The US transportation system developed oil dependent highway and air travel while neglecting other forms of transportation.This system worked fine as long as oil was cheap, but now that oil prices are not only rising but shortages are also foreseen, previously ignored methods of transportation are being given a second look.
The railroads declined as in the 1980's a large number of low cost, non union trucking companies entered the market.The railroads could not face the competition then.But now they seem to have got their act together. Computerization and improved efficiency have led to increased labor productivity.Improved technology and natural attrition over time has allowed them to shed excess labor, leading to improved profitability as well.
Thanks to booming global trade and rising fuel prices, it takes three times as much fuel to transport goods by truck as compared to railways, industry profit has doubled since 2003. This improved profitability is reflected in the share price of these companies. Ambitious investment programs have been chalked out to add track and terminals to handle the increased traffic. According to the Transportation Department, freight tonnage is expected to almost double by the year 2035. But passenger rail has continued to lag behind, although of late commuter lines have seen increased traffic. The reason for this is that America lacks a well developed passenger rail system that is both efficient and reliable. The European railway system holds important lessons for us.In fact their TGV system is faster than flying, over short distances. The railway industry, because of relative fuel efficiency compared to road transportation, is also projecting itself as a more eco-friendly alternative.
In an interesting study, Harvard Professor John R. Stilgoe predicts a resurgence in railroad development. Basing his arguments on the increase in real estate prices along railroad lines he has predicted that the time is not far off when motorists will switch to rail travel on a large scale because the savings in the cost of travel will become substantial.
OPEC Rejects Calls To Increase Oil Output.
Oil ministers from 12 OPEC members along with chief executives of major producers have gathered in Rome for the 11th International Energy Forum amid political calls to increase production. The three day conference starting Sunday April 20th will focus on access to energy resources, the security of supplies, issues of investment and development of renewable sources of energy. However OPEC Secretary General Abdullah al-Badri said on Saturday that he did not think OPEC ministers will meet together when they attend the IEF.
OPEC's President Chakib Khelil has said that any increase in production now will not have an impact on prices because there is a balance between supply and demand.High prices are result of an economic crisis in the US and the decline in the value of the US dollar he added.The producer group has about two million bpd of spare production capacity, mainly in Saudi Arabia.
International oil companies are trying to gain access to new energy resources.This comes against a backdrop of resource holding nations, led by Venezuela's President Hugo Chavez, trying to maximize the returns from their energy resources. Presently international oil companies account for about 24% of world oil and 35% of gas production. This is down from about 80% in the 1970's. Today they control about 6% of world oil and 20% of gas reserves, down from nearly 75% earlier. Although this situation is unlikely to change, state oil companies still need them for their pool of skilled staff as well as sophisticated technology which is required to develop more difficult fields.
OPEC's President Chakib Khelil has said that any increase in production now will not have an impact on prices because there is a balance between supply and demand.High prices are result of an economic crisis in the US and the decline in the value of the US dollar he added.The producer group has about two million bpd of spare production capacity, mainly in Saudi Arabia.
International oil companies are trying to gain access to new energy resources.This comes against a backdrop of resource holding nations, led by Venezuela's President Hugo Chavez, trying to maximize the returns from their energy resources. Presently international oil companies account for about 24% of world oil and 35% of gas production. This is down from about 80% in the 1970's. Today they control about 6% of world oil and 20% of gas reserves, down from nearly 75% earlier. Although this situation is unlikely to change, state oil companies still need them for their pool of skilled staff as well as sophisticated technology which is required to develop more difficult fields.
Oil Price May Rise To $125 Per Barrel!
Legendary oil investor T.Boone Pickens warned Thursday, that crude oil prices are still headed upward and could top $125 a barrel in the short term.US crude futures touched a record $117 a barrel Friday, before retreating slightly. Pickens expects US natural gas prices to rise from the current level of $10 per million British thermal units to $12-$14 this winter, a further rise of 20%-40%.
Pickens feels the rise is inevitable given increasing demand and stagnant world oil output. Oil prices have gone up almost five times since 2002 due to increasing demand from China and other emerging world economies. Global output has not kept pace, and is unlikely to rise above the current 85 million bpd while demand is likely to reach 87 million bpd later this year.
Experts have been forecasting a peaking of oil production for a long time. Although some experts feel that production has already peaked around the year 2005, most of them believe that the peaking will occur sometime between 2010-2020. Shell however says that production will peak only after 2025 while Exxon Mobil says that currently there are no signs of peaking.OPEC on its part goes to the extent of saying that no such prediction can be correctly made.
All such forecasts are based on differing geological assumptions, and details are rarely given. No one knows when such peaking will occur because the data needed for an accurate forecast is kept secret by oil exporting countries and companies. In any case the world will do well to remember that oil and gas reserves are a finite resource and given even the most optimistic scenario there will come a time when oil production starts declining, maybe 10 to 20 years later from what is being predicted now.
So what can be done to tackle the problem? Peaking oil production presents the world with an extremely complex problem. It also requires that steps towards a solution be initiated at least 20 years in advance to prevent any large scale disruption of energy supplies. It is estimated that this would require an investment of more than $20 trillion from now till 2030 in the energy supply infrastructure. Similar investments will also need to be made in developing alternative sources of energy. Unless such a massive effort is undertaken, the days of cheap and abundant energy may well be over for good.
Pickens feels the rise is inevitable given increasing demand and stagnant world oil output. Oil prices have gone up almost five times since 2002 due to increasing demand from China and other emerging world economies. Global output has not kept pace, and is unlikely to rise above the current 85 million bpd while demand is likely to reach 87 million bpd later this year.
Experts have been forecasting a peaking of oil production for a long time. Although some experts feel that production has already peaked around the year 2005, most of them believe that the peaking will occur sometime between 2010-2020. Shell however says that production will peak only after 2025 while Exxon Mobil says that currently there are no signs of peaking.OPEC on its part goes to the extent of saying that no such prediction can be correctly made.
All such forecasts are based on differing geological assumptions, and details are rarely given. No one knows when such peaking will occur because the data needed for an accurate forecast is kept secret by oil exporting countries and companies. In any case the world will do well to remember that oil and gas reserves are a finite resource and given even the most optimistic scenario there will come a time when oil production starts declining, maybe 10 to 20 years later from what is being predicted now.
So what can be done to tackle the problem? Peaking oil production presents the world with an extremely complex problem. It also requires that steps towards a solution be initiated at least 20 years in advance to prevent any large scale disruption of energy supplies. It is estimated that this would require an investment of more than $20 trillion from now till 2030 in the energy supply infrastructure. Similar investments will also need to be made in developing alternative sources of energy. Unless such a massive effort is undertaken, the days of cheap and abundant energy may well be over for good.
Retailers Have Plans For Your Stimulus Checks!
Tax rebate checks are central to the $168 billion stimulus package approved by Congress. These checks will start arriving in the mailboxes and bank accounts of persons having incomes below a certain limit, $87,000 for singles and $174,000 for married joint filers, from the first week of May onwards.The entire excercise will last till July, and is intended to prevent the economy from sliding into recession by putting more spending money in the pockets of the consumer.
Public opinion polls suggest that most people do not intend to spend the entire rebate. They plan to use a part of it to pay off credit card debt or to simply save it for a rainy day.Nevertheless it is expected , that on an average, while a third of the rebate may be saved, the balance will be spent.
