_noticia=1089018854-9e32d306-13398 Our early tip-off came from the Association for the Study of Peak Oil June newsletter at http://www.peakoil.net/Newsletter/NL42/newsletter42.pdf where the Association wrote:

"The Saudi Royal Family with its long list of princes has a strong stake in the stock market, which is waking up to the devastating significance of the peak and terminal decline of oil. The market begins to appreciate that the accounts of virtually every company, quoted on the market, tacitly assume a “business as usual” supply of cheap and abundant oil-based energy on which their operations depend. Such an assumption is no longer tenable in the face of natural depletion, carrying serious implications for market valuations, which perhaps explains the furrowed brow of Mr Greenspan. Perhaps the Sauds understandably desire to restore confidence. If so, they are reading from the same hymn sheet as the EIA (the responsible - if that is exactly the word - arm of the US Department of Energy) which speaks of abundant new supplies even from the heavily depleted United States itself. The following table shows a few representative examples of the difference between ASPO and EIA models.

The former is based on actual discovery trends and physical depletion rates. The latter is achieved on the basis of the USGS mean estimates of new discovery and reserve growth, implausible as they are, combined with the assumption that technology and oil prices will deliver what is needed by moving ever downward the economic boundary between conventional and non-conventional oil. The EIA does not itself record peak date as such, but an indication is derivable from the numbers. It may well be a successful strategy to reassure the investors and prevent panic, which is indeed a worthy objective. Perhaps after all they deserve a medal."

I can understand when pipelines are being attacked how increasing oil output does become a bit, shall we say, improbable? The newsletter redefines the study of peak oil as not being a dispute between optimists and pessimists, but between "pretenders" and "measurers". We think that measurers will get a lot closer to the truth.

Anti-Terror: Pigs in Plastic

There's a curious note http://www.halfpasthuman.com/HPHTOC.htm today about the "pig content" of plastic. The what? Well, it seems that our colleagues have discovered that certain long-chain molecules from rendering pigs and hogs end up being used at mold release agents and as actual components in the manufacture of plastic: http://www.halfpasthuman.com/HPHTOC.htm. Now this is important because it would suggest that anyone using a keyboard or cell phone who's a terrorist would never get into heaven because they would have touched (and presumably absorbed some amount of) pig product. Which means that people who keep to halal, kosher, or vegan need to give up using plastic products until its content has been ascertained...

Bracing for Yukos

We've been watching with some anticipation the default over the weekend of the Russian oil giant Yukos. The company has declared it will default on a $1 billion dollar bank loan. http://news.bbc.co.uk/1/hi/business/3865943.stm. Although the gold price is up only a bit this morning, we'll be watching the Yukos affair quite closely for two reasons. First, as the old joke goes, if you owe the bank $10,000 you have a problem, but if you owe the bank $1 billion, the bank has a problem. Not to put to light a face on this, what the Yukos default raises is the possibility of triggering a Herstatt type counter-party lock up when trading gets going in earnest in all the global markets this week. For an explanation of Herstatt risk see http://www.moneyglossary.com/?w=Herstatt+risk. The other reason to watch is that with oil production under terrorist attack in the middle east, any disruption of the smooth (e.g. well-funded) flow of oil could cause oil to spike to new all time highs within a week or two.

In Iraq meantime, a strategic north-south oil pipeline has been hit: http://www.abs-cbnnews.com/NewsStory.aspx?section=WORLD&oid=54494

Markets Closed

Today is a day off for the markets, so we can safely predict where the Dow will close for a change.

On the precious metals front, here's an article that suggests that China's appetite for silver will drive that PM higher: http://www.silver-investor.com/cs_july04.htm

Thrift Doesn't Pay

Then there's a report from the AP about a California man who saved 1-million pennies and now no one wants them... Link I don't know how a bank could refuse, it is after all, coin of the realm.

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George Ure