Although most retailers are yet to announce special promotions, companies like Sears plan to offer a 10% bonus to anyone who converts his check into a Sears or Kmart gift card. Kroger Co., one of the nation's largest grocers is also offering discounts while Home Depot is all set to launch an advertising campaign shortly. Consumer durable companies like Sony Electronics are set to promote their products. Sony in particular is promoting its home theater systems and HD TV's. With such deals being offered by a couple of the nation's largest retailers, it won't be long before others follow suit.
Most analysts appreciate the difficulty that the average consumer is in. They expect the shopping to be need based, and are pretty certain that people will avoid buying luxuries. The money is most likely to be spent on groceries, paying fuel and electricity bills, and for shopping at discount stores, they say.
The timing for sending out the rebate checks could not have been better. The period includes Mother's Day, Father's Day, Fourth of July and the start of the back to school shopping season. As for the impact this spending will have on the economy, economists point out that smaller rebates handed out during the 2001 recession did lead to a spike in sales, but the recovery was shortlived and the impact had worn out by the folowing year. Will things be any different this time? Only time will tell.
Public opinion polls suggest that most people do not intend to spend the entire rebate. They plan to use a part of it to pay off credit card debt or to simply save it for a rainy day.Nevertheless it is expected , that on an average, while a third of the rebate may be saved, the balance will be spent.
Although most retailers are yet to announce special promotions, companies like Sears plan to offer a 10% bonus to anyone who converts his check into a Sears or Kmart gift card. Kroger Co., one of the nation's largest grocers is also offering discounts while Home Depot is all set to launch an advertising campaign shortly. Consumer durable companies like Sony Electronics are set to promote their products. Sony in particular is promoting its home theater systems and HD TV's. With such deals being offered by a couple of the nation's largest retailers, it won't be long before others follow suit.
Most analysts appreciate the difficulty that the average consumer is in. They expect the shopping to be need based, and are pretty certain that people will avoid buying luxuries. The money is most likely to be spent on groceries, paying fuel and electricity bills, and for shopping at discount stores, they say.
The timing for sending out the rebate checks could not have been better. The period includes Mother's Day, Father's Day, Fourth of July and the start of the back to school shopping season. As for the impact this spending will have on the economy, economists point out that smaller rebates handed out during the 2001 recession did lead to a spike in sales, but the recovery was shortlived and the impact had worn out by the folowing year. Will things be any different this time? Only time will tell.
Generation X Nervous About Retirement Finances.
Generation X is very pessimistic about achieving a comfortable retirement, a new study shows. The main reasons for this are very high expectations, low retirement savings and concern about the future of Social Security, now that company pensions are a thing of the past. The study found that 37% said they would like to have between $1 million to $5 million saved for retirement, even though they did not have the ability to save such a sum. In fact 21% said they had not even started saving and 40% said they had saved less than $25,000 for retirement. Nevertheless people of Generation X are far ahead of previous generations when it comes to the matter of saving, investing and planning for retirement. Nearly 70% of young people between 25-34 years of age have started an investment plan for their retirement years. By contrast only 34% of the people who are now reaching retirement age , say that they began saving or investing for retirement before they were 34 years old.
However as regards the future of Social Security, opinion is divided.Many economists feel that a financial crisis is imminent while others say that there is no reason to worry for quite some time to come. To get a fair idea of the strains on the Social Security system it is necessary to look at some basic facts and figures. In 1940 the the ratio of people working and supporting the system, to people receiving benefits under Social Security was 42 to1. By the year 2000 it had dropped to 3 to 1 and by the year 2044 it is projected to touch 2 to 1. It is quite clear that the Social Security system in its present form will not survive. It is imperative for the Generation Xers to plan for their own future financial security, and that of their family.
However as regards the future of Social Security, opinion is divided.Many economists feel that a financial crisis is imminent while others say that there is no reason to worry for quite some time to come. To get a fair idea of the strains on the Social Security system it is necessary to look at some basic facts and figures. In 1940 the the ratio of people working and supporting the system, to people receiving benefits under Social Security was 42 to1. By the year 2000 it had dropped to 3 to 1 and by the year 2044 it is projected to touch 2 to 1. It is quite clear that the Social Security system in its present form will not survive. It is imperative for the Generation Xers to plan for their own future financial security, and that of their family.
Oil Markets Worried As Russian Output Falls.
Oil production in Russia, the second largest oil exporter in the world, is set to decline sharply. According to reports, the country has not been able to increase its oil output for the last three months in a row. Current production stands at slightly below the maximum of 9.93 million bpd that was reached in October last year.This amounted to almost 11% of world consumption. Output has declined by between 0.5% to 1.5 % for most major Russian producers, including the state controlled Rosneft. Only Lukoil and Tatneft managed to increase their output by 0.1% and 0.6% respectively.The decline has ended a steady ten year increase in production from 6.2 million bpd in 1998.Russian oil production has stagnated since growing 9% in 2004 and a record 11% in 2003.
Russia is one of the largest oil producers in the world. In fact its production is only marginally behind that of Saudi Arabia, which is the world's largest oil producer. Russia is also the second largest oil exporting country in the world.Many European countries are dependent on Russian energy. Sweden today imports 35% of its oil from Russia, up from 5% in 2001. After the break up of the Soviet Union in 1991, Russian oil production dropped by 50%. Although it has grown significantly since then, how will it shape up in the future?
Various scenarios have been predicted for Russian oil production, based on estimates of its oil reserves , which range from 70 billion barrels to 170 billion barrels, as well as its rate of production. In the worst case scenario Russian oil production and exports have already peaked in 2006 or will do so very soon. In the best case, a constant level of exports may be maintained till 2036. It is also unlikely that Russian production will increase by more than 5-10% over current levels.
The main reasons for the decline are that extraction costs are mounting and newer fields are harder to find. Added to these problems is the high rate of taxation the industry is burdened with. There are already indications that the industry demand of a cut in taxes may be met shortly. Export, extraction and other taxes must be cut or companies won't have any incentive to develop new fields, including in the Arctic, says OAO Gazprom Neft CEO Alexander Dyukov. Lukoil's chief estimates that $1 trillion needs to be spent to develop new resources, if current output levels are to be maintained.
For now, the surprise fall in Russian output in the first part of this year has raised fears about the ability of global supply to keep up with demand over the next decade, and is surely to add further pressure on prices which are already at record highs.
Russia is one of the largest oil producers in the world. In fact its production is only marginally behind that of Saudi Arabia, which is the world's largest oil producer. Russia is also the second largest oil exporting country in the world.Many European countries are dependent on Russian energy. Sweden today imports 35% of its oil from Russia, up from 5% in 2001. After the break up of the Soviet Union in 1991, Russian oil production dropped by 50%. Although it has grown significantly since then, how will it shape up in the future?
Various scenarios have been predicted for Russian oil production, based on estimates of its oil reserves , which range from 70 billion barrels to 170 billion barrels, as well as its rate of production. In the worst case scenario Russian oil production and exports have already peaked in 2006 or will do so very soon. In the best case, a constant level of exports may be maintained till 2036. It is also unlikely that Russian production will increase by more than 5-10% over current levels.
The main reasons for the decline are that extraction costs are mounting and newer fields are harder to find. Added to these problems is the high rate of taxation the industry is burdened with. There are already indications that the industry demand of a cut in taxes may be met shortly. Export, extraction and other taxes must be cut or companies won't have any incentive to develop new fields, including in the Arctic, says OAO Gazprom Neft CEO Alexander Dyukov. Lukoil's chief estimates that $1 trillion needs to be spent to develop new resources, if current output levels are to be maintained.
For now, the surprise fall in Russian output in the first part of this year has raised fears about the ability of global supply to keep up with demand over the next decade, and is surely to add further pressure on prices which are already at record highs.
70% Americans Disapprove Of Bush's Handling Of Economy.
A Washington Post-ABC News polling reveals that public disapproval of the way President Bush is handling the economy has hit a new high.Seven in ten Americans now give negative ratings to the President's handling of the sinking US economy. Only 28% approve of his performance in this area, a double digit decline from a year ago, and even core Republicans have begun to disagree with the President on this issue. Among Republicans 59% approve of the way he is handling the economy, down from 70% at the beginning of February. Only a quarter of Independents and 6% of Democrats approve of Bush's performance on the economy.The last time a majority expressed positive views on Bush's handling of the economy was in January 2004.
Why is it that Americans have rejected the Bush Administration's approach to domestic economic matters? McClatchy Newspapers analysis of 2005 census figures found that 16 million Americans are living in severe poverty.The number of severely poor Americans grew by 26% from 2000 to 2005. Worker productivity has increased dramaticaly since the brief recession of 2001, but wages and job growth lagged behind, primarily due to indiscriminate outsourcing to countries with low cost structures. At the same time the share of national income going to corporate profits increased significantly. This helps explain why the median household income of working-age families, adjusted for inflation has fallen for five straight years! While the national real estate market is suffering, multi million dollar homes continue to trade briskly in the Hamptons and Manhattan, and CEO salaries and bonuses are making new highs every year.The response to the mortgage crisis has been confused and half hearted to say the least. Steps taken so far are aimed more at providing relief to the home builders rather than distressed homeowners. Another criticism is that the measures announced so far are designed to prevent future problems and do very little to solve the present crisis. The great American Dream has suddenly gone sour. This is why the US public rightfully and wisely rejects President Bush's handling of the economy.
Why is it that Americans have rejected the Bush Administration's approach to domestic economic matters? McClatchy Newspapers analysis of 2005 census figures found that 16 million Americans are living in severe poverty.The number of severely poor Americans grew by 26% from 2000 to 2005. Worker productivity has increased dramaticaly since the brief recession of 2001, but wages and job growth lagged behind, primarily due to indiscriminate outsourcing to countries with low cost structures. At the same time the share of national income going to corporate profits increased significantly. This helps explain why the median household income of working-age families, adjusted for inflation has fallen for five straight years! While the national real estate market is suffering, multi million dollar homes continue to trade briskly in the Hamptons and Manhattan, and CEO salaries and bonuses are making new highs every year.The response to the mortgage crisis has been confused and half hearted to say the least. Steps taken so far are aimed more at providing relief to the home builders rather than distressed homeowners. Another criticism is that the measures announced so far are designed to prevent future problems and do very little to solve the present crisis. The great American Dream has suddenly gone sour. This is why the US public rightfully and wisely rejects President Bush's handling of the economy.
BlackRock Inc. Avoids Subprime Losses:May Report Record Profits.
With the best known names in the investment banking business reporting massive write downs and losses, stemming from their exposure to subprime mortgages, it is difficult to imagine that any US fund company could actually be growing its business as well as profits in these times. BlackRock Inc. is doing just that. Built up over the last 20 years by Laurence Fink, it has grown to become the largest publicly traded US fund company. A savvy bond investor,Fink started getting out of risky debt in 2005 because he believed that the economy was in a credit bubble. As a result BlackRock did not hold subprime debt in its funds when the crisis struck. Not only that, it has also managed to collect $137.6 billion from investors in 2007, taking its total assets under management to$1.4 trillion. The company is expected to reveal a 26% increase in first quarter earnings when it reports tomorrow. Its performance has not gone unnoticed by Wall Street. Its shares have gone up by 29% in the last one year as compared to an 8.5% drop in the S&P 500 index.
A sign of confidence in its ability to handle investments is that it has been chosen by the US Federal Reserve to manage almost $30 billion of Bear Stearns investments after it was acquired by JP Morgan Chase and Co. It was also called in last year to manage Florida's Local Government Investment Pool, when it got into trouble over its subprime investments and faced a run on it by investors.
Merrill Lynch happens to own 49% of BlackRock's equity. What makes this fact particularly interesting is that Merrill Lynch itself could not avoid being hit by by the subprime crisis . It reported a loss of nearly $10 billion for the fourth quarter of last year after writing down $16.7 billion from its subprime mortgages. It has also had to raise almost $11 billion in fresh loans and equity from sovereign wealth funds from Asia and the Middle East. And while Merrill Lynch is desperately unloading its impaired debt, BlackRock is increasing investments in real estate and hedge funds.It is also advising investors to buy riskier assets such as bank loans, mortgages and high yield debt.'We are telling clients it's time to add more risk,' Fink says.
A sign of confidence in its ability to handle investments is that it has been chosen by the US Federal Reserve to manage almost $30 billion of Bear Stearns investments after it was acquired by JP Morgan Chase and Co. It was also called in last year to manage Florida's Local Government Investment Pool, when it got into trouble over its subprime investments and faced a run on it by investors.
Merrill Lynch happens to own 49% of BlackRock's equity. What makes this fact particularly interesting is that Merrill Lynch itself could not avoid being hit by by the subprime crisis . It reported a loss of nearly $10 billion for the fourth quarter of last year after writing down $16.7 billion from its subprime mortgages. It has also had to raise almost $11 billion in fresh loans and equity from sovereign wealth funds from Asia and the Middle East. And while Merrill Lynch is desperately unloading its impaired debt, BlackRock is increasing investments in real estate and hedge funds.It is also advising investors to buy riskier assets such as bank loans, mortgages and high yield debt.'We are telling clients it's time to add more risk,' Fink says.
American Companies Hold Record Cash As Recession Nears.
While the American economy teeters on the brink of recession, industrial companies in the S&P 500 hold almost $615 billion in cash and cash equivalents.This compares with $352 billion in 2001 and $95 billion at the time of the 1990-91 recession. These companies have also reduced short term debt and cut inventories to record low levels in relation to sales, all of which makes them strong enough to withstand a mild recession. Both, former Fed chief Alan Greenspan and the present chief Ben Bernanke are at pains to emphasize that except for the housing industry and the credit market the economy is in fairly good shape.
This also implies that these companies could stimulate the economy now by going on a hiring and spending spree, or they could distribute a part of the cash as extra dividend, boosting the spending power of the public. The most positive aspect of this development is that these companies are unlikely to be impacted by today's tightened credit environment.
Various reasons have been given to explain this phenomenon. Increased globalization has increased the risks of doing business, be it currency risks, political risks or even new competition. To protect themselves against such risks companies have simply opted to hold more cash. Contributing to this trend is the growth of specialized companies or 'pure plays' and the falling out of favor of diversified companies. Such companies feel more insecure than their well diversified counterparts. Companies nowadays also have less of their cash blocked up in inventories and faster payment systems have reduced levels of receivables. Although the health of these companies in no way ensures that the economy will recover quickly, they are in a very good position to survive the present crisis.
This also implies that these companies could stimulate the economy now by going on a hiring and spending spree, or they could distribute a part of the cash as extra dividend, boosting the spending power of the public. The most positive aspect of this development is that these companies are unlikely to be impacted by today's tightened credit environment.
Various reasons have been given to explain this phenomenon. Increased globalization has increased the risks of doing business, be it currency risks, political risks or even new competition. To protect themselves against such risks companies have simply opted to hold more cash. Contributing to this trend is the growth of specialized companies or 'pure plays' and the falling out of favor of diversified companies. Such companies feel more insecure than their well diversified counterparts. Companies nowadays also have less of their cash blocked up in inventories and faster payment systems have reduced levels of receivables. Although the health of these companies in no way ensures that the economy will recover quickly, they are in a very good position to survive the present crisis.
Canada:The Emerging Energy Superpower.
Production of conventional oil in Canada was predicted to peak in 2006 and decline rapidly thereafter. But experts had overlooked Canada's 'tar sands.' Located mainly in the province of Alberta, lying beneath almost 140,000 sq. kilometers of forest, are Canada's tar sands.They hold almost 1.7 trillion barrels of crude bitumen (the technical term for the fuel extracted from them), of which 174 billion barrels is estimated to be recoverable, using current technology.
After the US Department of Energy formally acknowledged these reserves in 2003, Canada's reserves jumped from 21st to 2nd highest in the world, only behind those of Saudi Arabia.Canada exports about 66% of its oil production, and since the implementation of NAFTA almost 99% of the exports are to America. Presently Canada exports almost 2 million barrels of oil a day to America, meeting over 7% of its daily consumption needs.
Major oil companies from around the world like Royal Dutch/Shell, Exxon Mobil, Chevron Texaco and Total Fina have lined up billions of dollars in investments in developing the tar sands.The seriousness of interest can be understood from the fact that the production target of 1 million barrels per day was achieved in 2004, 16 years ahead of the scheduled date laid out in 1995. More than $100 billion of new investment has been announced between 2006 and 2015. The projected production target is 3 to 4 million barrels per day by 2015 which is set to go all the way up to 5 million barrels per day by 2030, if not earlier.
Canada's 'black gold' has come to be regarded as an abundant, secure, and affordable source of crude oil, with the US Energy Policy Development Group describing it as a pillar of sustained North American energy and economic security. Canada, already the world's largest exporter of oil to America looks set to retain this position in the decades to come.
After the US Department of Energy formally acknowledged these reserves in 2003, Canada's reserves jumped from 21st to 2nd highest in the world, only behind those of Saudi Arabia.Canada exports about 66% of its oil production, and since the implementation of NAFTA almost 99% of the exports are to America. Presently Canada exports almost 2 million barrels of oil a day to America, meeting over 7% of its daily consumption needs.
Major oil companies from around the world like Royal Dutch/Shell, Exxon Mobil, Chevron Texaco and Total Fina have lined up billions of dollars in investments in developing the tar sands.The seriousness of interest can be understood from the fact that the production target of 1 million barrels per day was achieved in 2004, 16 years ahead of the scheduled date laid out in 1995. More than $100 billion of new investment has been announced between 2006 and 2015. The projected production target is 3 to 4 million barrels per day by 2015 which is set to go all the way up to 5 million barrels per day by 2030, if not earlier.
Canada's 'black gold' has come to be regarded as an abundant, secure, and affordable source of crude oil, with the US Energy Policy Development Group describing it as a pillar of sustained North American energy and economic security. Canada, already the world's largest exporter of oil to America looks set to retain this position in the decades to come.
Goldman Sachs Dumps Chrysler Debt At A Discount!
Goldman Sachs sold $500 million of Chrysler LLC loans Wednesday, to an investor group that included hedge funds. The deal was concluded at a price of 63 cents to the dollar.
This reflects the mounting pressure on both the struggling automaker as well as its bankers since a $7.4 billion deal which took the company private last year. Goldman originally held about $1.6 billion of the $7 billion loan issued to finance Cerberus Capital Management LP's purchase of an 80% stake in Chrysler Group from Daimler Chrysler AG. Goldman has already sold about $300 million of its exposure earlier.
The debt carries a coupon rate of 6.71%, but at the discounted price it offers an yield of over 20%. The debt is currently trading at 64 cents to 66 cents, which indicates a sort of revival for the debt in question. The sale price reflects the troubles facing the US auto industry, with Chrysler in particular, as well as the continuing turmoil in the financial markets.
Auto sales in the US are down 8% for the first quarter, with a drop of 12% in March alone. Chrysler has performed poorly with its sales down 14% for the first quarter compared to a year earlier. The decline is blamed on shaky consumer confidence, high fuel prices and fear that a recession is setting in.
As for the banks, getting these leveraged buyout loans , or LBO's, off their balance sheets is a high priority area, as it will release money, currently tied up in illiquid loans, which can then be used elsewhere. Major US banks including Goldman have reduced their holdings of LBO's to $129 billion from $163 billion at the beginning of the year, by selling them at a discount. Some of the same LBO firms that generated the debt in the first place are raising funds to buy it back at reduced prices! The fact that they are able to do so offers a ray of hope to banks that maybe the worst is behind them.
This reflects the mounting pressure on both the struggling automaker as well as its bankers since a $7.4 billion deal which took the company private last year. Goldman originally held about $1.6 billion of the $7 billion loan issued to finance Cerberus Capital Management LP's purchase of an 80% stake in Chrysler Group from Daimler Chrysler AG. Goldman has already sold about $300 million of its exposure earlier.
The debt carries a coupon rate of 6.71%, but at the discounted price it offers an yield of over 20%. The debt is currently trading at 64 cents to 66 cents, which indicates a sort of revival for the debt in question. The sale price reflects the troubles facing the US auto industry, with Chrysler in particular, as well as the continuing turmoil in the financial markets.
Auto sales in the US are down 8% for the first quarter, with a drop of 12% in March alone. Chrysler has performed poorly with its sales down 14% for the first quarter compared to a year earlier. The decline is blamed on shaky consumer confidence, high fuel prices and fear that a recession is setting in.
As for the banks, getting these leveraged buyout loans , or LBO's, off their balance sheets is a high priority area, as it will release money, currently tied up in illiquid loans, which can then be used elsewhere. Major US banks including Goldman have reduced their holdings of LBO's to $129 billion from $163 billion at the beginning of the year, by selling them at a discount. Some of the same LBO firms that generated the debt in the first place are raising funds to buy it back at reduced prices! The fact that they are able to do so offers a ray of hope to banks that maybe the worst is behind them.
Mining For Black Gold In Canada!
There's a major oil boom going on in Alberta,Canada. At first sight it doesn't resemble a traditional oil field that one sees in the Middle East or even closer home in Texas. The difference is that here you don't have to drill for oil, you have to 'mine' it. Here the oil is found mixed in tar like sand just below the earth's surface. You just have to remove the topsoil and scoop out the oil rich sands using large mechanical shovels. These sands are estimated to contain 1.6 trillion barrels of oil, larger than the reserves of Saudi Arabia. The recoverable oil, using current technology, is about 174 billion barrels.
Oil has not been found overnight in the region. Its existence has been known and documented for a very long time. It is only because the process of mining the sand and turning it into oil is complicated and expensive that few companies paid any attention to it in the past. Those that did have made a fortune, with oil prices climbing to $110 a barrel, and likely to remain high in the near future. Given the size of the reserves, coupled with the political and business environment in Canada, getting companies to invest in the development of this industry is not a problem, in spite of the expense and the technical complications involved.
But mining for oil comes at a high environmental cost. Large tracts of forest have been cleared for strip mining of the oil rich sand. This type of mining also causes scarring of the earth's surface. Extracting oil from the oil sands releases three times as much carbon di-oxide than traditional oil drilling.
Canada is a signatory to the Kyoto Protocol, which requires it to cut greenhouse gases by 2012. It might not be able to meet the targets because of its oil industry. Canada has announced strict rules for the oil industry to capture its carbon emissions. The companies are also constantly working on new technologies to make this possible.
Oil has not been found overnight in the region. Its existence has been known and documented for a very long time. It is only because the process of mining the sand and turning it into oil is complicated and expensive that few companies paid any attention to it in the past. Those that did have made a fortune, with oil prices climbing to $110 a barrel, and likely to remain high in the near future. Given the size of the reserves, coupled with the political and business environment in Canada, getting companies to invest in the development of this industry is not a problem, in spite of the expense and the technical complications involved.
But mining for oil comes at a high environmental cost. Large tracts of forest have been cleared for strip mining of the oil rich sand. This type of mining also causes scarring of the earth's surface. Extracting oil from the oil sands releases three times as much carbon di-oxide than traditional oil drilling.
Canada is a signatory to the Kyoto Protocol, which requires it to cut greenhouse gases by 2012. It might not be able to meet the targets because of its oil industry. Canada has announced strict rules for the oil industry to capture its carbon emissions. The companies are also constantly working on new technologies to make this possible.
Billionaire Investor Bets Big On Revival Of Mortgage Business.
Billionaire investor Wilbur Ross Jr. is known for his daring investments in industries which are going through a rough patch.He made his fortune investing in distressed companies in the steel, textile and coal industries, turning them around, and selling them for a handsome profit.
Since the third quarter of last year he has been adding to his $95 billion of subprime mortgage servicing assets. He says:'We intend to keep adding servicing......because we think the mortgage business is fundamental to America. The mortgage business is'nt going away; it's just going to have to be done in a different way going forward.' Dubbed the King of Bankruptcy by clients during his tenure at the Rothschild investment bank, Ross has entered this business when profits are declining.
Right now he is focussing on small banks. 'I believe the next phase of the cycle will be the failure of depository institutions.' He argues that during the savings and loan crisis of the 1970's almost 1500 small banks closed down, while this time, so far there has been not been even one.While the big banks in trouble, like Citi etc. will get funds from some sovereign wealth fund to bail them out, the smaller and regional banks may not be able to do so. He is planning to eventually merge his varied financial investments together to create a 'fully rounded' mortgage business.
As far as government action to help troubled home loan borrowers is concerned, he says,' I don't think you can ever legislate against making foolish loans. My guess is there will be stricter constraints against what people have come to view as predatory lending practices. In terms of solving the problem of people who simply can't pay, it's not terribly clear to me what they can do to help them. Somebody has to take the loss.' He added:'There is nothing wrong in lending to weak credit. There is something wrong in doing it at discount rates and without proper documentation and without conservative appraisals.'
Ross does'nt set a time frame for the revival of the mortgage industry. He knows it is a cycle and he'll be ready to make a fortune when it turns around.
Since the third quarter of last year he has been adding to his $95 billion of subprime mortgage servicing assets. He says:'We intend to keep adding servicing......because we think the mortgage business is fundamental to America. The mortgage business is'nt going away; it's just going to have to be done in a different way going forward.' Dubbed the King of Bankruptcy by clients during his tenure at the Rothschild investment bank, Ross has entered this business when profits are declining.
Right now he is focussing on small banks. 'I believe the next phase of the cycle will be the failure of depository institutions.' He argues that during the savings and loan crisis of the 1970's almost 1500 small banks closed down, while this time, so far there has been not been even one.While the big banks in trouble, like Citi etc. will get funds from some sovereign wealth fund to bail them out, the smaller and regional banks may not be able to do so. He is planning to eventually merge his varied financial investments together to create a 'fully rounded' mortgage business.
As far as government action to help troubled home loan borrowers is concerned, he says,' I don't think you can ever legislate against making foolish loans. My guess is there will be stricter constraints against what people have come to view as predatory lending practices. In terms of solving the problem of people who simply can't pay, it's not terribly clear to me what they can do to help them. Somebody has to take the loss.' He added:'There is nothing wrong in lending to weak credit. There is something wrong in doing it at discount rates and without proper documentation and without conservative appraisals.'
Ross does'nt set a time frame for the revival of the mortgage industry. He knows it is a cycle and he'll be ready to make a fortune when it turns around.
Citigroup May Sell Bad Loans At A Discount.
Citigroup is nearing a deal to sell up to $12 billion of its leveraged loan portfolio to a group of private equity firms. It is rumored that Apollo Management, the Blackstone Group and TPG would buy the loans at a discounted price, which would fetch Citi about 90 cents to the dollar on an average. Apollo would buy about half the portfolio, with Blackstone and TPG taking the rest. Apollo has a long history of buying distressed debt, while Blackstone and TPG have recently established funds for the purpose.If the deal goes through it will be the largest sale of leveraged loans in history.
Deals like these could be the first sign that the market for such loans is stabilizing. John Mack, Morgan Stanley CEO said Tuesday, that he believed a turnaround was in sight and his bank would consider buying such distressed loans because of their attractive price.
The sale is expected to be announced next week, just as the bank gets ready to report its first quarter earnings. It is a foregone conclusion that it will be taken as a positive development for the bank which was saddled with $43 billion worth of such loans at the end of the last quarter.As an analyst puts it,'With each markdown an sale, they are putting the pain behind them and the problems are starting to get fixed.'
Meanwhile in an interesting development, investment banking firms Goldman Sachs and Morgan Stanley said in a SEC filing Wednesday, that the value of their level three assets, which include hard to value securities like mortgages, rose last quarter. Goldman has reported an increase to $82.3 billion from $54.7 billion at the end of November last year, while Morgan Stanley said its level three assets rose from $73.7 billion in November to $78.2 billion.
Deals like these could be the first sign that the market for such loans is stabilizing. John Mack, Morgan Stanley CEO said Tuesday, that he believed a turnaround was in sight and his bank would consider buying such distressed loans because of their attractive price.
The sale is expected to be announced next week, just as the bank gets ready to report its first quarter earnings. It is a foregone conclusion that it will be taken as a positive development for the bank which was saddled with $43 billion worth of such loans at the end of the last quarter.As an analyst puts it,'With each markdown an sale, they are putting the pain behind them and the problems are starting to get fixed.'
Meanwhile in an interesting development, investment banking firms Goldman Sachs and Morgan Stanley said in a SEC filing Wednesday, that the value of their level three assets, which include hard to value securities like mortgages, rose last quarter. Goldman has reported an increase to $82.3 billion from $54.7 billion at the end of November last year, while Morgan Stanley said its level three assets rose from $73.7 billion in November to $78.2 billion.
Greenspan Says Housing Crisis May End Soon.
The housing scenario shows no signs of improving.The data for pending home sales released Tuesday , show a new low for the month of February. The National Association of Realtor's index for pending sales of previously owned homes fell 1.9% to 84.6 in February from January, a spokesman of the industry group reported.The figure is worse than the 1.1% drop predicted by analysts.
However the worst seems to be over. NAR's chief economist, Lawrence Yun, expects existing home sales to start showing a steady increase within a few months. 'We're looking for essentially stable sales in the near term. before higher mortgage loan limits translate into more sales in higher cost markets. The wider access to affordable credit should increase sales activity notably this summer as pent up demand begins to be met.' A home sale is listed as pending when the contract has been signed but the transaction hasn't closed. This process takes a month or two after signing.
The scenario outlined by Yun is not unlikely. Not only is credit becoming easier to get, prices are expected to hit a trough soon. Fears of job losses will also recede once the economy starts picking up. Once this happens people who had postponed purchasing a home, waiting for prices to fall further, will enter the market, causing a fairly sharp rebound in sales.
This view is supported by former Fed Reserve Chairman Alan Greenspan who says that the drop in US home prices will probably end well before next year as the number of houses on the market diminishes, aiding an economic rebound. 'It will not be until early 2009 that we will get close to having eliminated this home inventory. But it is very likely that home prices will stabilize well before that,' he said.
However the worst seems to be over. NAR's chief economist, Lawrence Yun, expects existing home sales to start showing a steady increase within a few months. 'We're looking for essentially stable sales in the near term. before higher mortgage loan limits translate into more sales in higher cost markets. The wider access to affordable credit should increase sales activity notably this summer as pent up demand begins to be met.' A home sale is listed as pending when the contract has been signed but the transaction hasn't closed. This process takes a month or two after signing.
The scenario outlined by Yun is not unlikely. Not only is credit becoming easier to get, prices are expected to hit a trough soon. Fears of job losses will also recede once the economy starts picking up. Once this happens people who had postponed purchasing a home, waiting for prices to fall further, will enter the market, causing a fairly sharp rebound in sales.
This view is supported by former Fed Reserve Chairman Alan Greenspan who says that the drop in US home prices will probably end well before next year as the number of houses on the market diminishes, aiding an economic rebound. 'It will not be until early 2009 that we will get close to having eliminated this home inventory. But it is very likely that home prices will stabilize well before that,' he said.
America Inc. Available At A Discount!
American companies are gradually coming to terms with the consequences of globalization. The fiscal and trade deficits have combined to erode the value of the dollar. Unable to fight cheap imports and short of working capital, thanks to tight credit, many companies are just folding up and are being bought out by foreign enterprises at discount prices. While it is true that foreign investments are aiding job creation and also helping in increasing American exports, the fact remains that today millions of Americans are working for foreign employers, and their numbers are rising by the day.The reasons for this are simple. The dollar's weakness has made American assets cheap, and because of the mortgage crisis credit has dried up forcing many American companies to sell their assets in order to stay afloat.
In the decade up to 2006 foreign companies invested more than $1.7 trillion in American companies, mainly in order to get a foothold in the American market.In 2007 alone foreign investors spent $414 billion for buying shares in American companies.Today such foreign controlled enterprises employ more than five million American workers, which is about five percent of the total labor force.Interestingly they paid an average annual salary of about $66,000, almost 30% higher than wages for similar work at American companies.Most of the foreign capital, almost two thirds, comes from Europe, although of late sovereign wealth funds from the Middle East and state owned enterprises from Russia, China and else where in Asia have also shown interest, raising fears that national security may be compromised. At the moment the British are the largest foreign investors in America, followed by Japan.
American people have had a mixed experience of global investors. Some have stayed on, increased investments and generated further employment.Many have shifted to other low cost centers at the first available opportunity, leaving behind entire communities struggling with unemployment, a problem which has been made worse by the present mortgage crisis.
What makes investment in America so attractive is its political stability, depth of the capital market, and the quality of its infrastructure. It is also the single largest market in the world, and buying up an American company is the fastest way to get into it.
What is bothering policy makers is if a recession sets in and the dollar drops further, then the pace of foreign acquisitions could increase. They are particularly wary of the activities of the sovereign wealth funds and are disturbed by the possibility of their acquiring control over the financial system or sophisticated military technology. There is a debate going on whether this is OK or bad.The only thing certain is that America will now be influenced by economic decisions taken outside her national borders.
In the decade up to 2006 foreign companies invested more than $1.7 trillion in American companies, mainly in order to get a foothold in the American market.In 2007 alone foreign investors spent $414 billion for buying shares in American companies.Today such foreign controlled enterprises employ more than five million American workers, which is about five percent of the total labor force.Interestingly they paid an average annual salary of about $66,000, almost 30% higher than wages for similar work at American companies.Most of the foreign capital, almost two thirds, comes from Europe, although of late sovereign wealth funds from the Middle East and state owned enterprises from Russia, China and else where in Asia have also shown interest, raising fears that national security may be compromised. At the moment the British are the largest foreign investors in America, followed by Japan.
American people have had a mixed experience of global investors. Some have stayed on, increased investments and generated further employment.Many have shifted to other low cost centers at the first available opportunity, leaving behind entire communities struggling with unemployment, a problem which has been made worse by the present mortgage crisis.
What makes investment in America so attractive is its political stability, depth of the capital market, and the quality of its infrastructure. It is also the single largest market in the world, and buying up an American company is the fastest way to get into it.
What is bothering policy makers is if a recession sets in and the dollar drops further, then the pace of foreign acquisitions could increase. They are particularly wary of the activities of the sovereign wealth funds and are disturbed by the possibility of their acquiring control over the financial system or sophisticated military technology. There is a debate going on whether this is OK or bad.The only thing certain is that America will now be influenced by economic decisions taken outside her national borders.
China Under Pressure To Halt Stock Market Slide.
Not long ago a Chinese official had remarked:'The subprime market is very complicated. Chinese banks are not nearly sophisticated enough to make these sort of mistakes.' But Chinese joy at US misfortunes has been shortlived. Their own mainland stock market has fallen almost 50% from its peak reached in October last year, and the government is under pressure from investors to stop the slide. After all, if Bernanke can go out of the way to do it in the US then why can't their government do the same, they want to know.
Mr. Bernanke may deny that he is acting to defend the stock market and is only trying to prevent a general financial meltdown, but the fact is that most people are convinced that this is one asset class that he has to protect at any cost. If this were to slide like the housing market the results for the US economy, at this stage, could be disastrous.
In China the problem has already caught the attention of the legislature, the National People's Congress and was discussed in its meeting in Beijing last month.The government in China wields enormous influence over the stock market.This time last year, when the stock market was booming , the government tried to cool things down by increasing the stamp duty on each share trade by 300%.When this failed they flooded the market with jumbo sized new share offerings. Suddenly the market has collapsed, just as the subprime market collapsed in the US because Greenspan tightened too far and Bernanke was slow to cut rates.The Chinese Government is reportedly at its wits end to find a way to revive the stock market.All it can do at the moment is to cut the stamp duty on share trading and little else except wait for the US economy to recover.If the US economy goes into recession as feared, it will mean downward pressure on exports from China and on economic growth.Chinese exports are already under pressure because of increased costs of production due to higher commodity prices and a rise in the value of the yuan against the US dollar.
However there is a widespread belief amongst Chinese investors that their government will do its best to revive the stock markets before the start of the Olympic Games scheduled for later this year. They feel that it would not want the games to take place against a backdrop of economic and political troubles.
Mr. Bernanke may deny that he is acting to defend the stock market and is only trying to prevent a general financial meltdown, but the fact is that most people are convinced that this is one asset class that he has to protect at any cost. If this were to slide like the housing market the results for the US economy, at this stage, could be disastrous.
In China the problem has already caught the attention of the legislature, the National People's Congress and was discussed in its meeting in Beijing last month.The government in China wields enormous influence over the stock market.This time last year, when the stock market was booming , the government tried to cool things down by increasing the stamp duty on each share trade by 300%.When this failed they flooded the market with jumbo sized new share offerings. Suddenly the market has collapsed, just as the subprime market collapsed in the US because Greenspan tightened too far and Bernanke was slow to cut rates.The Chinese Government is reportedly at its wits end to find a way to revive the stock market.All it can do at the moment is to cut the stamp duty on share trading and little else except wait for the US economy to recover.If the US economy goes into recession as feared, it will mean downward pressure on exports from China and on economic growth.Chinese exports are already under pressure because of increased costs of production due to higher commodity prices and a rise in the value of the yuan against the US dollar.
However there is a widespread belief amongst Chinese investors that their government will do its best to revive the stock markets before the start of the Olympic Games scheduled for later this year. They feel that it would not want the games to take place against a backdrop of economic and political troubles.
Microsoft Threatens Yahoo With Hostile Takeover,Lower Price!
Microsoft Corp. issued an ultimatum to Yahoo Inc. Saturday, giving it three weeks to reach a deal or face the prospects of a hostile takeover.In case of refusal Microsoft plans to take its case directly to the shareholders at the next general meeting and unseat the present board which is opposing the bid. Steve Ballmer, Microsoft CEO has also hinted that they may lower the price offered.'If we are forced take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal,' he wrote in a letter to Yahoo on Saturday.
Yahoo on its part seems to be bargaining for a higher price. It has projected a doubling of its cash flow in the next three years to $3.7 billion, and has argued that its shares are worth $40 a share, which is substantially higher than the $31 a share Microsoft is offering in cash.Yahoo is also in talks with Time Warner Inc., News Corp. and Google, but there has been no rival bid so far. Yahoo is keeping quiet as it feels protected by a 'poison pill' takeover defense which will make a hostile takeover very expensive.It also has an employee payout plan that will be triggered by a change in ownership, raising the cost of acquisition.
Microsoft is desperate to do this deal.The paradigm is shifting away from their core business to the internet. They have spent huge amounts of money in this area but haven't got it right as yet. It makes sense for them to buy out Yahoo. Why the hurry? There is speculation that Microsoft wants to get the deal done and past the federal anti-trust regulators while President Bush is still in office. Such a deal usually takes six to eight months to go through and there is just enough time to squeeze through before Bush's term ends.
Most investors feel that Microsoft should pay more for Yahoo. If it is handled right, Microsoft will pay more, they say. They add that $34 to $35 per share is a good range. A higher price in a deteriorating economic scenario will boost Wall Street's fortunes as well!
Yahoo on its part seems to be bargaining for a higher price. It has projected a doubling of its cash flow in the next three years to $3.7 billion, and has argued that its shares are worth $40 a share, which is substantially higher than the $31 a share Microsoft is offering in cash.Yahoo is also in talks with Time Warner Inc., News Corp. and Google, but there has been no rival bid so far. Yahoo is keeping quiet as it feels protected by a 'poison pill' takeover defense which will make a hostile takeover very expensive.It also has an employee payout plan that will be triggered by a change in ownership, raising the cost of acquisition.
Microsoft is desperate to do this deal.The paradigm is shifting away from their core business to the internet. They have spent huge amounts of money in this area but haven't got it right as yet. It makes sense for them to buy out Yahoo. Why the hurry? There is speculation that Microsoft wants to get the deal done and past the federal anti-trust regulators while President Bush is still in office. Such a deal usually takes six to eight months to go through and there is just enough time to squeeze through before Bush's term ends.
Most investors feel that Microsoft should pay more for Yahoo. If it is handled right, Microsoft will pay more, they say. They add that $34 to $35 per share is a good range. A higher price in a deteriorating economic scenario will boost Wall Street's fortunes as well!
US May Lose Canadian Oil If It Dumps NAFTA.
The Democratic candidates, Clinton and Obama have been shouting that if they become President, they will pull out of NAFTA unless changes are made to the trade deal. Clinton has been the more critical of the two, calling the trade agreement flawed, and saying that her plan includes telling Canada and Mexico that the US will opt out unless the core labor and environmental standards are renegotiated and the enforcement mechanism enhanced.
On Canada's part its Trade Minister David Emerson has warned that America's privileged access to Canada's huge oil and gas reserves could be disrupted if Washington cancels the NAFTA accord.'There's no doubt if NAFTA was to be reopened we would want to have our list of priorities,' he said.
Just how serious would this disruption be, if it were to happen? Canada presently exports 63% of the oil that it produces and 56% of its natural gas to the US. And because of NAFTA's proportionality clause,Canada is legally obliged to continue exporting the same proportion of its oil and gas forever even if it faces a shortage at home! Canada is the largest exporter of oil to the US, exporting about 2 million barrels a day,well ahead of second placed Saudi Arabia which exports around 1.5 million barrels a day.
Any disruption in this assured source of supply would have serious implications for US energy security.The argument that what would Canada do with all the oil that it produces if it doesn't export to the US is not well founded. China has been eying Canadian oil for a long time. Alberta's oil sands have 174 billion barrels of oil that can be extracted using current technology.This is next only to Saudi Arabia's reserves of 262 billion barrels.The total amount of oil in those oil sands is estimated to be 1.6 trillion barrels!
China is already Canada's number two market for its oil exports and some Chinese companies have already made small investments in Canadian oil companies.China has indicated that it is interested in making substantial investments in Canada's oil sands.
This debate about NAFTA has already upset a large number of Canadians who feel that the US has lost jobs because of outsourcing to China and not because of NAFTA. What the US finally does remains to be seen. Most likely this talk is only political posturing and will go away once the US Presidential elections are over.
On Canada's part its Trade Minister David Emerson has warned that America's privileged access to Canada's huge oil and gas reserves could be disrupted if Washington cancels the NAFTA accord.'There's no doubt if NAFTA was to be reopened we would want to have our list of priorities,' he said.
Just how serious would this disruption be, if it were to happen? Canada presently exports 63% of the oil that it produces and 56% of its natural gas to the US. And because of NAFTA's proportionality clause,Canada is legally obliged to continue exporting the same proportion of its oil and gas forever even if it faces a shortage at home! Canada is the largest exporter of oil to the US, exporting about 2 million barrels a day,well ahead of second placed Saudi Arabia which exports around 1.5 million barrels a day.
Any disruption in this assured source of supply would have serious implications for US energy security.The argument that what would Canada do with all the oil that it produces if it doesn't export to the US is not well founded. China has been eying Canadian oil for a long time. Alberta's oil sands have 174 billion barrels of oil that can be extracted using current technology.This is next only to Saudi Arabia's reserves of 262 billion barrels.The total amount of oil in those oil sands is estimated to be 1.6 trillion barrels!
China is already Canada's number two market for its oil exports and some Chinese companies have already made small investments in Canadian oil companies.China has indicated that it is interested in making substantial investments in Canada's oil sands.
This debate about NAFTA has already upset a large number of Canadians who feel that the US has lost jobs because of outsourcing to China and not because of NAFTA. What the US finally does remains to be seen. Most likely this talk is only political posturing and will go away once the US Presidential elections are over.
Merrill Lynch Doesn't Need More Cash:Says CEO.
Merrill Lynch CEO John Thain has said that although the credit crisis is far from over his company doesn't need any more outside capital to strengthen its balance sheet. 'We will not have to go back to the market to raise capital,' he said. Merrill has raised about $6.6 billion from investors, mainly sovereign wealth funds based in the Middle East and Asia, this year alone. He also denied rumors that Merrill may get sold or merge with a bank. He emphasized that Merrill had a strong balance sheet with about $80 billion in cash at the end of December 2007. He indicated that the company was carrying a similar amount of cash at the end of the first quarter this year.
Optimism is mounting on Wall Street that another Bear Stearns like situation will be avoided as write downs for bad assets seems to have peaked.
Merrill Lynch is due to announce its first quarter earnings later this month. Mr. Thain declined to comment on the earnings but he said,'If you look at the prices of credit related assets, mortgages, leveraged loans, commercial real estate, all have deteriorated over the last three months. We have all of them.'
He wasn't sure the fiscal and monetary stimuli provided by the Fed and Congress would help, given the fact that the problem was not so much a liquidity issue but a credit issue tied to a lack of confidence in assets and counter parties. The inability of hedge funds to build up leveraged positions in the present situation will prolong the difficult economic environment, he felt.
Optimism is mounting on Wall Street that another Bear Stearns like situation will be avoided as write downs for bad assets seems to have peaked.
Merrill Lynch is due to announce its first quarter earnings later this month. Mr. Thain declined to comment on the earnings but he said,'If you look at the prices of credit related assets, mortgages, leveraged loans, commercial real estate, all have deteriorated over the last three months. We have all of them.'
He wasn't sure the fiscal and monetary stimuli provided by the Fed and Congress would help, given the fact that the problem was not so much a liquidity issue but a credit issue tied to a lack of confidence in assets and counter parties. The inability of hedge funds to build up leveraged positions in the present situation will prolong the difficult economic environment, he felt.
All Fool's Day Rally On Wall Street !
Stocks moved sharply higher today, the first day of the second quarter.The rally was led by financial stocks as news broke that Lehman Brothers and UBS AG of Switzerland are issuing fresh stock to strengthen their balance sheets, the latter after reporting a first quarter write down of $19 billion to cover losses in its auction-rate securities business. The belief is gradually gaining ground that the markets have reached an intermediate trough, and if another Bear Stearns type collapse is avoided then they may even move higher.
Parallels were being drawn between the crisis that hit Japanese banks in the late 1980's and the current crisis facing American financial institutions. What most people overlook is that while Japanese banks did their best to conceal their losses, American and European institutions have been quite transparent about their difficulties.This has permitted timely and focussed intervention by the Fed to help solve the crisis. Ben Bernanke had faced intense criticism last year for his reluctance to lower interest rates quickly enough to help home owners in difficulty. However his handling of the wider crisis this year, which threatened a global financial meltdown, has been praised by almost everybody.
Stocks were also helped by the reading on the Institute for Supply Management's manufacturing index which increased to 48.6 from 48.3 in February. Economists had predicted it would fall to 47.5. This shows that although the economy is still contracting, it is not by a huge amount. The Commerce Department reported in Washington that construction spending in February also fell by less than expected at 0.3% against a predicted drop of 1%. There are also signs that Treasury Secretary Paulson is going to lead a concerted global effort to boost liquidity. Hopes of another rate cut at the next Fed meeting have declined, which has boosted the dollar and prompted a sell off in commodities, another positive for Wall Street. The present rally looks set to continue!
Parallels were being drawn between the crisis that hit Japanese banks in the late 1980's and the current crisis facing American financial institutions. What most people overlook is that while Japanese banks did their best to conceal their losses, American and European institutions have been quite transparent about their difficulties.This has permitted timely and focussed intervention by the Fed to help solve the crisis. Ben Bernanke had faced intense criticism last year for his reluctance to lower interest rates quickly enough to help home owners in difficulty. However his handling of the wider crisis this year, which threatened a global financial meltdown, has been praised by almost everybody.
Stocks were also helped by the reading on the Institute for Supply Management's manufacturing index which increased to 48.6 from 48.3 in February. Economists had predicted it would fall to 47.5. This shows that although the economy is still contracting, it is not by a huge amount. The Commerce Department reported in Washington that construction spending in February also fell by less than expected at 0.3% against a predicted drop of 1%. There are also signs that Treasury Secretary Paulson is going to lead a concerted global effort to boost liquidity. Hopes of another rate cut at the next Fed meeting have declined, which has boosted the dollar and prompted a sell off in commodities, another positive for Wall Street. The present rally looks set to continue!
Saudi Billionaire To Build World's Tallest Skyscraper.
Saudi billionaire, Prince al-Walid bin Talal has revealed plans for the $10 billion Mile High Tower, which will be the tallest building in the world when completed.The building will be constructed in a new 'mini city' near the Red Sea port of Jeddah, which is Saudi's financial capital. The prince is a member of the Saudi royal family, and is the 11th richest man in the world , with a personal fortune estimated at about $22 billion.
The mega skyscraper will be taller than other planned skyscrapers or those already under construction. This includes the Burj Dubai, the tallest man made structure till date, scheduled for completion in 2009. It will dwarf the tallest building in the US, the proposed Freedom Tower in New York at the World Trade Center site, which will be about 2,296 feet tall.
Contracts for the 1600 meter tall tower, are expected to be awarded before July this year by Kingdom Holding, owned by Prince al-Walid. The project is believed to be realized by the UK's Hyder Consulting (developer) and Arup (engineering), withSA's Omrania as project architect and US based Bechtel as construction manager.
Construction of the building presents unique technical challenges because of its height. The tower must be capable of withstanding extreme temperatures as well as strong desert winds. The building will be fitted with a giant computer operated damper stretching down several floors to counter the sway caused by the wind. The building will also be stabilized by two mini towers built at it's base and connected to the main tower by sky-bridges.
When completed the Mile High Tower will be twice the height of the Burj Dubai and almost seven times the height of the Canary Wharf Tower in London. Visitors will be able to get a view of Africa from the top of the building. The plan gives the Middle East a clear lead over Asian countries and the US, who have competed in the past to construct the world's tallest buildings.
The mega skyscraper will be taller than other planned skyscrapers or those already under construction. This includes the Burj Dubai, the tallest man made structure till date, scheduled for completion in 2009. It will dwarf the tallest building in the US, the proposed Freedom Tower in New York at the World Trade Center site, which will be about 2,296 feet tall.
Contracts for the 1600 meter tall tower, are expected to be awarded before July this year by Kingdom Holding, owned by Prince al-Walid. The project is believed to be realized by the UK's Hyder Consulting (developer) and Arup (engineering), withSA's Omrania as project architect and US based Bechtel as construction manager.
Construction of the building presents unique technical challenges because of its height. The tower must be capable of withstanding extreme temperatures as well as strong desert winds. The building will be fitted with a giant computer operated damper stretching down several floors to counter the sway caused by the wind. The building will also be stabilized by two mini towers built at it's base and connected to the main tower by sky-bridges.
When completed the Mile High Tower will be twice the height of the Burj Dubai and almost seven times the height of the Canary Wharf Tower in London. Visitors will be able to get a view of Africa from the top of the building. The plan gives the Middle East a clear lead over Asian countries and the US, who have competed in the past to construct the world's tallest buildings.
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